The overgrow school children who play
the part of politicians are often mesmerised by anything resembling “toys for
boys”: whether its advanced technology trains, boats or planes. And of course a
common reason they advance, with a view to being able to play with a new toy,
is the idea that making the toy “creates jobs”.
Certainly the job creation excuse has
been pushed for all it’s worth in the case of the HS2 rail project being
proposed in the UK.
A near identical, and equally daft
phenomenon occurs in the US, where Republican politicians regularly claim that
expanding the deficit so as to spend more on the military will create jobs,
whereas expanding the deficit so as to spend more items not approved of by the
political right apparently has no job creation effects at all.
If public spending on trains creates
jobs, then presumably spending public money on education, health and the dozens
of other items on which government spends money should also “create jobs”.
In fact, given that public spending has
risen from about zero percent of GDP to near fifty percent over the last 150
years, unemployment should have vanished
long ago.
But amazingly, unemployment is about
the same as it was 100 or 150 years ago.
Now if you’re an economically
illiterate politician who gets mesmerised by toys for boys, you’ll be baffled.
In contrast, and for those of us who
understand economics, the reason why expanding public spending fails to have
any effect on unemployment is simple enough, and is as follows.
Anyone with a pre-university
qualification in economics can tell you how to expand demand and raise
employment. And it makes very little difference what the extra money is spent on:
it can be public sector items or private sector items.
But in either case, the big obstacle is
inflation. I.e. raise demand far enough, and inflation kicks in.
Now assuming unemployment is as low as
it can go without causing excess inflation (which is where it should be), the
NET INCREASE in spending so as to get HS2 going is just not allowable. That is,
any such spending will have to come out of taxes, which in turn will reduce
spending on other items.
The net effect on “jobs” will be zero.
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