Paul Krugman: The New Physiocrats

The New Physiocrats, by Paul Krugman, in NY Times: Both Dean Baker and Josh Bivens weigh in Robert Samuelson’s outburst at the New York Times for saying that the government can too create jobs. (He went so far as to call it “flat-earth” thinking). Sadly, Samuelson’s attitude is widely shared — even, at least rhetorically, by Barack Obama.

So let me not focus on Samuelson’s piece so much as on the general proposition. What can it possibly mean to say that only the private sector can create jobs?

It could mean that government jobs aren’t “real” jobs — presumably that they don’t supply something of value to society. Samuelson disavows that position, I think — and rightly so. After all, the bulk of government workers are in education, protective services, and health. Do you really want to say that schoolteachers, firefighters, and nurses provide nothing of value?

What then? Well, Samuelson argues that when the government adds jobs, these come at the expense of jobs elsewhere. This is manifestly not true when the economy is depressed; all the evidence on big multipliers amounts to saying that under current conditions government jobs create additional jobs in the private sector, rather than crowding them out.

Under near-full-employment conditions, however, it’s true that expanding government employment displaces other employment. But this is equally true of any expansion in private employment! Suppose a successful business expands, and adds worjers. How does it do that? By attracting customers away from rivals, or from other kinds of products; by attracting capital; by bidding away workers who might have found employment somewhere else.

Unless your business expansion somehow leads to an increase in the labor force, simple arithmetic says that it didn’t add jobs. It may have created better jobs; it may have raised productivity; but more jobs, no.

How do Samuelson and others answer this point? As far as I can tell, with sheer mystical gobbledygook about dynamism and whatever. And they have the nerve to call the Times editorial board flat-earthers.

What’s really going on here, as far as I can tell, is a modern version of the 18th century physiocratic notion that only agriculture is real, that everything else is fluff on top. And we really shouldn’t be seeing a rebirth of that sort of nonsense in the 21st century. If you believe that we should have fewer schoolteachers and firefighters — or that education should be privatized — make that case. Don’t try to hide your prejudices under a mystical doctrine in which important, productive jobs somehow don’t count if they come from a place with a .gov email address.

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