Friday, July 29, 2005

U. S. Senator Obama wide of the mark on job creation

A major transportation bill passed the Congress late yesterday, overcoming some snags noted here. Almost two weeks ago, the core aspects of this bill were touted by U. S. Senator Barack Obama. One thing, in particular, that the junior senator from Illinois said warrants attention:

"[F]or every $1 billion spent on transportation infrastructure, it is estimated that 24,000 new jobs are supported. By providing Illinois with $1.2 billion per year in transportation funding, this bill will support tens of thousands of new jobs for Illinois families.

But, if that is the case, why not a 10 billion dollar transportation program for Illinois--- and for every state of similar population. That would provide, by the Senator’s math and economics, almost a quarter of a million new jobs for each state the size of Illinois. And, if so, why stop there? Why not a 100 billion dollar transportation program for Illinois—and for every state of similar population, which by the Senator’s math and economics, would yield several million new jobs for each state of Illinois’ size.

Senator Obama is sort of espousing Keynesian economics, of the sort that is not too popular, these days, even at his alma mater, Harvard, which used to be the bastion of Keynesian economics.

The truth is—it is unlikely that the Transportation Bill would provide 24,000 jobs, or anything like that. Although some new projects will certainly employ some new people, federal taxes will be raised to finance these transportation expenditures all across the country. The increased taxes will retard business growth and consumer spending all across the country-- including in Illinois-- retarding employment growth—in other sectors of the economy.

So, when you net things out, there will be little or no growth in jobs as a result of the federal government transportation program.

If taxes are not increased to match the increased spending, the federal deficit will grow, resulting in higher government borrowing and ultimately higher interest rates than would otherwise be the case, crowding out investment and employment in other sectors of the economy, resulting in no net change to the employment situation.

If the deficit is financed not by increased taxes or borrowing, but by the Federal Reserve expanding the money stock to “accommodate the larger deficit,” the larger rate of growth of the money stock ultimately will result in higher inflation and more jobs in the transportation sector and fewer jobs in other sectors, and again no net change in the employment situation, countrywide.

In short, the transportation bill may be good public policy—but if so, it is to meet a demand by the public for transportation spending on mass transit, roads, etc. The impact on jobs is likely to be a wash.

The way to create new jobs is through more innovation, increased productivity, improved and expanded education, and improved and expanded technical skills—all things that are more likely to arise through expanding the private sector and giving individuals greater choice and control over how their funds are spent [including for education, e.g., school vouchers, school choice] than by a “federal government jobs program.”

But Senator Obama shouldn’t take my word for it. He should check with his former colleagues on the University of Chicago Law School faculty, including Seventh Circuit Court of Appeals Judge Richard Posner [who is half economist/half judge] and Professor Landes [a full economist]. They would be happy to tell him, I am sure, that there ain’t no such thing as a free lunch, especially if it is delivered by the federal government-- roadside, or not.
Jeff Berkowitz, Host and Producer of Public Affairs and an Executive Recruiter doing Legal Search, can be reached at