More Government Spending Will Not Create Jobs

More Government Spending Will Not Create Jobs

From time to time, a politician or activist will get up and attest that some great project of national spending (such as a full repair job on our countries infrastructure) will drag us out of recession, and solve all our economic woes by “creating jobs.” Promptly he or she will be heralded as a champion of the people, talking sense against an establishment that just won’t seem to listen.

Suppose the country’s poor infrastructure is really ailing; no right-minded person would object to it being restored, but it must be strongly contested that doing so will “create jobs.”

On the balance, it will not. Here’s why.


Any funds allocated to rebuilding the country’s infrastructure have to be reallocated from somewhere else in the economy, where they will not be creating jobs any longer. What is seen is that over here is a bunch of road-workers are finding new employment. What is unseen is that employment in other sectors was not even created as a consequence.

Since the government produces nothing and has no money of it’s own, it can only find the money to pay for new projects in one of three ways:

A) Tax People For It B) Print It or C) Spend Into Debt.

Let’s look at consequences of each of these methods in a little more detail.


A) The government can tax people.

Raising taxes tends to be the least-favourite option amongst those in power, because it tends to be unpopular with voters and campaign financiers. “The chancellor giveth and the chancellor taketh away,” what he giveth wins votes, what he taketh away tends to lose them – which is perhaps why governments run up so much debts and are always printing money every time there is a problem.

Nonetheless, the government can decide to tax people, and if it does that money will provide jobs for the road-workers, but in the meantime it is coming out the pockets of other people who now have a lower disposable income to spend on things like sweaters, pens, shoes and food – all of which are things that lead to the employment of other people. Even if those people were “saving” (not spending) their money, the money that would have been saved is not being lent out to other people who would either spend it, or have businesses that make things and employ people. Making things is as important, because the more goods an economy produces the cheaper those goods become by the laws of supply and demand. (A full discussion of that point will have to wait for another time.)

At any rate, we can hardly say that industry is being created – at best it’s being displaced. And not even on a 1:1 ratio at that – because the process of redistribution requires the necessity of spending money collecting taxes and creating jobs out of thin air for tax collectors, bureaucrats, administrators, pen-pushers, politicians, and so forth. Cash that is not actually paying people to do productive work that will increase living standards, but simply taking a cut of money on it’s way from Abigail to Bob. These intermediaries could instead be paid (with the same money) to provide some other service.

“Ah!” though, some will cry, “Let us tax the rich! Let them pay for these new jobs! They won’t miss the money!” And the option does have superficial appeal, realistically though, infrastructure projects do run into the billions, and there simply aren’t enough billionaires to re-appropriate the funds for them.

“The corporations then! Let’s close all the tax loopholes! Let the rich pay for their crisis!” And again, while superficially satisfying there is a real limitation in this variety of thinking. Taxing corporations is still a form of scooping water up from the “deep end” of the economy and transferring it to the “shallow end” while spilling a portion of it on the way on bureaucracy. Corporations are not really-existing entities but just collections of people. The corporations must factor what they pay in tax into their expenses, and accordingly (if their tax burden increases) pass some of it onto their customers in the form of higher prices, their workers in the form of poorer pay and working conditions, and their shareholders in the form of fewer dividends which will result in less investment in business, less jobs to go around, and less stuff being produced which in turn means higher prices. What is more, since individuals pay income tax on what they earn and have to live off the rest, while corporations pay tax only on profits, this creates an increasing incentive to ‘cook the books’ so that holidays become board meetings in Hawaii; restaurant meals become private consolations; car payments, repairs and insurance costs are written off as company expenses; and perks like health club memberships are provided with pre-tax money.

So we find that taxing to “create jobs” is more complicated than might initially meet the eye. When the government taxes the waiter, carpenter, plumber, tradesman to pay the artist, public servant, fireman, and so forth, not only is the private sector worker being deprived of what his labour might buy – but so is the tradesman whom he might buy it from. More road-workers, less supermarket check-in assistants. It is not that this trade off might never be justified, it is just that we ought to be aware that a trade-off even exists. It seems that many public spokespersons are not.


