Government spending costs jobs.

Rasmussen reports is one of the sources of opinion in the States I use. The main reason is the accuracy of the data; they poll prospective voters rather than a cross-section of the public at large. Another is that Scott Rasmussen is libertarian leaning, having written the book, “In Search of Self-Governance.” One review states the following:

In this brilliant and thoughtful essay he unmasks the new fault line of our democracy: Mainstream America rising to reassert the supremacy of their sacred right of self governance over a failed Political Class grimly determined to preserve the primacy of their prerogatives of power. – Pat Caddell, Political Strategist.

In their political commentary section they have highlighted an issue dear to the libertarian philosophy; that government spending, in this case earmarks are actually detrimental to the local economy. In a recent research paper by three Harvard Business School Professors, the conclusion was that the conventional beliefs that political seniority translates into tangible economic benefits for districts and that politicians are able to create private sector jobs with your tax dollars in the first place are wrong.

The researchers stumbled across the result accidentally when they were examining the correlation between politically connected firms and powerful legislative committee chairmen when they came upon something “unexpected.” Something free market advocates have known for years: Government spending kills jobs.

“It was an enormous surprise, at least to us, to learn that the average firm in the chairman’s state did not benefit at all from the increase in spending,” says Coval. “Indeed, the firms significantly cut physical and R&D spending, reduced employment, and experienced lower sales.” …..

In other words, government spending directly supplants private sector investment – substituting expensive, cumbersome bureaucracies where efficient, profit-driven companies would have otherwise operated.  Needless to say, this “crowding out” of the private sector not only costs jobs – it also comes at a tremendous up-front cost to the taxpayers.

Unlike other studies into the effects of government spending on private sector activity, this research’s focus on committee chairmanships provides a unique “exogenous” (or independent) variable.

“We show that becoming a powerful committee chair results in a significant increase in federal funds flowing to the ascending chairman’s state,” the report reveals. “Thus, a congressman’s ascension to a powerful committee chair creates a positive shock to his or her state’s share of federal funds that is virtually independent of the state’s economic conditions.”

That critical consideration has been routinely ignored by numerous prior studies – most of which have returned “inconclusive” findings regarding the extent to which government growth has been cannibalizing the free market.

The study is here.

3 thoughts on “Government spending costs jobs.

  1. Minimum wage laws cost jobs. Laws are restrictions- which cause limits, and probably lose jobs, even if some work finds its’ way into a public servant’s hands. even if lawyers increase in the private sector, you need wealth creation.
    And just having mineral deposits doesn’t help, either. Afghanistan could be one of the richest countries on earth, if it can sort out it’s private armies, and establish a good system of property rights, so that individuals and companies will feel safe in developing their lands! I think Afghanistan is too fractured to take advantage of the wealth, and therefore it will remain a poor nation. They have pure anarchy there, and it doesn’t seem to be doing anyone much good.

  2. “They have pure anarchy there, and it doesn’t seem to be doing anyone much good.”

    I agree with that and the need for a good system of private property rights in Afghanistan

    However, I wonder what John Humphreys and other libertarians who have some anarcho-capitalist leanings think of your last sentence?

  3. They don’t have a system of pure anarchy there, it was and to some extent is still run by warlords. Johns system of anarchy is impractical apart from an alternative philosophical viewpoint to statism, but serves that purpose well, I have visited it often.

    The reason those deposits have been undiscovered or undeveloped is that they are stuck in a mentality and tribal system of perpetual war. There are no secure property rights apart from that which the local warlord for the moment can hold.

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