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Governments Don't Create Prosperity


Politicians say they create jobs, but they really don't. Or rather, they rarely create productive jobs. Government has no money of its own. All it does is take resources from one group and give them to another. The pharaohs might have claimed they created work when they ordered that pyramids be built, but think how much richer (and freer) the Egyptians would have been if they'd been allowed to pursue their own interests.

It's individuals in the marketplace who create real jobs — when they have the protection of life and property under the rule of law.

Economic freedom is the key. The theory couldn't be more clear, and at this late date in human history, it shouldn't be necessary to rehearse the abundant evidence. Look at the various indexes that correlate economic freedom with economic growth. The healthiest economies are those with the most economic freedom. Unemployment is low in those places — 3 percent in Hong Kong, 2 percent in Singapore, 5 percent in Australia

Alas, the United States places ninth, behind Canada, and those countries with the least economic freedom have few real jobs and no prosperity.

Unfortunately, most politicians still don't understand — or have no incentive to understand — that economic freedom, and therefore less government, creates prosperity. Well, maybe that's changing. This year is first I've heard so many presidential candidates talk about the private sector. Indeed, one candidate, former New Mexico Gov. Gary Johnson, told me he created "not one single job. ... Government does not create jobs."

The truth is we have too few jobs today because government stands in the way. If I'm an employer, why would I want to hire someone when Congress and the Labor Department have so many rules that I might not be able to fire that person if he can't do the job? Why would I take a risk on an investment when still-to-be-written rules about Obamacare, financial regulation and the environment could turn my good idea into a losing venture?

I refereed a debate on whether government creates or impedes economic activity.

"Government can spend and create jobs," said David Callahan, cofounder of Demos. "If government steps up and provides stimulus money to hire people, what we get is more people spending money in this economy, more hiring, and we get that virtuous cycle going."

Yaron Brook, president of the Ayn Rand Institute, replied:

"It is ridiculous to assume you can tax the people that are working and give the money (to people) who are not working and somehow this creates economy activity.

You are destroying as much by taking from those who are working and creating."

Callahan then invoked the magic I-word.

"One place we need more government spending is for infrastructure. Drive down any road, go across any bridge, you are likely to see dilapidation. There was a bipartisan panel that said we need to spend $2 trillion or more on infrastructure."

"Don't pretend that stimulates the economy," Brook rebutted. "That money has to come from somewhere, that $2 trillion that you would want to spend on infrastructure is taken from the private economy."

"This is a fallacy," Callahan replied. "Twenty million jobs were created in the 1990s when we had higher tax rates than we do today. After World War II — also a period of high tax rates, also incredible job growth.

And, by Keynesian logic, war can stimulate the economy.

"World War II was the great stimulus. ... That kind of external crisis can inject a lot of new capital."

"This is one of the worst fallacies of economics," Brook said. "This is called the broken-window fallacy."

The fallacy comes from Frederic Bastiat's story of the boy who breaks a shop window, prompting some to believe that replacing the window will stimulate a ripple of economic activity. The fallacy lies in overlooking the productive things the shopkeeper would have done with the money had the window not needed replacing.

"World War II did nothing to promote economy growth," Brook said. "Blowing things up is not an economic stimulus. Destruction does not lead to progress."

Don't expect most politicians to learn this any time soon.

John Stossel is host of "Stossel" on the Fox Business Network. He's the author of "Give Me a Break" and of "Myth, Lies, and Downright Stupidity." To find out more about John Stossel, visit his site at <a href="" <>></a>. To read features by other Creators Syndicate writers and cartoonists, visit the Creators Syndicate Web page at




