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John T. Harvey Contributor


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Of Course the Government Can Create Jobs!

A recurring theme in the Presidential Debates has been the role of the government in the economy. There are obviously many complex issues involved and a number of tradeoffs and caveats exist with any policy. That said, however, the assertion that the government cannot create jobs is ridiculous. It is a function of a biased definition of “job” designed to decide the question even before it has been asked.

To show this, start with a relatively neutral definition of job: any routine activity for which we earn income. This covers a wide range of pursuits, from managing a grocery store to selling financial derivatives. It does not include cutting your lawn (it’s routine but you don’t earn income) or selling that pool table you were positive you were going to use (you earn income but it’s not routine). As for myself, Texas Christian University contracts with me to teach, research, and perform service activities on a regular basis, and in exchange they direct deposit money into my account every month. I don’t think anyone would deny that what I do qualifies as a job.

But, those who say that the government cannot create employment are adding another element to the definition. To them, a job is any routine activity for which we earn income paid by an entity required to earn a profit. There is no compelling reason for this addendum and it arbitrarily excludes people like James Galbraith, who is an economist just like me, but at the University of Texas, and Jeffrey Halstead, Chief of Police in Fort Worth, Texas. By the qualified definition, they don’t have “jobs” because their income is derived from tax revenue and not private-sector sales. Ditto every single fireman, public school teacher, Marine, sailor, airman, soldier, national park ranger, defense industry employee, NASA scientist, social worker, librarian, etc., etc. None of them has a job.

Why would someone would embrace such a questionable characterization? Because their true goal isn’t to generate a scientific understanding of the manner in which the macroeconomy operates, but to make a moral statement. Specifically, their contention is that only those routine activities financed by profit are truly of value. Everything the government does is unnecessary because if people really wanted it, they would have bought it in the private sector: that which is useful is profitable. Furthermore, they say, were it not for my taxes, those in the public sector would not have a job. Firemen earn a salary only because some of mine was taken away (under threat of imprisonment).

It is not surprising that those who espouse this view are almost always in the private sector themselves. It says, “I deserve my income because I work hard creating something of value. Meanwhile, government employees are just handed a portion of my salary for doing something no one really wants. Therefore, not only am I morally superior, but my taxes should be cut!” It’s a very convenient philosophy, but it’s not economic analysis. (From time to time, you also hear this from some in the public sector, but they either conveniently ignore the contradiction or believe that where they work is one of the few exceptions.)

What this ignores is something I was arguing in my last post: not everything that is profitable is truly of social value and not everything of social value is profitable. If we defined a job as any routine activity for which we earn income paid by an entity whose activities are socially valuable, then we would most certainly be excluding things done by BOTH the private and public sectors. How much do private sector activities like pornography, reality TV, and cigarette smoking add to our well being? Meanwhile, if we depended solely on profit for motivation, we would not have national defense, child protective services, or education (or police protection or fire protection) for the poor.

Furthermore, the means by which public sector activity is financed is more complex than implied above. Not only do your taxes go to pay the salary of the fireman, but, when he spends it, his salary contributes to your wages. So who is supporting whom–is the government dependent on taxation of private sector salaries, or are private sector salaries dependent on sales to government institutions and employees? Obviously, they are largely interdependent and rely on the continuation of the flow between them. Largely, however, but not completely, for if one of the two can act with autonomy, it is the government. At the federal level, we can spend in deficit indefinitely and without fear of default (see It is Impossible for the US to Default), meaning that the government can spend even without tax revenue, and its spending can create private sector sales–and jobs. Therefore, in a world where we have a difficult time generating sufficient demand to hire all those willing to work, the private sector is actually more dependent on the government to boost its sales than the government is on the private sector for tax revenues (see Why the Private Sector NEEDS the Government to Spend Money). Now who is the parasite?!

This is not to argue that all government spending is socially useful. Of course it isn’t, any more than all private sector is. It is our responsibility to complain loudly when we think the public sector is wasting resources (something we will all have an opportunity to do on November 6). But, one thing is clear: the government creates jobs, and lots of them. In fact, the private sector needs them to do so. Don’t forget, the rules of accounting tell us that if the government is in deficit, then the private sector must be in surplus (see Why You Should Love Government Deficits)!

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  • Charles Green Charles Green, Contributor 2 years ago

    Another excellent piece. John, you have a knack for making confusing economic issues clear.


    Many thanks, Charles!

  • Mr. Harvey, could you provide some names and quotations to support this? I’ve never heard of a statement that employment by the government is not a “job”. Even extreme libertarians who argue that government jobs are a waste of money don’t deny that these are jobs.

    Perhaps I live under a rock, but when I’ve heard statements that the government can’t create jobs, it means that government spending cannot create jobs (private or public) with a multiplier greater than (or even equal to) one, meaning a dollar of government money will not result anywhere near a dollar in employment. Thus, government cannot effectively “create” jobs, but again these arguments acknowledge that government jobs are really “jobs”.