B) The government can print money

Most people don’t understand that money is really just a representation of all the goods and services in an economy. When we trade in cash we are not really trading for the cash but for the ability to buy other goods and services – that much is clear, although we don’t necessarily see the relationship between the amount of money in circulation, and what that money has the power to actually buy for us. In other words, the value of that money.

To illustrate the importance of this point, allow me to use an illustration from the great Classical Economist Frederic Bastiat.

Imagine you are playing a game of cards, and you are gambling with tokens. At the beginning of the game each player puts £100 into a kitty and receives, in exchange, 10 playing tokens. Now someone suddenly remarks, with a bright idea, “Wait a minute, I’ve always noticed that the more tokens I have at the end of the game – the more money I win, so wouldn’t it be a better idea to give everyone 20 tokens each. Those of us who lose won’t lose anything extra, since we’re still each putting in the same stake, and those of us who win will all end up the richer for it! Nothing can be lost from it.”

The players agree, but at the end of the game the winners are dismayed to find that when they trade in their tokens, each is only worth £5 pounds rather than £10.

This illustrates simply the effects of the government printing money into existence. Not only does the government need to pay interest on printed money to the central bank, but all the money in the economy goes down in value. The first people who get to spend the money (the politically well-connected) attain it at its highest value, and by the time it gets down to circulate amongst the common man most of the value of the new money has depreciated. What we will notice is the price of everything in the supermarket going up, but very few people will be able to trace this effect to the cause of the government printing more money.

This affects the poor and people on low incomes the worst. People who are invested in property and the stock market will likely see the value of their holdings remain the same relative to the expense of everything else in the economy. What is more it punishes people who have been responsible by saving, and rewards people who have been irresponsible by going into debt. That may seem a worthy concession to the destitute, but in reality far more benefit will accrue to wealthy landlords with mortgages on several properties bought to let, and wealthy capitalists who have leveraged their assets as far as possible, accruing massive debts to invest and grow in wealth. More welfare to the wealthy.


C) The government can go into debt.

When the government engages in deficit spending, again, the number of goods in the economy does not rise but the amount of notes flitting around the economy do – so this, too, has a depreciating effect on the value of the money.

That is not all though. Deficit spending is just passing the buck along to be paid for later. If the debt is ever going to be paid back that means overconsumption in the present will lead to under-consumption at some point in the future. Even if the government could create jobs by doing this they would be destroying jobs of the future when the money has to be paid back. To deficit spend is to tell future generations that we need to spend billions of their money, so that they can pick up the tab with interest whenever they happen to have a better economy. It’s extraordinarily selfish and short-sighted, and often the popular option of politicians given the unborn don’t have voices or votes to protest with.

The argument is made that investment in public services by deficit spending will lead to growth which will make it possible to pay back the original loans – but there is no assurance of this. First off, when private companies want to borrow investment finance the banks they borrow from have limited resources to lend and will only put money on the line for projects that are the most likely to succeed in paying themselves off, thus there is a vetting process which ensured investment finance falls into the hands of the most competent to use those funds. Government projects need not pass this vetting process and there is no stopping them borrowing more when projects don’t pay off – like a roulette player committed to winning back his losses. Those who make mistakes with borrowed funds are not going to be replaced by more competent business persons, unlike entrepreneurs who bankrupt their companies in the private sector. For that reason the public sector, which is investing money that belongs to other people, will be likely to take more risks, placing fund in the hands of those who are more at risk of losing it that private-sector investors.

Another problem with the government “spending money to create jobs” in this way is it creates a temporary income for some people in certain industries, but when the work is done they have no sustainable income left. It sends false signals to the economy of where the money is and what people should train in to make a living. Once the dam is built there is no more jobs for dam builders. So they are back on the unemployment line and once again and “the government needs to create jobs!!!!” when actually a large portion of those people would have been better served training in areas where there is genuine demand from consumers.

