01/16/10 Baltimore, Maryland – Obama says the feds ‘saved’ 2 million jobs. But the cost of each job saved was as much as $65 million, according to our not-very-precise accounting.
Was it worth it?
Yesterday, we went on at some length as to why government jobs weren’t the same as private sector jobs. Since they’re never put to the test of the market, you never know whether they are worth having, let alone saving. Do they add to the sum of human wealth and happiness…or do they subtract from it? No one knows for sure.
But here’s the strange and remarkable thing; modern economists actually would prefer jobs that are NOT worth doing.
In the twisted mind of a mainstream economist the problem in a depression is that people don’t spend money. Since they don’t spend, demand goes down. The secret to avoiding a depression, they believe, is to replace private demand with government demand.
Easy, peasy…right?
The government just spends more money. And since it doesn’t have any more money to spend (practically every government on earth was already running a deficit), it borrows the necessary funds. Thus does demand go up. And thus do the feds create the next bubble – in public debt.
But what if government-funded stimulus projects actually produced goods and services that people wanted? Ah…that would be a problem. Because in a depression, there is too much supply and not enough demand. Prices fall, encouraging people to delay spending…further depressing demand…and causing an even worse depression. So, the last thing the feds want is more supply. They want more demand but LESS supply. That means that the ideal government project is one that doesn’t produce anything worth having. Such as military spending. Or digging holes and filling them up again. Or, departments and agencies that employ people who don’t do anything.
It sounds to us as though practically any government program would fill the bill!
Regards,
Bill Bonner,
for The Daily Reckoning
Bill Bonner
Since founding Agora Inc. in 1979, Bill Bonner has found success and garnered camaraderie in numerous communities and industries. A man of many talents, his entrepreneurial savvy, unique writings, philanthropic undertakings, and preservationist activities have all been recognized and awarded by some of America's most respected authorities. Along with Addison Wiggin, his friend and colleague, Bill has written two New York Times best-selling books, Financial Reckoning Day and Empire of Debt. Both works have been critically acclaimed internationally. With political journalist Lila Rajiva, he wrote his third New York Times best-selling book, Mobs, Messiahs and Markets, which offers concrete advice on how to avoid the public spectacle of modern finance. Since 1999, Bill has been a daily contributor and the driving force behind The Daily Reckoning. Dice Have No Memory: Big Bets & Bad Economics from Paris to the Pampas, the newest book from Bill Bonner, is the definitive compendium of Bill’s daily reckonings from more than a decade: 1999-2010.
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OK so we’ve saved or created 2 million do nothing jobs to go along with all the other government created do nothing jobs. We’ve also dug a deficit hole deep enough to swallow the entire country. Demand is still there but the ability to pay is not, except for the do nothing job people. Supply is there but it comes from abroad. The do something jobs that are still here are quickly becoming abroad jobs.
I don’t know about you but it all sounds like a train wreck to me.
Yep, the old runaway train trick. Keep things going until we go over the cliff and then run like hell taking everything you can with you.
Many years ago we were talking about lack of engineers. But, not now, universities and colleges around the world churned out millions of them. It is now the problem of getting employed. The production of goods and services behave similarly. If you know how to make a product or have a new invention, soon others will have the exact product; if not a better one. You can’t deny education and development for anyone nor stop others from production. Can capitalism regulate such economic phenomemon in the coming days ?
This whole topic is very depressing regardless of the indentations in the economy.
Bill found out something new and is happy.
When it comes to worthless government jobs I am not so sure. The real worthlessness (if you are lucky) takes place where private companies take advantage of government or public spending in general. You wouldn’t believe what is going on in this part of the “economy”. There is no place, not even in government itself, where so much fraud, corruption, stupidity, lie etc. is taking place. And for faulty, useless or even damaging work results! Of course, nobody calls it what it is. Because you have winners on both sides of the deal. “Only” the taxpayer looses big time.
Oh, yep, and it is neither a train wreck nor the runaway train trick or the Grapes of Wrath. Why not call it the New Reality.
Finally you are beginning to see that supply side economics, taxing those who spend and untaxing those who save, leads to more government. When private sector spending declines, businesses lose sales revenue; they start going out of business; then the government has to spend more and more to prop up the economy. I can’t say this started with Reagan, but he did accelerate it. Soon, it appears, you will come around to the idea that we will have to retun to the pre Reagan policies before our economy will turn around. Obama is correct; we will have to spread (deconcentrate) the wealth in order to correct our economic ills. I wish he would stop listening to the economist who tell him “savings drives the economy.” Or “savings is the sine qua non of investment.” Investment is driven by the sales of the output of that investment — read spending — not savings. Keynes knew this well; he was a entrepreneur and investor of great repute. I know of no austrian economist who ever did anything but teach school or work for the government.
Bill makes it sound like an ideal world!
Where does it break down? Perhaps where we take the resources consumed into account. The model that Bill presents favors unlimited expansion of consumption. Not necessarily of valuable goods/services, but natural resources around us. A complete wastage of finite resources! The “ideal” government program – military – being pretty much the poster-child.
I don’t understand the argument that if government produces things that people want, it causes more supply, thus lower prices, worsening the recession.
Lets start with an example. If the government builds an extra road, and hires 100 people that used to build houses (which noone is currently buying) to now build the road. How does that lower prices of anything?
Maybe if you said that if government produced goods that people want AND that the private sector also provides, it could cause the drop in price – lower demand – worse economy chain reaction that you describe. But as long as the government produces public goods (i.e. roads, bridges etc.) I don’t see the effect you describe.