Thursday, January 8, 2009

On Job Creation

From Cafe Hayak:

It's easy to create jobs. The hard part is creating productive jobs. Jobs alone do not create prosperity. Creating wasteful jobs reduces our standard of living.



Michael Labeit said...

Cafe Hayek uses good identification. You hear the eternal promise of job- creation bellowing from Washington. However, jobs are not ultimate ends. They are means (economically they are known as "labour inputs," a rather mechanical term). Jobs are the means towards wealth-creation. Wealth consists of goods capable of satisfying human wants. It should remain overwhelmingly evident that, therefore "wealth is the solution," not employment. We hope that jobs lead to wealth creation. That is why we want jobs (at least, some of us). Government subsidized jobs ("green jobs" for example) may be designated as wealth-destroying jobs. They are wealth destroyers because they are financed with financial capital that was formerly private capital (wealth is the exclusive product of the private sector). Government financed ventures that do not involve law are always inefficient because such ventures are, by definition, ventures that the market refuses to finance. Capital markets like the bond market finance those business ventures that have the highest chance for success at satisfying consumer demand. Demand satisfaction is the ultimate purpose of market activity. Government economic ventures are, well, government ventures and not market ventures because the market only finances that which will satisfy demand. If the market won't finance it, it ain't satisfying any consumer demand. That is why useless political pet projects are financed by government - government is that institution that can coercively divert capital away from economically productive ventures to politically popular ventures. So if the government is subsidizing it, guess what - its an economic venture that shouldn't exist. Such ventures are, by definition, inefficient and wasteful of capital.

Michael Labeit said...

The only other government financed ventures other than law that may be exempt from above are those industries that the government coercively monopolizes such as firefighting and money production. Capital markets don't finance such industries because the government prohibits them from doing so, unfortunately.