Don’t put it past Congress to tack a public option onto the defense spending bill. Or at least use earmarks in the bill as bargaining chips.

FEE Timely Classic:
“Legal Plunder Mislabeled ‘Defense’” by Sheldon Richman

Moreover, as power is centralized, those further down the chain of command, who are nominally responsible for maintaining government assets, have less and less authority to do so. Since nobody really owns government assets, nobody has a personal stake in protecting their value. Consider a few cases.

Why Can’t Government Maintain New Orleans’s Levees?

The nearly half-million people of New Orleans wanted to live in their big bowl below sea level, and they entrusted politicians with the job of maintaining more than 125 miles of levees. These large walls, typically made of earth and/or stone, surrounded the city to keep out water from the Mississippi River (to the south and southeast of the city), Lake Borgne (to the east), Lake Pontchartrain (to the north), and various canals. Since water continuously leaked into the city, there were floodwalls, about 200 floodgates, plus pumps and drainage canals for additional protection.

Then Hurricane Katrina hit. It crossed Florida on Thursday, August 25, 2005, as a Category 1 (weakest category) hurricane, then gathered strength as it reached the warm waters of the Gulf of Mexico. Wind velocities accelerated, and by Sunday, August 28, Katrina was a Category 5. It weakened somewhat to a Category 4 when it made landfall east of New Orleans the next day, with winds of up to 145 miles per hour. We all know what happened next.

But why did it happen? There seemed to be problems almost everywhere in New Orleans’s levee system. Dr. Peter Nicholson, associate professor of civil and environmental engineering at the University of Hawaii, headed a study of the levee failures on behalf of the American Society of Civil Engineers. He reported, “We found literally dozens of breaches throughout the many miles of levee system. A number of different failure mechanisms were observed.” Ivor van Heerden, deputy director of Louisiana State University’s Hurricane Center, criticized the design and suggested that inadequate construction could also be an issue. Forensic teams that studied these levees generally agreed with the assessment.

Who was responsible for the failure of the levees?

They needed maintenance because everything needs maintenance and because each year the city was sinking about an inch deeper into the Mississippi River mud. Although New Orleans politicians’ most important job was public safety and the levees obviously affected public safety, politicians seemed to believe doing maintenance work–which would probably go unseen–wouldn’t serve their personal interests (especially getting reelected).

The state had established the New Orleans District Levee Board in 1890 to be responsible for maintaining the levees around the city. But the board members, a majority of whom are appointed by Louisiana’s governor, pursued their interests by expanding their power, gaining jurisdiction to develop properties around the levees. Board members spent time on such matters as licensing a casino, leasing space to a karate club, and operating an airport and marinas. The Senate Homeland and Governmental Affairs Committee reported, “A review of the levee-district board minutes of recent years revealed that the board and its various committees spent more time discussing its business operations than it did the flood-control system it was responsible for operating and maintaining.”

James P. Huey, who had been on the board for 13 years and served as its president for nine years, blamed the state legislature. He claimed that the board had to generate money from those time-consuming extraneous businesses because the state legislature had cut the board’s revenue in half. So even though members of the board knew that a levee in New Orleans East was three feet below its design height–which would affect its ability to withstand a storm surge and therefore jeopardized the people in the city–they didn’t get it fixed because they were squabbling about who would pay for it. The Army Corps of Engineers refused. The board wrote letters to their members of Congress asking Washington for money, but they were busy with other things. And the Flood Control Act, which Congress passed in 1965, sent a clear signal that the federal government would bail out people who wanted to live in flood-prone areas like New Orleans.

The U.S. Army Corps of Engineers handled design and construction of the levees, as it handled flood-control projects throughout the United States. But its budget consisted almost entirely of “earmarks,” assuring that appropriations would be spread around congressional districts. That gave incumbents something to brag about during their election campaigns. The problem was that spending a lot more money on New Orleans flood protection wasn’t the top priority for the state’s politicians. J. Bennett Johnston Jr., for example, when he was a Louisiana senator, secured appropriations for four new dams on the Red River between Mississippi and Shreveport, costing $2 billion.

