Can the Government Create Jobs?

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US President Barack Obama and Republican Presidential nominee Mitt Romney debate on October 16, 2012 at Hofstra University in Hempstead, New York.

In Tuesday night’s presidential debate there was much discussion about job creation, but it was the comments of one of our independent voters in Ohio, Dan Starr, that really set a lot of listeners off. "The government doesn't create any jobs — they really don't," he said. "That's the job of the private sector. There was a moment right in the beginning when Obama said, 'Look, we've created such and such jobs,' and I said, 'No you haven't, that's false.'”

Several listeners called to say they disagreed with this view of job creation. So today The Takeaway takes a closer look: What really drives job creation? And how much is being an effective president similar to being an effective CEO?

Edward Conard is the author of “Unintended Consequences: Why Everything You Think You Know About the Economy is Wrong.” Timothy Noah is the author of “The Great Divergence: America’s Growing Inequality Crisis and What We Can Do About It.” He is also a senior editor at The New Republic, for which he writes the "TRB" column.

"It's a semantic argument," Noah says of the disagreement over whether or not the government creates jobs. "I think actually Ed and I both agree that the government does assist in creating jobs," Noah says. "It's got two ways to do that — one is by spending, and one is by tax cuts. Really, that's what the true argument is: What's the better way?" 

In Conard's opinion, government spending not only does not help to create jobs, but in fact it may destroy them. He thinks that increasing government spending causes the private sector to shrink. "I think lower taxes on successful risk takers and investors create incentives that produce the innovation that grow our employment and I think that lower taxes on investors help us accumulate equity," Conard says. "Europe and Japan have tried a different alternative — higher government spending, higher taxes — and have achieved nowhere near the level of success, the level of jobs, the hours of employment, the median wages that the United States has been able to produce."   

But here, Noah disagrees.

"It's very hard to demonstrate that tax cuts have provided much in the way of economic stimulus, increased savings," Noah says. "The last time we had a big tax increase, it was the 1990s, and the economy boomed."

"I think the way you have to judge the president is, when you lose 5 million jobs, what has normally happened after that? We've had big rebounds," Conard says. Though he concedes that we have deeper structural problems that might temper this rebound, he does think that government spending has not helped matters.

"Look, it's a really simple story," Noah says. "The economy was in terrible shape when Obama came in, it's in somewhat better shape now. It's still not in very good shape, but there are more jobs."