Government Can and Should Create Jobs
In a town in a country suffering through a recession, a wealthy person just happens to live next door to an unemployed worker. The worker has experience in a variety of trades, and is quite competent, but despite his skill and reputation, there are no jobs to be found. And it isn't for lack of trying.
Seeing this, and having a kind heart, the wealthier of the two -- much, much wealthier -- decides his neighbor needs a job, so he sets about creating one. The first option he considers is just to find something for him to do, it doesn't much matter what, digging holes and then filling them up, whatever. He decides that if he goes this route he will ask his neighbor -- wink wink -- to watch his grass grow. Both of them know this is a ruse, a made up job to justify the payment, but somehow having the ruse in place allows the unemployed neighbor to keep his dignity in a way a direct cash payment would not. It's a job not a hand out -- he does have to look out his window a few times a day to make sure it the grass is growing like it's supposed to. But practically it's a means of support for the neighbor and his family that allows him to continue his diligent search for a job.
But then the wealthy neighbor thinks, why not hire the unemployed neighbor to do something useful with his talents? Sure, it will make it harder for him to look for another job if he's working hard here all day, but he's a good builder and there must be something I need. Maybe, for example, the fence could be replaced. He was going to replace it in a few years anyway and, although it would last a bit longer, why not fix it now and take advantage of the fact that the neighbor can be hired for much less than it would take to hire a fencing company? The quality of the work will be just as good. And there must be other things that could be done both inside and outside the house as well.
There is one problem, he realizes, with the fence building option. Unlike the watching the grass grow job which could have started the next day, it will take him awhile to pick out the fence style he wants, to plan it, to get the materials for the neighbor (who can't finance it himself since he's unemployed), and so on, but maybe not too long if he gets on it right away. But it is a close call - the family is hurting - and any delay makes it worse.
Still, building the fence turns out to be the solution chosen. It's a generous arrangement, and everyone feels as though they are getting something. And it dispels any myth that jobs cannot be created. By hiring a neighbor to do something, especially something productive, a job is created that wouldn't have existed otherwise. Since the payment for the fence materials and the fence work comes out of saving, saving that would not have been spent until a few years later, it also increased the demand for goods and services overall, perhaps just enough to save a job at one of the places where the money is spent or even help to create a new job. (The money is just sitting in the banks doing nothing due to all the fear and loathing about loaning it out, i.e. the money spent on the fence is not being used by the bank to finance alternative investment. It's as though the money was hidden in the house in a cookie jar or something. It would have been used later, but is being used now instead and that generates extra demand.)
So here's the question. Why does having government involved make any difference? Government can act as an intermediary, take the money from the wealthy person, and use it to finance projects such as new infrastructure. This type of social insurance creates jobs just the same as someone can create a job when they hire a neighbor to build a new fence or repair one that is falling down.
One difference is that the money goes for the social good, not the individual good. Suppose the money is used to build a fence at a local park. The wealthy person might not object if he or she uses the park frequently and would somehow benefit from a fence. But if the money goes to finance something that the person doesn't want or don't need, there might be quite a bit of resistance.
But that is a question about the social benefits from how the money is used, it has little to do with the question of whether jobs can be created. Just as the wealthy neighbor can hire the unemployed worker next door to build a needed fence or to watch the grass grow, government can do the same, and do it with the same motivation -- empathy for those who are struggling to make it through the recession. If those paying taxes don't share that empathy -- if the people paying the bills don't think those receiving the money deserve it according to some moral code, if they can't see much direct of indirect value for themselves from the expenditure they are forced to finance, and if they don't think this is their responsibility -- there will likely be strong resistance to paying the bill (partly because the personal relationships needed to generate empathy aren't there).
So yes, to the extent possible, job creation projects should be used to finance needed infrastructure so that we do not have to rely on empathy. When the benefits are large and obvious to all, the resistance to such spending is minimized.
But that may not be possible. If the wealthy neighbor doesn't need anything done or doesn't have enough projects to keep the unemployed neighbor busy -- he had just hired people to fix his fence last week and can't think of anything else he needs, or the things that are needed would take to long to get started, what then if he still wants to help? He will have to find what he can for the unemployed neighbor to do -- there's usually something that is needed. And if, in the end, it comes down to the equivalent of watching grass grow (and it's very clear the neighbor is trying as heard as he can to find a permanent job), then it may be time to give a wink and do just that. The alternative is to simply say I'm sorry, there's nothing I can think of to hire you to do, neighbors aren't my responsibility anyway -- I hardly know you people -- and then turn and walk away leaving the neighbor and his family to continue struggling. And maybe that is the right answer. That is, it's the right answer until the day comes when you lose all your wealth in the Great Crash of 2015 and your neighbor, who has done extraordinarily well and has never forgotten the help you gave him, steps in to return the favor.
Of course, not all of us are lucky enough to have rich, empathetic neighbors willing to help out when we are down on our luck, nor can we necessarily expect reciprocity when we are in need. But that's OK, we do have fiscal policy -- a form of social insurance -- and other types of social insurance to play this role.
Fiscal policy can create jobs and provide other types of help just like a wealthy, benevolent neighbor. Yes, if you are able, if you are one of the fortunate ones, the presence of social insurance requires you to pay to help those who in need. But even if the money isn't used to finance something you want, or if it is essentially given away through make-work to people you don't think deserve it, people that you care nothing about and that aren't your responsibility in any case, you will still benefit. Because even though you are certain it could never happen to you, in fact it can happen to you, and if it ever does social insurance, including job creation, will be there for you too. Only then will you truly understand the real value that this insurance provides.
Posted by Mark Thoma on Monday, March 8, 2010 at 12:06 AM in Economics, Social Insurance, Unemployment |
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