Is Economic Stimulus Beneficial?

Where Stimulus Is Not 'Necessary Government'

President Bill Clinton announced in 1996 that the era of Big Government was over. Yet 13 years later, more Americans are at work in the public sector than in manufacturing and construction combined.

In 2008, government payrolls topped 22 million. At the same time, manufacturing and construction payrolls fell to nearly 20 million. In the latest employment report, government was one of only two major sectors of the economy to show job growth. This is not a healthy trend.

As the nearby chart shows, government payrolls have been on the upswing for decades, save for a brief downward blip during Ronald Reagan's first term. This is an indication that too many resources are being directed to the wrong place. For every additional worker employed by a government at some level, there is one fewer worker who can contribute to real economic growth.

Despite claims to the contrary, governments and their employees cannot force economies to grow by growing themselves. They are unable to create wealth. Instead, they seize wealth through taxes, depriving the private sector of the capital needed for growth, and regulate commerce often to the point of obstructing progress.

French economist Frederic Bastiat cleverly explained government's dead-weight impact on the economy when he noted that "the state is a great fiction by which everybody tries to live at the expense of everybody else."

Of course, a minimum number of employees is needed perform legitimate government functions. But no government worker builds a house, car or washing machine; designs innovative technologies that make businesses run more efficiently; starts a new company that puts people to work in productive jobs; turns raw materials into fuels that give us power, mobility and warmth; or creates entire industries that both benefit consumers and boost the economy.

Maybe the best way to explain how public-sector jobs drag down the economy is to consider whose welfare is increased when a private-sector job is filled and whose is diminished at the time a government position is filled.

When a private employer offers a job and the offer is accepted, the welfare of both the employer and employee is improved. The employer has a new worker who will make the company more productive and the worker has a job to meet his needs.

But when a government job is filled, a third party is involved, and the welfare of that party — the taxpayers who pay the public employee's salary — is harmed and the economy ultimately damaged.

It's hard to make a reasonable argument that the country needs 22 million public sector employees. With a total population of 304 million, that's one government worker for every 14 Americans.

The country's manufacturing and construction base is able to provide all the goods, homes and buildings we need and make a strong contribution to the economy — in other words, do more than the government — with just one worker for every 15 people.

If government workers and bureaucracy were indeed the engine of the growth, as some in Washington argue, then the Soviet Union would still be intact, East Germany would have a model economy and China would not be moving away from communism.

The best the government can do is take care of its limited duties and leave it to free enterprise to create wealth and add value to the economy. Economic expansion has always been the province of the private sector. It can work no other way.

INVESTOR'S BUSINESS DAILY
January 21, 2009

http://www.ibdeditorials.com/IBDArticles.aspx?id=317434650497778

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Posted January 25, 2009 07:02 AM
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