In debates about the impact of the state budget, studies are often provided measuring the impact on jobs as a result of various policies. For example, one study might show how many jobs might be kept if spending in a particular program is maintained, while another might show job creation if certain taxes are reduced. N.C. Cooperative Extension economist Mike Walden discusses ways the average person can judge these various studies.
“I’ll admit it is confusing for people who aren’t economists. And thank goodness everyone’s not an economist. But what I would tell the average person to keep in mind is this little phrase: There’s no free lunch in economics. Which means that if, for example, you were to say well we’re going to increase a particular tax and have the state spend that money and that spending will create more jobs, and you have a study that shows that. What is perhaps left unsaid is, well, if you had not raised that tax and kept that money in the private sector, then that spending in the private sector would have created jobs.
“So you really have to compare both things. Or to be totally not taking sides here, let’s go the opposite direction: Let’s say you have a group who says, ‘We want to cut state taxes and again spend that money in the private sector. That will create jobs.’ Again, what you have to compare that to is, well, if you didn’t cut state taxes — kept that money at the state level — that would keep or create some jobs there.
“So, you have to really do both, which really means that you get down to dueling studies. You say, well, which, if you’re focused on jobs, Doing whichever is going to create how many jobs? And I think actually, though, this really detracts from what I would argue would be the broader question: That is, when you’re talking about state spending and what role the state should have in the economy, the question is, What should the state do? And how should it provide those services you decide it should, in fact, provide?”Category: Economic Perspective