WPA, Reductio Ad Absurdum

Story Highlights:

• Though unemployment is gradually improving, some in the media continue to bemoan the government’s perceived inaction.
• But suggestions like reviving the WPA are hardly desirable solutions.
• Employment will continue to improve as private businesses recover—but even if it continues lagging, it’s unlikely to drive a material market downturn.

Last week brought positive employment news as non-farm payrolls increased 244,000 in April, the biggest gain since May 2010. We’ve frequently discussed employment’s tendency to lag economic recovery and growth (e.g. here and here)—because growth creates jobs, not vice versa. So that employment is slowly but surely recovering as economic expansion continues is hardly surprising—nor is it especially a cause for concern.

Yet, there’s a persistent and growing media chorus that the government isn’t “doing enough” about continued employment sluggishness. Suggestions for what exactly they should be doing range from “investing” in training programs to generally expanding fiscal stimulus to vague cries for “something,” which would allegedly be better than the “nothing” they suggest the federal government’s currently doing.

Some even suggest reviving the WPA—that’s right, the Works Progress Administration, created in 1935 to combat then-astronomical unemployment. At first blush, it might seem like a half-decent idea—with many currently receiving government unemployment benefits, why not give them work in exchange for those payments? In that sense, it’s a debt- and deficit-neutral idea (excluding the costs of construction materials, etc.). Hard to hate if it carries little cost, right?

We’d beg to differ. Those are just the government’s costs. Let’s perform a little thought experiment and follow this idea through: Creating a WPA-like program presumably pits government work-gangs against private businesses for projects. And they’d be competing for government money—which is a very odd sort of competition indeed. To the extent some private employers might lose this contest (which one can easily argue would likely be unfair), those private businesses may then be forced to lay workers off. Which wouldn’t help unemployment. The theoretical result could very well be more government employment and less private, which, in our view, is far from an ideal result. And then what? Does government continue hiring folks for WPA projects? The number of jobs such projects realistically create is fairly limited. (Unless we outlaw backhoes and hand everyone spoons—but as silly as we think the government frequently is, we don’t see a world where that happens.) So the government could extend itself to other industries to continue creating jobs—with potentially similar results. More crowding out of private enterprise, less competition, more taxpayer subsidization—hardly optimal from a taxpayer’s or consumer’s standpoint.

Thankfully, the WPA’s reincarnation is far from political reality today—it’s primarily talking points for a few pundits (and perhaps a would-be political candidate or two). Yes, economic transitions can be painful, and even without economic transition, capitalism’s nature can be cruelly Darwinian. But suggesting government should be the employer of last resort no doubt creates more problems than it solves.

Plus, historically, private enterprise has proven to be the best “fixer” of unemployment and likely will again, given time. In fact, Friday’s report shows 14 consecutive months of private hiring totaling 2.1 million private sector jobs—which, however you interpret that statistic, is a plus. Perhaps most importantly, history has shown repeatedly elevated unemployment isn’t a driver for a material market downturn or renewed recession. That’s getting the cause and the effect backwards.