Bottom line: Nobody in the city, state, or federal governments wanted responsibility for maintaining the levees.

Why Can’t Government Maintain Public Housing?

Because poor people tend to live in poor housing, many people thought it would be a good idea for government to build housing. This started during the New Deal and accelerated after World War II as the federal government subsidized municipalities. Public housing projects were given names–like Cochran Gardens, Maplewood Court, Henry Horner Homes, and Rockwell Gardens–that suggested they might be charming.

A guiding principle of the time was that housing projects should be massive. In part this reflected the influence of the Swiss-born architect Charles-Édouard Jeanneret-Gris–later known as Le Corbusier–who urged during the 1920s that people be concentrated in big buildings consisting of cell-block apartments. The buildings were set pieces, surrounded by empty parks and separated from their neighborhoods. Bigness became a kind of architectural cult, embraced by Soviet mass murderer Joseph Stalin and others during the mid-twentieth century. Like so many Soviet buildings, U.S. housing projects tended to be big and ugly.

Consider the experience of the Chicago Housing Authority, the third-largest public-housing bureaucracy in the United States. It built a four-mile stretch of housing projects. Just one of them, the Robert Taylor Homes, included a couple dozen 16-story buildings containing 4,400 units altogether. It was reportedly the world’s largest housing project.

These monstrosities quickly deteriorated. “The buildings in its enormous family developments are literally crumbling,” reported housing analyst Susan J. Popkin in 2000. “They are relatively old; most construction occurred during the 1950s and early 1960s. The original materials were cheap and have not held up well over time. Further, the buildings are poorly designed, with exterior hallways and elevators that have proven extremely difficult to maintain.” The government couldn’t begin to take care of this development. Popkin went on, giving a litany of problems familiar to many residents of “the projects” across the country:

Because the hallways of the high-rises are covered with metal grates, the buildings look like prisons. Many apartments (and some entire buildings) are boarded up because their major systems–plumbing, heating, electrical–have failed. The grounds and hallways are often filled with refuse and reek of human waste. The buildings are infested with vermin, including rats, mice, roaches, and even feral cats. Lights in interior hallways, elevators, and stairwells are vandalized regularly, leaving these areas dark twenty-four hours a day. The buildings’ exteriors, halls, and stairwells are often covered with graffiti or, in the better-maintained developments, the evidence of the janitors’ attempts to paint over the mess.

Without constant vigilance it is nearly impossible to keep the units clean. In addition to the dirt that blows in from outdoors, it is not uncommon to see apartment walls literally crawling with roaches. Most apartments also have serious maintenance problems, owing to years of neglect and failed structural systems. For example, in some units, it is impossible to turn off the hot water in the bathrooms, so the walls now have severe moisture damage.

Despite spending millions of dollars on law enforcement in the housing projects, neither the federal government nor the city have been able to maintain public safety. Maintenance people were afraid to enter the housing projects, which contributed to their deterioration.

During the 1980s real estate developer Vincent Lane became chairman of the Chicago Housing Authority and ordered police to “sweep” through public housing projects, ejecting people who weren’t legitimate residents. But the American Civil Liberties Union challenged these sweeps, and evidently they were discontinued. Moreover, they were expensive–about $175,000 per building–and Lane became embroiled in conflict-of-interest scandals involving security service contracts. The Chicago Housing Authority had trouble securing enough funding for its operations, and by the 1990s it had ceased making major repairs.

The next short step was to demolish the disastrous housing projects. The last tower came down in 2007. The city of Chicago began building townhouses, some of which were sold to middle-income private buyers, while others were reserved for former tenants in the projects. Applicants were screened in an effort to avoid drug users or those with criminal records. But construction is likely to proceed slowly and accommodate a fraction of the people who had lived in the projects.

Perhaps the most notorious of all housing projects was Pruitt-Igoe in St. Louis, designed by Minoru Yamasaki, winner of a number of architectural awards and praise in Architectural Forum. Pruitt-Igoe included 33 11-story buildings on 57 acres in DeSoto-Carr, a poor section of the city. There were 2,870 apartments.

