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Home Publications Blogs Beat the Press Robert Samuelson Takes on NYT Editorial Board: Government Does Not Create Jobs!

Robert Samuelson Takes on NYT Editorial Board: Government Does Not Create Jobs!

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Thursday, 25 October 2012 15:53

Robert Samuelson was sufficiently outraged by a NYT editorial claiming that the government creates jobs that for the first time in his 35 years as a columnist he felt the need to attack a newspaper editorial. Samuelson called the NYT view "the flat earth theory of job creation" in his column's headline. Since on its face it might be a bit hard to understand -- there are lots of people who do work for the government and get paychecks -- let's look more closely at what Samuelson has to say on the topic. 

Samuelson tells readers:

"It’s true that, legally, government does expand employment. But economically, it doesn’t — and that’s what people usually mean when they say 'government doesn’t create jobs.'

What the Times omits is the money to support all these government jobs. It must come from somewhere — generally, taxes or loans (bonds, bills). But if the people whose money is taken via taxation or borrowing had kept the money, they would have spent most or all of it on something — and that spending would have boosted employment."

Okay, so we can at least agree that all of those people working as teachers, firefighters, forest rangers etc. do legally have jobs. That seems like progress. But let's look at the second part of the story:

"the money to support all these government jobs. It must come from somewhere."

Yes, that part is true also. But the last time I looked, the money to pay workers at Apple, General Electric, and Goldman Sachs also came from somewhere. Where's the difference?

Samuelson tells us that if the government didn't tax or borrow or the money to pay its workers (he makes a recession exception later in the piece) people "would have spent most or all of it on something -- and that spending would have boosted employment."

Again, this is true, but how does it differ from the private sector? If the new iPhone wasn't released last month people would have spent most or all of that money on something -- and that spending would have boosted employment. Does this mean that workers at Apple don't have real jobs either?

The confusion gets even greater when we start to consider the range of services that can be provided by either the public or private sector. In Robert Samuelson's world we know that public school teachers don't have real jobs, but what about teachers at private schools? Presumably the jobs held by professors at major public universities, like Berkeley or the University of Michigan are not real, but the jobs held at for-profit universities, like Phoenix or the Washington Post's own Kaplan Inc., are real. 

How about health care? Currently the vast majority of workers in the health care industry are employed by the private sector. Presumably these are real jobs according to Samuelson. Suppose that we replace our private health care system with a national health care service like the one they have in the U.K. Would the jobs in the health care no longer be real?

If our new system was as efficient as the one in the U.K. we would not even need any additional tax revenue to pay for it. According to the OECD, the whole expense of the U.K., system, $3,433 per person in 2010, is less than the $3,967 per person (in 2010) that the government already pays for health care. So by replacing a less efficient private system with a more efficient public system will the government have eliminated all the real jobs in the health care sector?  

It keeps getting harder and harder to figure out what is supposed to be a real job in Robert Samuelson's world. If the government requires drivers to buy auto insurance, do the people at the auto insurance companies have real jobs? Suppose the insurance companies were run by the government? Suppose that they were private but drivers paid for most of their insurance via a tax on gasoline? (You can have differential rates so that dangerous drivers pay an additional premium.)

How about when the government finances an industry by granting it a state sanctioned monopoly as when it grants patent monopolies on prescription drugs. Do the researchers at Pfizer have real jobs even though their income is dependent on a government granted monopoly? Would they have real jobs if the government instead paid for research out of tax revenue and let drugs be sold in a free market, saving consumers $250 billion a year?

Robert Samuelson obviously thinks there is something very important about the difference between working for the government and working in the private sector. Unfortunately his column does not do a very good job of explaining why. It would probably be best if he waited another 35 years before again attacking a newspaper editorial.  

