Rabbits in the hat

Magicians perform all sorts of tricks to make us believe something that simply is not true. For instance, they are known for pulling rabbits out of hats. The way they do it is quite simple. They first put the rabbit in the hat. They can’t create rabbits out of thin air. But by distracting their audience they are able to make it look like as if that rabbit simply materialized.

We could not have a magician substitute eggs for rabbits and thus provide us with an endless supply of scrambled eggs. Because he must first place the egg in the hat, before he can take it out, no new eggs are being created out of thin air.

Government job creation programs are very similar to the rabbit- in-the-hat trick. Government cannot create jobs. What jobs it seems to create are first taken from somewhere else.

Now some people will say this is absurd. After all there are all sorts of government-created jobs. When a highway is built, doesn’t the government hire contractors who hire people to build the road? Of course. That’s obvious. Every time we pass a government project we see jobs – lots of them. But what is forgotten is what we don’t see.

How does a government create jobs? With money, of course. The highway contractor is paid so he can pay his employees. But where does the money come from? For most purposes that money comes from taxes.

Taxpayers hand over to the government a huge percentage of the wealth they have created through hard work. That is where the money comes from. And what would have happened to that money had not the government taken it? Well, you would either save it or spend it. Let’s say that instead of paying taxes you would have preferred to buy a new television set. In that case the highway jobs were created at the expense of the television set. If there are fewer televisions sold, it means fewer jobs for television manufacturers, salesmen and repairmen.     If you would have spent the tax money on a new extension to the house, then those highway jobs were created at the expense of jobs for other construction workers, bricklayers, etc.

When government spends your money, instead of letting you spend it, it can only transfer jobs from one sector to another. It doesn’t actually create new jobs. It just redistributes already existing jobs. And usually it makes us poorer in the process. When the government spends your money for you, it keeps a certain percentage for expenses. It has to pay those bureaucrats. But bureaucrats produce nothing. They simply consume. At least when the money gets to the contractor we get a highway. But everything spent by the middleman – the government – goes for nonproductive work.

The old rabbit-in-the-hat trick only looks like magic. Government jobs programs only look like they create jobs. But nothing ever comes from nothing. The rabbit is moved from where it is hidden to create the illusion that it is materializing in the hat. Jobs are lost in one sector and then transferred to another to create the illusion that politicians can create jobs. In some ways governments are better illusionists than magicians. With magicians we know we are being tricked. But the government still has a huge number of people believing that it can actually manufacture jobs out of thin air.