The project was finished in 1956. “Only a few years later,” reported Alexander von Hoffman of Harvard’s Joint Center for Housing Studies, “disrepair, vandalism, and crime plagued Pruitt-Igoe. The project’s recreational galleries and skip-stop elevators, once heralded as architectural innovations, had become nuisances and danger zones. Large numbers of vacancies indicated that even poor people preferred to live anywhere but Pruitt-Igoe. The St. Louis Housing Authority spent $5 million trying to fix the problems but failed.” In 1972, three of the 16-year-old Pruitt-Igoe buildings were demolished. The following year, the U.S. Department of Housing and Urban Development agreed Pruitt-Igoe was hopeless, and the rest of it came down.

Similar public housing projects across the country were just as wretched. Joseph Petrone, a former maintenance supervisor with the Philadelphia Housing Authority, recalled: “I’d go to work at Schuylkill Falls [a PHA project] with a .38-caliber revolver in my belt and a big stick in my hand. The stick was for the German shepherds people kept tied to their doorknobs. The halls were covered with trash because the dogs would tear up the trash bags. We’d find bodies in the elevator shafts; the kids would play there, get stuck, and fall or get crushed.” The government was incapable of maintaining anything it built.

Why Can’t Government Maintain National Parks?

More than a century ago, “Progressives” promoted the idea that only government could be trusted to take care of natural wonders like Yellowstone and the Grand Canyon. Things have worked out rather differently. Apparently when politicians began considering the idea of national parks, nobody thought much about maintenance. For example, Congress was assured Yellowstone wouldn’t cost Washington anything once the initial roads and buildings were constructed. In 1916 Stephen Mather, who managed the national parks, reported, “The revenues of several parks might be sufficient to cover the costs of their administration and protection and Congress should only be requested to appropriate funds for their improvement.”

Over the years, presidents have bragged about how much they added to the National Park Service. Now it includes some 6,000 historic structures, 8,500 monuments, 2,000 bridges and tunnels, 4,300 employee housing units, and 27,000 campground sites, as well as docks, parking areas, and other assets. But it wasn’t until 2002 that the National Park Service began to assess their condition.

Since the federal government “owns” the national parks, their funding depends on Washington politics. The prevailing policy has been that most revenue generated in the parks goes to Washington. As a consequence, the parks have had to lobby politicians for appropriations. But over the years the biggest increases in federal spending have involved wars and social programs. The National Park Service has had a hard time competing for funds with the likes of Social Security, Medicare, and Medicaid. It’s a small pig at the trough. There has been a big backlog of deferred National Park Service maintenance jobs that lacked funding. Roads are sometimes hazardous because of potholes. Visitor facilities are falling apart. Historic structures are in jeopardy. Sewage systems have broken, causing pollution.

Why Should Government Start Something It Can’t Maintain?

Government cannot be counted on to maintain anything well because there’s no political glory in maintenance. Those who sign major laws, who launch new government programs, and who cut the ribbons for new government buildings can brag about their exploits during reelection campaigns. But politicians don’t seem to gain any credit with voters when they maintain programs that somebody else started. In many cases, like adding more cement to New Orleans levees, maintenance work is invisible.

Since taxpayer money is wasted when it’s spent on projects that subsequently suffer from inadequate maintenance, and often much harm is done, government should be limited to projects it might be able to maintain. If this means government ends up doing little, so be it.

Still, if that’s what you think, you’re wrong.

The latest entry in the genre, Thomas Woods and Kevin Gutzman’s Who Killed the Constitution?, is something different. It’s well worth your while.

Unlike some other writers, Woods and Gutzman don’t just place the blame for our present situation on a handful of bad Supreme Court decisions. Instead, they show how, in the twentieth century, all three branches of the federal government have spun out of control, completely abandoning any pretense that the Constitution constrains them at all.

Woods and Gutzman demonstrate how the executive branch claims virtually unlimited power. President George W. Bush damaged the constitutional fabric significantly, and the authors demolish the dubious constitutional scholarship of Bush’s court intellectual, law professor John Yoo. They point out, too, that presidents never have trouble finding “scholars” like Yoo to rationalize their power grabs.