Comments (34)Add Comment
Is his premise true?
written by Greg, October 25, 2012 4:43
Is it necessarily true that money taken by the government through taxes or borrowing would've been spent in the (US) economy? For instance, a "wealth tax" on the richest 1% would redirect money that would otherwise be sent to, say, a Swiss bank account into spending in the US economy, would it not? Isn't the government "creating jobs" (in the private sector, even, if it funds purchases of goods and/or services) if it captures money that would NOT be spent in the US economy and redirects it to spending in the domestic economy? What am I missing?
The Republican sneak attack on jobs
written by Jed Harris, October 25, 2012 5:04
Clearly given Samuelson's argument offering government vouchers to pay for education in private schools is a sneaky way to destroy jobs. Once a school accepts vouchers all the people who had jobs at that school are now "really" unemployed. They have gotten away with it so far but now Samuelson has unmasked them, perhaps by mistake.
...
written by urban legend, October 25, 2012 5:34
I bet a lot of people in defense industries also would be surprised to learn government doesn't create jobs.
The Opportunity Cost of a Job Does Comes From Somewhere
written by Last Mover, October 25, 2012 5:53
It's the same drivel spewed by ignorant conservative pols before any major election. The know-nothing, simple minded zero sum world of trade-offs when the economy is at full employment, allowing claims that for every government job, a private job is crowded out, thus the corollary claim that government doesn't create jobs because when it does, it takes out a private job to do it.

America should be so lucky to have that problem. Instead it gets this drivel from Samuelson who refuses to acknowledge that the opportunity cost of a government job today is zero, not a private job canceled out, and this is over and above everything listed by Baker which applies even when there is full employment.

Samuelson can't get his tiny mind around anything that doesn't add up or subtract down to the sum total of resources employed now. And as Baker explains, nor can Samuelson grasp the principle of opportunity cost of any job - government or private - whether or not at full employment, replacing it with a naive observation that since a government job must come from somewhere, the opportunity cost of "somewhere" as the highest valued alternative must be a job from the private sector because if not, the opportunity cost isn't "real" ... because it doesn't follow Samuelson's personal subjective opportunity cost of what he wants any job to have, private or public.
...
written by skeptonomist, October 25, 2012 9:04
At one time the Soviet Union was considered a serious rival to the US. Eventually the people in the USSR rejected socialism because not enough of the consumer goods they wanted were being produced, but socialism certainly survived for 70+ years, and probably did better than the regime it replaced; if there were no jobs there, who was making all the tanks and airplanes that defeated the Germans in WW II and the missiles which supposedly threatened the US later? During WW II when the US government largely took over the economy (private investment dropped off severely) unemployment was lower than at any other time in the 20th century. Maybe even more importantly, none of the calamities predicted by conservatives happened after the government takeover was reversed. High tax rates and high federal debt did not impede the economy after the war either. Samuelson is ignorant not only of basic economics, but of basic history. The conservative economic world gets continually stranger and more mythical, divorced not only from advances in economics but from actual past events.
Money From The Govt
written by Donald Pretari, October 25, 2012 9:41
This reminds a bit of Prof. Mulligan's argument about Benefits to the Unemployed allowing people to put off getting a job. Unless I'm missing something, the same could be said about Private Charity to the Unemployed. Perhaps Mulligan favors a Tax on Charity as a Disincentive to Prolonging Unemployment through Charity.
Productive vs. Unproductive Labor
written by TVeblen, October 25, 2012 10:09
Adam Smith and Karl Marx both agreed on the distinction between productive and unproductive labor. Smith believed "services" were in the latter category. Marx had a more sophisticated take and classified the former as labor that was productive of capital. He also recognized that certain types of labor were necessary to circulate goods and services but were not productive of capital. For example, guards are necessary but not productive of capital. But the obsession with "private sector" jobs assumes they are all somehow "productive" while government sector jobs are not.
Global Spending
written by bakho, October 26, 2012 5:43
Mr Samuelson misses the point that BigG can target spending directly on Domestic Jobs. Collecting revenue from wealthy special interests may mean less spending on assets at bubble prices or less offshoring of domestic jobs or less replacement of domestic labor with capitol.

