Jobs

WaPo Columnist Samuelson Takes On New York Times' "Flat-Earth Theory of Job Creation"

|

Not in the private sector anyway

Four days ago the New York Times ran a particularly obtuse editorial, "The Myth of Job Creation" which took both Obama and Romney to task for daring to say that the government does not create jobs. The Times' editorial writers huffed:

Except that it does, millions of them — including teachers, police officers, firefighters, soldiers, sailors, astronauts, epidemiologists, antiterrorism agents, park rangers, diplomats, governors (Mr. Romney's old job) and congressmen (like Paul Ryan).

First, the basics. At last count, government at all levels — federal, state and local — employed 22 million Americans, with the largest segment working in public education. Is that too many? No. Since the late 1980s, the number of public-sector workers has averaged about 7.3 for every 100 people. With the loss of 569,000 government jobs since June 2009, that ratio now stands at about 7 per 100….

The government does not create jobs? It most certainly does. And at this time of state budgetary hardship, a dose of federal fiscal aid to states and localities could create more jobs, in both the public and private sectors.

Over at the Washington Post, superb economics columnist Robert Samuelson properly describes the Times' editorial as promoting a "flat-earth theory" of job creation. As Samuelson patiently explains:

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….

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.

Samuelson caveats that he is not saying that private sector jobs are superior (although they are); not delineating a sharp line between private and public sector jobs; and is not debating "stimulus" vs. "austerity." He correctly concludes:

Understanding job creation has policy implications. If the private sector is the main source of jobs, then the incentives, disincentives and the general climate for firms to expand do matter…There's a flat-earth quality to the Times' argument. If government seems to create jobs, it must. We need to move beyond this primitive view.

Yes, indeed.

In my column, "Government Did Not Build Your Business," I reported research that finds that in fact that vast majority of new jobs are created by new businesses:

A July 2010 study, "The Importance of Startups in Job Creation and Job Destruction," by Kauffman senior fellow Tim Kane found that since the 1980s, new startups "create an average of 3 million new jobs annually. All other ages of firms, including companies in their first full years of existence up to firms established two centuries ago, are net job destroyers, losing 1 million jobs net combined per year." Kane came to the astonishing conclusion, "Startups aren't everything when it comes to job growth. They are the only thing."

The 2012 study found that while new business startups created 2.3 million jobs between March 2009 and March 2010, the net job creation from all U.S. private sector firms was minus 1.8 million jobs. The U.S. unemployment rate was then 9.7 percent. The number of business startups has dropped from 554,109 in 1987 to 394,632 in 2010. The 2012 Kaufmann report notes that the share of job creation from young firms has fallen from more than 40 percent in the 1980s to 30 percent now. While acknowledging that the severity of the Great Recession no doubt contributes to this decline in entrepreneurial activity, it is important to note that startups were a major factor in lifting the U.S. economy out of previous economic downturns. Why is new firm creation lagging now? Perhaps it has something to do with the Obama administration's idea of governance.

Go here to read Samuelson's whole op-ed "The Flat-Earth Theory of Job Creation."

NEXT: Jacques Barzun, Historian, Dead at 104

Editor's Note: We invite comments and request that they be civil and on-topic. We do not moderate or assume any responsibility for comments, which are owned by the readers who post them. Comments do not represent the views of Reason.com or Reason Foundation. We reserve the right to delete any comment for any reason at any time. Report abuses.

  1. Odd, the comments just disappeared. I’ll have to repost my pertinent one.

    1. All: I apologize for the wiped comments – I’ve been battling with some particularly fierce server squirrels and ….

      1. Perhaps you’re dealing with Squirrelosaurus.

        Sometime I’ll have to share the story of the Great Squirrelosaurus Episode when I was at Product Development. A true classic tale of man’s battle with a viscious beast.

        Carry on, Ronald – and, for God’s sake – BE CAREFUL!

        1. “Squirrelosaurus”

          I’ll notify my golden retriever right away.

          1. “We’re gonna need a bigger boat dog.”

            1. I hope it’s not this dog

      2. They revolted since we’re now allowed to post &s?

        (No, I didn’t post any 50-character words.)

