Tuesday, December 2, 2008

2.5 Million new jobs

One of President-Elect Obama's promises is to "create or save 2.5 million new jobs." He plans to create jobs for purposes of repairing bridges and roads and various "green" energy programs.

While the US government certainly could legislate jobs - most notably New Deal Era programs such as the CWA, WPA, and CCC - the problem is they do nothing for growing the economy or increasing the production of wealth.

From an economic perspective, a "job" is simply a transaction in which an individual exchanges his time and labor for compensation. Currently, the demand for labor is dropping while the supply has more or less remained constant. There are various causes for the drop in labor demand (or decrease in employment supply from the other perspective). Some employers are out of business, tight budgets cause individuals to hold off on home improvement projects (or go DIY), and a miriad of other externalities cause individuals to value cash on hand more than time right now.

All of this presents a few problems to government "make work" programs:

1) Who pays for the jobs? After all, aside from being fired for incompetence or misconduct, people lose jobs because the cost of employing the individual is greater than the return. PE Obama is suggesting that we now pay for a service which we would not normally pay for. After all, those 2.5 million individuals aren't going to work for free. In "creating" these jobs, the government is merely moving money from one group of individuals to another - with next to nothing produced for it.
2) Administrative overhead. On top of wages, the federal dollars will be filtered down through various burocracies. If the goal (as it must be from item 1) is to "spread wealth", it would be more efficient to simply cut checks to a random 2.5 million unemployed.
3) In coercing individuals and businesses to pay for workers for nothing in return, money must necessarily be removed from the private sector. This is money that would be used in purchasing goods and services that individuals actually place value on. This is money that could be used to expand business (or keep it alive as the case may be). The tax burden necessary to "create" these jobs would result in at least as many losses on the private side of the ledger. There is no free lunch.
4) This takes the process of deciding what activities are productive out of the hands of the millions of US citizens and placing it in the hands of the government, we simply set ourselves up for failure. What Obama is asking, is for a handful of government officials to decide what activities are the most beneficial to the economy at large. Central planning has a remarkable history of failure to make good on its promises.

While certainly the individuals being fitted for these brand new jobs will find it beneficial to them in the short term, the long term affects on the economy will be a drastic slowdown in productivity. Based on Obama's statements, we will have a surpluss off newly paved roads (whether they need it or not), but at a time when the economy is struggling, we will end up with a shortage of goods and services that individuals need. Shortages that in turn result in higher prices.

What good is a policy that promises "living wage" jobs, but at the same time drives up the cost of living?

1 comment:

  1. That's Trouble with a capital "T" . . . and that rhymes with . . . umm . . . "T" and that stands for Taxes!