Creation Myth

Governments are worse than no good at "creating jobs."


A week before President Barack Obama was scheduled to deliver yet another big-think proposal to Get America Working Again, reality intervened with a well-timed smack upside the head: Solyndra, a California solar panel company, filed for Chapter 11 bankruptcy.

Back in May 2010, as part of the run-up to what the administration was then touting as "Recovery Summer," Obama used Solyndra as a poster child for both the 2009 American Recovery and Reinvestment Act and his long-stated promise to create millions of "green jobs." During a visit to the company's factory in Fremont, he declared: "We invested…in clean energy because not only would this spur hiring by businesses but it creates jobs in sectors with incredible potential to propel our economy for years, for decades to come. And we can see the positive impacts right here at Solyndra. Less than a year ago, we were standing on what was an empty lot, but through the Recovery Act, this company received a loan to expand its operations. This new factory is the result of those loans. Since ground was broken last fall, more than 3,000 construction workers have been employed building this plant.…When it's completed in a few months, Solyndra expects to hire 1,000 workers to manufacture solar panels and sell them across the country and around the world. And this in turn will generate business for companies around our country who will create jobs supplying this factory with parts and materials."

Or not.

Solyndra's $535 million failure was not an unlucky one-off. According to Environmental Protection Agency numbers cited by Investor's Business Daily in August, the Recovery Act's $7.2 billion in "clean tech" money had "created or retained" a pathetic 7,140 jobs, at a cost of about $1 million each. According to the Department of Energy's inspector general, one reason for this paltry payoff is the wage and regulatory provisions of the Davis-Bacon Act, the National Environmental Policy Act, and the Buy American Act. 

In sum: The government scooped up hundreds of billions from taxpayers, redistributed it in the name of creating jobs, then attached a series of requirements that made job creation much more expensive and therefore unlikely. The predictably miserable results (go to reason.com and conduct searches on "green jobs" and "multiplier" to see just how predictable they were) should have, but did not, shame a broad swath of the political class into a long-overdue facing of facts: Governments the world over are worse than no good at "creating jobs."

That much is clear when we compare the job creationists' rhetoric to their results. Every day on the campaign trail, then-candidate Obama promised to create 5 million "green jobs" during the next 10 years. In January 2009, the White House predicted that the stimulus it was finalizing would create up to 4.1 million jobs. (In a depressing bit of symmetry, the economy ended up losing 4.7 million nonfarm payroll jobs in 2009, according the Bureau of Labor Statistics, representing the greatest rate of decline since 1945.) In February 2010, then–House Speaker Nancy Pelosi (D-Calif.) vowed that the soon-to-pass Patient Protection and Affordable Care Act would "create 4 million jobs, 400,000 jobs almost immediately." The last time Washington, D.C., was in a frenzy to "create jobs," while passing an already-forgotten jobs bill in the summer of 2010, Pelosi promised this latest dollop of $26 billion would create or save 300,000 more.

And these are just the job-focused bills. The general idea of using government spending to stimulate aggregate demand, particularly during economic down times, ruled official Washington for a solid decade, starting with George W. Bush's inauguration and ending last summer with the Tea Party–influenced debt ceiling deal, which marked the first time in recent memory elected officials stood athwart spending and yelled "stop!" The results of this Keynesian stimulus (and anti-Keynesian profligate spending during good times) should speak for themselves: Fewer able-bodied Americans are employed as a percentage of the potential work force than at any time since 1983.

Such persistence in the face of repeated failure suggests that some powerful myths continue to hold sway among politicians and many of the people they represent. Among the most stubborn of these is the notion that passing a bill to fix a problem is the same as actually fixing the problem. This assumption—which reaches its illogical conclusion during times of national panic, when do-something busybodies like Michael Bloomberg will say that it doesn't matter what Washington does, it just needs to do something—is oblivious to the law of unintended consequences, to the reality of corporatist lobbying, and to the limitations of government power.

The 2010 Wall Street Reform and Consumer Protection Act, passed in the name of ending "too big to fail," actually paved the way for the next round of financial bailouts. Obama-Care, supposedly rammed down the throats of health care "special interests," was actually rammed down the throats of Americans at the behest of those special interests. The Troubled Assets Relief Program, sold by then-President George W. Bush as a way to prevent bank failures, stock market losses, housing devaluations, home foreclosures, credit tightness, business failure, job losses, and recession, failed utterly at preventing anything on that list. 

A curious flip side to the myth of government omnipotence is near-complete incuriosity about government side effects. That is, people remain convinced that the state can and should look a problem squarely in the eye and fix it, but they are rarely moved by daily examples of the harm caused by earlier fixes.

Just before Solyndra announced its bankruptcy, armed federal agents stormed three factories and the corporate headquarters of the Gibson Guitar Corporation, seizing guitars and raw materials, forcing employees out into the street, and shutting down production for a day. Why? Because of a century-old law called the Lacey Act, which prohibits the import of wildlife and plant products that were obtained illegally overseas. India, where some of Gibson's raw materials originate, bans the export of unfinished wood.

Overzealous enforcement of job-killing laws is the rule, not the exception, under Obama. His Department of Justice has shown much more enthusiasm than his predecessor's in conducting workplace raids to enforce immigration, drug, and even milk pasteurization laws. Politicians and the public support such relentless meddling without pausing much to consider the deleterious effects on employment. As I write, the California Senate is on the verge of passing a Domestic Workers Bill of Rights that would, among many other onerous things, require parents to provide nannies with breaks every two hours and fill out ridiculously complicated time cards for the government to peruse.

In a sense, every bill is a jobs bill, except for the ones labeled as such. Every business regulation, every intrusion between employer and employee, dampens the incentives to create more jobs. Sucking up tax money and spitting it out at politically chosen recipients is another net drag on the economy.

The cover feature of this issue ("Get a Job!") suggests a different approach. Free market thinkers such as Nobel laureate Vernon Smith, market soothsayer Peter Schiff, and economic historian Amity Shlaes offer their best ideas for creating a legislative and regulatory framework more conducive to job creation. The policy proposals are rich and various, but Contributing Editor Deirdre McCloskey highlights what may be the most salient point: "'Jobs' are deals between workers and employers, and so 'creating' them out of unwilling parties is impossible. The state, though, can outlaw deals, and has." Until that insight sinks in, it will be a long time before America gets back to work.  

Matt Welch is the editor in chief of reason and co-author of The Declaration of Independents: How Libertarian Politics Can Fix What's Wrong With America (PublicAffairs).