The BIG error is trying to make Spending and Domestic Jobs an identity. They are not. Those who claim they are an identity are trolling for excuses to cut taxes on the wealthy special interests and absolve them from responsibility for investing in our domestic workforce.
Finance jobs aren't real jobs either
written by Unsympathetic, October 26, 2012 6:54
The only reason the big Wall Street firms are not bankrupt is the "too big to fail" guarantee -- therefore, all those jobs are government jobs also, since the private sector wouldn't replace them.
What's with the mental block?, Low-rated comment [Show]
Jobs that cost taxpayers money
written by RL, October 26, 2012 7:41
Is it your opinion, Nick R, that public sector jobs involving, say, road construction, cost taxpayers money but that the private sector jobs in say, the shipping industry, which cause wear and tear on roads and which require police protection and whose managers received publicly funded educations, do not cost taxpayers money?
Mr Anarchist
written by Potomac Oracle, October 26, 2012 9:22
Potomac Oracle

Paul is confused about the role of an autonomous fiat currency issuing nation no longer bound by gold standard rubrics and one that is.

He also believes that we face solvency issues as a fiat currency issuing nation. Nothing could be further from the truth. That's why he and Krugman write that we need to cut discretionary programs to assure their solvency. Again, a fiat currency issuing nation never faces issues of insolvency in any of its programs. Carried to it logical conclusion, fiat currency can and should fund all public sector appropriations from the feds to all 55,000+ political jurisdictions in America +. And, under current law (1996) this can be achieved without adding to deficits or national

debt.http://tinyurl.com/3ggnqol

In our modern monetary system (beginning circa 1971-1973) tax and borrowing policy manage inflation not expenditures. Why would they, when the government can issue, electronically, all the dollars it needs. Which is why we need to guard against the risk of inflation, not insolvency.
Mr. Anarchist
written by Potomac Oracle, October 26, 2012 9:28
Paul's, argument is based on premises abandoned after Nixon closed the gold window. The U.S. become an autonomous fiat currency issuing nation that would never again depend upon tax revenue per se to spend.

You wrote, "What the Times omits is the money to support all these government jobs. It must come from somewhere — generally, taxes or loans (bonds, bills). But if the people whose money is taken via taxation or borrowing had kept the money, they would have spent most or all of it on something — and that spending would have boosted employment."

Think for a moment, where does our national currency originate. Surely not from taxation and borrowing from China or anyone else. Our fiat currency must, first, be issued by the Federal government, (Treasury/Federal Reserve operations). Treasury writes checks as payment for goods and services provided to, for, and by the government. That's the only way dollars get into the economy in the first instance. Dollars are extracted from the economy to manage aggregate demand/inflationary pressures, and not, contrary to what you and 99.9% of Americans wrongly believe, to actually pay for government expenditures or Congressional appropriations.

Check with the guys at CBO, and the Fed's Operations Division, or with the Domestic Operations guys at the Treasury. They will tell you to ask yourself, why would the sole issuer of our currency need revenue per se when it can issue, electronically, all the dollars it needs to fund obligations denominated in dollars. Treasury and the Fed have a spreadsheet they add or subtract numbers from checking and savings accounts for the Treasury, states, firms, households and individuals. If you take $1,000 in cash to the IRS to pay your taxes, they give you a receipt, thank you, and before you get to the street, they put those dollars in a shredder and sell it at that specialty shop on K St. Taxes and borrowing keep us from spending to much.

So yes, the Federal Government is the monopoly supplier of dollars to the rest of the economy. Recipients then consume, save an/or invest/hoard those dollars. Then they can then create jobs. End of Story.
lolwut?
written by Peter K., October 26, 2012 9:47
"Jobs at the job level are equally "real" (fireman obviously don't have fake jobs), but public sector ones, unlike their private sector counterparts, cost taxpayers money.

Why is this so complicated?"

