How Can the US President and the Executive Branch Create Private Sector Jobs: The Role of Government Spending and Fiscal Policy

Introduction

The US President and the executive branch have significant powers in influencing the economy, especially through government spending and fiscal policy. This article explores how these actions create jobs in the private sector and whether they cut into company profitability.

Government Spending and Job Creation

One of the primary tools at the executive branch's disposal is government spending. By proposing and enacting legislation that increases government spending, the executive can stimulate the economy and create jobs in the private sector. This can be done through various means, including awards of contracts for projects, such as weapon systems, highway construction, and IT services.

When the executive branch increases government spending, it often leads to a direct creation of private sector jobs. For example, when the government hires more employees, these individuals use their increased income to purchase consumer goods, spurring further job creation through the multiplier effect.

Impact on Company Profitability

The impact of increased government spending on company profitability is not straightforward and depends on several factors, including the current state of the economy and how the increase in spending is financed.

Risk of Recession

During a recession, with unutilized industrial capacity and unemployed workers, an increase in government spending can be particularly beneficial. If the spending is financed through government debt, the increase in government spending won't cut into company profitability. The government can borrow the money and spend it, but the additional demand in the economy can help businesses.

Full Employment Scenario

However, if the economy is at full employment, the situation is different. Increased government spending can boost labor and material costs, reducing profits. Moreover, if spending is financed by debt, higher interest rates may also impact company profits by increasing the costs of borrowing and reducing sales due to higher consumer borrowing costs.

Exemplary Case: The Tennessee Valley Authority

The Tennessee Valley Authority (TVA) provides an illustrative example. It helped rehabilitate a severely impoverished region, served as a natural monopoly in power, and played a crucial role in the Manhattan Project. This case highlights how government intervention can be more efficient in certain contexts, especially for natural monopolies and national security concerns.

Fiscal Policy and Employment through Federal Spending

The executive branch can also influence employment through federal spending. For instance, if the president seeks to encourage more disabled individuals to become entrepreneurs, they could issue an executive order requiring federal offices to prioritize purchasing from businesses owned by disabled people. This measure, given the substantial buying power of the federal government, could make a significant difference in job creation.

Government Multiplier Effect

A core principle in fiscal policy is the government multiplier. For every dollar the government spends, the national economy experiences a magnified effect due to indirect spending. According to this principle, tax cuts and spending increases have different impacts. Tax cuts generally lead to savings and may not have as powerful an effect as spending increases, due to the different spending and saving behaviors of citizens.

By increasing government spending, the executive branch can directly boost the economy and create jobs, even if it increases the company's operational costs in the short term. Understanding and effective use of these tools can play a crucial role in fostering economic growth and job creation.

Conclusion

The executive branch has the power to influence economic growth and job creation through government spending and fiscal policy. By strategically using these tools, the president can stimulate the economy and encourage job growth, even in challenging economic conditions. However, careful consideration of the current economic climate and the financing methods is crucial to ensure that such actions do not negatively impact company profitability.