Federal Spending and Employment

Over the last few months much ink has been spilled over the effectiveness of federal government spending in stimulating job growth and employment. I propose to spill more ink. No sentient resident of Washington State can deny the influence of federal spending on job creation.

The development of hydropower on the Columbia River, naval bases (Bangor, Whidbey Island) and ports (Bremerton, Everett) and the role of defense contracts in the growth of Boeing all attest to the regional employment effects of federal government spending. Government spending creates jobs.

But regional job creation is not the same thing as national growth in employment. It is possible that more economic activity here leads to less activity elsewhere, so the net effect is zero. Possible but not likely under our current economy.

If the economy is operating at full employment, increased federal government spending financed by borrowing or taxes just transfers spending and resources from one use to another and there is no overall increase in employment or output. However, if there is excess capacity and unemployed resources, increased government spending financed by borrowing (deficit spending) utilizes these resources and increases total output. Current data indicates the economy is operating at less than its potent