7 Comments | Post Comment
That "protection" thing is the racket that justifies everything that every level of government does. Last year about 80,000 pages of new regulations were promulgated by the alphabet soup of government agencies in just the Federal government. One way or another, the government wants to issue conditional rights to us, and control every activity under the sun.
What they don't want you to find out and understand is that by entering into a contract, or any private agreement, you can totally dismiss the unwanted oversight of the state. The government is doing whatever they can to ensure that the TRUE power of private contract never becomes common knowledge. Contract, not license, is the original intent of the Republic. They must maintain the propaganda that they are relevant and that they are required in our lives.
Comment: #1
Posted by: Mystified
Wed Sep 28, 2011 9:12 AM
How can youl continue the argument that Government spending doesn't create or support private sector jobs? My understanding is that less than 10% of the Federal budget goes to government employees (which, as a matter of fact, are jobs also). Certainly some to school systems and state and local governments (also jobs, as well as substantial expenditures in the private sector). But where does the bulk go?
I'd argue mostly to the private sector. Doctors , hospitals , pharmaceutical companies just in health care alone. Why don't you ask Boeing how many of their thousands of jobs come from Government contracts. NASA research and development, design and assembly performed by the private sector. You mention infrastructure as if it is a footnote. What about building Navy ships and carriers. Weapons R&D and supply. The list goes on. All private sector jobs that would not be there without Federal spending.
Its really back to the "guns or butter" question. You could choose butter instead of funding the Gov. to buy guns, but you can't as matter-of factlsay that would create more jobs.
Comment: #2
Posted by: John Kranda
Wed Sep 28, 2011 12:31 PM
Re: John Kranda - The problem sir, is the removal of property from the people you take money from through government to pay for whatever the government does. It is the same dollar. It is the equivalent of dipping a bucket in the deep end of the pool, pouring it into the shallow end and then expecting the shallow end to somehow become deeper.
We want to CREATE more wealth for everyone, this is the only way to ensure everyone has as much as their skill, resources and time can produce for them. In other words, if you want the shallow end of the pool to become deeper, you have to add more water to the entire pool. Money is the same way, Money is not a zero sum finite resource, more value can in fact be created but this is impossible to have happen if the state and fed governments are confiscating through taxes and bonds, half the GNP.
I am not sure why you are unable to understand the simple logic here.
An economy has a floor and ceiling of government spending to allow for expansion and subsequent job growth or wealth growth for all.
The floor is the minimal amount needed for certain government tasks, such as protection from foreign invasion, administering a justice department or a civil court system. In addition, standard currency, measures and many other things that are more functional run or maintained by government. For all of this, it is cheaper and more effective for the government to manage because individuals or small groups attempting the above would not work. You end up being invaded or vigilante justice rules. If the government is too small these things don't work and the net effect on the economy is to drag it down or stagnate as people attempt to self mitigate these problems.
At the same time their is a ceiling of spending. Looking at the last 70 years of budget and revenue numbers reveals about 16% of the economy is the optimum spending rate. Above this amount and the economy does not have the extra capital needed to sustain and grow the economy. At the current 50%+ spending of the GNP, the economy not only can't grow because there is no money to grow with, it is likely not able to generate enough activity to sustain itself. This is why the US economy is failing. The government is simply spending too much.
Comment: #3
Posted by: Todd T
Fri Sep 30, 2011 5:31 PM
Please everyone can't we all just understand that the reason for the soft job market is the simple fact that we don't make anything here anymore! We've outsourced our own future to the likes of China, Mexico, India, ect.
Remmember when the Clinton administration signed NAFTA, and how they sold us the fake promises that it would ultimatly create jobs in this country. The only real jobs it created was somewhere else. Not eveyone can work in a bank, hospital, law office, accounting office or even at a construction site. We need to begin to manufacture consumer goods here in America again. Thats where the real jobs are. The jobs that will jump start the economy and get people working again. I've come from private sector manufacturing and in the last 20 years have seen many and spoke to many of my coworkers who lost thier jobs to overseas competition. You know the threat is real when you loose yours too.Would a real presidential canidate please stand up an admit to the real reason of a weak economy? And what they are going to do about it? Please, we need you now more then ever. God Bless America!