But the authors also show that Bush did not do much of anything new. All presidents since at least Harry Truman have assumed they could make war without a declaration from Congress. In fact, most presidents since Theodore Roosevelt have assumed, as he did, that they can do anything they want in the absence of a specific constitutional restriction on their power. (Gene Healy’s recent book, The Cult of the Presidency, reviewed in the March Freeman, offers much additional detail on this subject.)

A Litany of Abuses

One chapter in particular illustrates this by exposing one of the worst, but most overlooked, government crimes in U.S. history: Franklin Roosevelt’s confiscation of everyone’s gold. This discussion also gives the authors an opportunity to offer an important bit of economic education as they explain why gold was used as money in the first place.

You might expect the chapter titled “Roads to Nowhere” to offer a familiar list of pork-barrel projects funded by Congress. Instead, the authors show that the federal government shouldn’t be funding roads at all, no matter where those roads go. Early presidents assumed they would need a constitutional amendment to fund “infrastructure” projects. Unfortunately, today they just assume it’s within their power and that assumption goes unchallenged.

Other chapters explore topics such as the Commerce Clause, which the courts have used to justify almost anything Congress does; the military draft, which violates the Constitution’s prohibition of slavery; presidential “signing statements” (written pronouncements by a president on signing a bill, often with the intent to modify the statute and especially to nullify its application to the executive branch), and President Truman’s attempt to nationalize the steel industry.

Two of the boldest chapters deal with what the authors call the “third rail of American jurisprudence”—Brown v. Board of Education and its aftermath. The authors show how Brown had no basis in the Constitution—and that the Supreme Court justices behind the decision knew it. Yes, the book’s authors actually say it: the Fourteenth Amendment’s text does not actually prohibit school segregation.

Even if that’s so, why attack this sacred cow when most everyone today opposes segregation anyway? Because if the Supreme Court can so utterly disregard the Constitution and the very idea of law in this decision to reach its own policymaking goals, then there really is no Constitution to speak of anymore. And that’s the point. As they say in their introduction, “the Constitution is dead.”

Beyond Redemption

Refreshingly, they don’t argue that the Constitution might be revived by electing the right people or bringing the right lawsuits. Indeed, they even suggest that our sorry result might have been inevitable—not only with this particular Constitution, but with any written constitution. After all, what do you expect will happen when you let federal officials determine the limits of the federal government’s power? That’s true regardless of who’s in office, or what they might say before being elected. Woods and Gutzman write: “People in power exercise all the power they can get, even after they have howled in the wilderness against legislating judges, imperial presidents, and the death of states’ rights.”

The authors also quote Lysander Spooner, who put the problem best when he wrote in the nineteenth century that the Constitution “has either authorized such a government as we have had, or has been powerless to prevent it. In either case, it is unfit to exist.”

Politicians can enact policies from two general categories to achieve desirable outcomes, including the creation of high-paid jobs: 1) policies that work, but in ways that do not benefit politicians, and 2) policies that don’t work (and typically make matters worse), but which create the mirage of working in ways that do benefit politicians.

Under prevailing democratic arrangements, electoral survival demands that politicians appear to promote desirable social objectives with direct and decisive action that caters to organized interest groups. Even when such special-interest policies are socially harmful, as they invariably are, they still do more to promote the interests of politicians than policies that would promote broad social benefits indirectly by creating a setting in which people can pursue their various interests through productive interaction. The political problem with the indirect approach is twofold: 1) the benefits are created so gradually and spread so widely that few will notice them, and 2) even if the benefits are noticed, it will be difficult, if not impossible, for politicians to claim credit for them. As F. A. Hayek pointed out in volume three of Law, Legislation and Liberty, politicians “who hope to be reelected on the basis of what their party during the preceding three or four years has conferred in conspicuous special benefits on their voters are not in the sort of position which will make them pass the kind of general laws which would really be most in the public interest” (emphasis added).

