Sunday, February 01, 2009

Jobs = Market Inefficiencies & Government Waste

As I listen to the stimulus bill being debated, I can't help but feel the free-market side of my brain being twisted in pretzels trying to follow the logic of commentators. Time and time again, I hear proposals to do things a particular way because it creates more jobs than the alternative way to achieve the same end. For example (and I'm a huge advocate of sustainable energy, BTW), I've heard and read numerous comments that wind energy, for instance, should be pursued because it creates more jobs than something like simply retro-fitting coal-plants to be more efficient and less polluting. This strikes me as insane. I believe we should move toward wind and solar and other sustainable sources of energy, but not because they "create more jobs." Move to those sources because they don't pollute, they don't emit CO2, they don't require sticky geo-political negotiations that may later require massive military spending to maintain...but don't argue for renewable energy because it creates more jobs!!

What are we saying when something creates more jobs? We're saying it's less efficient. We're saying the alternative can be done with less effort and expenditure. If we want to have full employment, the solution is simple: simply mandate that various activities be done in a highly inefficient way. If we require all clothing to be produced in America with no mechanical means used at any point in the process of the fibers, we would immediately have jobs for all Americans. But such an approach is absurd. What's the point of labor-saving technology if our goal is to put as many people to work as possible for as many hours as possible?

And this gets to the fundamental paradox we're entering into economically. At the beginning of the Industrial Age, I understand there was some concern about what would people do for work not that machines could replace them. Of course, it turned out that at the beginning of the Industrial Age, the rampant desire for consumption had only begun to be tapped in the western world, and people found numerous other occupations to fill their time productively. Though the refrain has been repeated many times since then (I can remember it as recently as the '80's in relation to robots replacing auto workers and other manufacturing jobs), these concerns have so far always proved to be unfounded. But perhaps this is no longer the case.

Most proposals for creating new jobs right now come from government funded public-works projects. Private sector employers are laying people off left and right. But nearly every government proposal has been criticized by some on the grounds it is wasteful. But maybe that's the point. Maybe some in government realize that the only way to keep people employed is to create inefficiencies. As a tax preparer, I often wonder if part of the reason for the absurd complexity of the tax code is to keep people like me employed. If we had a straight-forward tax code that allowed nearly everybody to prepare their own return in under an hour, millions of people would be out of work.

Psychologists studying happiness generally conclude that once an individual reaches a certain level of wealth--roughly equivalent to what most American achieved not long after WWII--there is almost no further increase in happiness from increasing wealth. It would seem the last few decades have produced economic growth for no other reason than we've simply been conditioned to believe that more is always better. Suppose as a result of this financial crisis, most Americans finally realize that they no longer need to keep increasing their consumption in order to achieve greater happiness, and as a result the economy stagnates. (Of course, the economy seems to be stagnating regardless of what Americans have realized about happiness.) If levels of consumption (and by extension, production) remain pretty much stable, what will ultimately happen to employment as innovation makes workers more efficient? Obviously, the same level of production will be possible with fewer and fewer workers. Over time, the laid off workers will decrease consumption enough that more workers can be laid off. And the cycle will continue. Maybe that's what is already happening.

It seems to me there's a very important discussion we should be having right now as a nation. If we're producing everything we want, but we don't need everybody's labor to do it, where do we go from there? Do those who are the least talented get a free pass because we can produce everything they need without their labor? Or do we let the least talented starve and reduce the overall demand, leading to a new round of least talented being removed from the labor force? And what is the point of all this labor-saving technology if everybody is still expected to work all the time? Is it possible to create a system in which everybody does less work in order to allow everybody to work and still meet consumer demand?

It seems like we're putting forth a lot of effort and spending to make sure everybody works full-time for no particular reason. If we can meet all of our reasonable desires with everybody working only part-time, is it possible to set up a system in which that is what actually happens?


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