The economy gained 162,000 jobs for the month of March and the President, of course, has attributed this success to his stimulus package. He was in Charlotte, North Carolina today discussing the economy at a manufacturing company that received $50 billion in stimulus money to expand one of its facilities and open another elsewhere in the State. Regarding the future of the economy, the President said:
Government can’t reverse the toll of this recession overnight, and government on its own can’t replace the 8 million jobs that have been lost….The true engine of job growth in this country has always been the private sector. What government can do is create the conditions…for companies to hire again.
Just how government can create these conditions for companies to hire again is left unsaid. I seriously doubt the nationalization of the banking sector and the government takeover of GM are favorable conditions for the private sector. In fact, if Robert Higgs is correct about regime uncertainty, these government actions create unfavorable circumstances for investors. Investors who are unsure that their private property rights are going to be respected in the future are loathe to invest in any long term-projects. If the government is willing to take over an entire sector of the economy by passing such legislation over a weekend, clearly investors would be fearful that the government might takeover any sector it wishes in the future. This lack of real investment means that there will be less jobs in the future and ultimately less consumer and producer goods. Our standard of living will fall.
But a better question to ask is Can government act in any way to create favorable conditions for the private sector? What does government action look like? Just look into the barrel of a loaded gun pointed at your head. As Ludwig von Mises wrote in Human Action
government interference always means either violent action or the threat of such action. Government is in the last resort the employment of armed men, of policemen, gendarmes, soldiers, prison guards, and hangmen. The essential feature of government is the enforcement of its decrees by beating, killing, and imprisoning. Those who are asking for more government interference are asking ultimately for more compulsion and less freedom.
Every action, every regulation, every tax, every edict of government is ultimately backed by physical violence. Government does not ask for its citizens’ cooperation; it demands their compliance. And it is this threat of violence that reduces the welfare of the people. When two people exchange without coercion, both people expect to be better off after they exchange. Otherwise, they would not engage in trade. However when a government enters the economy and threatens violence to enforce its regulations, people must either refrain from exchanges they would have made or they must engage in exchanges that otherwise they would not have made. In both of these cases, the people are made worse off because they are not acting according to their own most desired goals. Instead they have to find inferior substitutes due to government action which threatens them with violence should they engage in an illegal, but preferred exchange.
Therefore, government action cannot create the conditions for the private sector to flourish. Rather the government creates rules that prohibit people from increasing their own welfare. In the context of the President’s words, government interference can only discourage the private sector from creating jobs because its rules prohibit buyers and sellers from exchanging on their own terms. Moreover, interference such as government takeover of the banking system can frighten investors who are now uncertain about the security of their private property rights; this paucity of real investment will lead to a sluggish economy in the future. Thus, despite the President’s faith in government, he and his regulatory agencies only create chaos for companies which leads to unemployment and poverty.