Governments Do Create Jobs

Thursday, July 08, 2010 at 4:56 pm

Yesterday, Treasury Secretary Timothy Geithner made the dubious assertion that the government does not create jobs. Speaking on CNBC, he said, “Now, this president understands deeply that governments don’t create jobs, businesses create jobs. And our job as government is try to make sure we’re creating the conditions that allow businesses to prosper so they can hire people back, get this economy going again.”

Of course, the government is far and away the biggest employer in the United States — staffing the military, the postal service, fire stations, schools, museums, the regulatory agencies, the FBI, the National Institutes of Health, parks and numerous other institutions. The government creates jobs both directly, by hiring people into the federal and state workforces, and indirectly, by creating aggregate demand and letting private businesses cater to those additional dollars. Moreover, it is strange to hear the lead economic voice in the Obama administration — a Democratic administration last time I checked — make a classic small-government argument, particularly as the Obama administration touts its “recovery summer” jobs programs.

But there is a secondary point here as well. What Geithner is getting at is the notion that the government might be expanding in a way that would crowd out the private sector, or the notion that the government supports economic policies at the expense of businesses, rather than specifically for their benefit. But even if the government went on a hiring binge, it would be hard to argue that would hurt business growth or somehow impede the private-sector recovery. Demand is demand. And very low aggregate demand due to joblessness is the economy’s — and business’ — biggest problem right now.

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