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Jobarama: Obama's "Investment"

Tags Booms and BustsThe FedProduction Theory

11/20/2008Chris Brown

With all of the talk of how charismatic Barack Obama is, or of his oratory ability—and especially given his recent presidential victory—it is time to engage in a deeper economic critique of Obama's actual policies. Once we see the true effects of his policies and the incentives they create, we will see that his leadership skills and abilities make him more of a threat to freedom than if he were less articulate.

In this article we will start with a small part of Obama's program to "create" jobs, with the aim of tackling poverty. We find the following claim on Obama's website:

Barack Obama will expand access to jobs. Obama and Biden will invest $1 billion over five years in transitional jobs and career pathway programs that implement proven methods of helping low-income Americans succeed in the workforce.

First, there is the use of the word "investment"—in true government Orwellian fashion—as a euphemism for government spending. Investment signifies an accumulation of savings through lower present consumption, which will then be used to achieve (potential) profitable returns in the future. Obama does not have $1 billion of his own money (even including campaign contributions) that he will be investing. Isn't it bizarre how the more money politicians say they are "investing," the more excited people get? Do people not realize that it is their money politicians are referring to? It is as if a thief approached you and, instead of demanding half of your money, said, "Since I really do care about you and your future, give me 90% of your money." Wouldn't it be better if Obama could say, "We are going to invest $10 and creates thousands of new jobs"? Talk about a return on investment.

Second, there is no non-arbitrary way to determine whether a government program makes a profit or a loss. Indeed, government typically does not "talk" in those terms. If a private company is making losses for whatever reason, it must change and innovate in order to make a profit or it will continually make losses and go out of business. But with the government, if a program is labeled as failing, it receives more money—just think of FEMA, the current bank crisis, or, no doubt, Obama's future jobs program.

In contrast, when private companies fail it is not a proof of market failure; on the contrary, it is proof the market is working. It is eliminating failure; in sharp contrast, the government promotes failure: if you want more of something, subsidize it. Government's solution to government failure is consistent with Mises's theory of intervention: government meddling seems to require more government involvement (and more money). And there is nothing as permanent as a temporary government program.

Continuing, we read the following from Obama's program:

Obama and Biden will create a transitional jobs program to place people with extreme difficulties getting and keeping good jobs into temporary, subsidized wage-paying jobs to gain necessary job skills before applying for unsubsidized jobs in the private and public sectors.

Those who are being coerced into subsidizing these jobs should expect more and continued taxation. Obama claims these jobs will be provided by both the private and public sectors. We can assume that politicians want to ensure and, more likely, reassure their voters, that this program is working. After all, it's a $1 billion investment, right? Well, if private companies aren't hiring these workers, obviously, what will probably happen will be more government (public) jobs. As for incentives, if someone is guaranteed a "subsidized wage-paying job," albeit a government one, then they will be less likely to search for an unsubsidized, less-secure job. The obvious effect of this would be fewer private-sector, productive, wealth-creating jobs, and more public-sector, unproductive, waste-creating jobs.

Government investment through taxation means taxpayers must lower their current levels of consumption and investment. As Murray Rothbard points out,

When capital investment takes place in the free market, it deprives no one of consumption goods; for those save who voluntarily choose investment over some present consumption. No one is required to sacrifice present consumption who does not wish to do so. As a result, the standard of living of everyone rises continually and smoothly as investment increases. But a Soviet or other system of compulsory investment lowers the standard of living of almost everyone, certainly in the near future.

Standards of living will decrease as there will be a shift from private production and exchange to political demagoguery, as well as taxes levied on the more efficient to subsidize the less efficient, but privileged, group. As with most government programs, this creates a caste conflict where one man or group benefits at the expense of another man or group. Thus we see government as the true originator of conflict in a society; whereas the market creates mutual harmony, the government engages in exploitation to achieve its ends.

While Austrian economists do not necessarily promote economic growth, it is recognized that true growth can only come through an increase in savings and investment by individuals in the free market, determined by how much they want to consume in the future compared to the present. On the other hand, government "investment" leads to either malinvestment or does not turn out to be an investment at all. An increase in government spending leads to an increase in (government) consumption and a decrease in (private) saving and investment. Thus we see Obama's jobs program will distort the market by shifting workers and resources from the private sector to the public sector, toward government ends rather than consumers'.

Jobs cannot be created by government fiat. While it is true that neither governments nor entrepreneurs have any way of perfectly forecasting the innovations that will take place in the future, there is, however, one enormous and fundamental difference: entrepreneurs are putting themselves at risk—not taxpayers. An entrepreneur can only originate funds from consumers and investors, i.e., individuals with an interest in the entrepreneur's success who anticipate a profit. Government, however, can extract funds by taxation and obtain them seemingly at whim. Therefore, the profit-and-loss test functions as a market mechanism to properly allocate funds. Without the requirement of obtaining goods through voluntary exchange, government can neither calculate nor allocate funds rationally.

Without a free price system and profit-and-loss criteria, says Rothbard,

[T]he government can only blunder along, blindly "investing" without being able to invest properly in the right fields, the right products, or the right places. A beautiful subway will be built, but no wheels will be available for the trains; a giant dam, but no copper for transmission lines, etc. These sudden surpluses and shortages, so characteristic of government planning, are the result of massive malinvestment by the government.

Obama's jobs program will lower the standard of living of nearly everyone in the near future. The solution to any of Obama's policies would be to eliminate all current and future government "investments."



Contact Chris Brown

Chris Brown is a lecturer at the Australian Graduate School of Entrepreneurship at Swinburne University. He also centrally plans the Austro-libertarian blog.

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