“The fallacy is the same in every case: Even if the program creates jobs building bridges or windmills, it necessarily prevents other jobs from being created. This is because government spending merely diverts money from private projects to government projects.” Stossel relies on Frederic Bastiat and his explanation of the broken window fallacy for support. This fallacy is expertfully explained by Henry Hazlitt, and I quote him extensively in my post Henry Hazlitt Explains Frederic Bastiat, or, A Broken Window Really Hurts No Matter What the New York Times Says. Hazlitt also has much to say about the folly of creating jobs through public works projects.
“Governments create no wealth. They only move it around while taking a cut for their trouble. So any jobs created over here come at the expense of jobs that would have been created over there.” Advocates of government allocation of jobs usually claim that this control is necessary because of market failure. In other words, left to their own, investors can’t figure out where investment is most valued. Government “wisdom” is required.
“Politicians have a lousy record trying to make ‘strategic investments.’ President Jimmy Carter’s Synthetic Fuels Corporation cost taxpayers at least $19 billion but failed to give us alternative fuels.”
And this very important point:
One reason decentralized markets are preferable to government central planning is that human beings are fallible. Mistakes are inevitable. Some investments will be errors. Mistakes in the market tend to be on a comparatively small scale. If one company invests in plug-in hybrids and it goes bust, only a relatively few people suffer. The assets of the bankrupt firm pass into more capable hands.
But decisions by government, especially the federal government, affect all of us. When government makes a mistake, the bureaucracy can’t go bankrupt. Instead, it will use its failure to justify increased appropriations in the next budget.
This is perhaps the most important insight in this article. Government programs tend to be monolithic, and once started are difficult to modify in light of changing conditions or things learned. We need entrepreneurs with their dynamic discovery process rather than government bureaucrats and politicians to guide this process.