What Kelliher wants to do, government doesn't do well

  • Article by: CRAIG WESTOVER
  • Updated: July 24, 2010 - 6:57 PM

Creating work for some will come at the expense of others.

Margaret Anderson Kelliher wants to put Minnesotans back to work in the worst way, and that is precisely how she plans to do it.

Her "no stone unturned to get Minnesotans back to work" plan assumes that targeted government spending can create jobs. It can't. At best, Kelliher's plan provides jobs to specific workers at the expense of jobs for others. At worst, it destroys more jobs than it provides, weakens the ability of the private sector to create wealth and retards economic growth.

What 19th-century French economist Frédéric Bastiat said about the bad economist also applies to would-be governors and policymakers: The bad policymaker sees only the visible, short-term benefits of government spending; she willfully ignores the unseen but foreseeable negative consequences.

The simplest way to understand the fallacy of Kelliher's plan to stimulate job creation through government spending is to look at both the seen and unseen consequences of a specific proposal of hers -- to enact a $1 billion bonding bill in each of the first two years of her administration.

According to Kelliher (via her website), the visible benefits of state bonding include almost 70,000 jobs over four years "created or saved" by state spending on construction, flood mitigation, conservation projects, and asset preservation at the University of Minnesota and in the Minnesota State Colleges and Universities system. Her website has no discussion of the utility of any specific project; the $1 billion is justified solely by "creating or saving" jobs.

Kelliher simply does not grasp that before the state can pay any individual a salary or fund any specific project, it first must take resources from productive Minnesotans.

States don't "generate revenue" in the same way private businesses or individuals generate revenue. The private sector creates wealth; the state can only tax and consume wealth.

Consider bonding and taxing for light-rail transit. The visible benefits are construction jobs and ongoing operational jobs. However, equating those jobs with jobs created by private-sector projects (for instance, construction jobs to expand a factory and the permanent assembly jobs created) is simply unsound economics.

To build and operate a light-rail line, the state must first take resources out of the private sector. It is private-sector wealth taxed by government that pays the interest and backs the bonds issued by the state. Wealth is created in the private sector when individuals combine material, labor and capital to produce products and services that people willingly purchase at a price greater than the cost of producing them.

Demand for products at profitable prices motivates businesses to expand production (build more factories), hire more people, distribute greater wealth and thus increase general prosperity. Taxing the private sector to subsidize government-initiated projects funnels material, labor and capital into projects that only consume wealth.

The "demand" for light rail is predicated on a price (as is all economic demand). However, operating costs for the "highly successful" Hiawatha Line are about three times the revenue generated by the fare box. People demand light rail at approximately one-third the cost of providing it, but they are unwilling to pay the true cost of service.

The fifth-grade question is: "Given light-rail transit that operates at a 66 percent deficit, how many lines can we build before we run out of money?"

Kelliher's "no stone unturned" plan is simply a collection of government subsidies.

When government subsidizes any activity that benefits a few -- light-rail construction, a publicly funded stadium, roads and bridges to nowhere, excess administration, and jobs providing products and services that require mandates to support them -- the true cost is borne by the rest of us. Fewer resources are available for creating new wealth. Factories don't get built, new services aren't provided and new private-sector jobs aren't created. Individuals who want to start or expand businesses must compete for material and labor with government projects funded by wealth they created. Prosperity declines.

The laws of economics always prevail. Kelliher's plan can't change that. Spending more to create jobs is neither a new nor a big idea. It is a bad idea.

Craig Westover is a Republican activist and writer.

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