        1. Wait, the ampersands have returned? Well that’s good news. The bad news is, now I won’t be able to pitch my would-have-been seminal work, “Where Have All the Ampersands Gone” to Reason. It might have ended with the line, “I’ll miss them, those ampersands in the text.”

          1. testing & testing & testing & testing….

            1. FREEDOM!!!!
              The ampersands have been liberated!!

              …… & & & & & & & & & & & & & & & & & & & & & & & & & & & & & & & & &

              They’re marching through paris!

              ….Only now H&R treats every word as having more than ’50 characters’

              Now ugg speak cave talk make point

    2. darius404| 10.26.12 @ 1:37PM |#

      Odd, the comments just disappeared. I’ll have to repost my pertinent one.

      Your impertinance sir is offensive and I demand satisfaction!(slaps with doeskin glove) Pistols at dawn!

  2. Boo! Comments wiped out by Frankenstorm!

    1. But now we are better off!

    2. It isn’t the first time…

  3. WOW! That neutron comment bomb WORKS!

    1. Efficiency and progress is ours once more
      Now that we have the neutron bomb

    2. Do it again!

      1. Make me!

  4. Not sure if the article reset was your attempt at fixing the quotes, Ron, but if so it didn’t work. If that’s not why, here’s the pertinent stuff again:

    The paragraph starting with “Samuelson caveats that….” and everything after the phrase “Yes, indeed.” are your words, but are in block quotes as if they are Samuelson’s words.

    1. There’s a grassy knoll somewhere in this theory.

      1. grassy knoll

        Is that what you kids are calling it these days?

        1. I don’t know, I’m not one of the kids. I’ve been busted, trying to sound hip again, haven’t I? What’re the new NOW! words they’re using?

          Boss? Bitchin? Rad? Dope? Fly? Somebody throw me a frickin’ bone here.

          1. “Hep Cats” – that’s what the whippersnappers and bons gentilhommes are using these days, my good man.

            “Hep Cats” and “Daddy O”

          2. 23 skidoo!

        2. As long as it’s been depilated.

  5. 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.

    Seen vs unseen. More of a broken window fallacy than a flat earth theory.

    1. Seen vs unseen. More of a broken window fallacy than a flat earth theory.

      More people should read the Frenchman.

      1. I tried, but I gave up

        GET IT! I “Gave Up”! Like Frenchmen “surrender!” GET IT?!

        1. Then this may be more your speed .

  6. Creating soldiers and sailors is an end to be proud of.

    1. Some tasks are necessary ones, but don’t offset the opportunity cost they consume.

  7. No by line? That’s odd.

  8. For no reason whatsoever, I am going to post some Mojo Nixon. Enjoy.

    “I wanna get ring around the face, baby.”

    1. Stuffin’ Martha’s Muffin – one of my fond memories from college.

    2. “Me your momma and some other whore
      Floatin down the river on a shithouse door”

      My personal favorite.

    3. “He don’t work here.”

  9. If the government is paying people to do stuff THEY SHOULDN’T BE DOING, make them stop.

    1. You can’t make government do anything because they’re the ones who make people do things.

      That ratchet only goes one way.

      1. Mmmmm – gotta disagree. The gummint is pretty responsive to the inputs from the populace. “We*” tend to get the gummint “we*” elect.

        Yep – sometimes it’s truly doing what very few want. But mostly people want the shit gummint does. And buy into the delusion it don’t need to be paid for, yo.

        *SLD

        1. My comment was in the context of “make them stop.”

          Once they start doing something, once a bureaucracy is in place, it rarely if ever goes away.

          1. gotcha – that’s pretty much a Law like Gravity’s a Law

        2. “We*” tend to get the gummint “we*” elect.

          Then they give us what we want, per the Good and Hard clause.

          1. Was looking up the exact wording of that quote and found another good Mencken one:

            Every normal man must be tempted at times to spit on his hands, hoist the black flag, and begin to slit throats.