When we look at policies aimed at creating high-paying jobs, we easily find examples where politicians preferred conspicuous “benefits” that actually harmed the public to inconspicuous benefits that really were good for the public.

Many policies would increase the number of high-paying jobs indirectly, and many would appear to increase the number directly but actually reduce those jobs and lower wages. The former policies all do the one thing necessary for higher wages and salaries—increase labor productivity—while the latter policies all reduce, or retard, labor productivity, and so reduce wages below what they would be otherwise. The political bias against effective policies is readily apparent from the following list and brief discussion. Consider first some policies that would increase wages.

Eliminate restrictions on imports: One of the most effective things the federal government could do to increase labor productivity and wages is eliminate tariffs and restrictions on imports. Reducing import restrictions increases real wages in two ways. First, it reduces the price workers have to pay for those goods and services that could be produced at less cost in other countries than they can be domestically. Second, it increases the competition domestic producers face from foreign producers, which directs workers into those employments in which they are most productive–in which they have a comparative advantage.

Increased productivity is both necessary and sufficient to increase wages, at least in general. No serious person can deny that there are costs associated with workers moving to more productive jobs, or that a few people will be unable to find new jobs that pay as much as the ones they lost. But no economy can prosper without open competition, which keeps all resources, including labor, moving from less-valued to more-valued employments (in the eyes of consumers) in response to constantly changing conditions. And even those who end up with lower wages because of the particular adjustments they are required to make still earn far higher wages than they would in an economy where they, and everyone else, are protected against having to make such adjustments.

End corporate welfare: Import restrictions are a form of corporate welfare, but unfortunately not the only form. Eliminating all forms of corporate welfare would increase high-wage jobs by reducing taxes and their distorting influence (see below), and allowing both domestic and foreign competition to direct labor and capital into their most productive uses, as determined by consumers, not by politicians catering to their special-interest clients.

Lower marginal tax rates: No matter how efficient a government is, it has to raise revenue to finance its activities, and that means imposing taxes. Unfortunately, all other taxes reduce economic productivity by 1) putting a wedge between the price suppliers receive and demanders pay, thus preventing mutually beneficial exchanges from occurring, and 2) motivating people to make decisions to avoid taxes rather than create wealth. These distortions are commonly called deadweight losses and are an inevitable cost of taxes over and above the opportunity cost of the money raised. Reducing the deadweight loss from taxation increases the effectiveness of exchanges between employers and employees at directing workers to where consumers would value them most, and increases the general level of productivity, both of which increase the real wages of workers. So an effective way of increasing the number of high-paying economy jobs is by lowering the marginal tax rate and expanding the tax base by eliminating loopholes, reducing the deadweight loss of taxes for a given amount of revenue raised. The lower the marginal tax rate the smaller is the wedge between what sellers receive and buyers pay, and the fewer the tax loopholes (along with a low marginal tax rate), the less the tax benefit from diverting resources from high-valued production to low-valued tax avoidance.

Avoid inflation: The federal government can do a lot to increase high-paying jobs by avoiding inflation. Inflation erodes labor productivity and lowers real wages, just as surely as it erodes the value of the dollar. The most destructive thing about inflation is that it distorts the information communicated by market prices, reducing the ability of market exchange to direct resources, including labor, into their most productive uses. Just as a yardstick ceases to be useful for measuring and comparing distances if its length is subject to sporadic change, so market prices are less useful for expressing and comparing values when the value of money is subject to sporadic changes. Also, inflationary distortions make it almost impossible to know what interest rate is appropriate when people borrow and lend money to finance long-term investments. So in an inflationary environment, many efficient capital investments that would increase the future productivity of labor—and increase future wages—never get made.

