The other day, I had an opportunity to help a skeptic understand economics better. The world is full of people who don't understand economics, and I was happy to do my part. My argument was so persuasive, that I thought you might benefit just like my friend the skeptic.
Skeptic: Jerry, I know you are a student of economics. I've been struggling with a question I can't seem to answer to my satisfaction. Mind if I ask you a few questions.
Jerry: Always happy to help a skeptic gain understanding. Go ahead.
Skeptic: So here is I what I don't understand. Pundits on TV, and lots of people in a certain political party keep saying that the best jobs plan is to cut government jobs. How would cutting the jobs of teachers and other government employees improve the jobs picture? How would cutting government purchasing for highway projects and other government projects improve the jobs picture? Wouldn't that reduce jobs and create more unemployment?
Jerry: I know that seems logical. Sure, if you lay off teachers or cut highway projects, its going to put some people out of work. That's true. But you don't understand how economics works. There's a lot of economics that's, well counter-intuitive. That's why we call economics the dismal science.
Skeptic: But look, suppose you cut government spending by a million dollars and cut government employment and payroll by a million dollars, won't that put a million dollars of employees on the unemployment line and won't they stop paying their mortgages, stop buying things, and won't the stores that they buy from also suffer losses?
Jerry: You're just looking at the downside of cutting government spending. You have to think of the person who lives next door to the laid off teacher who gets a tax break . She has more money to spend, and that helps the economy.
Skeptic: Ok. So far, we have a teacher without a job, some kids who have larger class sizes and a neighbor next door with some extra money. I'm waiting for the part where we get back as many jobs as we lose, by laying off all of those government workers.
Jerry: We're almost there. So the neighbor, goes out to Walmart, or Best Buy, bringing her tax cut with her, and buys a new television. See?
Skeptic: I'm not following you. How does that help the economy? What if the television is made in China or Japan? So we have an unemployed teacher, with a neighbor next door with a new television, and some more jobs in Japan. I still don't see how that helps the economy?
Jerry: It's not just teachers. It might be a bridge inspector, or a park attendant, or the guy who manages the motor pool? They are out of work too, so nobody really is trying to just lay of teachers. Besides, the people who get the tax cut, might spend some of it on American products.
Skeptic: That's fine, but so far, you have a bunch of Americans laid off, how long will it take before the tax cuts actually bring back as many jobs as we lose from laying off all those government employees?
Jerry: Well, you know, it works a whole lot faster, if you don't give the tax cuts to average people like the teacher's neighbor. Giving it to high income people who know how to make jobs works a whole lot better.
Skeptic: Now I see why economics is the dismal science. It teaches us to lay off teachers and other public servants and use the money to give tax breaks to the wealthy. Count me still as a skeptic.