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Stimulus spending necessarily costs jobs

Posted by Richard on January 25, 2010

Veronique de Rugy graphed employment and labor force changes against the government's "stimulus" spending, and the results aren't pretty:

Using data from the administration’s website and from the Bureau of Labor Statistics, this accompanying chart shows the monthly increase in the number of unemployed workers and the shrinkage of the civilian labor force in tandem with the administration’s stimulus spending. In other words, it shows how not only that many workers have lost their jobs since the administration started spending stimulus funds, but also that many more workers have exited the labor market. The civilian labor force shrinks when individuals who were looking for work or were employed decide that their labor market prospects are not good enough to keep looking for a job or to stay employed. For instance, some people might decide to go to grad school instead of keeping a poorly paid job, while others might decide to not seek a job and instead stay home with their kids. One reason for the shrinkage could be that the current economic state is so bad that workers feel it is not worth their time and energy to keep looking for a job when there is no hope in sight.

Two things are sure. First, if it weren’t for workers’ mass exit from the labor force (600,000 workers exited in December alone), the unemployment numbers would look even worse that they already do. Second, government spending cannot create jobs.

(HT: Instapundit)

This shouldn't surprise anyone with a modicum of economics education. In fact, it's an utterly predictable result. A study released last March by researchers at Madrid's Juan Carlos University determined that each "green" job created by Spain's rush to embrace "alternative" energy (at a cost of $750,000 apiece in subsidies) cost the Spanish economy 2.2 jobs elsewhere in the economy.

The problem isn't specific to "green" energy, and it doesn't matter whether you're talking about direct government hiring, government contracts, government mandates on private activities, or government subsidies.

When government takes resources out of the economy (by increased taxing or borrowing) to fund any of these activities, it redirects resources from a more productive use to a less productive use. If that weren't the case, the heavy hand of government wouldn't have to forcibly redirect of those resources.

Ipso facto, these activities make us as a society poorer — although they certainly enrich the special interests who benefit from the redirection of those resources.

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