    2. We’re trying, but my ballot doesn’t seem to have any effect!

  10. Ut oh. CIA operators were denied request for help during Benghazi attack, sources say…
    Benghazi is going to slowly destroy Obama’s chances.

    http://www.foxnews.com/politic…..urces-say/

    1. The problem is, only we care.

    2. Recall last week that dhimmicrats in congress and media shills for the DNC were having a shitfit over the CIA nature of the annex operation being revealed through the House investigation? Now we know why they didn’t want this fact to be out there.

      1. Sounding like a big weapons deal that went bad. Then Jarrett order the CIA to sit and watch while the consulate was overrun.

    3. You’re only saying this to try and embarrass the Obama! Why don’t you want the President to succeed?

      I think you need to watch FORWARD repeatedly until Obama’s love fills your soul.

      1. until Obama’s love fills your soul

        I’m assuming that “love” and “soul” are euphemisms for… something else.

      2. I think you need to watch FORWARD repeatedly until Obama’s love fills your soul.

        “I’m Lena Dunham, and I approve this message.”

    4. As it should. This is a situation where you can only say, “You’ve failed in your job as President. Whatever policies you may support, you are not fit for the office.”

  11. I want my comments back!

    1. Think of those of us who didn’t get to see them the first time. At least you have a memory of your comments. We are left with nothing.

      1. “We are left with nothing.”

        Like tears in rain?

        1. A thing of beauty is a joy forever. Grecian Urns and Rutger Hauer soliloquies.

          Damn. Just realized, I could have named my boy Rutger.

          1. It’s not too late. Somewhere or other on the interwebs I saw an article about people renaming their children once they realize they’ve saddled them with some terrible “original” name.

    2. Yes, but we don’t want your comments. :-p

  12. Is that too many? No. Since the late 1980s, the number of public-sector workers has averaged about 7.3 for every 100 people. With the loss of 569,000 government jobs since June 2009, that ratio now stands at about 7 per 100….

    The stupid just burns.

    1. About 7 to 100 – JUST AS GOD INTENDED

    2. And that’s not even the percentage of the workforce that’s in the public sector, it’s the general population.

    3. And that’s not even the percentage of the workforce that’s in the public sector, it’s the general population.

      1. You can say that again.

    4. They should just turn it up to 11.

  13. Is that too many?

    Yes.

    Next question?

  14. The problem is that people start the discussion with jobs rather than goods and services, ie wealth. In order to have a sustainable job one must be creating goods and services that others desire, and will pay for freely. The production and sales of those goods and services requires people to work, ie jobs. This is what the private sector does. If people stop desiring your products you lose your job.

    The government, on the other hand, rarely creates real wealth. Precious few government agencies create goods and services that people freely pay for. Most government agencies provide services of dubious value, that people want others to pay for and would not pay for themselves. The government uses force of law to make people pay for these services. The connection between the service and the people paying for the service is very indirect – people can’t reject the services.

    Perhaps our tax forms should be like a Chinese menu. Calculate your income and then decide which government goods and services you are willing to pay for. Check those boxes, and then your tax is calculated based on the % of budget that goes to that dept. For example, the Dept of Defense allocation might be 20%. Your tax rate (say 30%) is multiplied by the DoD share (20%) to get the amount that you pay that goes to DoD (ie 6%). The DoD gets to spend the sum of what the taxpayers have freely agreed to pay. Congress sets the percentages that each Dept receives.

    1. Mmmhmmm. Yeah. Go on.

    2. That system wouldn’t work either, since there are no consequences to the individual taxpayer for choosing a stupid allocation scheme.

      You really can’t make legitimate govt services follow a market model, because if they were conducive to market forces they wouldn’t be legitimate govt services. Of course, 70% of what fedgov does is illegitimate,but that’s another thread.

      1. Of course, 70% of what fedgov does is illegitimate,but that’s another thread.

        Actually, I think this is the exact thread for that.

        1. Assuming pubsec employees are in proportion, and assuming that 70% number isnt too low, that would reduce the 7 in 100 to 2.1 in 100.

          Reduce pubsec employment to that level and I will shut the fuck up. Let the next generation worry about the remaining 30%.

  15. The fundamental observation is that government employment does not, on net, create value, as determined by willing customers.

    It may be that some functions performed by government are of value, but that value cannot be determined when they are paid for by extortion.

