Be Careful What You Wish For

Layoffs at Oshkosh Truck

On April 10, 2013, the Post-Crescent reported that Oshkosh Truck will lay off 900 people this summer because of reduced demand for its military vehicles. As the war in Afghanistan winds down, our armed forces need fewer vehicles, and foreign governments have not picked up the slack. So, 900 people will lose their jobs this summer.

I bring this to your attention because so many politicians on the right keep telling us that government spending does not create jobs. The politicians tell us the best way to create jobs is to reduce government spending and taxation. If we do that, companies will have money to invest and expand their operations, and therefore, there will be plenty of jobs.  

Well, tell that to the people at Oshkosh truck. Their jobs depend entirely on government spending. Ask yourself this: if we gave a tax credit to Oshkosh Truck to allow them to expand their operation, would they hire more people to build trucks that cannot be sold because there is no demand for them?

Government Spending and Economic Development

The situation at Oshkosh Truck shows the true relationship between government spending and economic development. Radical rightists love to say that government cannot create jobs. Only private business can do that. The layoffs at Oshkosh truck show us that, while Oshkosh Truck is a private company, the jobs there are created by government spending. This example also shows us that reductions in taxes cannot take the place of direct spending if we want to create jobs. Oshkosh Truck will lay people off because the market for its main products is shrinking, and no reduction in taxes would make it profitable to build trucks for which there is no demand.

Government spending at the local state and national levels has always played a large role in our economy, and far from stifling job creation, it has created many new jobs both directly and indirectly. Governments create jobs directly when they hire people or when they buy goods or services. In the Fox Valley, Oshkosh Truck and School Specialty are examples of companies that sell their products to governments. Public school teachers are examples of employees of government. 

Government spending creates jobs indirectly when the people who receive the money from government spending turn around and buy things in the marketplace. For example, the employees of Oshkosh Truck buy food, clothing shelter and other things from private businesses in Oshkosh.

Governor Walker Doesn’t Understand

Governor Walker doesn’t understand that, or perhaps he prefers to ignore it. He promised to create a quarter of a million jobs in Wisconsin by reducing taxes and regulation, and of course, the jobs have not appeared. Mr. Walker rejected $1.2 billion for high speed rail, although that would have created a lot of jobs. He intends to reject the expansion of Medicaid, although that would create  a lot of jobs in the Fox Valley because we are a major, regional medical center. Mr. Walker’s approach has been to give money away to businesses in the form of loans or tax credits on the theory that the money will lead those businesses create the jobs we need. It hasn’t worked. Wisconsin is now 44^th in job creation as Michael Muoio pointed out in a letter to the PC on April 9.

Why Loans and Tax Credits Do Not Create Jobs

Why don’t loans and tax credits create jobs? The reason is that businesses never hire people merely because tax credits make it possible Businesses hire people because they need them to produce goods or services to meet the demand for them.  If the demand weakens, they will lay people off, as the Oshkosh Truck example shows.

Creating Demand

How can we create demand? We create demand by buying things from businesses or by hiring people. Wars require lots of goods and services. So, wars create lots of jobs, but it would be awful if we had to keep fighting pointless wars just to maintain employment here at home. Fortunately, we don’t have to. We can fix our roads and bridges. We can support scientific research through grants. We can improve our schools. And we can do many other things.

Be Careful What You Wish For

So, as the war in Afghanistan winds down, and we spend less on military hardware, we should look for ways to use the money for useful things here at home.  Don’t wish for lower taxes. You might get them. Wish for useful government spending because it creates jobs.