Dec. 24 (Bloomberg) -- President-elect Barack Obama is still four weeks away from inauguration, and already the size of government is growing. His initial goal of creating 2.5 million new jobs has been upped to 3 million, rising in lockstep with a proposed economic stimulus package.

We know money buys influence. Now we find out it can buy jobs as well.

If only it were that simple.

Obama has been working with his advisers so that the proposed $750-billion-and-counting package of tax breaks and spending on infrastructure, education, health care and unemployment insurance is ready to go on Day One. (No on-the-job training necessary!)

There are currently about 10 million unemployed workers in the U.S. (The Bureau of Labor Statistics defines as unemployed those persons who didn’t work in the week of the monthly employment survey, were available for work and made an effort to find work in the previous month.)

“If we write a check for $75,000 to each of the unemployed, we won’t have anyone ‘unemployed,’” said former Treasury Secretary Paul O’Neill.

The recipients may not be working in the traditional sense of going to the office each day, but the government can provide for their needs without anyone having to lift a finger.

The Obama administration’s goal of creating 3 million new jobs by January 2011 will run smack into “the natural demographic flow, which will add 3.2 million people to the workforce” in the same time period, O’Neill said. In effect, “we are going to spend $750 billion, the number of unemployed will rise and the (unemployment) rate will go down slightly.”

Shoveling to Prosperity

O’Neill did the math so you don’t have to. Each job “will cost $250,000, which doesn’t suggest much labor intensity for the dollars spent,” he said. “It makes me wonder if any of the planners or commentators are good at arithmetic.”

They’re not good at arithmetic. And one wonders about their facility with economics.

If putting people to work is the goal, we could get rid of all the heavy earth-moving equipment and go back to digging ditches with shovels.

Why stop there? If it takes one man two days to dig a trench three feet deep and 30 feet long with a shovel, how long would it take 100 men using spoons?

You get the point. We can always create jobs by replacing capital with labor, by going backward. The entire history of civilization has been characterized by an effort to move in the opposite direction and become more productive, which is another way of saying produce more with less.

All Aboard

Automation and technological innovation have had the effect of replacing humans with machines. Yet the unemployment rate isn’t perpetually rising. As countries develop, they create new and better jobs, not more of the same old ones. The goal is to raise the standard of living, something that (all economists agree) can only be achieved through higher productivity growth.

That’s something the government can’t provide. It doesn’t “sell” its goods and services to discerning buyers. It isn’t driven by the prospective return on its investment.

Instead, the government requires us to pay taxes in exchange for goods and services -- transportation, education, homeland security -- that may or may not be worth the “cost.”

There’s nothing like a crisis to play on the public’s insecurity and expand the reach of government. There’s nothing like a serious financial crisis to get economists of all persuasions on board.

Opportunity in Crisis

“In this crisis lies an opportunity to create the jobs that America needs, doing the work that America needs,” said Larry Summers, Obama’s top economic adviser, at a press conference yesterday.

The best intentions face a stark reality: There may be more money than opportunities.

It’s one thing to spend money to improve and update crumbling infrastructure. It’s quite another to find projects on short notice. There’s a limit to how fast even our profligate politicians can get money out the door.

Good Keynesians, such as Princeton University economist Paul Krugman, are worried about finding enough viable, shovel-ready projects. The size of the required stimulus is “so big that it’s actually going to be hard to find enough things” to spend it on, Krugman said in an interview with Japan’s Asahi Shimbun.

With all due respect to Dr. Summers, without the proper incentives, government doesn’t know what kind of jobs to create. (Maybe that’s why we need a car czar and an energy czar to help us figure it out.)

As I wrote last week, government spending doesn’t increase aggregate demand. All it does is transfer spending power from one party to another by borrowing from or taxing the public.

‘Enduring Appeal’

So why do politicians persist in making the same warmed-over arguments for government spending to create jobs?

“Because even if the arguments are fallacious, they have an enduring appeal,” writes Gregory B. Christainsen, professor of economics at California State University, Hayward, in an essay in “Cliches of Politics.” “The employment at the site of a public works project is visible.”

In other words, everyone can see the roadwork under way and understand the government’s role in it.

What is unseen -- remember Frederic Bastiat’s “broken window?” -- is the loss in private employment, the jobs that would have been created if the government hadn’t taken the spending power away from the private sector. Those losses unfold over a longer period of time, Christainsen says.

It’s said, or used to be said, that government’s role is to create an environment that encourages private job creation. That used to mean a backdrop of low taxes and light regulation.

With the public clamoring for more stringent rules to prevent a recurrence of the current crisis, it doesn’t seem as if a business-friendly backdrop is even on the table.

Maybe that’s why the government has to do the private sector’s work.

(Caroline Baum, author of “Just What I Said,” is a Bloomberg News columnist. The opinions expressed are her own.)

To contact the writer of this column: Caroline Baum in New York at cabaum@bloomberg.net.

Last Updated: December 24, 2008 00:03 EST