Consummate dilettantism!

Sunday, February 22, 2009

Job "Creation"

There's been an awful lot of talk about job creation lately. I think a lot of it is absurd; when the government pays a firm to renovate public buildings, it may be "creating" some construction jobs, but it's "creating" those jobs by spending taxpayer money. Ultimately, the government must take money from some other source to fund such job creation, and by taking that money it reduces investment and spending on other sources (which themselves "create" or create -- see below for more -- jobs). Frédéric Bastiat provides a classic example of this fallacy; breaking the window of a house will give a job to a window maker, but it will take away a job from a worker whom the owner of that house would otherwise have paid to do some other task. Alas, we see only the job created; we do not see the job lost. (You should not, however, take this to imply that government spending cannot produce jobs. Non-marginal investments on substandard infrastructure, for example, can increase efficiency, grow the economy, and yes, create jobs when private money is not being spent on that infrastructure. If you can't drive on the roads, you can't do things as quickly, can't get things to places as quickly -- you slow down the world. Also, if people are unwilling to spend, it's certainly possible that forcing them to spend -- by taking their money and spending it yourself -- can stimulate growth, despite the fact the money must be paid off eventually. I'm only saying that we should be very careful about how we think about job creation.)

In a similarly illogical vein are the gloomy proclamations that technology and outsourcing destroy jobs. As the reasoning goes, new technologies that don't have to be manned eliminate jobs. Here, too, the reasoning is wrong; we see positions for couriers vanish with more efficient communication tools, but we don't see the people hired by new companies whose expenditures have dropped because of increasing efficiency. So it's refreshing to read from one economist, who proclaims that spreading rural broadband will "eliminate 266,000 jobs", that "[t]echnology that helps fewer people get more work done may be good for the economy in the long run, but it makes extra workers redundant". This redundancy drives up cost and reduces efficiency; it results in job loss.

But there's something in the argument thus far that doesn't work. In other words, you can't believe everything I've written without the next step. Why? Well, how can I talk about "real", or net, job creation in the first place? If we're all just ceaselessly moving money around, there can be no actual job growth -- we're all players in a grand zero-sum game. But this is where it gets interesting: Economics is not a zero-sum game. The global economy is not a closed system in which wealth just shifts around. The real wealth is the mind, the output of which is potentially infinite and often productive -- some thoughts produce (in real-world terms) more than they cost (in time), the second law of thermodynamics be damned. When you think a thought, you are actually producing something! This is so profound a concept that it's astonishing that more people haven't heard of it (or at least don't talk as though they have). Read this. Yes, the whole thing -- I know it's long, but trust me on this one. It's one of those rare ideas that will change how you think about the world. A taste:
Hanging out at the beach one day with a distant family member, we got into a discussion about capitalism and socialism. In particular, we were arguing about whether brute labor, as socialism teaches, is the source of all wealth (which, socialism further argues, is in turn stolen by the capitalist masters). The young woman, as were most people her age, was taught mainly by the socialists who dominate college academia nowadays. I was trying to find a way to connect with her, to get her to question her assumptions, but was struggling because she really had not been taught many of the fundamental building blocks of either philosophy or economics, but rather a mish-mash of politically correct points of view that seem to substitute nowadays for both.

I picked up a handful of sand, and said "this is almost pure silicon, virtually identical to what powers a computer. Take as much labor as you want, and build me a computer with it — the only limitation is you can only have true manual laborers - no engineers or managers or other capitalist lackeys".

She replied that my request was BS, that it took a lot of money to build an electronics plant, and her group of laborers didn’t have any and bankers would never lend them any.

I told her - assume for our discussion that I have tons of money, and I will give you and your laborers as much as you need. The only restriction I put on it is that you may only buy raw materials - steel, land, silicon - in their crudest forms. It is up to you to assemble these raw materials, with your laborers, to build the factory and make me my computer.

She thought for a few seconds, and responded "but I can’t - I don’t know how. I need someone to tell me how to do it"
The only real difference between beach sand, worth $0, and a microchip, worth thousands of dollars a gram, is what the human mind has added.

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