Avoid the Pork

Reduce pork-barrel spending: There can be no doubt that reducing pork-barrel spending would increase real wages by increasing the productivity of the economy. A major portion of federal spending is motivated by the ability of particular congressional districts or organized interest groups to capture benefits by spreading the costs over the entire taxpaying public. With those receiving most of the benefits paying only a small portion of the cost, the pressure is expand spending well beyond the socially efficient level. Resources are transferred from higher-valued uses to lower-valued uses (for consumers), reducing the real value of salaries and wages. Excess government spending is a negative externality, just like excess pollution, and the former is no less to erode real wages than the latter. If politicians worried about the negative externalities of pork-barrel spending as much as they claim to worry about those of excess pollution, the result would be less wasteful government spending and more high-paying jobs.

Eliminate the minimum wage: This would increase wages by increasing the human capital that, for many young people, is best acquired through on-the-job training. Minimum-wage legislation clearly creates unemployment among young people who, for a variety of reasons, including being trapped in dysfunctional public schools, don’t have skills worth the legally imposed minimum wage. The result is not just unemployment, which may be a short-term problem, but a reduction in the opportunities for many young people to acquire the skills and attitudes that will make them more productive over the long run. Even those who do get a job at the minimum wage are less likely to get one in which the employer invests in them by providing training opportunities at the cost of some immediate output. The minimum wage prevents many young people with little opportunity to continue their formal education to develop the skills necessary to earn a good income in the future by working at a low wage when they have few financial responsibilities. Eliminating the law would make it legal for our less-advantaged youth to have much the same opportunity for higher-paying future jobs as more fortunate youth get through college subsidies.

Reduce the power of labor unions: Eliminating some of the legislative privileges that empower labor unions would be an effective way to increase wages. Labor unions can, and do, increase the wages of some workers. But they do so by reducing the wages of others by enough to reduce wages in general. Because of legal privileges that unions receive, it is difficult (and sometimes impossible) for workers to qualify for some jobs without being members of a union. Thus unions can increase some wages by restricting entry into some occupations and rendering those workers less efficient with rigid work rules.

All these practices reduce the productivity of the general labor force. Restricting entry into some occupations increases the wages of union members who work in those occupations, but it increases the number of workers in other occupations where their skills are less valuable. This not only lowers their wages, but reduces the productivity and wages of workers in general by preventing them from moving into their highest-valued employments. By reducing the flexibility of employers to shift workers from one task to another in response to changing conditions, rigid work rules also reduce the productivity, and wages, of workers.

Industry-wide labor unions have also lowered general economic productivity through cartelization of workers. If the firms in an industry explicitly agreed to reduce their output to increase their prices, they would be in clear violation of antitrust law (from which unions are exempt) and subject to harsh penalties—including prison time for senior managers. On the other hand, the firms in an industry have little to worry about if output is reduced because of a strike by its union. So both industry profits and union wages can be increased by the inefficiencies of a cartel “agreement” that remains within the law only because it is brokered by a labor union. (I am not arguing for antitrust laws. Even if antitrust laws could be rendered immune to political considerations, which they have never been and never will be, they would still reduce the competitiveness of the economy because of the static textbook notion of perfect competition on which they are based.)

All these union-induced inefficiencies reduce output below competitive levels and therefore reduce real wages. These inefficiencies would be reduced and the real wages of workers would be increased by reducing the power of labor unions.

As I have noted, all the policies discussed have one thing in common—they would increase wages by increasing economic productivity. They also have another thing in common—they would increase wages broadly, indirectly, and gradually by establishing an environment in which people productively cooperate with one another through markets in ways that best serve their collective interest. This means that the better jobs and higher wages will not be readily noticed, and even when they are, they will not be seen as the result of can-do government actions for which politicians can easily take credit. So the effectiveness of these policies at creating the type of jobs that politicians are constantly promising to provide does not translate into much political support for them. Politicians would rather receive credit for appearing to create better jobs with counterproductive policies than not get credit for policies that actually allow better jobs to be created. We now consider some policies that are politically popular because they give the appearance of increasing high-wage jobs while actually reducing them.

