Howard Rich: Politicians Cause Downsizing

This is another summary with comments on an excellent article by the Americans for Limited Government group and again is from the 10 June 2010 date on the blog.  Howard Rich, Chairman of Americans for Limited Government, says

Of all the myths helping to sustain the unsustainable status quo in Washington, D.C., among the most widely accepted is the belief that a politician’s seniority translates into tangible economic benefits for his or her district. In fact, this perception works hand-in-glove with another central government myth — the one about politicians being able to create private sector jobs with your tax dollars in the first place.

On numerous occasions, I have pointed out that government creates a job in almost every case by destroying or keeping from being created more than one job.  Spain recently found that that they lost 2.2 jobs for every alternative energy green job they created.  See my post here on that.   I talked about federal job creation in the U.S. here.  I noted then that the Obama Stimulus Bill was said by the administration to have created 640,329 jobs, many of them in non-existent Congressional Districts, at a cost of $603,628 per job.  This money was taken from the private sector which would have created 6 to 12 jobs with so much money.  We now know that Obama's Stimulus Bill created many fewer than 640,000 jobs and they were almost all in the government sector, not the private sector.

Howard Rich's article notes that while academics are not usually interested in showing that federal job creation is not what it is mythically made out to be, three Harvard Business School professors, Lauren Cohen, Joshua Coval, and Christopher Malloy, made an "accidental" discovery of great interest while examining the correlation between powerful legislative committee chairmen and politically connected firms.  Coval said:

It was an enormous surprise, at least to us, to learn that the average firm in the chairman’s state did not benefit at all from the increase in spending.  Indeed, the firms significantly cut physical and R&D spending, reduced employment, and experienced lower sales.

 Rich notes that:

The study — which examined government earmark and budget data from the past four decades — found this trend to be consistent across all variables. Specifically, it affected both large and small firms in large and small states, and it followed the ascension of committee chairmen in both the House and Senate. Also, the study found that the damage to the private sector was “partially reversed” when the committee chairmen either lost their seats or gave up their gavels.

Talk about turning conventional Washington “wisdom” on its ear.

Government spending supplants private sector investment.  Expensive, bureaucratic structures replace efficient free market companies.  He who has the money gets to dictate the terms and the government bureaucrat does not know good business management.  He only knows what he thinks is good management as it pertains to government and he wants those "good" practices to be duplicated in any company he may choose to fund.  This change of viewpoint for the receiving company causes a management disruption and it often deprives the eager executive of his enjoyment of his work due to the ensuing mountains of paperwork and petty mandates that restrict his choices.  In the end, the company winds up with fewer employees, despite the "investment" of considerable taxpayer money.  This is very clear because the study shows that:

.... becoming a powerful committee chair results in a significant increase in federal funds flowing to the ascending chairman’s state.  Thus, a congressman’s ascension to a powerful committee chair creates a positive shock to his or her state’s share of federal funds that is virtually independent of the state’s economic conditions.

 Many of the American People are finally becoming aware of the negative impact of government on jobs and economic growth, though there were not enough in the 12th Congressional District of Pennsylvannia, which had long been placed at the government teat thanks to the longevity of Congressman Murtha, who funded many ill-conceived companies in his long-depressed district.  Those remaining spoiled companies no doubt could not imagine operating in the free market, where they would have to be more lean and efficient.  That is an impossible transformation of a company grown bureaucratic and slothful.  The people of the district failed to think of the new and more able companies that would be formed and would thrive if only they voted for the Tea Party candidate on the Republican ticket in the special election.  Instead, they foolish turned to Murtha's aide in the hopes that he would bring more federal money to the district, as Murtha had with a plethora of earmarks.  This study helps to explain why Murtha's district was so depressed for such a long time.

But, overall, only 18% of voters believe more government spending will help the economy and create net jobs.  About two-thirds of American voters believe that tax cuts (and presumably government spending cuts) are the way to improve the economy and to create jobs.  They are right.  If only they will vote on that basis in the 2010 and 2012 elections, we can turn the government monster around and make it retreat into its cave.  As it is composed now, it lives in the Palace and the People are being shoved into caves.