Government Projects Do Not 'Create Jobs'

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Yesterday while driving I heard an ad on the radio promoting more state spending on roads. Besides being a bit overreaching ("Is my family really safe with our current roads?") the idea of better managed and maintained roads makes some sense and I thought the ad had a decent point – especially as I rumbled over potholes and hoped not to end up in a major traffic jam like last week.

There are potential improvements that can be made to Michigan’s roads just by changing how things are run (and who runs them) without necessarily increasing road spending. Additionally, there are many ways the state could do the same things for less money. (Check out this Mackinac Center study.)

The radio ad made the point that better roads are safer – OK. Then it said better roads make it easier for businesses to operate in the state – fine. But it committed a logical and economic error when it claimed, "State spending on road projects will create jobs and boost our economy." That’s only half of the story.

State projects may create jobs, but the proper question is, do they create wealth? The state could easily reduce Michigan’s unemployment to 0% by mandating that every unemployed citizen shovel dirt on some state project without pay. Employment alone is not a good indicator of economic success; overall wealth is. Even if state spending can "create jobs," creating jobs alone does nothing for our state’s overall prosperity or standard of living.

The question then becomes, do state projects, as the ad claimed, "boost our economy"? The answer is no.

Let’s say the state spends $1 billion on road projects. It is easy to see all the laborers and machinery employed to complete the $1 billion worth of projects. It seems all those laborers and the manufacture of all that machinery signify new growth in the economy. But where did that $1 billion come from?

It came from taxpayers. What use would that $1 billion have been put to had it not been taken by the state and spent on roads?

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August 20, 2008