An Economy Is Not About Jobs

One of the bizarre fallacies propounded by President Obama, the Congressional leadership, and their intellectual enablers such as Paul Krugman, is the notion that society should be organized to give people jobs, and that if the supply of jobs is insufficient to meet the demand, the government should step in and create an additional supply through economic policies.

Walter Block, restating an argument made famous by Frederic Bastiat, points out that nothing could be farther from the truth.

The purpose of an economy is to align production of goods with demand, so that people have their desires to consume goods satisfied.  Dr Block points out that if we lived in a society where 30% of the population dug holes that were filled in by the other 30%, with the remaining 40% laboring to supply food, clothing, shelter and tools for the hole-diggers and hole-fillers, we would be far poorer than if that 60% were redirected to other forms of labor that produced things useful to the other 40%.

This becomes obvious when you consider a thought experiment.  If you ask people to choose between having a job, and having the enough food, clothing, shelter etc, they will choose the latter in a heart-beat.  People work primarily so that they can produce what they need in order to be comfortable, either by making the stuff they want to use directly, or making stuff that they intend to trade to other people for the stuff they want to use themselves.

Much of the proposed stimulus project is makework that is little better than hole-digging and hole-filling in.  Absent the stimulus spending, the people who will be employed under the stimulus project would have to find tasks to busy themselves with that produced goods and services that people were willing to pay for.  Instead of working to identify what unmet needs were most urgent and in the greatest demand, now they will coast, “earning” a paycheck, while working on either less profitable tasks, or even unprofitable ones, where the resources they consume are greater than the product they produce.

No doubt that some people would read the above paragraph and say, “Aha! But what if they can’t find anything to do?  What if they can’t find anyone willing to hire them, don’t know how to subsistence farm, etc!  What, Mr Free-Market Anarchist, should they just hurry up and die – making sure that they starve to death out of sight?”

At first, this seems like a powerful argument, until one considers what percentage of the population is actually unemployable?  I would expect that they number no more than 5% of adults, perhaps 25 % of the entire population adding in the elderly and young children.  And, these people are probably unemployable even under a government make-work project.  Even if there was a massive shortage of workers, they would be unemployed and dependent on charity.  Rather, most of the people employed under any job-generation scheme will be able-bodied.

Nor will the able-bodied be unable to find work.  We humans live in a universe of scarcity.  We always have unmet needs, we want more shelter, better food, better cars, better streets, better entertainment etc.  Many of these needs are not met not because humanity lacks the raw materials or the land needed to realize these needs, but because there aren’t enough people around to satisfy them.

The only way to find out which of these unmet needs are th emost urgent is via the price system.  People will pay more for labor that is needed to satisfy more urgent demands and less for labor that satisfies less urgent demands.  The higher wages will act as a signal to the unemployed who can do the job to start doing the job.

The temporary unemployment that accompanies recessions occurs becasue the price system requires the passage of time to reach an approximate equilibrium.  Essentially, in a recession, people who were producing things that were not in heavy demand stop that undesired production and spend some finite period of time looking for othe rthings to do.  Simmilarly prospective employers need time to figure out where the shortages are, or to identify opportunities to start expanding production again.

By attempting to sabotage this feedback system, the proponents of the stimulus plan are setting the stage for long-term stagflation at best, and a future crash at worst.  Not only are they shifting the problem of what to do with the unemployed into the future, they are encouraging, though false price signals, people to abandon productive pursuits in favor of the make-work projects being promoted by the state.  If, for example, the state promotes the construction of dams, then people who otherwise would have chosen to become farmers or mechanical engineers or home builders will instead gravitate to civil engineering.  They will then form a political group which strives to keep the emergency programs going indefinitely, much as farmers continue to agitate for the price supports borne from the “emergency” of the Great Depression, of the California Prison Guards’ Union agitates against the repeal of anti-drug laws.  This would be bad enough if government official were to attempt, in good faith, to guess what the unmet needs in greatest demand were.  When one considers the inevitable corruption and rent-seeking that accompany the establishment of such emergency programs, the true scope of the danger to the economy presented by the stimulus project becomes clear.

Barack Obama has been in office less than a month.  The early signs are that he will prove to be a bigger disaster than George Bush.

I am an anarcho-capitalist living just west of Boston Massachussetts. I am married, have two children, and am trying to start my own computer consulting company.
  • http://www.persnicketycurmudgeon.com persnickety curmudgeon

    Great article…

    Obama worse than Bush – in more ways than yet we know

    Not enough people to satisfy our needs – it’s why Japan and Europe with their aging poulations and xenophobic immigration policies preceded us into economic malaise by about a decade…we need more immigration(legally) and less abortions(we’ve lost a whole generation which should be helping us grow the economy)

    The able bodied will not be unable to find work – I dare say too many able bodied are in fact hiding from work (ie. the UAW) – but point well taken – still we ought put those who are essentially day laborers at the top of the economic food chain

    as for stimulus the concept is far more malevolent and subtle than you say – what the Dems are essentially doing is putting money into industries (windmills, autos, roads,) which then require huge ongoing maintainance expenditures and wow – these will go to unions thus stifling more efficient use of capital.

    For example how many years in a row must we see pot holes repaired and cheaply built roads redone over and over at great expense in the name of “JOBS” and ‘VOTES” and slush funds when they can build to last 10 years ?

  • http://progress.org Jeff Smith

    Yes, let’s lose jobs as an indicator for economic progress. Instead, what better indicator than leisure? To be free requires free time. Which automation and globalization make possible. Yet those gains do not translate into time off as long as we’re hooked on jobs (or profits). To let progress liberate us, we need an extra income apart from our labor or capital. We need a Citizens Dividend, an idea promoted by both Jefferson and Paine. Policy-wise, replace taxes with user fees, especially for use of nature. And replace subsidies with the dividend. Call it geonomics. Economies would become efficient, jobs would be relics, and we could enjoy Stone Age leisure.

