Government Doesn't Create Wealth Or Jobs

John Stossel has a great column at RealClearPolitics.com that helps explain why the free market works far, far better at creating jobs and wealth than anything the government can do:

Democratic presidential candidate Barack Obama has a great twofer pitch: "green jobs." It sounds like a winner. In one fell swoop he can promise to end unemployment and fix and save the planet from climate change.

Or so he says.

"I'll invest $150 billion over the next decade in affordable, renewable sources of energy -- wind power and solar power and the next generation of biofuels; an investment that will lead to new industries and five million new jobs that pay well and can't ever be outsourced," he told the Democratic National Convention (http://tinyurl.com/64szf7).

Wow. Five million new jobs. All that work building windmills and creating biofuels are the "green jobs" that will come into existence when wise government creates the industries that will produce the energy and vehicles that will make fossil fuels obsolete.

Politicians always promise that their programs will create jobs. It's used to justify building palatial sports stadiums for wealthy team owners. Alaska Rep. Don Young claimed the infamous "bridge to nowhere" would create jobs (http://tinyurl.com/6jq623). The fallacy is the same in every case: Even if the program creates jobs building bridges or windmills, it necessarily prevents other jobs from being created. This is because government spending merely diverts money from private projects to government projects.

Governments create no wealth. They only move it around while taking a cut for their trouble. So any jobs created over here come at the expense of jobs that would have been created over there. Overlooking this fact is known as the broken-window fallacy (http://tinyurl.com/ydasa2). The French economist Frederic Bastiat pointed out that a broken shop window will create work for a glassmaker, but that work comes only at the expense of the cook or tailor the shopkeeper would have patronized if he didn't have to replace the window.

Creating jobs is not difficult for government officials. Pharaohs created thousands of jobs by building pyramids. Our government could create jobs by paying people to dig holes and then fill them up. Would actual wealth be created? Of course not. It would be destroyed. It's like arguing the hurricanes create jobs. After all, the destruction is followed by rebuilding. But does anyone seriously believe that replacing destroyed buildings creates wealth?

Look at Obama's plan. His website says:

"Obama will strategically invest $150 billion over 10 years to accelerate the commercialization of plug-in hybrids, promote development of commercial scale renewable energy, encourage energy efficiency, invest in low emissions coal plants, advance the next generation of biofuels and fuel infrastructure, and begin transition to a new digital electricity grid. The plan will also invest in America's highly skilled manufacturing workforce and manufacturing centers to ensure that American workers have the skills and tools they need to pioneer the green technologies that will be in high demand throughout the world." (http://tinyurl.com/6rx4vm).

Note that word "strategically." It is there to suggest that Obama knows how best to "invest" the $150 billion. (Of course it is not his money, and he'll have none of his own at risk, so from his perspective, it won't really be investment.) But how does he know that the things he names ought to get the money? Will he give it to cronies of his campaign contributors? Will he appoint Al Gore to pick grant recipients? Lobbyists will make a fortune steering "green" inventors and promoters to the $150 billion.

Politicians have a lousy record trying to make "strategic investments." President Jimmy Carter's Synthetic Fuels Corporation cost taxpayers at least $19 billion but failed to give us alternative fuels (http://tinyurl.com/5ex7v5). In the 1950s Japan's supposedly omniscient Ministry of International Trade and Investment rebuffed Sony and was sure the country should have just one car producer (http://tinyurl.com/6kpbez).

Neither Gore nor Obama can know how the money should best be invested. Investing is about predicting the future, and the future is always uncertain. We know from experience that people who have their own money at risk -- who face a profit-and-loss test and possible bankruptcy -- are much better predictors than people who play with other people's money. Just compare North and South Korea.

One reason decentralized markets are preferable to government central planning is that human beings are fallible. Mistakes are inevitable. Some investments will be errors. Mistakes in the market tend to be on a comparatively small scale. If one company invests in plug-in hybrids and it goes bust, only a relatively few people suffer. The assets of the bankrupt firm pass into more capable hands.

But decisions by government, especially the federal government, affect all of us. When government makes a mistake, the bureaucracy can't go bankrupt. Instead, it will use its failure to justify increased appropriations in the next budget.

If "green jobs" make so much sense, the market will create them. They will be created by private entrepreneurs and venture capitalists who are eager to profit from winning investments. The best ideas will rise to the top, and green energy will gradually replace coal and oil.

If politicians were serious about creating jobs and cleaner technologies, they would step aside and let the free market go to work.

This is exactly right!  The government doesn't create anything (other than headaches and problems).  The single best thing that the government can do to stimulate the economy and job creation is get out of the way.  The free market will fill every niche and need that surfaces because in America people have the freedom to experiment, develop, and create.  The person or company who fills a need benefits by becoming wealthy, and everyone else benefits because their need gets met.

This notion that profit is somehow evil and that the government is the savior of development and forward progress is completely backwards.  It is profit that drives people to try new things and succeed, and there is nothing wrong with rewarding those who achieve both.  Isn't that what we all work for every day?  To earn money so we can provide a better life for ourselves and our families?

The government needs to get out of the way of the free markets, period.  The more they meddle, the worse off we are.

There's my two cents.