Monday, May 01, 2006

Creating jobs, but at what cost?

It's easy for government to spend money because it's other people's money. It's easy for government to justify that spending because it benefits people, albeit only some people; government never seems to mention that taxpayers experience an equal loss.

These truisms are very well demonstrated in subsidized labor, including a federally funded program that helps military personnel's spouses find jobs. There are obvious criticisms to anyone who understands how the free market works. These jobs did not exist beforehand, so it clearly wasn't worthwhile for the private sector to hire the "military spouses." Or, the person did not have the skills before, and the program provided training. Therefore, government had to spend money to facilitate the employment -- at everyone else's expense.

Let's say the program trains and helps a serviceman's wife for some job at $40,000 per year. It wasn't worth the search cost for the company to find her and trust that she'll be worth her hire. (Companies incur the expense of hiring an employee who will overall cost more money than he or she produces, which is implicitly passed onto employees in the form of slightly lower pay.) But now here's the federal government picking up those costs, or rather, here's the taxpayer picking them up.

The worst is when the spouse finds work whose paychecks are paid by the taxpayer, like at a public school or government office. The taxpayers pay for the training and hiring costs, and then for sustaining the job in its entirety. But this is a good thing, the program's proponents say, because it creates jobs. Yes, but at what cost? The desirable kind of job creation comes through economic expansion. Subsidized labor, in whatever form, merely creates jobs by taking from (even destroying) others elsewhere. Just like FDR's attempts to create work via the Civilian Conservation Corps and Works Progress Administration, such economic illusions come straight from Keynes' mythology: "To dig holes in the ground, paid for out of savings, will increase, not only employment, but the real national dividend of useful goods and services."

And once again, we cannot escape the broken window fallacy. The article quotes a Congressman:
Rep. John Carter, R-Texas, says the program is vital for local economies because military spouses often go home to extended families when their husband or wife is deployed.

"If all those spouses went home every time, it would be an economic disaster," he said. "If they don't have jobs, they're liable to go home."
Carter would do well to read Bastiat's "What Is Seen and What Is Not Seen." It would tell him that the averted "economic disaster" in one area is necessarily funded by money taken from everywhere else. A small town might give thanks to Washington for its "saved jobs," but no one weeps for the rest of America that must do without a dollar here and there. When a shopkeeper hires a new stockboy because business is doing so well, that's real economic expansion. When taxes are used to train, hire and employ someone, that's a broken window. Even if it's limited to just training and hiring, others are harmed by subsidizing a job that isn't worth its face value.

I am in no manner impugning military service, but spouses of our armed forces personnel should be left to train for and find jobs on their own, and I am pleased that this "grant" is not being renewed. Unfortunately the grant will continue in another form, through distributed funds not specifically meant for military spouses. And rest assured, some bureaucrat will simply ask for more money to make up the difference. The only solution is to eliminate all these programs.

If anything, subsidized labor creates a moral hazard: instead of improving themselves or searching for jobs on their own, people know they can stay dependent on government training them and finding them jobs. They aren't doing it out of malice, but they know at least subconsciously that the dependency is cheaper than doing it themselves.


Anonymous Brad Warbiany said...

I'm going to have to disagree with you on this one. In most jobs, certain things are offered as perks to attract employees. The military is no different. For example, in the technology sector, one of the perks commonly offered back during the internet boom was stock options. In many ways, young startup companies didn't have the capital to pay high salaries, so they offered stock options as a potential bonus. Likewise, it's very common for employers who move employees for a 1-3 year stint to help relocate their family as well.

In the military, it's basically a foregone conclusion that you'll be moving every few years. Married servicemen know this, and have pushed for benefits to help their families cope with those moves. What's the other option? If a spouse has a decent job in the locale in which they're living, might a serviceman choose to quit military service rather than uproot his spouse who is building a successful career, moving to another town where the same opportunity may or may not be available?

This is an employment benefit, plain and simple. I would say that politicians have probably caused the program to be wasteful and inefficient, but that doesn't mean that offering training and placement services for military spouses is necessarily a bad thing. If we want to keep good people in the military, you need to offer benefits that reflect the challenges of the job, and moving constantly is an enormous challenge in that job.

