How Federal Money Doesn't Translate Into Jobs

On the Booth Newspaper conglomerate website, Mlive.com, contributor Jennie Phipps wrote an article recently titled, “How the money flows – how federal spending on water research translates into jobs.”

Ms. Phipps lays out a "pretty clear-cut example" of how government spending creates jobs:

Patricia Soranno, associate professor of fisheries and wildlife at Michigan State University, has just netted a $2.2 million National Science Foundation grant (a.k.a. your tax dollars) to study 6,000 to 8,000 lakes in 17 states over five years.

In the process of finding out why some lakes are more sensitive than others to land-use and climate changes, the project will employ 17 people each year, most of them graduate and post-graduate assistants in fresh water ecology. Some of them will attend MSU, but others will be students at the University of Wisconsin and Iowa State University.

While $2.2 million looks like a substantial amount of money, dividing it over five years nets the project $440,000 a year. Divided by 17, that's less than $26,000 per person, per year if all of it were spent on salaries. Soranno says that the students get enough money to get by while they study and do research.

When a situation is explained that way, it appears that any amount of government spending “creates jobs.” Consider a hypothetical “jobs program” that the federal government could implement tomorrow: Hiring one person to dig holes and another to fill them back in. Does anyone deny that this would appear to translate into jobs?

Unfortunately, the appearance is deceitful and happens only if one looks at the seen and not the unseen in an economy.

This was first noted by French economist Frederic Bastiat in his 1850 essay, “What Is Seen and What Is Not Seen.” As he explains, “There is only one difference between a bad economist and a good one: the bad economist confines himself to the visible effect; the good economist takes into account both the effect that can be seen and those effects that must be foreseen.”

In other words, what the author of this piece sees is the college professor receiving a $2.2 million grant and redistributing it to 17 students. But the unseen is what else this money could have been spent on if not taken out of the private sector. Instead of studying lakes, it could have been used on food, shelter, clothing or even donated to an art museum or for cancer research.

Jobs are not the most important thing for an economy; prosperity brought on by value creation is. In fact, there is an endless amount of jobs in any economy. The real discussion here is much simpler: Who spends money better, the government or private individuals? History tells us that it is the latter.

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