“Job Killing” Government Spending

A Bloomberg poll, discussed in this news article, indicates that 55% of respondents believe that “cuts in government spending and taxes would be more effective at creating jobs than maintaining or increasing government spending.” I am quoted in the article as follows:

The question is confusingly formulated, because economists usually think of tax cuts and spending increases as part of the same stimulus-based approach, not as opposing approaches. But at root, the results appear to indicate that most Americans think cutting spending, not increasing it, is more likely to create jobs.

But that’s almost the opposite of what most experts–on both sides of the political divide–believe. “That wouldn’t square with the way we normally think about economic activity in a depressed economy,” Andrew Samwick, a former chief economist on President Bush’s Council of Economic Advisers, told The Lookout. When the economy suffers from a lack of demand, as it does now, Samwick explained, most economists think increasing spending is the more effective way to generate that demand and get things moving again.

Why has the opposite view begun to take hold? In part, Samwick argued, it’s thanks to the efforts of congressional Republicans, who want budget cuts and lately have hammered home the view that government spending has stymied growth. “You have the Speaker of the House talking about job-killing government spending,” said Samwick, now a professor of economics at Dartmouth College. “But they have not been tasked with making clear exactly how the government is killing jobs.”

If the conjecture means that employment goes up when government spending goes down, you would have to persuade me that a person is more likely to be employed if the government stops spending money to purchase things that he would make if employed. That makes no sense.

If the conjecture means that employment goes up when there is a revenue-neutral reduction in government spending, then that could be true, depending on whether the government spending or the private spending that might occur with a lower tax burden is more labor-intensive. But that hardly seems like the context for the question. Alan Blinder provides a more articulate response to the conjecture in yesterday’s Wall Street Journal.

I am not saying that any government spending is justified merely for the sake of employing labor and capital. It is justified if it serves a need that society has and that the government is typically responsible for meeting. In that case, the current economic environment is one in which the need could be met on the cheap, precisely because the costs of employing labor and capital are lower than they are likely to be in the future. This is nothing new — it is what I have been saying for nearly 3.5 years.

About Andrew Samwick 89 Articles

Affiliation: Dartmouth College

Andrew Samwick is a professor of economics and Director of the Nelson A. Rockefeller Center at Dartmouth College in Hanover, New Hampshire.

He is most widely known for his work on the economics of retirement, and his scholarly work has covered a range of topics, including pensions, saving, taxation, portfolio choice, and executive compensation.

In July 2003, Samwick joined the staff of the President's Council of Economic Advisers, serving for a year as its chief economist and helping to direct the work of about 20 economists in support of the three Presidential appointees on the Council.

Visit: Andrew Samwick's Page

1 Comment on “Job Killing” Government Spending

  1. Americans (most of us) realize that the Obama WH and Dems in Congress have grossly increased govt spending in the last few years. No thinking person can believe that cutting the budget even back to 2007-08 budget levels will send us to the brink. For heaven’s sake, we’re at the brink now! CUT CUT CUT. And CUT taxes, and more importantly, cut regulation and Obamacare. If they did just that, the economy would be booming in no time. But the dems won’t do it, they’d rather see the USA totally fail than admit their keynsian economics is a fraud.

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