Time and again we were asked when plants and companies closed, “where will the new jobs come from?” As the months went by, we could point to the expansion of self-employment and to industrial successes in aerospace, chemicals and North Sea oil. Increasingly we could also look to foreign investment, for example in electronics and cars. But the fact is that in a market economy government does not—and cannot—know where jobs will come from: if it did know, all those interventionist policies for ‘picking winners’ and ‘backing success’ would not have picked losers and compounded failure.

—Margaret Thatcher. The Downing Street Years, 1993.

The government has no role in creating employment. The confusion arises because governments are exclusively responsible for creating high levels of unemployment. High taxes, monetary inflation, antitrust laws, overregulation, failure to release land, corporatism, labor laws, welfare, tariffs and subsidies, currency manipulation, force-fed credit booms, deficit spending, and the like are the causes of nationwide long-term unemployment. Government interference in the market causes unemployment, but that does not mean more interference will relieve unemployment.

Government should do nothing to lower unemployment aside from avoiding the policies that actually cause it. In particular, government should not:

  • Employ people—that is simply welfare in disguise;
  • Encourage industry to employ people—whatever government does will only distort market forces and increase the tax burden, making everyone poorer and less likely to hire new workers;
  • Subsidize training programs and apprenticeships—if there is a demand for the skills, the market will direct funds to the needed training;
  • Encourage technical and scientific innovation with grants—this just puts valuable resources into the hands of incompetents who promptly waste it.

This article is an extract from the book ‘Principles of Good Government’ by Matthew Bransgrove