There is a rather widespread argument recently circulated. It essentially is: Unemployment would not be so bad if government tax revenues were not down, causing governments to lay off workers.

This argument assumes that government jobs have no negative effect on other employment, or the negative effect is offset by the positive effect of those employees having a job. It also assumes that all jobs are good because they provide the employee income, driving the multiplier effect, or are essentially Keynesian “stimulus”.

Both premises are wrong.

Outside of government, jobs exist for one reason alone.

Profit.

For governments to operate, they must have revenue. Revenue comes from various forms of taxes, with the most prevalent being on income, sales, and property. Generally when something is taxed, you get less of it.

Politicians love to tout their “job-creation record”. They always want to talk about all the jobs they have created. The current administration has taken this a step further reporting on the incalculable “jobs saved”.

However, in reality, politicians do not create jobs. They merely create an environment that affects job creation positively or negatively.

At present, the Obama administration has created an environment of high level of uncertainty with a constant stream of new, costly regulations and the prevailing threats of additional and higher taxes. This has caused many businesses to stall plans to expand and add new jobs.

While it is true that some taxes are necessary because a government must exist, the size of the government is the issue. Every dollar the government takes in taxes reduces the means of production of the economy, thereby reducing investment in business growth, which costs jobs.

Some may argue that the government “creates” jobs with new government positions funded by those taxes. However, most Americans agree that government is exceptionally inefficient and wasteful. There are several reasons for this. One of them is that government has no incentive to be efficient as it has no profit motive.

Businesses are always looking for ways to innovate and drive efficiency to be more profitable (or charitable in the case of a non-profit), thereby freeing up more capital, creating the means to grow the business and pay the owners who took the risk on the business, be they direct owners or shareholders.

However, government does no such thing. Using President Obama’s recent example, if the government had operated all banks, it surely would have never created the ATM because government has no incentive to innovate. Further, it is so difficult for the government to reduce its workforce; it would then be left with the problem of what to do with those employees.

One of the benefits of the economic downturn has been government tax revenues have decreased forcing government to pursue some innovation, driving it, especially at the state and local, level to find ways to do more with fewer employees. This is a constant pursuit in the private sector, as efficiency leads to profitability, which leads to business growth, which leads to more jobs. In much the same way, a leaner government will leave more of the means of production—capital–in the private sector, where the economy grows.

However, politicians like to claim direct “job creation” by naming new positions. This is the reality of how our country operates. Unfortunately, these jobs always come at the expense of the general economy, as its pool of capital is reduced and any benefits of the current leaning of government will be lost. This slows the economy down, as fewer private jobs are created which grow businesses which create additional self-funded jobs.

A job is not a right. If a politician wants to “create” government jobs for the sake of having more “jobs”, they might as well redistribute the producer’s wealth by any of the government’s various other means. There is no difference.

The best way a government can participate in job creation is to leave job creation to the private sector, where the true incentive for growth and real, additional job creation exists.

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