  16. I guess there won’t be any jobs after the Republicans pass that $500 trillion tax cut.

    1. That cut is probably as non-existent as that link makes it look.

    2. Wow, this post is very interesting. A non-existent link for a non-existent tax cut. That’s so “meta”. My mind is blown. Seriously, my head just exploded like that guy from Scanners.

      1. You type well for someone with an exploded head.

        You’re not actually the headless body of Spiro Agnew, are you?

  17. Except that it does, millions of them ? including teachers, police officers, firefighters, soldiers, sailors, astronauts, epidemiologists, antiterrorism agents, park rangers, diplomats, governors (Mr. Romney’s old job) and congressmen (like Paul Ryan).

    You see? This is the problem! Where are all the jobs for epistemologists, hand-puppeteers, theater artists, cowboy poets, and artisanal mayonnaise crafters?

    Like we’ve all been saying, the government sucks at creating jobs that people can actually do.

  18. Not to defend Samuelson, but, yes, government does create jobs. It’s not net job creation, as everyone* here well understands. Educating the public about this fallacy (that government somehow magically creates jobs without destroying others) is one of our great challenges. It’s easy to point to a single job, say a park ranger, and say that government created that. Since the ranger job exists at the expense of reduced earnings of a very large number of other jobs (ie, pennies for any single taxpayer), it’s hard to point to a single job lost. And it’s even harder to get people to visualize that the net effect of all those rangers, and bureacrats and regulators does have an effect on the economy.

    *Trolls, etc, excepted, of course.

    1. Not to defend Samuelson, but, yes, government does create jobs. It’s not net job creation, as everyone* here well understands.

      Samuelson actually covers this:

      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.

    2. And I’m sure you mean, “Not to defend the New York Times.

      1. OK, I’m having a John moment. Sorry.

        1. It’s ok. It happens to all of us.

          1. That’s a damn dirty lie!

        2. You were thinking about fucking a fatty?

    3. It also doesn’t help that people always bring up “teachers, firefighters and police officers” and, I guess you could add “park rangers” to the list of examples of government jobs. If those were the only jobs that the government created I doubt very many people except for anarchists would complain. The problem is that those aren’t the only jobs government creates. Most government jobs are useless paper pushing bureacrat jobs. Not only that, but those useless fuckwits are often paid a lot more than your average teacher, firefighter, or cop, or park ranger.

    4. Educating the public about this fallacy (that government somehow magically creates jobs without destroying others) is one of our great challenges. It’s easy to point to a single job, say a park ranger, and say that government created that.

      And even at that, the real problem isn’t the park rangers, who actually take up a pretty small portion of the government pie.

      It’s the defense, pensions, medical, debt service, and welfare spending that are the real issues, just because they take up the vast majority(roughly 80%) of federal spending.

      Sure, I’d love to cut the Dept of Ed, or at least scale it back to when it was just an agency under Health and Human Services. But that won’t come close to getting us where we need to be.

  19. Do people at the NYTimes ever think to themselves: “Obama, Romney, and all these other people saying that the Government doesn’t create jobs can’t be so stupid as to think the Government doesn’t actually employ anyone, right? Those people must intend some other meaning, right?” Evidently not.

  20. Not to defend Samuelson, but, yes, government does create jobs. It’s not net job creation, as everyone* here well understands.

    Samuelson actually covers this:

    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.

    1. Hm, wrong place.

      1. Obviously, the squirrels are not yet vanquished, Darius.

    2. Derp. Not only did I not RTFA, I (obviously) didn’t even fully read the parts of TFA that Bailey quoted. I blame the bath salts.

      1. Oh, I do it too, Tonio. I have class all day, so I don’t always have the time (or inclination) to read everything. Sometimes I skim, and sometimes I skip right to the comments.

      2. Bath salts cause zombieism.

  21. Except that it does, millions of them ? including teachers, police officers, firefighters, soldiers, sailors, astronauts, epidemiologists, antiterrorism agents, park rangers, diplomats, governors (Mr. Romney’s old job) and congressmen (like Paul Ryan).

    Not a one of whom create or add value to any good. And I would bet every dime I have that whatever “service” they render is inequitable to the cost they extract.

