Thursday, October 25, 2012

WaPo Columnist Attacks NYT Editorial

This is big. For the first time in his 35 years as a columnist, Robert Samuelson felt the need to attack a newspaper editorial. And Samuelson was totally justified. In a column titled, The flat-earth theory of job creation, he attacked the myth promoted in the NYT editorial that the government creates jobs.

Here's Samuelson speaking truth to NYT's editorial board:
Who creates most jobs? Hint: It’s not the government. Almost everyone seems to grasp that the private sector is the true jobs machine. But here’s a notable exception to the consensus: the editorial page of The New York Times. The other day, its lead editorial was “The Myth of Job Creation: The government does in fact create jobs, important jobs, millions of them.” In 35 years, I can’t recall ever writing a column refuting an editorial. But this one warrants special treatment because the Times’ argument is so simplistic, the subject is so important and the Times is such an influential institution.

Let’s examine the Times’ argument. First, it quotes both Mitt Romney and President Obama as embracing the consensus. Obama says: “This notion that I think government creates jobs, that that somehow is the answer. That’s not what I believe.”

Completely wrong, says the Times. Government does create jobs, including “teachers, police officers, firefighters, soldiers, sailors, astronauts, epidemiologists, antiterrorism agents, park rangers, diplomats. ...” There are 22 million federal, state and local workers, notes the Times.

Case closed, it asserts. And it’s true that, legally, government does expand employment. But economically, it doesn’t — and that’s what people usually mean when they say “government doesn’t create jobs.”

What the Times omits is the money to support all these government jobs. It must come from somewhere — generally, taxes or loans (bonds, bills). But if the people whose money is taken via taxation or borrowing had kept the money, they would have spent most or all of it on something — and that spending would have boosted employment.

Job creation in the private sector is mostly a spontaneous and circular process. People buy things they need and want. Or businesses and private investors take risks by investing in new products, technologies and factories. All this spending, driven by self-interest and the profit motive, supports more jobs. In a smoothly functioning market economy, the process feeds on itself. By contrast, public-sector employment grows only when government claims some private-sector income to pay its workers. Government is not creating jobs. It’s substituting public-sector workers for private-sector workers.
Nice job up to this point, an excellent job as a matter of fact, but Samuelson then adds some caveats, including this one:
There is one glaring exception to the logic I’ve outlined. When the economy is in a deep slump, government can — in theory — increase hiring by borrowing and spending when consumers and businesses are retrenching.
This point is very misleading. If businesses and consumers increase their desire to hold cash, and there is no government interference that attempts to prop up wages and other prices, then prices will simply adjust at a lower level. No harm done. At the lower price level, economic activity will go on. This is basic supply and demand economics. There is no need even under these conditions for government spending, which always distorts an economy and results in a lower standard of living. The solutions at such times is to accept lower prices, not the government caused lower standard of living.


  1. The term "in theory" is always a red flag in academic works and should be translated as, "I would like to believe it works like this but in realty it does not." A theory that does not work in reality is an invalid theory.

    The only thing the government can do via deficit spending is steal jobs from the future. That is the essence of Keynesian economics.

  2. Of course we know that government doesn't just reallocate jobs from the private sector to the public sector. Wouldn't most EPJ readers agree that every public sector job created destroys >1 private sector job equivalent because of lost productivity.