Organized Crime

Millions of Americans remained unemployed several years into the “Great Recession” because our politicians perpetuate a dangerous myth—the myth of government job creation. Government spending cannot create jobs on net; it can only destroy private sector jobs in order to create government jobs. The taxes, government debt, or inflationary money creation by the Fed that finances government job creation depresses the private sector and destroys job creation there in order to finance government-sector jobs. It is robbing Peter to pay Paul.

Politicians perpetuate the myth of government job creation because the government jobs that are created are seen by the average voter, whereas the private-sector jobs that are destroyed (or never created) are not. Moreover, it is not unusual for government overhead costs to be so high that more than $100,000 is extracted from the private sector to finance a single $35,000 a year government job. Thus, several private sector jobs are destroyed to create one political patronage job.

It is illegal for politicians to pay people in cash in return for their votes, but it is not illegal for politicians to arrange for voters to receive government paychecks in return for their support. Each government job is worth several votes in the eyes of a politician, as the employee’s spouse, adult children, and relatives are sure to vote for the job-dispensing pol. When a politician brags that a program has “created 200,000 (government) jobs,” what really occupies his thinking is that the program has probably generated a half million votes at election time.

Government spending has never reduced unemployment overall; quite the contrary—it always increases unemployment because it crowds out so much private sector job creation. In 1929 President Herbert Hoover devoted 13 percent of the federal budget to “emergency” public works spending. This is twice as much as the Obama administration’s “stimulus” spending as a percentage of the budget. It only made things worse.

Despite all the New Deal spending during the 1930s, including the employment of some ten million people in government jobs, official unemployment was 15.7 percent in 1940, on the eve of World War II. That’s more than five times the 2.9 percent unemployment rate in 1929 at the start of the Great Depression. Nor did the explosion of government spending during World War II cause of the end of unemployment. There were about 5.5 million unemployed people in America in 1940. By 1943 over 8 million had been drafted into the military, with two million more conscripted in the next two years. It was the draft, not the “stimulus” of war, that ended unemployment during the war years.

Massive reductions in government spending have always created economic prosperity and genuine job creation. When World War II ended the federal budget was slashed from $98.4 billion in 1945 to $33 billion by 1948 while some ten million men and women were decommissioned from the military. This is what created the post-war economic boom. Because of such dramatic cuts in government spending, the private components of GDP—private consumption and investment spending—rose by 30 percent in 1946, the largest one-year increase in the private components of GDP in American history. The elimination of wartime price controls and cuts in business taxes also spurred economic growth.

Government “stimulus” spending has never been anything but one giant vote-buying scheme. A 1938 report by the U.S. Senate Committee on Campaign Expenditures discovered that in many states the recipients of Works Progress Administration jobs were required to register as Democrats, pledge to vote for Democrats, and even donate 2 percent of their salaries to the Roosevelt reelection campaign as a condition of employment. Republicans have undoubtedly played the same game over the years.

In their book, The Political Economy of the New Deal, economists William Shughart and Jim Couch conducted a statistical study of New Deal spending patterns and concluded that the main determinant of where the spending was allocated was the potential for the spending to get FDR reelected. Thus, the poorest part of the country, the solidly Democratic South, received relatively little assistance compared to areas where there were “big-city machines, organized labor, and other constituencies” that were likely to support FDR’s reelection. The formula for economic recovery is to do exactly the opposite of what most administrations have done since the 1930s and follow Harry Truman’s example instead by dramatically cutting back on the size and scope of government.