    1. So she’s going to stop arguing about it? She is a wise Native American!.

      1. Wouldn’t that just suck? Elizabeth Warren on the Supreme Court?

        1. The horror…

          I’m going to have nightmares about that. Thanks an effing lot, Darius.

          1. Just think of the left’s Dream Court, Tonio, just 6 years from now:

            1)John Roberts (as the token righty)
            2)Ruth Bader Ginsburg
            3)Stephen Breyer
            4)Sonia Sotomayor
            5)Elena Kagan
            6)Elizabeth Warren
            7)Ok, I admit it,
            8)I ran out of names
            9)after just 2 appointees.
            10)Barack Obama! (SURPRISE! He’s a constitutional lawyer, a former President, AND a Nobel Peace Prize winner! Can’t get any more qualified than that, right!?)

    2. She’s right that we shouldn’t be fighting for insurance for birth control, but not in the way that she thinks.

  22. Once again, my theory that liberals don’t understand where money comes from is proven correct.

  23. If not for the noble selfless Park Ranger, Yellowstone would be nothing but a lifeless heap of mine slag! And trailer parks!

    1. Well someone has to keep Yogi out of those picinic baskets. It’s not like people could do that themselves, you know.

    2. Trailer parks? Hey, the serfs have to live somewhere; and we are all serfs now.

  24. Since I’m unemployed, what I will do is spend next week robbing people of their cash, thus creating a job for myself.

    If all unemployed people would do this, unemployment would end and the economy would grow at unprecedented rates.

    1. By skipping the government step you’re depriving a whole department of government employees from doing work. You fiend!

    2. Since I’m unemployed, what I will do is spend next week robbing people of their cash, thus creating a job for myself.

      You’re one of them greedy, selfish free-market bastards aren’t you? Always just looking out for yourself.

      I’m unemployed and I formed a co-op of unemployed people to rob each other. I only get a small cut of the take as a management fee, so I guess that makes me morally superior to you doesn’t it?

  25. It really is amazing how many different variations of the same fallacy that people can come up with…

    1) Natural disasters stimulate economic growth
    2) Deficit spending to jolt the economy into recovery
    3) The government “creating” jobs
    4) Fiat currency in general

    1. You forget the most enticing and exciting.
      War.

      1. War what is it good for arregate demand.

        Doesn’t have quite the same ring.

  26. Four days ago the New York Times ran a particularly obtuse editorial

    You could have just stopped there.

    1. Four days ago the New York Times ran a particularly obtuse editorial

      Yeah. That’s probably true every day of the year.

  27. I’ll bet there are Obamatrons out there who would support “creation of jobs” by the government requiring all road construction to be done by an army of men with teaspoons, and every employer to hire one more person for every ten currently employed. Soon we will be like the Soviet Union where everyone pretended to work and the government pretended to pay them.

    1. There’s an episode of Better Off Ted where the company installs a new motion sensor system to save energy(cuts off lights, opens doors, etc). But the new system can’t see black people.

      So instead of admitting it made a mistake, the company hires a white guy to follow each black employee around the building.

      See, waste = jobs!

  28. Re: Samuelson,

    First: I am not saying that private-sector jobs are superior to public-sector jobs.

    Oh, Robert. You were doing so well till then!

    Of course private sector jobs are superior. They’re productive. Public sector jobs are NOT. If the latter require funding through thievery and extorsion, then they cannot be productive at all.

    Obviously, we need teachers, soldiers, police officers, epidemiologists and the other workers the Times mentioned.

    “Obviously,” you cannot say we “need” them as nobody is plunking down a single cent to pay for them – the money is taken by force. In the absence of choice, you cannot talk about needs.

    How many we need and what they should do are political questions.

    No, it is an economic question. You just wrote a few paragraphs ago that the government takes from the private sector to pay for those workers, so how can you know how many of any you need? Just because you call it a “political question” does not mean the Laws of Economics are turned off as if a switch was thrown.

    It’s also true that many government activities ? basic research, highways, schools ? can support the private sector.

    Yeah, maybe. They certainly support some private sector contractors and other politically well-connected cronies.

Please to post comments

Comments are closed.