Public Works Mean Taxes
http://steshaw.org/economics-in-one-lesson/chap04p1.html
In this sub-lesson Hazlitt argues that the government is incapable of creating net jobs, that government spending is always a zero sum game (at best). At first, I thought I might actually end up agreeing with this section. That was when I thought Hazlitt might argue that government has shown itself to be incapable of solving the unemployment problem. But no, Hazlitt’s argument is not so much against the actual practices of government as it is against the idea the such taxation and spending cannot even theoretically meet the two criteria: (1) increase the number of desired products, (2) produce a situation that the majority would choose over the alternative.
In order to counter Hazlitt’s claim, we must acknowledge three facts: (1) there exists idle laborers who wish to work if they can get paid, (2) there exists idle resources capable of producing products, and (3) these products would be desired by people.
Hazlitt contends that all government spending is necessarily taxation. He maintains that the government cannot produce anything without first taking something away from someone else. While this may generally be the way the state operates (or appears to operate), I am not sure it is necessarily true. All I need to do is provide one example to debunk this idea.
I don’t think anyone would contest that there are currently a very large number of unemployed people who wish to have work (1). There exists idle oil reserves beneath the Arctic National Wildlife Refuge (2). Oil is desired by people (3).
The government can employ these people to drill for oil. It can pay them by simply printing money equal to the market value of the oil. It can then either give the oil to the taxpayers at no charge or sell it to them. Printing money in this case should not contribute to inflation because the new money is simply representing the value of the new commodities. Ultimately, the nonworkers receive the oil from the workers, while the workers (in exchanging their money) receive commodities of equal value from the nonworkers. Of course the workers might receive goods from people who don’t actually receive oil. But this is true of any monetary system. And of course a good question would be, “who benefits from the oil?” Hazlitt seems to imply (correct me if I’m wrong) that it can’t possibly be the majority. But if this is necessarily true, then it seems like it would also be true of any entrepreneurial activity, which I doubt Hazlitt would claim. If, on the other hand, he is merely claiming that government spending doesn’t necessarily lead to more wealth, then I would agree.
Let’s look at a few more of his arguments:
For every dollar that is spent on the bridge a dollar will be taken away from taxpayers. If the bridge costs $10 million the taxpayers will lose $10 million. They will have that much taken away from them which they would otherwise have spent on the things they needed most.
This seems reasonable if you don’t think too much about it. I mean, if I spend $10 million on a bridge, then I will surely lose $10 million. But if you look closely, you’ll note that Hazlitt uses a particular category. He says taxpayers will lose $10 million*.* By taxpayers, I assume he means anyone who pays taxes. By losing $10 million, I assume he means taxpayers as a group will have $10 million less than before the bridge was built. But who are they paying the $10 million to? Are not the workers also part of the taxpayer group? Is it not true that the money could still be spent on “things they needed most”? Hazlitt’s statement is misleading at best and false at worst. He concludes:
Therefore, for every public job created by the bridge project a private job has been destroyed somewhere else ...They are the jobs destroyed by the $10 million taken from the taxpayers.
If private spending of money is all that is necessary to create jobs, then government spending can hardly prevent job creation, because money is very rarely in government hands. As soon as the government spends money, that money is in private hands and thus can do anything it could have done before it was taxed. On the other hand, we could claim that it is the government’s holding of money that reduces jobs. But then this would mean that the private holding of money also increases unemployment. And isn’t that in fact the Keynesian position? Don’t they claim that unemployment is due to too much savings?
But if they have taught themselves to look for indirect as well as direct consequences they can once more see in the eye of imagination the possibilities that have never been allowed to come into existence. They can see the unbuilt homes, the unmade cars and washing machines, the unmade dresses and coats, perhaps the ungrown and unsold foodstuffs. To see these uncreated things requires a kind of imagination that not many people have. We can think of these nonexistent objects once, perhaps, but we cannot keep them before our minds as we can the bridge that we pass every working day. What has happened is merely that one thing has been created instead of others.
Again, Hazlitt makes the mistake that somehow people cannot immediately buy these things when the money reenters the economy through wages. He wants to claim that the spending of money is what brings things into being, but then he claims that the private sector’s power to bring things into being has been somehow diminished even though their ability to spend has not.
At most, it seems to me, Hazlitt can claim that the time spent by labor was lost on these supposedly undesired projects. But if we take into account the fact that many people remain unemployed, even that seems to be a stretch.