If governments had to balance the amount they spent with the amount they received then everyone would be able to weigh up the true cost of our public services with the tax burden and make decisions on whether it was a good investment or not without passing on debt to people who will never benefit from those services but then have to pay the debt off.


It is clear then, that there is no magic button or switch that government can flick to create jobs. If they could they would have hit it long ago, and time and time again, even in times of prosperity to further take advantage of high times, win votes, and secure future victories in elections. Its batteries would have well passed its usage.

It is not that public projects are never justified, but when employment, rather than need, becomes the motivation for them then the thinking of the bureaucrats must shifts from “What roads must be repaired?” to “What roads can be repaired?” This allocation of resources based on whim rather than need can go on indefinitely without providing any real value. If all we wanted was to do was create jobs we could pay people to dig holes, and others to fill them up again.

If we want to create jobs in a sustainable way we have to free up resources which are currently being wasted to better use in the economy. End our empire building on fruitless wars in the Middle East. Stop throwing away money to lock people up for victimless crimes. Close poverty traps where people on welfare are discouraged from meaningful work because if they produce more they will earn less. The solution is not to rob from those who are already prosperous, but to create conditions where everyone can prosper. Make it easy for people to employ others or start a home business by relaxing strict regulations. Do away with corporate welfare and handouts to big business. Get rid of agricultural subsidies which have been an environmental disaster. And so forth. All superfluous government projects represent man-hours that could better be used to create prosperity.

People often fear that cuts will actually plunge us into recession, but if we look at the evidence of history we find that 1946, the post-war year, brought the greatest year of growth recorded. And the biggest cut in government spending. What is more, we can cut from the top rather than the bottom. The disadvantaged have suffered enough under the Conservative party, but so has the general public under all previous tax-and-spend administrations. The loss in standards of living was not easy to detect, and so it has not been missed, but if we can end wasteful spending and mobilise the economy it will not be long before we see things improve dramatically.



Antony Sammeroff

Is a writer and Life Coach from Glasgow now living in Edinburgh. He is on The Scottish Libertarian Party’s constitutional committee.

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1 Comment on "More Government Spending Will Not Create Jobs"

  • Very Good,

    three things:

    1: – “Laws of supply & demand – (for discussion later)” – . Um, this is manipulated dramatically through unsustainable International Trade Arrangements, thus individual economies are made dependent apon Group (world) Disorganisation kept going by the deliberate exploitation of the various currencies. . . In a world (economy) of “Comparative Advantage” (see “Perils of Free Trade”), the true export and import value of both goods and services can be sustainably calculated with currencies and trading arrangements struck to maintain the topographical, ecological and population Comparitive Advantage, territorially of each terrain globally. I think Mcinder was a proponent of this. . . Not sure.
    2: – “If all we wanted to do was create jobs we could pay people to dig holes and then fill them up again”-. . . Well, that is pretty much what our whole unsustainable industrial/commercial/manufacturing/agribusiness is ALL about. There are no longer direct links between 1: the people and the means of production, 2: the money we (allegedly) ‘earn’ to enfranchise ourselves into the ‘fruits’ of production with and 3: lastly there are no longer any direct links between people and the land / sea which is where ALL our resources for life are found. . . With these three splits managed by the top 1% to divert 50% or more of the total profits into the military industrial complex needed to police their 99% monopoly (using the three splits), we are faced with the need for radical change.
    One reason why the ISIS / taliban / terrorist groups exist at all is to demonstrate the Military Advantage of the 1% and show us how much they care about the 99% of us. After all, ALL the weapons and kit is manufactured by the 1%, so, how could ‘terrorists’ be anything other than a marketing tool? ? ?

    It is possible that the so called New Politics introduced by Corbyn might start having an effect; he has been alluding to this ‘Elephant in the Room’ has he not?

    PG 26/12/15.

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