Governments cannot create jobs --- Part 1

Several years into the worst recession in generations, the fictitious country of Madador was deciding what they could do to help end the recession and get their people back to work. It was suggested they implement a massive public works program to build a bridge over some marshland, connecting two of their larger cities. This would save a considerable amount of time over the roundabout road that is currently used.

A proposal was made and plans were drawn up for the bridge. It would provide 1000 jobs for 2 years. The total cost to the taxpayers would be $50 million. It would be paid for a 1% temporary increase in the tax rate for the next 2 years. The job seekers were elated at the prospect of going back to work and being productive members of society.

Everything seemed to be working as planned. The bridge was being built. It was a magnificent sight to behold. Hundreds of workers every day toiled away at the project and the results were impressive indeed. What once was nothing but a barren swamp, now had upon it the beginnings of a modern six lane bridge connecting two populous cities.

About halfway into the bridge project people began noticing that although two thousand people were put to work building the bridge, the overall rate of unemployment was unchanged. In fact in the areas most distant from the project, layoffs had actually increased.

How could this be people wondered? After all everyone could see the workers on the bridge.

Discussion:
The reason no net employment occurred was because the money that was used for the bridge had to be taken from the public. The government cannot create wealth. It can only take from one group, in this case a 1% tax from the entire country, to give to a specific group, in this case the bridge workers and materials suppliers. The $50 million dollars siphoned off in new taxes is no longer available to be used for whatever goods the consumer would have used them for in the absence of the tax.

This is a variation on Bastiat’s previously discussed broken window fallacy.

Below are two excerpts from Henry Hazlitt’s Economics in One Lesson. Free ebook available here:
“if we have trained ourselves to look beyond immediate to secondary consequences, and beyond those who are directly benefited by a government project to others who are indirectly affected, a different picture presents itself. It is true that a particular group of bridge workers may receive more employment than otherwise. But the bridge has to be paid for out of taxes. For every dollar that is spent on the bridge a dollar will be taken away from taxpayers.”

“Therefore for every public job created by the bridge project a private job has been destroyed somewhere else. We can see the men employed on the bridge. We can watch them at work. The employment argument of the government spenders becomes vivid, and probably for most people convincing. But there are other things that we do not see, because, alas, they have never been permitted to come into existence. They are the jobs destroyed by the $50 million* taken from the taxpayers. All that has happened, at best, is that there has been a diversion of jobs because of the project. More bridge builders; fewer automobile workers, radio technicians, clothing workers, farmers.” *($1 million in original text)

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