The private sector jobs in the financial industry cost the taxpayers plenty of money with their fraud, reckless gambling and ponzi schemes. Read Sheila Bair's new book. First off public employees like Geithner and Bair had to spend time and energy midwifing mergers and brokering deals between failing banks and strong institutions so the economy wouldn't collapse. Then there was TARP and the bailouts and debt guarentees, etc.
Government investment in public goods is an engine of private job growth!
written by William Berkson, October 26, 2012 10:01
My title here is the main point that Samuelson is blind to, and surprisingly Dean Baker doesn't mention. Isabelle Tsakok, former World Bank economist, point out in her book that in 100% of cases economic transformation required sustained government investment in public goods over decades. And this includes infrastructure, education, and research. more here: http://therepublicon.blogspot....l?spref=tw
Private sector jobs "pay for themselves?" How so?
written by Greg, October 26, 2012 10:47
Nick R wrote:

"Dean Baker -- an otherwise reasonably smart guy -- doesn't seem to grasp the concept that private sector
jobs pay for themselves. Public sector jobs tend to require others (taxpayers, bond investors) to pay for them."

Private sector jobs require private investment -- i.e., an expenditure of funds, just like public sector jobs -- which will only be made if a private actor believes there is sufficient demand to justify employing someone to provide a service or produce a good. Our economy's problem is insufficient demand, which does not motivate private actors to employ additional workers. If individual private actors refuse to invest for lack of demand, then public investment designed to stimulate demand motivates private actors to invest in new employees. Taxing and spending "forces" investment in a way that would not occur if we relied on individual private actors. Neither public jobs nor private jobs "pay for themselves" in the sense you mean it. Both require an expenditure of funds (that may or may not pay off). Investment by the government can break an investment bottleneck created by the unwillingness of private actors to invest. As you say, it's not that hard.
...
written by kharris, October 26, 2012 11:44
But, I read this book by Amity Shlaes...
...
written by Widgetmaker, October 26, 2012 12:16
I wonder if Samuelson ever reads your critiques, and what he'd have to say about them.
Give Potomac Oracle +100
written by LD, October 26, 2012 12:21
Potomac Oracle - I'd give you 100 +'s if possible. I'd add this to your argument for further clarification/explanation:

1 - "Check with the guys at CBO, and the Fed's Operations Division, or with the Domestic Operations guys at the Treasury. They will tell you to ask yourself, why would the sole issuer of our currency need revenue per se when it can issue, electronically, all the dollars it needs to fund obligations denominated in dollars. Treasury and the Fed have a spreadsheet they add or subtract numbers from checking and savings accounts for the Treasury, states, firms, households and individuals."

Professor Stephanie Kelton, UMKC, describes how sovereign monetary systems work @26:28 in this video at this symposium at Columbia University School of Law, http://neweconomicperspectives...holds.html

2 - And in response to Samuelson's wildly outside traditional economics "argument," GDP determines what is economic reality, not Pete Peterson bullsh*t:

GDP = private consumption + gross investment + GOVERNMENT SPENDING + (exports ? imports), or

GDP = C + I + G + (X - M) (per Wikipedia "GDP")
Sloppy thinking by Samuelson and my video
written by David Cay Johnston, October 26, 2012 2:27
Ah, the UN-deserving workers who get paid via government, and not just cops and teachers and Senators, but the men and women who build the GE engines for Air Force fighters, build those black SUVs the federal government buys by the metallic herd and install the computers NSA uses to spy on us all.

As for austerity and government not creating jobs,m watch this video I made last January when I was a Reuters columnist, as it explains the reason we want austerity budgets in good times and stimulus in times like this:

http://www.youtube.com/watch?v=T9KzJCPKXow
Government might be largely responsible for Samuelson's job
written by Samuelson, master of irony, October 26, 2012 3:56
In my 30+ years in the private company electronics industry, I've been well aware that the government creates jobs. I've watched military contracts being pursued to preserve jobs and I've seen products tailored for the military.

Anyone in the computer industry knows the first general purpose electronic computer, the ENIAC, was built with government money for the government (the Army) which led to the creation of MANY electronics jobs.

And early semiconductor development efforts were subsidized by the US government.

Samuelson should be aware that his newspaper may exist and creates content, in large part, because it located at the site of the federal government.

