How the Government Decides on a Major Expense

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Well, if you thought you were confused about whether you could afford a major purchase, imagine the quandary in which Lawmakers find themselves!

For instance, the Pennsylvania House of Representatives has been asking itself whether it can afford to have various gasoline companies from Texas, Arkansas, Oklahoma, Florida, etc, develop the so-called Marcellus Shale Gas deposits.  Can we afford the ruined roads, the polluted rivers, the destroyed property values?  Well, sure, provided these companies hire people locally.  That would ensure that the grateful newly-employed workers will vote for their representatives who pimped for the gas companies, giving them a free ride without additional taxation or any sort of excise burden.  Unfortunately, it is the unemployed workers from Texas and Arkansas, etc, etc, who are getting employed; the local kids just get the least well-paid, most dangerous jobs.  On the plus side, bars and brothels are doing a great business, but on the whole, the total infusion into the economy of Pennsylvania is miniscule; the State still hurts for revenue, and education funding has been severely cut.

When the Federal Government decides on a particular project, it is with great difficulty, because the true cost of the project is difficult to estimate.  Why is this?  Because it is essentially paid for with credit, by floating bond issues, or printing paper money.  When the government decides on lowering taxes, again they do not know the exact value of the loss of revenue, because the true value of these taxes (which technically have not even been levied yet) is impossible to estimate.  You can state it exactly in dollars and cents, but you're using a unit whose value, in turn, is uncertain.

Many economists will ask me right back: what do you mean by the "true value" of anything?  And, quite honestly, I don't know myself!  The word "value" has almost no meaning as it is, though the economists will insist that it has exactly as much meaning today as it ever did, namely a subjective quantity that each person must decide for themselves, but about which there can be some consensus by averaging over a large population.

After MortgageGate, however, in the eyes of many observers and mine, the process of arriving at an averaged figure for an aggregate risk for a large collection of risky ventures has tainted the whole idea of aggregation of values.

The ability of an individual to assess whether he or she can afford a purchase is compromised by the constant use of personal credit.  Similarly, the Government --though its resources are far greater then those of an individual-- nevertheless finds it difficult, or even impossible, to assess the affordability of such steps as lowering or increasing specific taxes, or providing or ceasing to provide a particular benefit.

Despite all this, however, I presently believe that the Government should spend whatever is necessary to increase employment.  This would normally involve creating government jobs, but the current political climate makes expanding the public sector repugnant to the top income portion of the population, those few hundred souls who earn most of the money in the USA.  So the administration has to resort to leaving it in the hands of Small Business to hire new workers, and giving the businesses tax incentives for doing so.

But the hiring of a new worker is a huge risk for a small business.  Even if it thinks it could use a new worker, the conservative lobby has persuaded it that the hire means huge expenses in Health Insurance and unemployment insurance, and all the sorts of costs the Business Lobby keeps working to eliminate.  Business would like the hiring of a worker to be a trivial thing: hire today, fire tomorrow.  But society has an interest in making the firing of a worker something that is done with due caution and consideration, and not lightly.  So liberal politicians (and liberals, generally) would like there to be a certain amount of inertia in the process of hiring and firing, to reduce uncertainty in employment among the smallest-income sector of society.

So, as President Obama pointed out in his Jobs speech, there is no point in reducing taxes across the board for all businesses, and expect them to go into a hiring frenzy.  Instead, it is better to offer tax reductions precisely to those businesses that actually hire unemployed workers.  The Republican opposition will certainly find something objectionable in that plan.

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