California’s unemployment rate is more than 12 percent, prompting state Senate President pro Tem Darrell Steinberg’s new plan to create some 140,000 jobs. The plan, unfortunately, has a problem.
Steinberg’s plan consists of several measures, each expected to create a specific number of jobs. Yet when tallying up the number of jobs “created” by a new government expenditure or mandate, Steinberg overlooks the jobs destroyed by bigger and more intrusive government.
For example, Steinberg’s package recommends that the state spend $773 million to build schools, creating an estimated 11,400 jobs. Another proposal would promote the Employment Development Department’s “work-share program,” in which employers are encouraged to cut hours rather than lay off employees. The state’s unemployment insurance fund then makes employees salaries whole by giving them partial compensation because of their smaller paychecks.
When the state spends money, it seldom increases the wealth of California. Every dollar that Sacramento spends ultimately comes from taxpayers. It’s true that some of Steinberg’s proposals involve federal money, but then in that case California jobs are “created” only by taking resources away from taxpayers in other states. They, of course, have their own state governments trying to perform the same trick with California residents.
The purpose of an economy is to create products and services that customers value. Businesses have to convince potential customers to hand over their money voluntarily. The businesses then use the funds to pay employees. This process ensures that the workers are actually doing something valuable.
It’s just digging
When the government spends money to “create jobs,” it quashes this feedback mechanism. In principle, the government could pay 5,000 people to dig holes and another 5,000 to fill them back up. That would create 10,000 jobs, but it obviously wouldn’t make society richer.
Job “creation” through new regulations is even worse. Steinberg embraces a renewable energy mandate in which California utilities must produce one-third of their power from politically favored techniques such as wind or solar by 2020. Steinberg says the idea could create 20,000 “clean energy” jobs.
Steinberg overlooks the job destruction that would occur from higher energy prices. Utilities currently rely primarily on fossil fuels to produce electricity because these fuels are the cheapest and most reliable source. We aren’t doing any favors for the economy by forcing utilities to use inefficient techniques. By the same logic, Steinberg could forbid California construction companies from using backhoes. Think of how many jobs that would create for men with shovels!
The Bureau of Labor Statistics reports California’s unemployment rate for December at 12.4 percent, compared to the nationwide rate of 10 percent for that month. Why is California reeling more than other states? Not because Sacramento politicians are too timid with spending.
In a forthcoming report looking at fiscal policies across the 50 states, co-author Jason Clemens and I found that California has the fourth-highest burden of state and local spending relative to gross state product. Even worse, the structure of California’s tax code is very inefficient, coming in 45th place on our ranking.
California’s personal income tax is plagued by some of the highest top rates in the country. By reforming the tax code in favor of lower rates and a broader base, California government could raise the same amount of revenue while providing more incentives for business expansion in the Golden State.
Most government activities consist of taking resources from one group of people and handing them to another group. Steinberg’s plan relies largely on government spending and mandates, the same failed techniques deployed by the Obama administration.
If Sacramento politicians really want to help, they should slash spending and taxes. That would let the private sector flourish, put Californians to work in a meaningful way, and help restore prosperity to the Golden State.
Robert P. Murphy is a senior fellow in Business and Economic Studies at the Pacific Research Institute.