    This post has created an artificial straw man that government jobs aren’t really jobs and really doesn’t seem to say anything about job creation. Of course, if you can provide named quotations, then I will stand corrected.

  • Hi Thomas,

    I will try to answer the second part of your question about jobs.

    There are many studies that show that the fiscal multiplier is greater than one. That is $1 of government spending creates greater than $1 of economic activity. There are some studies that contradict this but they generally include spending on wars which as you would imagine is not particularly healthy for economy.

    There is a http://www.imf.org/external/pubs/ft/weo/2012/02/pdf/text.pdf from the IMF, the chief purveyors of the myth that government spending has a multiplier less than one, that they were in fact wrong and the true multiplier lies between .9 and 1.7.

    The following could be an example of how this might work in the real world. Right now we know corporations are sitting on record levels of cash. They aren’t spending the cash and they aren’t returning it to shareholders as dividends, they are just hoarding it. Suppose the government enacted a one time 1% tax on all corporate cash balances of the S&P 500 companies. Then they turned around and used that money to hire workers to build or improve roads, bridges, airports, etc. This would certainly be a net creation of jobs. Additionally you can see how the multiplier would be positive as those workers would then spend their new income which would create additional economic activity.

    Of course because the federal government is a currency issuer it wouldn’t even need to bother with the tax in the first place as Professor Harvey has pointed out numerous times in his other blog posts here at Forbes.

  • Trey Trey 2 years ago

    If you believe that infrastructure spending is the sort of economic activity that our country needs right now in order to start growing, I honestly do not know if you can be helped. Additional or improved infrastructure will only be benefical if the private market surrounding it is flourishing and can support and take advantage of such resources. Government is simply and unequivocally incapable of creating demand or spurring growth in the private econonomy for one very fundamental reason. The vast majority of money the government spends has already been confiscated in one way or another from the private economy, which further stifles growth. If all it took was the government throwing money at something, why was the stimulus a complete failure along with just about every green job venture the government participated in. All the job opportunity in the world could be unleashed simply through the government taking a large step back and letting the innovators and entrepreneurs out there see their dreams come to fruition instead of being stymied to death by taxes and regulation. The demand will be there and true growth will appear just as soon as our government can pass coherent, common-sense tax and regulatory reform in addition to significantly cutting spending.

  • Locke Wiggin Locke Wiggin 1 year ago

    AMEN. I made a forbes account just to explain this to him. It is a strawman argument that ignores the purpose of a “job”, which is production and not just employment. A job paid for by government is employment, but will cause no net gain in production, and will more likely cause a net reduction, as some resources are consumed administering the program.

  • Locke Wiggin Locke Wiggin 1 year ago

    @Strubel Invst. Mgmt.
    The “corporations sitting on money” ignores the fact that they save the money in banks, making it available for investment. The banks are being paid interest on the excess reserves that the are keeping at the FED, so they are reluctant to loan money, at the artificially low interest rate set by the fFED, while they could leave it alone and get no-risk interest off it. Government interference in the market (in the form of the central bank) has created the situation which you propose government might fix, with the 1% tax.

  • James Mills James Mills 2 years ago

    There appears to be some deep rooted logic flaws in your piece. In the first part of this post you state that the argument “governments cant create jobs” is a subjective rather than objective, or to put it in economic terms, its normative rather than a positive one. You justified this by saying people against government spending are basing it off of moral objection. This point is in fact true, morals have absolutely no place in economic analysis.

    The problem I see, the logic flaw, happens in the next paragraph where you question the “social benefit” of pornography and cigarette smoking. That argument is completely subjective, as much so as the moral argument you previously ridiculed. There is absolutely no way for you to analyze the objective “social” worth of pornography without injecting your own values. Period. This is why economists love the price mechanism because it allows for a common denominator way of comparing one good to another in an objective fashion.

    Then the second part of the post, you act as if you have never heard of the broken window fallacy. You imagine that just because money is taken from someone and then given back, value is created. If this was truly a maximization of wealth, then take 200k from a friend and then buy their house with it. Or better yet, take money out of your right pocket and put it in your left, since according to you that increases wealth. There is absolutely no doubt that the government dependent on the economy, not the other way around, or even in a circular motion. Then again I guess I shouldnt expect much from a demand side economist.

  • Drake Diamond Drake Diamond 2 years ago

    I think it’s obvious the government can create jobs. What is less clear, however, is the necessity and efficiency of may of these jobs.

    You alluded to this in your piece (“it is our responsibility to complain loudly when the public sector is wasting resources”) and, in my view, we, the voters, have neglected this responsibility. For example, do we need 49 Federal job training programs, overseen by 7 different agencies? I’m all for job creation; what I will not stand for, however, is profligate spending. Sadly, it seems both candidates want more government (I don’t buy that Romney will balance the budget), which is why I will likely vote for Gary Johnson.

    With government programs, you have increasingly concentrated benefits and widely dispersed costs. This, oftentimes, results in a lack of accountability and little incentive to be efficient.

    I do enjoy your posts, as it’s refreshing to read someone with a keen understanding of economics.

