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Does government project create jobs? Look again

Here's a story from Philadelphia, but we can all benefit by delving beyond what appears to be the case.

Last week, Pennsylvania Gov. Tom Ridge and Philadelphia's Mayor Ed Rendell signed a deal with Kvaerner, Europe's largest shipbuilder, to modernize the Philadelphia Naval Shipyard and begin shipbuilding. Philadelphians are happy about the prospect of a promised 1,000 "additional" jobs and the spin-off effects of those jobs. Kvaerner will invest $165 million over the first 10 years, and federal, state and city governments - and the Delaware River Port Authority - will fork over $400 million to help with the shipyard's reconstruction and provide worker training.The late Henry Hazlett's book, "Economics in One Lesson," tells a story about a vandal who tossed a brick through a baker's window. The baker was irate, but one person in the crowd that gathered told the baker to look upon the bright side of the incident: The vandal had really performed a public service. He created a job for the glazier who'd repair the window, and when the glazier spent the $100 he earned from repairing the window, even more jobs would be created.

But was a job created? No! The baker was planning to use the $100 to buy a suit, thereby creating a job for the tailor. Now he has to use the money to repair the window. All the vandal really did was shift employment from the tailor to the glazier. The baker is also poorer. If the vandal hadn't struck, the baker would have had a window and a suit, but now he only has a window.

Hazlett's story is applicable to the shipyard deal. Where will governor and mayor get the money? It's not likely they'll receive it from a Tooth Fairy or Santa Claus. The $400 million will come from people in the form of taxes. If you agree with that prediction, then ask: If $400 million was left in people's pockets, instead of being confiscated as taxes, what would they have done? There are myriad things they might have done, from purchasing doughnuts and washing machines to trips to Dis-ney-land. Since they won't have $400 million to spend privately, there will be a reduction in those purchases, and hence a reduction in the employment of workers involved in the production and sales of those items.

Ridge and Rendell are like the vandal who broke the baker's window - they're merely shifting employment. But no sweat. Workers who get jobs at the shipyard are the visible beneficiaries of the deal. They will be ever-grateful to Ridge and Rendell, and they'll express that gratefulness with votes. The victims of the deal are invisible. They are the workers who lose their jobs because people no longer have the $400 million to buy refrigerators and doughnuts and take trips to Disneyland. Politicians can blame their fate on anything from Reaganomics and corporate greed to the UPS strike and global warming. That's right down politicians' alley - they crave visible beneficiaries and invisible victims.

Hazlett's "broken window fallacy" applies to most government activity. When local politicians call for public expenditures to create this or that on the promise of job-creation, relevant questions to ask them are: Who should lose their job, and why?

By the way, in the Philadelphia deal, taxpayers are going to fork over $400,000 for each job created at the shipyard.