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  • Harvard Study: More Government Spending Means Fewer Jobs

    Job seekers line up for jobs at Citi Field in Queens in New York

    What happens when a state is lucky enough to have one of their Senators ascend to one of the three most powerful committee chairmanships? According to a new study by three Harvard Business School the average state then experiences a 40 to 50 percent increase in earmark spending (the figure is a smaller 20% for powerful House committees). So this new government spending is then a boon to the state right? The public spending stimulates economic growth right? Wrong. Turns out, increased federal spending is connected with a decrease in corporate capital expenditures and employment. Study co-author Joshua Coval explains why:

    Some of the dollars directly supplant private-sector activity—they literally undertake projects the private sector was planning to do on its own. The Tennessee Valley Authority of 1933 is perhaps the most famous example of this. Other dollars appear to indirectly crowd out private firms by hiring away employees and the like. … But we suspect that a third and potentially quite strong effect is the uncertainty that is created by government involvement.

    The Harvard Business School blog finds this “surprising.” We at Heritage do not. We’ve been documenting government spending’s impact on the economy for years (see, The Impact of Government Spending on Economic Growth and Why Government Spending Does Not Stimulate Economic Growth). And we are not the only ones. In his 1994 book Government’s End, Jonathan Rauch wrote:

    Economic thinkers have recognized for generations that every person has two ways to become wealthier. One is to produce more, the other is to capture more of what others produce. The former is a productive activity. The latter is redistributive activity – transfer-seeking, an investment of time or energy in transferring wealth from other people to oneself.

    By definition, the power of government to solve problems comes from its ability to reassign resources, whether by taxing, spending, regulating, or simply passing laws. But that very ability energizes countless investors and entrepreneurs and ordinary Americans to go digging for gold by lobbying government.

    A great follow up to this Harvard study would be to see if those businesses that cut investment and employment in their home state’s productive economy, then reinvested those resources in Washington D.C.’s lawyers and lobbyists economy.

    Posted in Energy [slideshow_deploy]

    16 Responses to Harvard Study: More Government Spending Means Fewer Jobs

    1. DanJ, Detroit, MI says:

      This should be more obvious than you might think. Consider two current examples – One, the fishing industry in the Gulf is complaining that the clean up effort is sucking up all the equipment and resources in the area so they can't find employees or boats to fish. Two, local contractors and business owners in Haiti complained that they couldn't compete with all the free aid flowing into the country and it was putting them out of business. Why should Harvard researchers be surprised when they look at the impact of free (or easy) government money on our own private businesses.

    2. Billie says:

      Yeah, intelligent thinkers know the logic.

      Obama went to Harvard. How many more are antiAmerican educated under Harvard's roof?

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    4. Pingback: Liberty Polity − More Government=Fewer Jobs: Harvard Research shows crowding out from earmarks

    5. Nick says:

      Hmm…A private colleges business school comes out with a study that government spending is bad for business…

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    7. Pingback: Jason's Blog » Harvard Study: More Government Spending Means Fewer Jobs

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    9. Sabretruthtiger says:

      Nick, hmmmm Ad hominem from a paid blogger………..

      The fact is Government would do much better to hire local businesses with preferences to smaller companies (who have the ability to do the job obviously). That way the smaller ones gain more capital to grow and become competition for the bigger ones. Competition leads to the public benefitting. The problem nowadays is monopoly. As the Global Government increasingly facilitates the absorption of all minor companies into a few larger ones that are under their control, the public suffers and unemployment rises.

      Let us not pretend that the financial crisis was unintentional and not caused by the manipulation of derivatives to cause widespread economic collapse whereby populations are weak, poor and desperate enough to accept Draconian Global Government and any evil, Orwellian laws they want to impose.

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    13. Lulu, Michigan says:

      @Sabretruthtiger

      I would also have to disagree with your commentary on monopoly. Certain monopolies are more efficient than perfect competition, due to increasing returns to scale.

    14. William Gindlesperge says:

      Clarion Call to Reduce Spending: Start with Cutting Procurement Costs

      by William Gindlesperger, Chief Executive Officer, e-LYNXX Corporation

      The electorate spoke loudly and clearly on November 2 when it voted to change the balance of power in Washington, DC, and in a number of state capitals nationwide. The historic outcome signaled more than a preference for Republicans, Democrats or Independents. It was a clarion call for reduced governmental spending. The question now is: "How?"

      As a long-time campaign and political advisor, I know nothing moves easily or quickly through political channels. I have never understood why the best ideas that benefit taxpayers/voters the most often take the longest.

      However, the timing is right, now, for one such good idea — an idea that when properly deployed can reduce by as much as half what organizations have traditionally paid for goods and services. The fact is that those who embrace professional procurement have always worked hard at reducing costs, and, yet, up until now, an optimum procurement practice has remained elusive.

      This idea has taken shape in the form of an elegant system, best practices and patented technology. The system acts to streamline the workflow process by virtually eliminating e-mail in favor of automated portal to portal communication. The system offers full transparency and reporting and an indelible trail that tracks all actions, communications and details of each project from concept through production to delivery and invoicing.

      Extraordinary cost savings occur because a competitive bidding environment is created in which vendors reduce their pricing to fill production gaps. Because each job opportunity involves a new automated selection of prequalified vendors and a new round of bidding, the buyer and the vendors understand that the same vendor will not be bidding low on every job because low pricing is driven by each vendor's production needs. This flexibility in pricing allows vendors to bid low when work is desperately needed and not so low when production needs are being met by other work.

      If federal, state, and local governments accepted this one good idea, and if these entities saved as little as 40% of their present costs, the resulting savings would be sufficient to make a difference on taxes. Isn’t that what the election was about?

      Sometimes old-school procurement professionals prefer relationship-driven procurement practices where there can be perks for the staff buyer who chooses one vendor over another – perks that may not help the organization reduce costs. This new idea eliminates the subjectivity of a buyer choosing a vendor based on perks, because the computer is doing the automated selecting of which vendors will be invited to bid based on their objectively qualified capabilities. Perk-driven decision making is exactly what governments need to eliminate in order to reduce costs and increase value purchasing on behalf of taxpayers.

      The time has come for governments to adopt cost-saving procurement technologies that reduce cost and cut spending. If elected officials did not get that message on November 2, they were either not listening or asleep.

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