Doctor Zero examines the myth of government job-creation

If you don't understand what's wrong with the repeated claims of the Obama administration that the stimulus has "saved or created" jobs -- pick a number, any number -- you really ought to read Doctor Zero's post at the Hot Air Green Room.

What is sad is that this should have to be explained at all. Frederic Bastiat understood this fallacy -- the parable of the broken window -- more than 150 years ago. The coercive power of government, when wielded in an effort to control the economy, is always ultimately destructive.

Keynesian talk of "multipliers" of federal spending are nonsense on stilts. No, change that -- nonsense chugging three Red Bulls and bouncing around frenetically on a pogo stick. It is a confusion of two separate phenomena:

• Case A: You are studying the economy of Tupelo, Mississippi. Sen. Trent Lott inserts a measure into a federal transportation bill to do $2,000,000 of improvements to a local roadway -- widen it, repave it, upgrade the traffic signals, etc. The total value of that project to the community is actually greater than $2 million. Better roads increase commerce and help attract business. The employers of the paving company spend their earnings in local stores. Et cetera. Thus, it might be said that there is a "multiplier effect" in terms of local economic impact of this road project.
• Case B: The Democrats who run Congress hate Trent Lott, so they reject his highway-improvement project for Tupelo. Thus, if the locals are really serious about the project, they'll have to come up with the money themselves. So the Tupelo City Council meets and passes a tax hike to raise the $2 million project. Does the same "multiplier effect" apply? No, because the "multiplier" mainly reflects secondary impacts of the addition of federal money to the local economy. If Tupelo builds the project by taxing its own citizenry, whatever gains are made by the improvement of the highway must be balanced against the $2 million taken out of local pockets by the tax hike.

Therefore, whatever the federal government does in terms of job creation at a national level through additional spending cannot really have a "multiplier effect" because one way or another, this spending is funded by taking money away from the taxpayer. For the federal project to truly "create" jobs, it must be argued that the spending by the government has greater value than if the money were left with the citizenry to spend, save or invest themselves.

You may believe in the magical "multiplier effect" of federal spending, but you cannot prove it, because the evidence points the other way: Private investment ultimately creates more jobs than does government spending. And the fact that the stimulus is funded by deficit spending only compounds the problem, because now you must subtract from the value of each dollar of spending some small amount for interest on the debt created by spending borrowed money. The more money government borrows, the less money is available for private loans or investments.

The fact that the Democrats in Washington belief that spending $787 billion of borrowed money has some kind of magical job-creation impact only goes how utterly out of touch they are with economic reality. The Keynesian "pump-priming" theory, by which they attempt to justify this, simply does not pass the smell test. Eventually, that borrowed money must be paid back, but in the meantime, interest must be paid, and all the while, government borrowing has the effect of siphoning capital away from the private sector.

As I said, it shouldn't be necessary to explain this. My explanation may not be easy to understand, but if so, that's just a reflection of my shortcomings as a journalist. There is a fundamental economic reality that is really quite simple, once you get over the attitude that there is something magical about the economic power of the federal government.