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“Saving” and “Creating” Jobs

We try to keep this blog fairly apolitical — our beat at HS Dent is economics, not politics — but sometimes you just can’t help yourself.  A politician will say something so incredibly irritating that you feel an obligation to call them out. Whenever I hear a politician speak of “creating” or “saving” jobs, I get this little muscle spasm in my right shoulder and I feel my blood pressure rise.  When I hear them actually attempt to quantify this absurd claim with numbers — “Our administration created 150,000 new jobs…” — I feel an urge to break something.  

It is impossible to ever know how many jobs were “saved” or “created” because there is no way to know what might have been had history taken a different course or had different policies been implemented (or if none had been implemented at all).   We do not have a time machine to go back in time and see how things would have played out by changing a couple variables.

This tendency to make these kinds of claims is one of the flaws of humans that Nassim Taleb harps on repeatedly.  We have a bias toward what happened as opposed to what could have happened and we adjust the “odds” after the fact to make ourselves look far wiser than we really are.  (This relates to hindsight bias, outcome bias, and the illusion of control, all of which are particularly bad among traders, investors, and — much to my irritation — presidents, senators, and congressmen.)  

But the most irritating aspect in the case of the “saving and creating jobs” mantra is the confident sense of precision.  If you could credibly say that your policies led to the creation of jobs (which you really can’t; there are too many variables to fathom) the idea that you could assign an actual value to those jobs is ludicrous.  

My first memory of this nonsense was the Clinton-Dole debates in 1996, though readers with longer memories than mine will no doubt have far earlier examples.   President Clinton certainly wasn’t first president to do this, nor was he the last.  George W. Bush and Barrack Obama have been guilty as well, with the latter taking it to new levels.

At any rate, it’s good to know I’m not alone in my irritation.  William McGurn wrote an excellent op-ed in today’s Wall Street Journal heaping well-deserved scorn on the Obama Administration for its creative use of numbers.  

Mr. McGurn quotes Senator Max Baucus, himself a democrat, giving Treasury Secretary Geithner quite the grilling:

 ”You created a situation where you cannot be wrong.  If the economy loses two million jobs over the next few years, you can say yes, but it would’ve lost 5.5 million jobs.  If we create a million jobs, you can say, well, it would have lost 2.5 million jobs.  You’ve given yourself complete leverage where you cannot be wrong, because you can take any scenario and make yourself look correct.”

I’ve focused here on the impossibility of measurement, but there is a more fundamental issue at play.   Governments by definition cannot “create” any jobs in the private sector.  They can hire public workers and can hire subcontractors for government work, but they cannot induce General Electric or Microsoft to hire another engineer.  Nor can they inspire a would be entrepreneur to start a new business — and the jobs that would come with it.  New government jobs are  also often of comparatively low quality and dubious economic value.  As Mr. McGurn paraphrases the great economist Milton Friedman, the government can always create jobs by paying new workers to dig holes…and by paying other workers to fill them in again.  

Of course, this accomplishes nothing more than leaving the country with a very large bill to pay later — something that the current democrat president and his republican predecessor have both done quite recklessly. 

Charles Sizemore, CFA

Co-author of the recently-published Boom or Bust: Understanding and Profiting from a Changing Consumer Economy