How is that not an indirectly government dependent enterprise?

And Samuelson seems to base much of his column's content on complaining about the federal government, thus indirectly, his job depends on the Federal Government for his material.

However, Samuelson might be somewhat concerned about his job, after all on August 3, 2012, the newspaper division, which includes Slate and Washingtonpost.com reported an operating loss of $15.9 million in the second quarter.

Is he simply positioning himself for a conservative think tank job in the future?




I mistyped, I meant "Samuelson, master of irony" as the title
written by John Wright, October 26, 2012 4:18
Correction to previous post
...
written by lynda scott, October 26, 2012 4:27
no one's got a real job, that's the problem ! we used to all have real jobs, varied & each one important. now, there are only $8.50/hr PANERA, TARGET or WALMART jobs. much thanks to WALL ST. investment banks & the complicit U.S. Gov't. I remember a time when people actually went to work, cashed their paycheck, deposited their savings into a savings account & earned interest on their savings & they were just fine in retirement. Someone has changed the rules bigtime over the past 30 years (thanks, Robert Rubin ! )
...
written by Jay, October 26, 2012 7:07
If government is such a waste then why don't Republicans renounce their salary or just refrain from working for government at all. They are crowding out people that aren't so gifted to make millions of dollars ignoring things like laws and social responsibility.
Robert Samuelson better watch out who he says has a fake job...
written by Leroy Dumonde, October 27, 2012 9:44
Presumably, all those people we sent over to fight and get killed in Iraq and Afghanistan were doing fake jobs too... I'd like to see him go into bar near an army base and say that out loud.
...
written by R Baesemann, October 27, 2012 12:06
For quite sometime now a number of journalists have taken to publishing columns or blog posts that are scripted by others. For example, George Will regularly names the author of the work that is the basis for his column, but simply repeats something another person wrote (e.g., his recent column claiming that higher education has no value beyond labeling and that the Federally Insured Student Loan Program has created a bubble in tuition and fees). Robert Samuelson has been a great exponent of this technique, but he often simply arbitrages nonsense into Washington Post columns. In either case the WP has a responsibility to recognize that some of their columnists are simply rewriting dogma provided by the wealthy and powerful who make it worth their while. To the extent that there are any remaining standards for journalism, for the WP the right thing to do would be to clearly label Samuelson's column a paid advertisement. Then we could dispute the content and direct our criticisms at the advertisers who sponsor his writings.
Perhaps a Tautology?
written by mere mortal, October 27, 2012 4:01
Good article discussing Samuelson's editorial.

I've been mulling over what could possibly support a belief of some magical distinction between private / public jobs. The only substantive difference, to me, seems to be that private employers attempt to profit.

So, Samuelson might have a small, silly piece of real estate to defend if he poses a definition of a real job as one wherein an employer attempts to capture and monetize a portion of consumer surplus.

Unfortunately, that probably means any non-profit organization doesn't have any real jobs. And self-employed people might not either (need to think about that one more).

It was, indeed, a deeply foolish editorial. And a strange hill to decide to die on after 35 years.
What's with the mental block?: Nick R
written by Calgacus, October 27, 2012 5:05
Nick R: Dean Baker -- an otherwise reasonably smart guy -- doesn't seem to grasp the concept that private sector
jobs pay for themselves. Public sector jobs tend to require others (taxpayers, bond investors) to pay for them.

Jobs at the job level are equally "real" (fireman obviously don't have fake jobs), but public sector ones, unlike their private sector counterparts, cost taxpayers money.
Why is this so complicated?


It's complicated because the above is wrong. Insanely wrong. Takes years of brainwashing to believe such nonsense.

Public sector jobs cost taxpayers NO MONEY.
TAXES cost taxpayers money. Duh!

The money that any jobs are paid with, private or public, comes from these public sector jobs. The money that the bond investors buy their bonds with come from the public sector jobs (or other public sector spending). The money that taxes are paid with comes from this spending. As Kalecki noted long ago, a monetary economy with the stupid bond shell game is just like paying government workers & other recipients of government funds with bonds in the first place.

