Question

A friend of yours says, "Hey, if we all throw litter outside our car windows, the government will have to hire people to pick it up. This will lower the unemployment rate and increase GDP. Let's do it!" Write a few well-argued paragraphs on what you think of this idea

Answer 1

The idea behind the mentioned statement is that government spending will always create jobs and increase in the GDP will take place. Though, I don’t agree with the idea, because, only those parts of the government spending that facilitates the production directly, is more helpful in increasing the employment as well as GDP. For example, a government spending, to employ people to clean the litter, will give jobs to few people, but production in the economy will not increase and it is the waste of tax payers money as picking up litter could be prevented with awareness program. It is only as good as paying unemployment benefits to the unemployed people. Indirectly, these money will be spent to increase the demand.
If the same funds are spent upon infrastructure development projects, then it not only gives jobs to the unemployed people, but also it closes the gap between the firms and the market that facilitates the production activities. Besides, the income earned by the people, will increase the aggregate demand. It will further create an opportunity for an increased level of supply. Now, GDP increases significantly. Therefore, it becomes important for the government to spend money on those activities that directly helps in production, or productivity & efficiency. It is the reason that government makes a proper breakup of spending and clearly differentiates between transfer payments and spending on infrastructure, healthcare, education and other development projects.