Political leaders in Taipei have announced a plan to fight recessionary conditions gripping Taiwan's economy. With unemployment rates at a record level and low growth becoming the norm, an emergency jobs package has been proposed.
Aiming to boost the economy and lower unemployment, Premier Yu Shyi-kun announced two projects that could create 115,000 more jobs over the next three years. To provide the NT$300 billion to fund these projects, he asked the Legislative Yuan to support a change in the Public Debt Law (
Despite the good intention to lessen the burden on the unemployed, a belief that governments can create jobs is misguided. While public spending to create new jobs has failed everywhere it has been tried, one certain outcome from this approach will be to allow for mushrooming public debt. This is evident in another proposal that would allow debt used to finance the building or improvement of public infrastructure from being used in the calculations of the debt ratio.
It is a fact of life that bad economic policies never seem to die or fade away. It would appear that policy makers tend to have selective amnesia or short memories. They have apparently forgotten that schemes involving deficit spending by governments to promote employment growth fell into disrepute during the 1970s because of the devastating effects of stagflation.
Governments cannot create jobs since they cannot create wealth. This is because adding a worker to the public payroll is offset by new tax obligations.
Indeed, governments are not even very good at redistributing wealth or income. However, governments can take actions that retard economic and employment growth by introducing policies that distort incentives.
The motivation behind such flawed policy choices reflects the nature of economic decisions that are guided by political expediencies. Elected officials and bureaucrats tend to prefer policies that generate short-term benefits while shifting the associated costs to the future. Similarly, they avoid policies that create short-term costs while yielding benefits in the future. Proposing quick results and reinforcing an impression of active engagement in problem-solving increases the likelihood of being re-elected or re-appointed even when the result is that net costs are heaped on the community.
Furthermore, government spending schemes that involve an expansion in public-sector debt impose various burdens on future generations. First, there is an additional tax burden to repay the additional debt. Second, if government spending is not efficient or invested, there will be less employment growth in the future. Employment growth requires fundamental changes in the economic decision-making process.
New government spending usually distorts the incentive structures on entrepreneurial choices, especially when accompanied by new taxes or regulations. Taiwan's taxpayers should realize that their leaders should adhere to economic rationality rather than give in to temptation.
Christopher Lingle is Professor of Economics at Universidad Francisco Marroqu in Guatemala and Global Strategist for eConoLytics.com.
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