Economics in Many Lessons 4: Public Works Don’t Work

By Nero

                In this
lesson I hope to address the subject of that great social idea of public works
and why they are bad. Very bad. But first, what are public works? When I refer
to this label I first want to state that I am not referring to items such as
the fountains, artwork, sculptures, or other things built by my namesake during
his reign as Roman Emperor. Nor am I referring to things such as libraries,
police, fire fighter departments, or other types of services that are indeed
owned and provided by the government in order to provide services to the
public. While some might point out that these are indeed examples, though very
minute examples to be sure, of socialist policies (if you subscribe to the thinking
of Anarcho-Capitalist and Austrian Economist Murray Rothbard, you may point out
that all of these services could be provided by private industry and not the
government) they do serve the purpose of increasing the efficiency of the
overall free market (it would be quite inefficient if businesses kept burning
down or getting robbed, preventing producers from selling or consumers from
buying after all) I do not lump them into the more dangerous ideas of socialism
such as the one I am about to discuss. The definition of public works (PW) that
I mean is the idea of the government “creating jobs” and I use that term
loosely as I know it to be completely false and indeed quite harmful to the
overall economy as well.

                Now the
overall idea of public works in our modern sense generally are seen in two
ways: hard economic times that are so devastating that not enacting some form
of public work would be cruel and harmful or in the sense that a politician may
simply create some job in return for a vote or contribution (This idea used to
be called graft or patronage and I’m sure all of us can think of a few
instances of politicians on both sides of the aisle doing this action at one
time or another).  The first idea behind
PW is seen all too often: times are tough, people are losing jobs, the economy
is contracting, consumer spending is down, and we all are in very big trouble.
Two occurrences such as this generally comes to mind when one tries to imagine
this situation in the United States: the Great Depression and the current
economic recession.  In both of these
cases, PW have been or are now being exercised in order to soften the blow of
the slowdown and thus bring the economy back on track. During the Great
Depression FDR, our greatest Socialist President, instituted programs such as
the Tennessee Valley Authority, just one of his many programs from his alphabet
soup, in order to put people back to work and thus stimulate the economy back
into action. It is also going on now by our own federal and many of our state governments
(I know for a fact my current governor of Illinois has already signed such a
measure into law). Again, the idea behind this is to help the economy grow
again by adopting the stereotypical ideas of John Maynard Kenyes: if the
government spends enough money and takes on enough debt the economy will be
fine. If you read that and just thought, “How the hell does that help?” than
your more knowledgeable of sound economics than you first thought, the idea is
entirely preposterous and the idea of creating jobs out of thin air is a prime
example of the broken window theory.

                The
broken window theory was first proposed by classical liberal Frederic Bastiat
and mentioned as the first chapter in Henry Hazlitt’s Economics in One Lesson (a timeless classic in the field of
economic science and the inspiration for this series of lessons) with the idea
going something like this: Let’s say I walk up to your house and throw a brick
through your front window. As you’re waiting for the police to arrive and
arrest me I might say something like, “Hey, I know you’re upset but what I did
actually helped our economy. You see, when you pay to get that window replaced,
you’ll give business to some window maker and he’ll use that cash to buy stuff
and the economy will grow.”  Is that an accurate
statement? No, it isn’t. Because as Hazlitt and Bastiat before me have pointed
out, the money that you would use to replace the window would come AT THE
EXPENSE OF BUYING SOMETHING ELSE! In other words, the money you spend replacing
that window may stimulate that window maker, but if you had been saving that
cash to buy an LCD TV from BestBuy, you no longer can purchase it and BestBuy
won’t grow. You’ve essentially shifted money around and not allowed for any
real growth. The economy is no better off and you’re in a worse state because
now you’re buying a window instead of the TV you wanted.

                Why do
I bring this up? To show that you cannot just create jobs out of nothing, which
is essentially what PW are. The state cannot just come up with a reason to put
people on the payroll and expect the economy to grow and to show how here is an
analogous situation:

                What a
Kenyesian says happens: 100 factory workers are laid off in a recession so the
state comes up with 100,000 dollars to fund the building of a bridge to put
them back to work. They build the bridge and are each paid 1000 dollars. They
take that money to buy things from other businesses supposedly growing the
various industries, allowing for greater growth of GDP and the allowance of
them to find new jobs. They are employed again and all is well. Complete BS.

                What
actually happens: The state funds the bridge to put the factory workers back to
work, but they fund it by raising the state’s income, property, and capital
gains taxes. Businesses and workers that cannot spend and grow are forced to
save more, spend less, and lay off workers while holding off on purchasing
newer and more effective machinery. The businesses cannot grow larger and
people spend more, so when the factory workers come and spend the money that
they were paid for the bridge, all it does is succeed in growing the economy a
small amount, but not as much as if the tax had never been levied. And because
of this, the economy cannot support the infusion of new workers even after they
spend their 1000 dollars. The entire enterprise was a waste and in fact hurt
the economy more because business in general couldn’t grow.

                This
hypothetical situation is precisely the same as the broken window theory:
giving someone business at the expense of someone else doesn’t create work: at
best it does nothing and at the worst it hurts the economy. That is essentially
all PW: taking money from those that have it and funneling it away to those
that do not have it. Where have we heard that idea before?  Cough* “Marx”.

                Another
main criticism of PW that is dismissed all too often is that if the state
provides you with a job you will not look for a job on your own and expect the
state to always supply you with one. While this does not happen in every case,
as I acknowledge that not everyone employed for the government desires it and
do look for private sector jobs, there are indeed people who like to drain the
taxpayer’s resources by securing nice employment from the state whether they
are needed or not. Being from Chicago I have witnessed the corruption of the
Democratic Machine firsthand and the wasteful spending that comes with it.
Providing people with jobs does indeed cause them to attempt to stay on the
government payroll anyway necessary. In Great Britain there are so many people
employed by the state that they are producing the worst deficits of any other
socialized nation in Europe.

                So
after reviewing PW and seeing what effect they have on the whole economy it
becomes abundantly clear that they are colossal wastes of money and in fact
hurt the economy overall in the long run. They are a joke, another idea of
socialism gone haywire that has no place in a real functioning economy, and it
would be a miracle if our government could realize such a thing and put them to
an end, saving everyone a good deal of money and prosperity.

TU NE CEDE MALIS