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Wednesday, February 8, 2017

Want More Jobs? Ban Power Tools

Creating jobs is easy. Creating wealth is much harder.

In a 1992 WSJ op-ed (“Help the Economy: Destroy Some Jobs”) featured last August on CD, 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.” Here’s a key excerpt of Professor McKenzie’s op-ed:

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.

For example, if Congress outlawed the tractor and modern farm equipment tomorrow, it would create millions of new farming jobs. If Congress outlawed robotics and other advanced manufacturing processes tomorrow, it would create millions of new factory jobs. If Congress banned all imports tomorrow, it would create millions of US jobs in manufacturing, farming, and transportation industries. If Congress banned power tools and modern equipment for road building and construction, it would create millions of new US jobs.

We can create any number of jobs in having people dig holes and fill them up again.

The fundamental flaw of “jobism” that Professor McKenzie is pointing out that makes “jobism” a misguided public policy goal is that it treats jobs as a benefit when jobs are, in fact, a cost or price of production and ultimately of consumption. It also fails to properly recognize that economic competitiveness and progress requires widespread job destruction. Further, job losses should be treated as a measure of great success, not failure, when a US industry like agriculture or manufacturing dramatically improves its productivity and is able to produce greater and greater levels of output over time with fewer and fewer workers.

Although he didn’t use the term “jobism,” here’s how Milton Friedman explained in a 1980 lecture (at about 19:25 in the video) how jobs are a price (not a benefit) and why the appropriate national economic objective is to have the fewest, not the most, jobs:

Public discourse tends to be carried out in terms of jobs, as if a great objective was to create jobs. Now that’s not our objective at all. There’s no problem about creating jobs. We can create any number of jobs in having people dig holes and fill them up again. Do we want jobs like that? No. Jobs are a price and we have to work to live. Whereas if you listen to the terminology you would think that we live to work. Now some of us do. There are workaholics just like there are alcoholics and some of us do live to work. But in the main, what we want is not jobs, but productive jobs. We want jobs that will be able to produce the goods and services that we consume at a minimum expenditure of effort. In a way, the appropriate national objective is to have the fewest possible jobs. That is to say, the least amount of work for the greatest amount of products.

And more recently, here’s Don Boudreaux making a similar point that jobs are a cost rather than a benefit, and why the economic goal should be to minimize, not maximize, the number of jobs required to produce output in an industry like pharmaceuticals:

The pharmaceutical industry employs high-skilled people and, in doing so, increases their prospects of innovating in ways that improve human well-being. This feature of the pharmaceutical industry is indeed a positive. But what good economists understand and what most non-economists (including the economically ignorant Trump) don’t, is that the pharmaceutical industry would be an even more valuable part of the U.S. economy if it generated its important innovations with fewer high-skilled workers. Indeed, if the industry were such that its current stream of breakthroughs in medications and medical devices could be kept going, but with the employment of only one unskilled worker, that would be close to ideal.

Put differently, while the innovations generated by the pharmaceutical industry are indeed important and unquestionably beneficial to humankind, the fact that many high-skilled people are employed to generate these innovations is a cost, not a benefit. It’s a cost worth incurring. But it’s a cost nevertheless.

If those same innovations could be generated with fewer high-skilled workers, humankind would be even better off. We would have an undiminished flow of innovations from the pharmaceutical industry plus whatever innovations and products would be produced by the workers who would – but for the fact that they now work in the pharmaceutical industry – be working in other industries.

Bottom Line: Because the philosophy of “jobism” is fundamentally flawed, deficient and misguided because it treats jobs as an economic benefit rather than as an economic cost, the public policies based on “jobism” and efforts to create/save US jobs (e.g. tariffs, protectionism, presidential bullying, tax breaks/incentives to save/create US jobs, etc.) are destined to make the US economy worse off (and weak), not better off (and great).

Republished from AEI.

  • 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.