All Commentary
Sunday, June 24, 2018

Protecting Jobs for Their Own Sake Stifles Economic Growth

No country can afford to treat jobs as so many ounces of gold that must be counted stored and protected from obsolescence.

In a 1992 WSJ op-ed (“Help the Economy: Destroy Some Jobs”) featured previously here and here, economist Richard McKenzie criticized the misguided obsession with what he referred to as “jobism”—the modern public-policy philosophy that mistakenly focuses on of the number of jobs as being the “key measure of a country’s economic success or failure.” It’s an excellent and overlooked view of the economy and labor market, and worth reposting again.

Here are some key excerpts of Professor McKenzie’s op-ed (emphasis added):

Economic progress and job destruction go hand in hand. Jobs are destroyed when a better mousetrap or computer program is developed or when work is made obsolete by more efficient or cheaper means of production. No country can afford an idle population. By the same token, no country can afford to treat jobs as so many ounces of gold that must be counted stored and protected from obsolescence.

Job creation (and protection) is a favored goal of our leaders because it appeals to existing political interests and is seductively misleading and counterproductive. It is also one of the easiest goals to achieve. To create or protect jobs, all Congress has to do is to obstruct progress and kill or retard opportunities for competitiveness and entrepreneurial spirit.

Job destruction is shunned as a national policy goal not only because it appears openly hard-hearted (which paradoxically it is not) but also because job destruction is so very difficult to achieve. Job destruction requires ingenuity, creativity and the courage to take a few risks that others will not take. It requires intensive study, hard work and detailed knowledge of the multitude of economic circumstances that can only be known by real people in the workaday hinterlands, not Washington. It requires, in short, the types of skills and understandings that are generally absent in political circles.

Over the past several years, politicians and pundits have called for a renewal of “American competitiveness.” They don’t seem to get the underlying message in the country’s failures in domestic and international markets: America had been destroying too few jobs. Moreover, they have not yet realized that renewed competitiveness must be built on a commitment to progress, which means relying on people outside the political capitals.

Revitalized competitiveness mandates a willingness to replace much that is old with much that is new. It requires widespread (not wanton) job destruction. And it means that we must view, for example, the loss of several hundred thousands of jobs in the textile manufacturing [MP: my update] industry over the past two decades as a measure of the success of the industry in dramatically improving productivity and maintaining its world-class status.

When renowned Harvard Economist Joseph Schumpeter lauded the market is a system of “creative destruction” 70 years ago, he meant every word. Destruction—specifically job destruction—is pervasive to any economic system that is creative.

The philosophy of “jobism” is fundamentally flawed, deficient and misguided because it treats jobs as an economic benefit rather than as an economic cost, and therefore any public policy based on “jobism” that attempts to create/save US jobs (e.g., via tariffs, protectionism, presidential bullying, tax breaks/incentives to save/create US jobs, etc.) are destined to make the US economy worse off (and weaker), not better off (and great). To maximize economic growth, vitality, competitiveness, progress, innovation, and dynamism, and raise our standard of living to the highest level possible, we should embrace Schumpeterian creative destruction in all its forms including job destruction.

Too often, especially among the political elites, the tendency is to protect the status quo, entrenched industries, and current jobs from the forces of Hurricane Joseph. Examples include cities that limit competition from ride-hailing services to protect legacy taxis, proposals from Donald Trump to protect American jobs with protectionist trade policies, tariffs, and trade wars, and the pervasive occupational licensing requirements in the US that protect incumbent industries and businesses from competition.

Reprinted from the American Enterprise Institute.

  • Mark J. Perry is a scholar at the American Enterprise Institute and a professor of economics and finance at the University of Michigan’s Flint campus.