Monday, May 01, 2006 10:34:00 AM  
Blogger Perry Eidelbus said...

You know that I'm not taking as critical a tone as others might think, but stock options are not at all comparable here. That would be like the federal government giving Treasury bonds to make up for low salaries, which isn't necessary at all. Also, realize that companies help only very valuable employees with relocation expenses. Each serviceman is not that marginally valuable; there are so many willing to do the job.

Now, if we substituted the programs with higher military pay (so that someone in the military can better support a family), at least that indicates the true cost of employing military personnel. We might think it's only $90 million, and what's $90 million when it comes to retaining good people? But again, the training and job-finding is far more expensive than official figures, because some of the jobs are taxpayer-supported.

If a spouse has a better job that makes it worthwhile for a soldier to quit, then by all means, let that happen. There are others who will take his place in the armed forces, and the economy will be doing better overall. We might want "good people" in the military, but at what cost? Is someone just so good that you'll hire him for $100K per year, when you could get two soldiers for less? It's never a question of "the best," but maximizing quality for cost. And beware of any politician who demands the best, no matter the cost, because that's the gateway to pork.

Moving is a fact of military life, and instead of being catered to, people should be aware of the demands of military service. My father's first wife accepted them, as did a friend's wife when he enlisted two years after they got married. Again, military personnel (except at the top) are not so valuable that we should pay any price to keep them. If we don't offer certain benefits, there will be other candidates.

Monday, May 01, 2006 10:35:00 PM  
Anonymous Brad Warbiany said...

Why raise all soldier's pay when only x% of them are married? Heck, while we're at it, why are we offering them family housing on domestic bases? If they choose to be married or have children, those folks should be living off-base, right?

It's not a matter of getting "the best". It's not a matter of "pay any price". But it is an admission that you can't simply plug someone in to do the job. At the very least, there are high training costs of bringing in new soldiers, and turnover affects unit cohesiveness, which is essential for combat troops. It's the attempt to get "the best you can for the money you're willing to pay". And sometimes you might start offering non-monetary benefits, *especially* when only a subset of the workforce will use them.

The simple fact is that military personnel, like any other job, is a competitive market. Certain benefits are offered to attract (or keep) the people you want to attract or keep. We can't say that the rules change just because it's offered by government to government employees, although that is certainly a reason to look at it much more critically than we might in the private sector. They are our tax dollars, after all.

Tuesday, May 02, 2006 2:25:00 PM  
Blogger Perry Eidelbus said...

The slightly greater pay can attract others to the military, others who won't be as expensive since we won't have to subsidize jobs for their spouses. My ideal soldier (at least in the lower ranks) is single, which removes the psychological burden of a family as well as housing.

If we didn't subsidize their spouses' jobs, certain servicemen simply wouldn't have joined in the first place. Again, each soldier is not so indispensable that we must fit the job to him; each soldier is not so marginally important that we can't find a substitute. So in fact, there would be no need to train any more soldiers than before, and hence no increased costs. It's as if a particular brand of potatoes at the grocery store got more expensive; you can buy a different brand and get basically the same thing. Don't forget that the military already accepts a high turnover rate, otherwise it wouldn't have gone down to a two-year minimum for enlisting.

I of course agree that we should scrutinize the military carefully, and actually public choice theory stipulates that economic principles (like incentive) are still in play even when it's government instead of the private sector. Like all forms of government employment, the military is prone to waste, especially because we're so focused on keeping "good people." But again, at what cost? And in fact it's difficult to determine the true cost, and not just because it's distributed throughout many different channels. One problem is that the price mechanism is skewed, since taxpayers are essentially captive customers and will pay almost any price demanded. There's no real difference to most Americans if the Pentagon budget request is $400 billion or $450 billion, if a $90 million job subsidies program exists or not, or if an E-1 gets an additional $100 more per month.

Tuesday, May 02, 2006 11:12:00 PM  

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