  • smfpi smfpi 2 years ago

    Drake, your point is the exact thing that has me scratching my head. If I accept the notion that money can be printed to create jobs with no downside, it would seem that how this newly created money is utilized would have an affect on it’s contribution to the economy. For example newly created job holders can make choices that cause failures that could result in jobs being lost. In this case the newly printed money funded job losses.
    While Harvey printmoney=good idea is starting to grow on me. I am very doubtful that goverment can utilize the money in a way results in a net gain for the economy.

  • geerussell geerussell 2 years ago

    It also follows, if one says “the government can’t create jobs” that not only do soldiers, teachers and James Galbraith not have jobs but when they spend their dirty government paychecks generating income for private businesses, those private sector jobs are less real too.

    Only that which passes the free-market purity test of funding by immaculately conceived (or dug up from the ground) money can be a real job.

  • lcr1946 lcr1946 2 years ago

    If we listen to all the economic bull that comes from the “Fellows” at the various think-tank institutes. The other source is politicans who go around claiming various economic homolies, like the one discussed here, that are nothing more than sayings with no proof behind them.

    Another problem is trying to use micro-economic solutions on macro-economic problems. There is no standard transform for moving from one to the other, such as 3 feet = 1 yard. Therefore, attempts to apply solutions from micro to macro or the other way around are doomed to fail.


    FYI, I apologize for not keeping up with comments as I usually do. One of my daughters has been in the hospital for the past two days and so I’ve been busy. I’ll try to get back to this later if I can!


    P.S. Nothing terribly serious, though serious enough to spend two nights!

  • Tim Tim 2 years ago

    Of course, when the government runs trillion dollar deficits the private sector builds up cash reserves to pay for the future liabilities.

    It’s called Ricardian Equivalence, and helps explain why the private sector is holding huge amounts of capital on the balance sheet.

  • Tom Jefferson Tom Jefferson 5 months ago


    THIS is what you morons believe? That the deficit spending (which is money printed out of thin air or borrowed) can create a job?

    That is ridiculous….you are an idiot.

    There is nothing complicated about economics, it derives itself from simple mathematical principles. Are there a lot of variables? Of course, but each one is quantifiable.

    You simple CANNOT take money from the people…you know those darn people who give the power to the govt not the other way around…..and then dole it out to others and call that a job.

    I don’t CARE about your ridiculous definition of job, because that’s not what is being debated. If you are paid for routine work WITH TAX MONEY you are not generating revenue, you are REDISTRIBUTING it!

    Now that you understand that, you need to understand that when the Fed prints money WE THE PEOPLE pay the interest on that and any bailouts they give too….like the $16 Trillion they lent to FOREIGN BANKS!

    Your grand kids will not pay off this debt….neither will their grand kids…..

  • Shushanto Bose Shushanto Bose 2 months ago

    I have heard such silly nonsense from liberals before but not so comprehensively yet succinctly expounded.

    First of all, when people ask whether the government creates jobs they are obviously speaking of the private sector, otherwise the question would be a meaningless one to any sensible person. Everyone knows what a public school is and how the fireman is paid and that government can simply build a new school or a police station. Thus your analysis and criticism of the question is redundant. I would grant that those who ask the question are perhaps being ambiguous, but we all know what they mean.

    Onto the content of your criticism of the thinking of private sector workers. You give examples of the various employments in the public sector. Firstly, no-one is suggesting they don’t have a “job”; but they are suggesting that NOT ALL those employments are considered necessary nor fruitful by the taxPAYER. Just because we require SOME of those employments be carried out for “the good of society” does NOT entail that all those employments are employed, and especially the employment of many individuals in the public sector (most of them).

    Most government employment is not of social value, and yes all private production is of social value: people are paying for cigarettes and watching reality TV because they demand it, and however daft these activities are is not up to you to decide whether they are of social value, but it is up to the consumer to satisfy HIS desires with HIS money. Whatever he spends it on is of social value TO HIM.

    The view espoused by the private sector worker which you mentioned: “I deserve my income because I work hard creating something of value; meanwhile, government employees are just handed a portion of my salary for doing something no one really wants” is a straw-man fallacy. He isn’t saying NO-ONE wants ANY of the services, he’s saying that he WASN’T ASKED what portion of the public sector appealed to him or how it should be improved, and much of the public sector he does not care for. Thus HE should not be paying for it. It is quite a simple argument, which you manage to make complicated.

    Then you go on, in an even more futile and off-the-topic manner to weigh up how much the private sector benefits from the public sector and vice versa and introduce unnecessary details and contrived complexities. None of that is relevant to the question nor the idealism of a capitalist society: you want someone’s money, you ask for it, no matter how badly you need it or how nobly YOU BELIEVE that his money could be spent, against his wishes. The opposite is called STEALING. More accurately what the government practises is racketeering: extortion in particular, like the Mafia but on a much bigger scale.

    The Government is just a very large and successful mafia. What does the private sector worker care where Government is spending his money if he’s not being consulted? And no, representative government does not entail consulting taxpayers. That’s not how democracy works.