Producing goods and services — not jobs — the primary focus of a healthy economy
When self-checkout aisles first showed up at grocery stores, the reaction was predictable.
“Don’t use it.” “Machines don’t pay taxes.” “People are going to lose jobs.”
That’s what we see.
The benefits are harder to see — the ability to open up more lanes and allow consumers — especially those of us with few items — to check out faster. We also don’t see the fact that the labor-saving devices have freed up workers to do more productive jobs, including opening up avenues to fill orders for curbside pickup and delivery.
There was assuredly a similar reaction when tractors and combines replaced field workers in agriculture, when cranes, trucks and backhoes could do the work of hundreds of people in building roads, or when the shipping container led to less of a need for workers to load and unload barrels from ships.
“Look at the jobs that are lost.”
Every economic program put forth by politicians — no matter the party — has a hyperfocus on “creating jobs,” to the point where we begin to believe that is the sole role of the economy.
But that gets it backwards. The purpose of an economy is to produce goods and services for consumers, which in turn enhance our quality of life. In doing so, firms need workers to produce and deliver those goods and services. It also misses the point that economies evolve over time as consumer demands evolve. Each labor-saving device means fewer man-hours are needed to produce a good, which makes it less expensive to purchase, which enhances our quality of life. If one looks at overall prices of goods and services, those that are not labor-intensive — electronics and many consumer goods, for example — have seen their real prices go down over time.
Americans have never had a better quality of life than now — we live in bigger homes, drive better (and safer) cars, watch televisions that have a better picture and sound than any movie theater three decades ago could have imagined, have access to top-notch medical care, and most of us carry devices in our pockets that give us access to a world of information and connection.
Resources are scarce — at any given point in time, there is a finite amount of people and raw materials needed to produce the things we buy that enhance our lives. An economy’s job is to direct those scarce resources to people in the most efficient way. It requires entrepreneurs who are willing to take risks to combine resources — including workers — to create something more valuable than the resources themselves.
To do that, we must understand resources are heterogeneous. Just as nails are only useful for specific tasks — and there are many different types of nails to fill different tasks, which might not be interchangeable — workers are not just a homogenous pool of workers who can be plugged into different jobs. Each person has specific training and skills that will make that person better fit for a specific job.
Market prices help us coordinate the many diverse types of workers and capital to help us produce what people want. Each price contains information no planner, government official or expert can even fathom.
When we focus on jobs for jobs sake, inefficiency results. John Maynard Keynes once posited that we should pay people to dig holes in the ground and, presumably, pay others to fill them back in because that “creates jobs.”
But nothing of value has been produced. Frederic Bastiat pointed this out in the Parable of the Broken Window. A shopkeeper’s window was broken, and the shopkeeper’s friends told him it was a great thing because of the boost to the economy — a job was created for the glazier to produce the window. But what was unspoken was the unseen — the shopkeeper paid to have the window fixed, but his quality of life was no better than before. He still had one window. What we didn’t see was what he would’ve spent that money on — buying a suit, or a pair of shoes. While the broken window “created” a job for the glazier, it also cost a job for the tailor and the shoemaker, while the original customer is unable to buy those things because he was fixing a broken window.
To take a modern example, let’s propose a passenger train from Greenfield to Rushville and New Castle, with an hourly schedule. Jobs would be created laying the tracks and operating the trains. But there almost assuredly would not be enough demand to make it worthwhile, likely meaning millions of dollars will be spent to “create jobs,” but only provide real value for the scant few people who would have need to take a route and believe the train fare would be more economical to them than driving.
The resources used to build and maintain that line could have been used in more productive ways. While we may see “jobs,” we don’t see the fact that we are now not free to purchase things we want that enhance our lives because we are forking over taxes to pay for a wasteful transportation line, and as a result, jobs are lost in other areas and our lives are no better off.
It’s projects like this that are the centerpiece of the nearly $6 trillion in new spending being proposed by the Biden administration under the titles like “American Jobs Plan” and “infrastructure plans” — and similar proposals by the Trump administration before it. Such proposals insinuate the job of economic policy and government is to create jobs, but such proposals get things backwards, by directing money toward politicians’ pet projects rather than allowing us to spend our hard-earned savings on our own individual priorities.
Adam Smith said “it is not out of the benevolence of the butcher, the brewer and the baker that we get our dinner, but from their own self-interest.” The butcher cuts meat, the brewer makes drinks and the baker makes bread not because they love those things, but because they have skills in producing them and others are willing to pay them to do so. The butcher, brewer and baker benefit with profit — which they can then use to purchase the things they want. The buyers benefit with dinner. Both sides win in the transaction. Three jobs have been created, but those jobs exist because others demand meat, bread and drinks.
Focusing on producing high-quality goods and services means leaving the decision-making to consumers and producers. New jobs result — even as old jobs go away. We don’t need industrial policy, tariffs, infrastructure bills or government spending to “create jobs.” We simply need voluntary exchange with our decisions guided by market prices. That allows consumers and producers to coordinate their actions and enhance their own lives. We do not need to focus on “jobs” for the sake of creating jobs, and no planner or policymaker can have enough knowledge to do so. But with free markets, we have growth, lift people out of poverty and truly “create jobs.”
Andrew Smith is an economics instructor at New Palestine High School and Vincennes University.