Diary

The Unfunded Mandate Called Job Creation

I’ve blogged about this over and over again and I’m not going to stop.  Job creation is the biggest myth in the economy right now.  That is, those jobs “created” by the government.  Job creation, when done as direct investment by the government, is no more than a long term unfunded mandate.  Here’s why:

During SOTU, President Obama said, “Because of the steps we took, there are about two million Americans working right now who would otherwise be unemployed. 200,000 work in construction and clean energy. 300,000 are teachers and other education workers. Tens of thousands are cops, firefighters, correctional officers, and first responders. And we are on track to add another one and a half million jobs to this total by the end of the year.”

That’s right, jobs created in law enforcement, education and construction (roads & infrastructure).  These are government related jobs!

Let’s look at it this way.  When the population of any given area increases there is a natural increase in demand for government services like education, law enforcement and infrastructure.  It’s the natural way things work and under normal circumstances this works out fine because an increased population would result in increased tax revenue.  These jobs are typically services that are paid for by local tax revenue either on the city, county or state level.  Well, the stimulus bill invested money in these three areas to create jobs.  So now in many areas this balance of population based services are, well, out of balance.

Some may argue there were places that had the population need but not the tax revenue and the stimulus put it back in balance. Well, no.  See, these services are population based but that population needs to provide the tax revenue to satisfy the cost burden of these services.  These areas often already were receiving federal funding anyways to help cover the costs.

What it comes down to is this.  Say we just gave the city of Des Moines $1,000,000 for these services with the goal of creating jobs.  With this money we created a handful of teaching jobs in the Des Moines School District, which they might need.  Now, one year later, the Des Moines school district has spent our $1,000,000 on teacher salaries and now……..there is no more.  Now the Des Moines School District has to foot the bill when they couldn’t afford it in the first place. These jobs we created turned out to be nothing more than an unfunded mandate.  The Federal government told us to create these jobs, gave us the money and now, we have more jobs with no money to pay them.  So one of three things will likely happen:

  1. The federal government needs to keep funding these jobs turning the Des Moines School District into a welfare dependant organization.  But there isn’t a stimulus package every year.  So these jobs will then go unfunded by the federal government.
  2. The school district will cut pay, order furloughs and cut costs wherever they can which essentially hurts the larger population of employees and putting everyone in a worse financial condition than they were prior to the stimulus.
  3. The school district will lay off workers but they aren’t likely to lay off a teacher so they look in other areas.  Essentially, someone else loses a job because someone else was hired just one year ago and now there’s no money to sustain that additional employee.

In other areas where the money wasn’t needed because the population was able to cover these jobs with their tax revenue they would have slightly different circumstances.  Now they have a surplus of workers and productivity decreases.  You can’t have too many police officers because production goes down overall.  Crime didn’t increase to a level where more police officers were needed.  Instead the money was there so they used it and now it’s gone.  The same results occur as above.

The sad thing here is that this can all be avoided.  Like I said earlier, I’ve probably blogged about this about five times in the past two months because it keeps coming up.  The government, investing in itself, is either creating organizations that are now dependant on the welfare of the feds or they have decreased productivity.  And under no circumstances, are more jobs created from these jobs.

I said no less than a month ago, you make investments where your money works for you to create more money.  That’s the point.  When you make investments in jobs it NEEDS TO BE IN AREAS THAT WILL WORK FOR YOU TO CREATE MORE JOBS!  If the government is spending money in industries where the new jobs cannot in anyway work to produce more jobs than the government has wasted the taxpayers dime!

In Iowa, the government has wasted $1.5 billion on 5,336 jobs.  These jobs were also in education, law enforcement and infrastructure.  The state of Iowa already has had to make a 10% budget cut across the board.  Now they’ll either have to find ways of supporting this increase they’ve accrued in annual costs or they will have to cut and layoff more to make up for it.  And here’s the saddest thing of it all.  Even if the state of Iowa or any area were to just lay off the people they hired from the stimulus package they are still stuck paying unemployment benefits.  There is no way around this cost burden – this unfunded mandate from the Federal government.

We need to get away from creating jobs for the sake of creating jobs and start pushing private investment in the private sector.  This could have been funds managed by private equity and venture capital to grow businesses in high growth industries.  It could have been done through private investment tax incentives or simply doing away with capital gains taxes.  There were so many ways the government could have created more jobs with that money and they have now leveraged our children’s and grandchildren’s futures for unsustainable jobs.

The government needs to follow one rule of thumb:  The government should NEVER invest money in itself for the sole purpose of growth and job creation. It’s like creating 1,000,000 widgets for a market of 500 people.  It’s too much!  We cannot let them be stupid with our money anymore.  Time to stop the Stupid Spending! Vote these people out!