Politicians fight for jobs and their constituents love it. Governments write reports that laud politicians on their success at achieving jobs often double counting. Who gets the thousands of jobs that are created when a factory or government building opens? The same people on average who lose a job when a factory closes. Who gets the jobs that are created when those primary jobs created demand for additional services? The same people who lose the jobs in other parts of the country where people are leaving. The number of jobs gained nationwide is not positive sum unless people there is immigration or a fall in unemployment. Once you set monetary policy and tax policy and immigration policy, government subsidy for jobs is a zero sum game or a negative sum game.

A typical report on the economic impact of government activity is the Federal Aviation Administration's Office of Commercial Space Transportation report, "The Economic Impact of Commercial Space Transportation on the U.S. Economy: 2004". The report measures three types of impacts on the US economy:

• Direct impacts are the expenditures on inputs and labor involved in the provision of any final good or service relating to the industries analyzed herein.


• Indirect impacts involve the purchases (e.g., silicon, copper wire) made by and labor supplied by the industries that provide inputs to the launch and enabled industries. This impact quantifies the inter-industry trading and production necessary to provide the final goods and services.


• Induced impacts are the successive rounds of increased household spending that result from the direct and indirect impacts (e.g., a launch vehicle engineer’s increased spending on household goods and services).

The direct impact of space spending is $17 billion. The indirect and induced impacts are over $80 billion.

But if there was no commercial launch industry or there was no factory in state X or no government jobs boondoggle in state Y, how would the economy be effected? Every industry generates a penumbra of jobs that it creates in other industries. But if you add up all of the jobs that are created by all the industries in the country, you will be double counting. Each industry creates all the jobs for its own industry. If you look at all the suppliers of an industry, they will all be counted in their own industry too.

Are some jobs different? Primary jobs that are better at creating a cascade? No. The economy is good at balancing what it builds. If there is an economy that only produces hot dogs and buns, if we get twice as good at making hot dogs, some of those people who made hot dogs will go to work making buns.

If there were no space industry, the people who mine the copper would either sell it to someone else or go do something else that people would want to buy. No net decrease in employment.

Building a car factory that has high paying jobs in state X will attract employees from all the other states to fill it with workers. That in turn will attract support workers from all the other states. Or if the workers are already there, the factory will keep them from migrating.

Subsidies to build a factory are an interstate race that has no net new jobs at the federal level. Once people are only unemployed for a couple of weeks a year on average at most, where do you find the new workers to take the new jobs?

If new tax dollars are used to provide a subsidy, the taxes drive away as much commerce as the subsidies attract with a deadweight social loss versus not doing either. That is, the things that are taxed (like corporate profits) won't happen as much with a tax and the things that are subsidized are overprovided leading to two sources of deadweight social loss.

This is not to say that state and local government development is all bad. Governments have access to cheaper credit that they can deploy for useful purposes. (It would be more efficient to sell it to the high bidder at a direct auction or farm it out to banks who would have to share the risk, than use an all-pay political contributions auction to allocate it though.) Governments have eminent domain to get past collective action problems, but this is out of favor lately. Finally, governments have a role to play in providing public goods, although malls seem to be doing a pretty good job of providing things we used to rely on police, urban planners and taxes to provide (Glenn Reynolds, Army of Davids).

If all the development boards do is give back the taxes that they would collect from the employer they are trying to attract, that actually decreases the distortion of the tax. Better would be just to abolish the tax, the subsidy and the development agency.

If we want more jobs in the economy (a shaky proposition in its own right since some people like leisure or family arrangements that aren't classified as jobs), we should open the borders and put smart people at the Federal Reserve and write good tax law. Attracting major corporations with inducements is worse than giving money back to taxpayers. Using new taxes to attract jobs is worse for the economy than not doing it. The initiatives and laws that the public supports to obtain these jobs really do attract jobs. But they are beggar-thy-neighbor and beggar-thy-self policies that in the end destroy more wealth than they create.

Be sure to send this essay to Big Sugar.

There's always the issue of "what do you define the borders of the system to be" when analyzing things like government programs - the city, one of the several states, the United States, North America, the world? etc.

However even given that problem, I think you're too pessimistic here on government job creation. For instance, governments can create jobs by creating targetted tax credits etc. That will sometimes move people into an area that were someplace else, but it can result in new jobs being created. (One problem is this is often a lot less effecient than people think, so those jobs are very expensive. A classic example is spending on public works - analyzed on a short term basis, public works projects cost a lot of money per job (for instance, how many people worked on the BART SFO extension, which cost several Billion $. If you work it out, its hundreds of thousands of dollars per job created, and those jobs (construction) were only temporary.). However a longer view might show a lot more jobs being created - for instance the Interstate Highway System created jobs for truck drivers (there now a bit over 3 million drivers in the USA, its such a large market that XM Satellite Radio targetted it as it's initial launch market) - had to get the space connection in, and you notice that trucking companies hiring drivers are one of the most common ads on XM channels.

And whats more, although those people would probably have *some job* (maybe some are people who immigrated to get a job like that, but walking around any truck stop will point out that most are middle class Americans), they make a better living driving a truck than other small-town jobs, in particular. About 300K are the top of the industry - owner/operators who can clear 6 figures on their trucks with good management skills and some luck.

I mention truck drivers because i know several due to ham radio and its a class of employment created almost entirely as a side effect of a major government program.