  • Eric

    The early signs are that he will prove to be a bigger disaster than George Bush.

    I hate to say I told you so, but it was obvious a year ago. While McCain might have been a poor choice, he wouldn’t have been the worst disaster since Carter.

  • http://www.thelibertypapers.org/author/tarran/ tarran

    I disagree. As bad as Obama is, I remain convinced that McCain is worse. McCain has always sought to demonize opponents in political debates. He also was far more aggressive millitarily than Obama. While Obama might “merely” nationalize whole sectors of the economy, I would expect that McCain would also nationalize things, but with more stick and less carrot.

    Then again, McCain would have faced a contrarian Congress, whereas Obama faces a compliant Congress that seems to be trying its best to give him whatever he wants.

  • http://www.belowthebeltway.com Doug Mataconis

    Eric,

    tarran is right, there’s no reason to believe that McCain would be any better than what we’re facing now.

    He supported the TARP bailout so much that he went through the motions of “suspending” his campaign in order to go to Washington to save the deal. So, I guess we have him to thank for the crap sandwich bailout and everything that flows from it.

    His running mate supported it as well.

    There’s no reason to believe that a President McCain would have done anything differently than Bush did in response to this “crisis”, which means he would have been as big a disaster as his predecessor — with the side-effect of even further destroying the Republican Party’s credibility when it comes to fiscal conservatism.

    Much like the defeat of Bush 41 in 1992, I think it’s likely that we’ll look back at the defeat of McCain/Palin as one of the best things that could’ve happened to the GOP.

  • Akston

    McCain would have also added the expense of continued and indefinite presence in Iraq. Obama at least promises to cut that expense (though it’ll be offset by increases in Afghanistan).

    Really, given both huge government advocates, I guess I prefer one that makes pretty speeches. It’s kinda like a mugger who dresses well.

  • Eric

    I deleted two comments that had inflammatory comments.

    Tarran begins to understand why McCain wouldn’t have been the disaster that Obama will be. Doug doesn’t yet appear to understand that Obama’s intent is to use Chicago style politics to transform government into a Euro-socialist affair. Nor does he appear to understand that McCain’s big govt stuff would have been tactical change, at best, but that Obama has the ability, just like FDR did, to make strategic multi-decade changes.

    Not sure where to go now, the last, best hope is now being turned into Western Europe and the libertarians are cheering it on because they think it will get better in 4 years.

  • http://www.thelibertypapers.org/author/tarran/ tarran

    McCain is a Republican only because you don’t go to Congress from Arizona if you’re a Democrat.

    When I look at his voting record, when I look at the programs he supports, his speeches, I see a Scoop Jackson democrat, who supports big government at home and interventions and wars overseas.

    Moreover, McCain had an anger management problem. The guy was seriously unhinged. There is no doubt in my mind that had he been elected, we would still have a “stimulus” bill. It would have been bad. Very bad.

    And, unlike a law passed along partisan lines, a law that was pleasing to him and to a Democrat majority would have been impossible to repeal.

    The Democrats are going to fail. Badly. Just as Bush killed the Republican brand, Obama is going to kill the Democrat brand. He’s already started. Unlike FDR, he wont be able to use the FCC to silence his political opponents.

  • http://www.belowthebeltway.com Doug Mataconis

    Eric,

    Doug doesn’t yet appear to understand that Obama’s intent is to use Chicago style politics to transform government into a Euro-socialist affair. Nor does he appear to understand that McCain’s big govt stuff would have been tactical change, at best, but that Obama has the ability, just like FDR did, to make strategic multi-decade changes.

    As opposed to McCain getting us to the same destination but calling it “bipartisanship” ?

    If McCain had won it might (might) have slowed the pace of things, but we’d still be arriving at the same destination.

    McCain supported TARP, do you really think he was going to discover some non-existent commitment to free markets if he became President ?

    Of course he wouldn’t have, especially not with a Democratic-controlled Congress and his career-long desire to be “bipartisan”

    At best, with McCain we would’ve gotten four years of grid-lock.

    At worst, we would have gotten a continuation of the Bush Administration and socialism with a Republican face.

    That’s why I refused to vote for him.

    Not sure where to go now, the last, best hope is now being turned into Western Europe and the libertarians are cheering it on because they think it will get better in 4 years.

    I’m not cheering it on, merely recognizing that it’s happening and recognizing that, if it does happen, it will be largely because the Republicans abandon any pretense of believing in free markets and limited government decades ago.

    Object lesson:

    We have a family friend in Ohio who has four kids, a decent job, and who voted for McCain in November.

    He said recently that he does not believe the Republicans now when they talk about fiscal restraint and small government and that he’s willing to give Obama the benefit of the doubt on the stimulus bill.

    The reason ?

    Because of the way they’ve governed since taking over the House in 1994.

    I think he’s wrong for supporting the bill, but his reasons for doubting the Republicans are entirely sound.

  • http://www.belowthebeltway.com Doug Mataconis

    tarran,

    There is no doubt in my mind that had he been elected, we would still have a “stimulus” bill. It would have been bad. Very bad.

    And, unlike a law passed along partisan lines, a law that was pleasing to him and to a Democrat majority would have been impossible to repeal.

    Agreed.

    And I’d also add that throughout the campaign he exhibited an erratic (September campaign suspension) and inexplicable (selection of Sarah Palin) decision making process that strongly suggested to me that he was temperamentally unsuited to sit in the Oval Office.