Wednesday, February 11, 2009

What in tarnations was Michael Steele trying to say?

I see that Keith Olbermann (who until recently I thought was a made up Saturday Night Live character), Jon Stewart, and other news comedians are making fun of Michael S. Steele, the chairman of the RNC, for completely flubbing the distinction between a "job" and "make work." Steele clearly botched the explanation but I'm blogging more to complain about the fact that everybody on the Left is either ignorant of the distinction he was trying to make or refuses to acknowledge it.

If I may ... he was trying to say ...
A "job" exists when an individual creates more value than s/he receives in compensation. The excess value s/he creates is shared with consumers, shareholders, and the government.

"Make work" exists when an individual creates less value than s/he receives in compensation. Private companies generally do not suffer "make work" for long (outside of executive ranks of course) because it comes directly out of the hides of shareholders, hence the layoffs that occur during economic downturns when many "jobs" become "make work."

Many of the positions that the stimulus bill will create (Steele apparently believes) will be of the "make work" variety. They will be created and will persist because the government wants them too, not because there is an economic reason for them to do, as with "jobs." The difference between the value created and the compensation paid is essentially welfare, a form of redistribution from taxpayers (and bondholders) to those hired on government projects.

Now, not all of the positions that the stimulus bill will create will be "make work." The infrastructure creation or maintenance jobs, for example, are NOT akin to digging a hole and filling it up again (the classic example of "make work"). On the other hand (my God, I'm becoming an economist!), most infrastructure projects would be best left to for-profit corporations. For more on this, see my recent paper with Brian Murphy, which can be downloaded for free here.

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