The key metric that *could* be used is will a program create enough jobs (or create better paying jobs) to *repay the investment* in the program. For instance, the US Government spent $119 Billion constructing just over 42,000 miles of Interstate Highways. States spent about another $20Bn as their share of the cost. If we assumed that trucking jobs were the *only* jobs created by the Interstate system (after construction finished in 1991), that would be about 3 million jobs at say an average of $35K/year. (this is for a company driver and is the 50th percentile, specialist drivers like hazmat, reefer, or flatbed can make considerably more.). However take that 35K number, multiple by 3 million and you get about $105Bn in salaries or probably around $10Bn in tax revenue to governments just due to income tax. (note, i didnt include here the effect of truck over-the-road tax, or federal/state taxes on motor fuels, etc. which ar eusually used specifically for road maintence and hence are "consumed").

That $10Bn/year might well pay the interest on the bonds to build the Interstate Highways at current interest rates.

Now this is obviously a very fractional analysis, but you see the point.

What's more, we sort of *hope* that this will be true of space development, that someday there will be huge industries that just couldn't have existed without the opening of the space frontier.

and maybe someday, someone can update this post with the wages of space freighter pilots...

The other really ineff

Uh Rand this is not correct. (odd your comment filter did not like the word "un-true"

When the State government of New York gave Fulton a monopoly on commerce from New York to Albany it gave birth to the steam age and the industrial heartland of the U.S.

When the U.S. government subsidized the construction of the "National Railroad" in 1862-1868 the result was an explosion in commerce between the east and west coast and millions of jobs.

The policy of Air mail subsidy helped to create the airline industry.

The problem is not subsidies, the problem is how they are constructed. In the three examples above the Federal government made private enterprise "put skin in the game" as Griffin says with the COTS procurement. This is also what we are doing in Europe with our on orbit servicing system.

This is also what DARPA did for years in the semiconductor industry, supporting the development of advanced ethernet chipsets that helped to bring down the cost of the Internet and also with GPS. (yes I know about Gstar but GPS was going to be built one way or another and its first launch was several years before Gstar started business).

We have to look at where we have had successes and emulate that. I do agree that the state directed course that we are on now with the design bureaus (BoLockNor) is doomed to failure or at best a limp along solution.

Dennis

Dennis, it's Sam writing actually.

Government can invest. They can build roads, schools and bridges, but while those may increase the pay of the jobs in the economy, they will not create any net new jobs. 'Is US GDP higher or lower?' is a good question to ask. 'Are there jobs created locally?' is a selfish, beggar-thy-neighbor one.

Department of Defense and NASA work also create high paying jobs. But would the economy also have high paying jobs without the DoD and NASA work? Everyone would be put to work doing exactly what the economy needs most without help.

The metric for public investment should be, 'Would our investment result in higher US income, capital gains and life expectancy than giving people back their taxes?'

Joe: those workers whose jobs were created destroyed jobs elsewhere in the economy for all the trouble. This isn't the depression.

Dennis: Patent races are not subsidies. How do we measure that airline subsidies were a success? How do we measure that semiconductor investment was a success? These were not controlled experiments. Even if we grant that they are effective, R&D subsidies and incubating technologies is a small, small portion of federal and state budgets. If we get away from jobs jobs jobs, we can retire shuttle and ISS and redirect money to R&D subsidies, or airmail style subsidies or an across the board approach of just giving the money back to taxpayers so they can start their own space programs. Those choices may result in more space development.

What happens if you count up the salaries of the truck drivers and then subtracted the lost revenue from the same shipping via trains and railroad companies during a period of transition between the dominance of the two forms of transportation?

It wasn't as if the goods that the truck drivers shipped during the opening of the interstate highways (hence the primary source of the wealth behind transporting them) depend on the highways for their existence. Before we had highways, we used trains and canals.

Aaron

Why don't you undertake the study and see. Actually, today there is a healthy competition between trucks and railroads for massive amounts of cargo. I recently drove across the country and have been doing it for 25 years. There are a lot more trains running now and with Intermodal cargo boxes the railroads and roads support each other in the efficient movement of cargo.

Yes we did use trains and canals before hand but it would be highly inefficient to dig canals to every town in the country and even to build a railroad to every neighborhood. Each was supported in their times because they offered an obvious and dramatic increase in efficiency in the conveyance of cargo and or people. Today the balance is shifting in cargo back to trains ( for long haul) as the national rail system is much more unified than it was and it is more fuel efficient to move lots of cargo across the country in trains rather than trucks.

Read the book "The Lunar Men" to see how these private/state owned new transportation methods changed the world. This is what space is but for the last 49 years Space has been a state institution rather than a free enterprise system. We need to use John Marburger's speech as a linchpin to push a new generation of space development that rejects the state as the player in control. Space needs to be supported by the state as a customer and as an enabler. The enablement is for the economic development to defray "some" of the costs and "some of the risk" not all risk, just some. BoLockNor has devolved into a state enterprise because there is no risk involved in the type of contracting that they do.

Dennis

The real problem is that job subsidies are a positive sum game for the politicians that promote them. I.E. a politician that promotes government jobs in his district might get elected, without them he won't.

The only way to prevent this is to turn the system on its head; prohibit a politician from speaking out in Congress/Senate (or similar places in other countries) about subsidy issues in his district. Otherwise, pork will still be the main dish on the menu.

If earmarks are capped, or government revises the reports to reflect how many jobs were lost in other states to support the new ones elsewhere, we might get a rising interest in stopping pork.

I wish that politicians were as concerned with creating wealth as they are with creating "jobs." This is one of the biggest problems with the space program.

Rand writes

I wish that politicians were as concerned with creating wealth as they are with creating "jobs." This is one of the biggest problems with the space program.

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As far as space is concerned you are absolutely right! That is why I support the passage of Zero G Zero Tax.

Dennis