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Monday, June 9, 2014

Refuting "10 Essential Economic Truths," Part 1

"Government cannot create wealth, jobs, or income. Because government has to take money from somebody before it can spend it, there is no economic gain from anything the government does."

This is the first of "10 Essential Economic Truths Liberals Need to Learn" by Jeffrey Dorfman, writing in Forbes, and referenced by Mark Perry in his Carpe Diem blog for the American Enterprise Institute.

I'd like to refute Dorfman's assertions, starting with this one.

Back in 2009, PolitiFact rated a similar statement from a GOP spokesperson as not just false, but "pants on fire" false. Their analysis is worth reading, but doesn't specifically address the assertions made here.

First: can government create wealth? This is the first time I've seen anyone make the argument. Is government supposed to create wealth? I imagine our Constitutional Conservative friends would offer a strenuous answer if you asked them if creating wealth is one of the government's enumerated powers…and they'd be right. Asking the question is setting up a strawman argument; let's move on to jobs.

Think about a typical business. Imagine their org chart.

Some of the names are at the top: presidents and vice presidents, executives, managers… leaders. Some of the names are below the top: the "direct reports". Some of the names might not be listed at all: the support staff, and the people who support them. Secretaries. Receptionists. Mailroom clerks. Help desk staff. Cleaning crews.

Why are businesses organized like that? To let everyone focus their time and talents to best use. Would a well-run business have a senior vice president answering phones or clearing paper jams, instead of working on business plans or meeting with clients? Probably not.

Is there a way to measure the economic gain of a senior vice president? Absolutely: performance metrics are probably spelled out quite clearly in their employment contracts.

Is there a way to measure the economic gain of the mailroom staff? It might take a little more work, but by comparing relative costs of one staff member to another, it's not that hard to work out a rough estimate. The point is that not every position in a business exists to turn a profit. Some positions are there to support the profit-makers, or to execute their plans; others are there to keep things running and in good shape.

In the same way that businesses have support staff, so does the general public: they're called "government workers" - the people who defend and protect the nation; deliver the mail; teach our kids; make sure the roads are in good shape; collect the trash…you get the picture.

Government workers do for all of us what support staff do for businesses: they free us up to focus on what we do best.

Think of a soldier: not a profitable occupation on the ledger sheet, but having a "government" soldier protect and defend the nation prevents businesses from equipping their own armies.

Think of a researcher working for the Census Bureau: not profitable in and of itself, but the data they gather allow businesses of all sizes to make strategic decisions, without having to spend the time and money doing the work themselves.

Think of a fireman: again, not a for-profit position, but really important when they're needed.

So, does government create jobs? Of course! The government creates the jobs best suited for the public sector: jobs that aren't driven by a profit motive; jobs that free up the private sector to focus their resources on what they do best: profit-making enterprise.

Look at it from a business perspective: it's called outsourcing, and companies do it all the time, because it makes good business sense.

Third and final point: does government create income? We can go back to the PolitiFact analysis for that one:
"The Bureau of Labor Statistics says that the federal government is the nation's largest employer, with more than 1.8 million employees, excluding the post office."
Ask those 1.8 million employees if government creates income. Ask the businesses in the communities where those employees spend their money. Of course government creates income.

"But," you say, "government has to take money from somebody before it can spend it!" Absolutely right. Businesses have to do that, too: just try to imagine a business without a source of income; or, for that matter, a world in which businesses never took out loans. Does that mean that "there is no economic gain from anything business does"? That's just silly.

We can, and should, argue about what services government should or should not provide; how much or how little we should fund them. That's the American way. But to compare government to business is to compare apples to oranges: government exists to play a supporting role; businesses exist to play profit-making roles. They're not the same.

Dorfman, and others who try to make this argument, are confusing legitimate functions of government (which they may disagree with) with rent-seeking.

Governments put people to work. Those people earn incomes. To say otherwise is to deny reality. That's a truth we liberals already knew.

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