Policies That Reduce Wages

Restrict imports: When politicians argue for increasing an import restriction or against reducing a restriction, they invariably claim that they want to protect high-paying jobs. An import restriction does protect some high-paying jobs, but at the cost of reducing the emergence of other, even higher paying, jobs, because of the general reduction in productivity that lowers average real wages. But the protected jobs are currently held by relatively few identifiable workers who are typically well represented politically and are fully aware of the benefits they receive from politicians who vote for a trade restriction protecting them from foreign competition. The resulting loss of even more productive jobs can be safely ignored by politicians since it is widely dispersed and not easily noticed—it is hard to miss what we never had. And even if the loss is noticed, the cause—the import restriction—is not easily seen.

Put corporations on the dole: Politicians oscillate between attacking business and praising it, depending on the political issue and climate. But they are constant in dispensing large quantities of corporate welfare that the general public pays for through higher taxes and lower economic productivity. The most common justification for this welfare is that it creates jobs. And indeed it does, but only by destroying the chance for more productive jobs that would have emerged if competition had not been restricted and consumers had been allowed to spend the money paid in taxes to buy what they valued most instead of paying for corporate welfare. Unfortunately, the jobs that are created are visible and easily seen to be the result of government policy, while the higher paying jobs that don’t emerge are invisible—it is difficult to miss what never was created.

Raise taxes: Politicians often call for higher taxes as the best way to promote economic growth and create more and better jobs. Supposedly higher taxes will reduce the budget deficit, which will reduce interest rates by reducing government borrowing. The popularity of raising taxes to increase good jobs seems to contradict the thesis of this article. It suggests that politicians are willing to take an unpopular action—raising taxes—to provide a general benefit—widespread economic growth and job creation. But raising taxes is not an effective way to increase economic growth and create jobs. Even if raising taxes did reduce the federal budget deficit, it is not likely to have much effect on interest rates. Interest rates are determined in a worldwide capital market, with rates often falling when the federal budget deficit is increasing and rising when it is decreasing. Second, increasing taxes seldom reduces the budget deficit, at least not for long. Even when higher taxes raise more tax revenue, the additional money is invariably used to expand government spending and pork-barrel programs, with spending growth typically outpacing revenue growth. The effect is to substitute public spending guided by political influences for private spending guided by economic considerations—a sure prescription for reducing productivity and lowering real wages. Also, with higher tax rates, special interests are willing to pay politicians more for tax loopholes, which introduce more productivity-reducing distortions in the allocation of spending and investments. The political cost of increasing taxes is more than offset by the political benefits from the plausible pretense that good jobs are being created while securing more of the national income to buy more electoral support.

Increase government spending: The list of benefits from more spending on highway construction, recycling, education, agricultural subsidies, parks, airport expansion, water-diversion products, and so on always includes additional jobs. But the jobs created are a major cost of these spending projects, not a benefit. The jobs necessary to build a road or recycle aluminum cans are filled by workers who are not producing value in other activities. Unless this cost is considered, the jobs created will be destroying wealth at the margin, since the value created by workers on government-funded projects will be less than the value (in terms of consumer preferences) they could be creating elsewhere. Political incentives make this misallocation of labor inevitable.

Regulate labor markets: Politicians can take credit for protecting and creating jobs by imposing a number of productivity-reducing restrictions on labor markets. To list two: affirmative-action enforcement pressures employers to hire workers on the basis of the racial mix of the communities in which they operate and increases the difficulty of dismissing unproductive workers; politically mandated employee benefits reduce the flexibility of employers to adjust compensation in ways that attract the best mix of workers to their firms at the least cost. (We’ve already discussed the minimum wage.)

The advantage of the policies that would create more high-paying jobs indirectly is that they do so by creating a positive-sum setting in which people interact in increasingly productive ways.The same increase in productivity that raises real incomes also increases the general level of wealth, enhancing our lives in a host of ways. For example, as wealth increases, infant mortality decreases, life expectancies (and the quality of life) increase at all age levels, poverty declines, the environment becomes cleaner, access to the arts increases, more leisure time becomes available, and jobs become safer, more pleasant and higher paying.

The problem with policies that try to create more high-paying jobs directly is that they do so with government transfers and protections that are negative-sum. Yet this negative-sum approach is politically compelling because politicians receive much of the credit for the benefits, while receiving little of the blame for the larger losses.