Comment: #4
Posted by: Ed F
Mon Oct 3, 2011 6:35 AM
The "broken window fallacy" has been known - at least by some - for over 150 years. It is so simple to see that the money spent to replace the glass broken by the boy would have been spent on something else or possibly (as savings) loaned to another for that person to then spend.
Therefore some part of me is always amazed that so many people are suckered in when most politicians and their friends push for the spending of "government" (tax) money to "stimulate the economy".
Is it that those who are suckered in have really never learned this 150 year old fallacy and see its logic? Or do they just not want to use reasoned logic and instead are satisfied to be a government pawn? - good only as cattle for labor of various types that maintain and promote government power directly or via taxes, and suitable as cannon fodder to fight the numerous wars begun as part of the fear campaign to further the belief that government is a necessity for social order. (Forbid the thought that many in the populace should come to question whether a government is truly needed... ah, but they can and such questioning may be starting) It is definitely within the individual capabilities of the vast majority to come to understand this and with the Internet, more and more are within a finger's tap of getting the information.
Comment: #5
Posted by: Kitty Antonik Wakfer
Mon Oct 3, 2011 2:53 PM
It is demand for a good or service that creates jobs, not 'people in the market place'.
Comment: #6
Posted by: BR
Tue Oct 4, 2011 7:13 AM
10 percent to govt jobs, is that why Obama is looking to bring in 230,000 workers for the EPA? Forget the 21 billion payroll because that is chump change to the debt he is racking up. How does a n EPA worker justify their job? That would be by fines and harrasment to business's in an already caustic business climate. And while his numbers are in the toilet it would not hurt to have more on the payroll. As to some examples of the mindset of the Obama reign just look at " gibson guitar raid with assult weapons by the Fed's with a statement by the DOJ that his problems would go away if he sent his labor to Madasgar" Then look at all the new govt regulations since Obama and the cost to business. Along with the SF Calif SEC in Dec of 2010 freezing the assets of Alternate Energy Holdings Inc with suspending trading for the govt's " MERRY CHRISTMAS". I could go on but my computer does not have that much memory for Obamas in my opinion anti business admin so I will elaborate a little more on the first independently owned publicly traded nuclear power co in the U.S. Two weeks after the SEC suspended trading with the assets frozen they informed Mr Gillispie the CEO of AEHI that they would resume trading 2 weeks later, even after he asked to keep it suspended untill after the Feb 03 hearing with Fed Court Judge Edward Lodge so investors could make a decision on all the facts. The SEC said no and continued to try the case in the court of public opinion but what the SEC did not count on was that Mr Gillispie's employees would work for no pay because they believe in him as I do.This is real faith in a man especially in an area of Idaho that had one of the highest mortgauge defaults in the country. If the SEC is there to protect the investor then by their actions the only ones protected were the anti-nukes and the ones buying short on the stock. On Feb 03 the Judge heard the case and instructed the SEC to release the company back to do business which of course took the SEC about a month to comply with the ruling. It was heard that the SEC lawyers were talking with the anti-nukes letting them know it was not over so they took to attacking investors and I know that first hand because I was one .
Now they are trying to reclothe the same old accusations that apparently came from an anti-nukes blogs and try him again and to in my opinion further intimidate him the SEC got an order form a judge of whom I am not sure was told about the first hearing and the ruling by Judge Edward Lodge so they got the FBI and IRS of whom busted in his door at 6:00 am when he did not answer in minutes. I am also of the opinion the SEC is trying to make an example of him. All Mr Gillispie wants is a chance to either debate in a very public forum or have the media hear his side and investigate for themselves since the SEC has the power of force and the taxpayers money how can he compete, when the supposed conversatives are deaf to what is going on. There is much more to this man who has a great reputation around the world and also offices in other countries but if he can't get an even break with the gutless conservatives then it is time to throw in the towel. This company is battling the full weight of a country that by all the conservative talk is out of control and if he can't get any help we deserve what we get but he does not.
Comment: #7
Posted by: Tango
Wed Oct 5, 2011 11:09 AM
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