Friday, October 26, 2012

Yes, government is an engine of job creation!

Of all the damaging myths about the economy, the top one is probably that the government is not an engine of job growth. The latest evidence of this myth is a Washington Post column by Robert Samuelson attacking a New York Times editorial supporting the idea that government creates jobs, accusing it of having a 'flat earth' view of the economy.

But the 'flat earther' here is Samuelson. As we have discussed earlier in this blog, former World Bank economist Isabelle Tsakok in her book Success in Agricultural Transformation has looked across countries and history to identify what was necessary to transform from a poor economy with subsistence agriculture to a rich, modern society. In 100% of cases sustained investment by the government in public goods was key. These investments include in infrastructure, education, and research.

Her cases include the USA. The first huge investment was in the Erie Canal, which Thomas Jefferson labeled as "a little short of madness" as a big government, big debt project. But New York Gov. Dewitt Clinton got it funded by New York State government, and when it was built it reduced the price of Midwest grain by 90%, broke the trade barriers in Europe, enabling midwest grain to go all over the world and making New York the biggest city in the world. In other words, government investment in infrastructure was the key to making the US a world economic power.

And it didn't end there. There was a fellow in the then frontier West who aspired to be the DeWitt Clinton of his state. And when he was elected President, Abraham Lincoln in fact became the 'great investor' in the USA, with the homestead act, initiating the transcontinental railroad, the land grant colleges, and many other projects.

And this critical role of government investment in public goods remains the foundation of job growth in the US. The Apollo funded the creation of the microchip, foundation of the US computer industry. And DARPA, the defense department investment program, funded the beginning of the internet.

Samuelson's key argument is that while the government creates government jobs, that money could be used to create a private sector job. He writes, "Government is not creating jobs. It’s substituting public-sector workers for private-sector workers."

The huge blunder and hole in this argument is the assumption that the government job does nothing to leverage private sector jobs. But in the USA from the Erie Canal to the Internet, and from worldwide evidence over all of history cited by Tsakok, this assumption is the opposite of the truth. Government investment is in fact a necessary, critical engine of progress. Samuelson here is the flat earther, not the New York Times.

No comments:

Post a Comment