The problem is not that public sector jobs "cost the taxpayer money" - but the opposite - public sector spending can put too much ("high-powered") money into the system, into taxpayers' pockets, and cause inflation.

Yes, this is MMT = refurbished Institutionalist/Keynesian economics that everybody understood before 1970 or so, before public understanding of basic economics collapsed, led by academic moron-"economists". Neither the economics profession, nor the public has anywhere near recovered from this dark age. Even those who think they have.
Bounds, equalibrium, and government
written by Lrellok, October 27, 2012 7:04
I have been thinking a lot about this lately, and doing rather a lot of research. Lets start with a few facts. 1) If you separate public from private employment to population, up until around 1975-1980 the government (fed, state and local) was increasing it portion of EtoP at around 0.1625% annually. It began tapering off in the mid 70's and had flat lined by 1980. 2) At nearly the same time, private sector employment begins increasing as a portion of EtoP, and wages cease increasing at the same rate as production.

With this information, Samuelsons arguments make a (Twisted) sort of sense. Every household is expected to have 1 wage earner. However, this does not mean that that the market has a number of jobs equal to the number of households at if wages are at a sustainable equilibrium (that is a rate necessary to sustain aggregate consumption long term). If there are more households then jobs, then for private sector wages to remain at sustainable equilibrium, government must employ the extra people. In 1975-80 that stopped happening, and wages fell below equilibrium as clearing price was forced down and out by the expectation that every house must hold a job (it price dropped and quantity increased, because the employment expectation created a floor on quantity of labor supplied).

Samuelson is effectively arguing that wages must remain at below equilibrium prices, so the government must not be allowed to hire. If wages rose to equilibrium, the precious job creators would not make (as much) profits, and might leave, like their hero Galt.

Understood in context, it make some warped sort of sense. This does not of course change the fact that that is exactly what needs to happen, government must hire, wages must rise, and Mr Galt and associates need to go away.
Are we really having this debate?
written by Giulio M, October 27, 2012 7:09
Is all income created by the existence of government an illusion that replaces what the private sector would otherwise have produced on it's own? Poor countries have smaller governments. That's a fact. They are caught in a trap because they can't afford them but can't grow without the enforcement of property rights that only governments can guarantee. So is the entire increase in GDP per capita and the jobs necessary to produce it, permitted by a set of institutions that guarantees property rights, let alone the many other functions for which government is a natural monopolist, false in some fundamental sense? Or does government only create jobs when it marshals the resources neeeded to protect porperty rights but not when it lowers costs in producing the other things that the private sector will not produce optimally, such as education?
It's hard to believe we're having this debate; after all, the private sector in the U.S. has done such a fabulous job of providing great services such as child care so that women can enter the labor force without sacrificing population growth and pricing carbon emissions efficiently so that we reflect the price of cleaning up our waste in the products we consume. What me worry?
samuleson way wronger then you say
written by ezra abrams, October 28, 2012 6:45
for instance, there is a huge survivorship bias like thing in failures: we hear, loudly , about solyndras, but we don't hear about the many failures at private companies
second, the private sector is clearly unstable - that is the lesson of 200 years of industrial capitalism; left to themselves, private corporations produce unsafe cars, unsafe drugs, etc: would anyone fly in an airplane without the FAA ?
People like samuelson are living in this d
...
written by Rich Buley, October 29, 2012 2:29
The real question is: Why does Samuelson still have a job?
...
written by Rich Buley, October 29, 2012 2:36
Samuelson is literally, and I mean literally, wrong about everything. I know its only the WaPo, but doesn't anyone there ever become embarrassed?
Private Hospitals!
written by Sarah, October 31, 2012 8:53
Very interesting article on private health care! Private Hospitals

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Dean Baker is co-director of the Center for Economic and Policy Research in Washington, D.C. He is the author of several books, his latest being The End of Loser Liberalism: Making Markets Progressive. Read more about Dean.

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