The Disappearing Multiplier: Government-Funded Jobs Benefit the Economy, Private Jobs Soak the Taxpayers

If that headline seems backward to you then, well, you’re paying attention. But believe it or not, that’s the conclusion an adherence to the economic policies of the left will lead you.

Liberals are always touting the benefits of government spending to stimulate the economy. They justify it because of the existence of something called a “multiplier”. The recipients of taxpayer dollars take that money and use it to buy things, which provides money for the workers and owners of the stores they shop at to buy other things, which economic activity “multiplies” the impact to GDP of the money initially doled out.

Through the magic of this multiplier effect, every dollar spent by the government adds $8 million to GDP, or something like that. Thus, government taking money from you to give to someone else doesn’t cause any economic harm. Quite the contrary, they argue, the existence of this multiplier proves that it helps the economy.

So, if government taking money from one group of people to pay another group of people to hire workers stimulates the economy through this multiplier, then, certainly, a private company using its own money to create jobs would have a similar effect. Right? Au contraire!

The New York Times reported last week that Apple is using a subsidiary, Braeburn Capital, established in Nevada to avoid paying millions in California corporate income tax.

What does Nevada get?

State coffers collect a $200 annual business license fee and about $1,100 in payroll taxes for every $100,000 of salary paid to the fewer than 10 employees at the Braeburn office.

What happened to the multiplier? Don’t the people who work for Apple in Reno spend their money, too, creating additional economic activity and benefits to the local economy? Do these workers take all of their cash and hide it away in Mason jars in their attics, greedily denying the rest of us the benefit of the multiplier effect? Or does only money confiscated from the taxpayers and doled out by the government create a multiplier?

Is there any doubt that, had the State of Nevada or some other government entity paid Apple to open this subsidiary in Reno, we would be hearing people sing the praises of the program and discussing how the resultant economic activity magnified the impact of the “investment” and justified the outlay. Nevada had a much-publicized economic plan based upon the premise that sinking taxpayer dollars into certain industries and companies was the way to bring the state’s economy back and stabilize it.

Liberals are always hyping the impact of the multiplier when talking about government spending to “create” jobs. In fact, they even crow about the economic benefits of paying people to not work. Not so when it’s a private investment.

When the government spends millions of dollars on a project that employs a handful of people, that is an economic boon. But when a private company spends its own money to provide jobs for a similar number of people, the only economic benefits are the direct taxes collected from the company. Such is the Bizarro World of Keynesian economics.