Barack Obama and Mitt Romney Both Believe Crazy Idea That Government Doesn't Create Jobs


Our political system is living a lie, and it’s crippling our economy. By funding conservative think tanks, buying media outlets and supporting vicious anti-government politicians, the right has spread the false meme that that the only true engine of job growth is the private sector. As a result, our nation is blinded to the most crucial fact about modern capitalism: The private sector is totally incapable of providing all of the goods and services a modern society demands.

But you won't hear much about that reality during this campaign. In the second debate, Barack Obama was asked what he thought voters' greatest “misperception” about him was. “I think a lot of this campaign, maybe over the last four years, has been devoted to this notion that I think government creates jobs, that that somehow is the answer,” he replied. “That's not what I believe. I believe that the free enterprise system is the greatest engine of prosperity the world's ever known.” Mitt Romney offered the claim up as a mantra, repeating, “Government does not create jobs. Government does not create jobs.”

Public sector jobs are desperately needed to produce goods and services that the private sector has no incentive to do. It’s ludicrous, for example, to expect free enterprise to create competing private navies to protect our shores. It also makes little sense for private fire departments to compete with each other to sign up homes to protect. We know that the private sector has no pecuniary incentive to protect the commons – like putting out forest fires on public land or building public (non-toll) highways or cutting carbon emissions. There is no incentive for offering healthcare to a poor child. No individual employer has the incentive or the means to provide public education for all our children regardless of income. Many of these tasks can be – and are -- contracted out. But when the government provides the funding, it is the government, not the private sector that actually creates those jobs.

That’s why it is virtually impossible to imagine a modern, complex economy without a robust public sector. Modern economies need vast educational and physical infrastructures. We need scientific and medical knowledge on an enormous scale that only public educational and research can provide. And the private enterprise obviously needs a publically funded infrastructure of roads, rails, docks, telecommunications and airports as well as courts of all kinds to maintain the integrity of business transactions.

But Isn’t Government Growing and Growing?

The drumbeat against government is so incessant that we are blind to the fact that government jobs are declining, not rising, even during these hard times. As the chart below clearly shows, state, local and federal jobs as a percentage of the population are falling. While this decline represents an enormous victory for right-wingers, it’s a curse, not a blessing, for the rest of us.


How Anti-Government Ideology Deepens The Great Recession

From June 2009 to June 2012, 627,000 government jobs were slashed, while more than 4 million jobs were added in the private sector. However, according to an analysis by the Economic Policy Institute, government jobs should have been added, not reduced, just to keep up with population growth. They also argue that if government jobs had not been cut, the multiplier effect from public employment would have added even more private sector jobs as well. As a result, the overall unemployment rate today is much higher than it should be. In fact, they write, “if it weren’t for state and local austerity, the labor market would have 2.3 million more jobs today; half of these jobs would be in the private sector.” Instead of a 7.8 percent unemployment rate, it would be nearer to 6.2 to 7.0 percent had more federal assistance gone to state and local government to prevent layoffs.

But Wait, Isn’t Our Government Much Too Big?

Not on this planet. We are not overtaxed, nor is our government too large when compared with other developed nations. That most of us think we suffer from big government shows the power of ideology over reality.


Taxes as $ of GDP

Gov’t Spending as % of GDP






















Let’s focus on Germany, an economic powerhouse with low unemployment. Its government expenditures are more than 40 percent of its entire economic output and its relative tax burden is nearly twice as high as ours. Germany uses that money to invest heavily in education, training and physical infrastructure. It even provides generous stipends to cultural workers. (Big Bird, are you listening?) When unemployment increases, the government subsidizes employers to keep workers on the job. In short, Germany understands fully that government and private employment are codependent.

The Enduring Myth of Rugged Individualism

American ideologues – the Paul Ryan-Ayn Rand fetishists in particular – really believe that the economy is all about them. They credit their good fortune to being independent entrepreneurs who are dependent on no one for their prosperity. It tarnishes their self-image to admit that public servants and public support had anything at all to do with their success. That’s why Romney used that “47 percent” line on his wealthy donors. He knew they wanted to hear about the alleged divide between themselves – the “wealth creators” --- and the “dependent” government-supported no-accounts who lacked “self-respect.” They, the wealthy, are the modern captains of industry (or at least croupiers in our financial casinos). They are the drivers of the economy, the independent elites who earn and deserve all the riches they can command. The rest of us are government lackeys or worse.

