Can the government create jobs

Unfortunately, no matter how the issue is analyzed, there is virtually no support for the notion that government spending creates jobs. Indeed, the more relevant consideration is the degree to which bigger government destroys jobs. Both the theoretical and empirical evidence argues against the notion that big government boosts job creation. Theory and evidence lead to three unavoidable conclusions:

The theory of government-instigated job creation overlooks the loss of resources available to the productive sector of the economy. Frederic Bastiat, the great French economist (yes, there were admirable French economists, albeit all of them lived in the 1800s), is well known for many reasons, including his explanation of the "seen" and the "unseen." If the government decides to build a "Bridge to Nowhere," it is very easy to see the workers who are employed on that project. This is the "seen." But what is less obvious is that the resources to build that bridge are taken from the private sector and thus are no longer available for other uses. This is the "unseen."

So-called stimulus packages have little bang for the buck. Even if one assumes that money floats down from Heaven and we don't have to worry about the "unseen," government is never an efficient way to achieve an objective. Based on the amount of money that is being discussed and the claims of how many jobs will be created, Harvard Professor Greg Mankiw filled in the blanks and calculated that each new job (assuming they actually materialize) will cost $280,000. But since money doesn't come from Heaven, this calculation is only a partial measure of cost. In reality, the cost of each government job should reflect how that $280,000 would have been spent more productively in the private sector.

Government workers are grossly overpaid. There are several reasons why it costs so much for the government to "create" a job, including the inherent inefficiency of the public sector. But the dominant factor is probably the excessive compensation packages for bureaucrats. According to Bureau of Economic Analysis data, the average employee for the federal government now gets paid nearly twice as much as workers in the productive sector of the economy.
Notwithstanding these points, it is quite likely that politicians in Washington will pass a boondoggle-filled "stimulus" bill. While there may be a few naïve folks who think a big increase in the burden of government somehow is a recipe for job creation, politicians have a self-interested motive to move in that direction because it increases their power and influence.

Barack Obama advisor Jason Furman has also written about how terrible a job creator infrastructure spending is: “In the past, infrastructure projects that were initiated as the economy started to weaken did not involve substantial amounts of spending until after the economy had recovered.”

But that is not all. When left in private individuals' hands, that $1 billion will be spent and allocated on the things that are the highest priority for those people. This will send a series of signals through the market of what things to produce more of and what things to invest more in. It will produce fierce competition among the suppliers of the various items being purchased, pushing them to find better and better ways to create better and better products for less. This is how wealth is created. Competition spurs innovation, which increases productivity.

When government spends money, it simply takes that money from one place (taxpayers) and moves it to another (state employees, roads, etc.). When private individuals spend money, that money always has the potential to create wealth as they choose the best use between competing businesses or banks.

(3) Keynesians advocate expansionary government policies to reduce unemployment, observing that if an economic downturn is left unattended, it may spiral downward into another Great Depression.

The advocates of expansionary policy don’t care whether a business downturn is a symptom of the market discovering the un-sustainability of previous business expansions, correcting previous mistakes, and looking for new profitable opportunities. They do not see that widespread business failures represent innumerable profitable opportunities for other entrepreneurs, or that negative externalities of business failures and liquidation of value-destroying activities would be more than compensated by positive externalities of new ventures found on newly emerging profitable opportunities. Nor do they realize that expansionary policies divert resources from other uses and commit the fallacy of broken window, focusing on the stimulus of expansionary policy (the seen), ignoring what it forecloses (the unseen.) They simply regard the risk from the possible contagion too great. Hence we hear shrill scare-mongering by pundits and interested parties.

Often an economic downturn is a result of previous expansionary government policies. If the government keeps interest rates artificially low, there will be a general over-investment. The untenable business expansion must be corrected soon or later. The resultant business contractions and increase in unemployment, often characterized as a market failure, should rather be attributed to incentive-distorting government policies and bungled policy responses making the situation worse. A general economic downturn of this type may be avoided only if the government refrained from pursuing short term political expediencies, such as expansionary policies.

Instead, the government always proposes to solve the problem at hand, saying “in the long run we are all dead”. The short term fix of throwing money randomly at economic downturns may seem to temporarily alleviate symptoms, or at least satisfy insistent and loud political demands. However, short term fixes prolong the process of adjustment and tends to create dependency, which calls for more intervention in the future, just as a drug addict crave for increasing doses.