As Japan’s leaders do battle against the ravages of deflation and recessionary conditions that grip their economy, unemployment rates are at a postwar high. Government data indicate the unemployment rate set a record high for the second consecutive month in March and now stands at 4.9 percent.
In response to these many problems, Japan’s government announced an “emergency” jobs package as the latest incarnation of an obsession for public-sector intervention in its domestic economy. The aim of the Emergency Employment Measures is to “create” 350,000 jobs during the next fiscal year by supporting small businesses and expanding current job-promotion programs to match laid-off workers with new positions. Although 400 billion yen ($3.6 billion) was committed for this jobs-creation scheme, the funds would be diverted from other uses announced in previous budgets.
These funds are dwarfed by the new public-sector budget that stands at a record level of almost 85 trillion yen ($776 billion). All this money is meant to help revive private spending and revive an economy crippled by rising unemployment and declining household incomes.
Yet for all its good intentions, the misguided notion that governments can create jobs was supposed to have gone the way of polyester leisure suits. Bad economic policies come back to haunt like bell-bottom trousers and other sartorial disasters that creep back onto the fashion fringes. Government schemes to promote employment growth through deficit spending were widely discredited by the end of the 1970s because of their role in the onset of stagflation. It appears that this lesson has been lost on Japan’s policymakers as they continue to throw money at the local economy in hopes of reigniting it.
One thing that governments can do is retard economic and employment growth by distorting incentives through excessive taxes. And it is true that removal of the obstacles that they create may allow new employment opportunities to arise.
But it is absurd to credit public officials with job formation when they undertake reforms. When liberalization or deregulation allows labor markets to be more flexible, it is entrepreneurs who create jobs by taking initiatives that result in economic growth.
What is surprising about these efforts is that so little is expected from so much spending: The plan involves temporary employment for 150,000 workers who will be hired by local governments, and it will be paid for with central government funds. Adding workers to the public payroll is a new burden on taxpayers instead of a net gain for the economy.
Even so, it is pitiful that the world’s second-largest economy cannot create more than 350,000 new jobs in a year. The U.S. economy creates almost that many jobs every two months and has done so for over eight years — and it is only twice the size of Japan’s economy.
The motivation behind this flawed policy is apparent whenever economic decisions are guided by political considerations. Politicians and bureaucrats tend to implement policies that generate short-run benefits and the costs are shifted to the future. Conversely, they will almost always avoid policies that generate short-run costs but yield benefits in the long run. Offering quick results and creating the impression of being actively engaged in problem-solving increases the likelihood that they will be re-elected or reappointed even if the eventual result is bad for the community.
It would be bad enough if deficit spending on job creation was simply ineffective. What is worse is that government-spending schemes that expand public-sector debt impose burdens on future generations. Most obvious is the additional tax burden required to pay for the debts incurred.
More diabolically, government attempts to create jobs by spending beyond their means will undermine or eliminate some future employment. A better method for addressing employment growth is to undertake reforms that change the fundamental nature of economic decision-making. New government spending cannot and does not change the incentive structures associated with tax codes or regulation, both of which limit entrepreneurial choices.
As always, political leaders must choose between political expediency and economic rationality. Japan’s leaders have taken the wrong path.
This is evident from the fact that Japan’s economy remains mired in recession despite a decade of squandered tax funds. It proves that politicians are protecting their own well-being instead of undertaking reforms that would benefit their constituents. It is high time that the good of the people be put ahead of the interests of the political class.
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