Here’s the Dirty Little Secret: Capitalism Needs “Big Government”

Before the Great Depression, public sector employment was severely limited. Our military was small (except for a short time during World War I) and government provided virtually no social services. Public education was frail, and higher education was primarily for the well-to-do. In effect, we lived by social Darwinist principles – the strong shall rule. Not only were poverty and disease widespread, but the economy suffered periodic “panics” – deep recessions that included notorious bank runs and multiple corporate failures. As you can see from the left portion of the chart below, the number of government employees per million Americans from 1900 to 1930 was modest.


Then the rugged capitalism of the previous 200 years imploded into the Great Depression. This time the “panic” was so widespread and so deep that the entire notion of free enterprise was up for grabs. The new Soviet Union with its planned economy seemed to glide through the world depression unscathed. Western capitalist nations faced mounting internal threats, especially in Europe where Communists and Fascists battled for supremacy. The democracies that endured realized that free enterprise could only survive by expanding government's role in the economy. From that point on, government employment (both civilian and military) rose significantly, and was credited not only with pulling the world out of the Great Depression, but also for maintaining high levels of employment ever since.

Ever Rising Capitalist Productivity Creates More Job Dislocation

The core problem of capitalism stems directly from its enormous productivity: it creates and deploys technology again and again to replace human labor power. Like no other economic system ever created, free enterprise produces more and more products and services with fewer hours of labor. This incessant march to higher and higher levels of productivity is why we have such a cornucopia of goods and services. But, this enormous productive capacity also creates an inherent employment problem. How are we to make up for all the jobs that are continually displaced? How do we cope with vibrant, free enterprise “creative destruction” that demolishes corporations and entire industries?

The great stabilizer was discovered during WWII – public employment and public expenditures.

The chart below looks at total government spending as a percent of the entire economy (GDP). You can see the spikes in spending during the two world wars, and the jump up starting during the Depression to provide the support needed to sustain a high overall level of economic growth and employment. There’s just no way around it: Modern capitalism needs robust government spending to fill the employment hole created by ever rising productivity and economic dislocations.


Free Enterprise and Freedom

Free enterprise creates the illusion of operating entirely on its own. It doesn’t seem to need tax dollars to function, at least not directly. It is disciplined by markets, not by political functionaries. Money appears to change hands without very much interference by the state. And it provides a vast array of choices. Overall, the ideological right has successfully argued that private enterprise is the antidote to totalitarianism – the way to prevent total control of our lives by state power.

There is truth to the argument that free-enterprise can promote openness and freedom. But it doesn’t guarantee it. Capitalism had little difficulty conforming to Nazi rule and it seems to thrive in China where factory workers are virtually imprisoned. It’s also the case that the freest markets are inherently unstable and often abusive to those at the bottom. That’s precisely why we’ve learned to combine free enterprise with regulations, public employment and public expenditures. When we pretended that free enterprise would police Wall Street on its own, we returned to the chaos of 1929. And if it weren’t for government spending and employment, we would be living through another monstrous depression.

So, we should value public sector employment not only because these workers provide valuable services that the private sector can’t or won’t provide. We also must recognize that government spending keeps the entire system afloat. Anyone who claims that free-enterprise can do it all is talking theology, not economics.

Because so many wear blinders, we’ll be facing battle after battle pitting private sector workers against public sector workers, deficit hawks against those who wish to preserve our safety net. Not only are these battles unproductive, they are self-destructive. The more public workers we lay off, the longer the Great Recession will last.

I’m still waiting for a politician with the guts to say that it’s time to offer every unemployed worker a publically funded job until the private sector recovers from the Wall Street crash. (And while we’re at it, let’s pay for those government jobs with a financial transaction tax on Wall Street.)

Wouldn’t it be uplifting to see our people back at work, teaching our children, repairing our roads and bridges, building mass transit, weatherizing our homes, and caring for our sick and disabled?  

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