Trans­fer­ring wealth vs. cre­at­ing it

The Washington Times Weekly - - Commentary - Thomas Sow­ell

Pres­i­dent Obama keeps talk­ing about the jobs his ad­min­is­tra­tion is “cre­at­ing” but there are more peo­ple un­em­ployed now than be­fore he took of­fice. How can there be more un­em­ploy­ment af­ter so many jobs have been “cre­ated”?

Let’s go back to square one. What does it take to cre­ate a job? It takes wealth to pay some­one who is hired, not to men­tion ad­di­tional wealth to buy the ma­te­rial that per­son will use.

But gov­ern­ment cre­ates no wealth. Ig­nor­ing that plain and sim­ple fact en­ables politi­cians to claim to be able to do all sorts of mirac­u­lous things that they can­not do in fact. Without cre­at­ing wealth, how can they cre­ate jobs? By tak­ing wealth from oth­ers, whether by tax­a­tion, sell­ing bonds or im­pos­ing man­dates.

How­ever it is done, trans­fer­ring wealth is not cre­at­ing wealth. When gov­ern­ment uses trans­ferred wealth to hire peo­ple, it is es­sen­tially trans­fer­ring jobs from the pri­vate sec­tor, not adding to the net num­ber of jobs in the econ­omy.

If that was all that was in­volved, it would be a sim­ple ver­bal fraud, with no gain of jobs and no net loss. In re­al­ity, many other things that politi­cians do re­duce the num­ber of jobs.

Politi­cians who man­date var­i­ous ben­e­fits that em­ploy­ers must pro­vide for work­ers gain po­lit­i­cally by seem­ing to give peo­ple some­thing for noth­ing. But mak­ing work­ers more ex­pen­sive means that fewer are likely to be hired.

Dur­ing an eco­nomic re­cov­ery, em­ploy­ers can re­spond to an in­creased de­mand for their com­pa­nies’ prod­ucts by hir­ing more work­ers — cre­at­ing more jobs — or they can work their ex­ist­ing em­ploy­ees over­time. Since work­ers have to be paid time-and-a-half for over­time, it might seem as if it would al­ways be cheaper to hire more work­ers. But that was be­fore politi­cians be­gan man­dat­ing more ben­e­fits per worker.

When you get more hours of work from the ex­ist­ing em­ploy­ees, you don’t need to pay for ad­di­tional man­dates, as you would have to when you get more hours of work by hir­ing new peo­ple. For many em­ploy­ers, that makes it cheaper to pay for over­time. The data show that over­time hours have been in­creas­ing in the econ­omy while more peo­ple have been laid off.

There is an­other way of re­duc­ing the cost of gov­ern­mentim­posed man­dates. That is by hir­ing tem­po­rary work­ers, to whom the man­dates do not ap­ply.

The num­ber of tem­po­rary work­ers hired has in­creased for the fourth con­sec­u­tive month, even though there are mil­lions of un­em­ployed peo­ple who could be hired for reg­u­lar jobs, if it were not for the man­dates that politi­cians have im­posed.

Economists have long been say­ing that there is no free lunch, but politi­cians get elected by seem­ing to give free lunches, in one form or an­other. Yet there are no magic wands in Wash­ing­ton to make costs dis­ap­pear, whether with work­ers or with med­i­cal care. We just pay in a dif­fer­ent way, of­ten a more costly way.

Nor can th­ese costs all be sim­ply dumped on “the rich,” be­cause there are just not enough of them. Of­ten peo­ple who are far from rich pay the big­gest price in lost op­por­tu­ni­ties. A clas­sic ex­am­ple is the min­i­mum wage law.

Min­i­mum wage laws ap­pear to give low-in­come work­ers some­thing for noth­ing — and ap­pear­ances are what count in pol­i­tics. Re­al­i­ties can be left to oth­ers, so long as ap­pear­ances get votes.

Peo­ple with low skills or lit­tle ex­pe­ri­ence usu­ally get paid low wages. Pass­ing a min­i­mum wage law does not make them any more valu­able. At a higher wage, it can just make them ex­pend­able. Rais­ing the min­i­mum wage in the midst of a re­ces­sion was guar­an­teed to in­crease un­em­ploy­ment among the young — and it has.

None of this is pe­cu­liar to the cur­rent ad­min­is­tra­tion. The Roo­sevelt ad­min­is­tra­tion cre­ated huge num­bers of gov­ern­ment jobs dur­ing the 1930s — and yet un­em­ploy­ment re­mained in dou­ble dig­its through­out FDR’s first two terms.

Con­stant gov­ern­ment ex­per­i­ments with new bright ideas is an­other com­mon fea­ture of Mr. Obama’s “change” and FDR’s New Deal. The un­cer­tainty that this un­pre­dictable ex­per­i­men­ta­tion gen­er­ates makes em­ploy­ers re­luc­tant to hire. De­stroy­ing some jobs while cre­at­ing other jobs does not get you very far, ex­cept po­lit­i­cally. But po­lit­i­cally is what mat­ters to politi­cians, even if their poli­cies need­lessly pro­long a re­ces­sion or de­pres­sion.

Thomas Sow­ell is a na­tion­ally syndicated colum­nist.

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