J is for Jobs

May 2nd, 2014 at 2:00 pm by David Farrar

The NZ Initiative hits J in their series on :

During the last American presidential election, Mitt Romney bragged that he had created around 100,000 jobs. The Obama campaign claimed Romney had actually destroyed jobs. Regardless of which was true is irrelevant; both feed into a common mistake in voters’ understanding of economics. That is, the belief that government should create jobs.

Jobs in this case refer specifically to job creation as opposed to productive and the labour market. Jobs are, and always have been, a critical concern across the globe. Whether young or old, skilled or unskilled, for billions of people jobs are essential for their economic and social development.

It is perhaps not surprising then, that job creation is often touted as the main impetus behind myriad government policy initiatives.

However, contrary to such popular opinion, job creation is not – and should not – be the goal of government policy.

This is a critical fallacy; a misunderstanding that government should be responsible for job creation and that job creation should be pursued as primary evidence of ‘economic growth’.

In The Myth of the Rational Voter: Why Democracies Choose Bad Policies, prominent economist Bryan Caplan identifies the ‘rational irrationality’ of this ‘make-work’ bias. There is indeed a tendency to underestimate the economic benefits of actually conserving labour rather than creating more jobs for the sake of more jobs.

In the early 1930s, the Soviet Union proudly declared itself the world’s first country to put an end to all unemployment. While the Bolsheviks ardently claimed unemployment was a disgraceful product of capitalism, what they failed to divulge was how they attained their zero-unemployment figure. Everyone was given some job or function, no matter how mundane or unproductive. The USSR may have succeeded in eliminating unemployment, but it came at the cost of reduced efficiency and productivity.

Ironically, the public often believe labour is better used than conserved; that producing more with less labour is a danger, rather than progress. This is a very real belief among the majority of non-economists, who interpret efficiency gains as the destruction of jobs while economists see real growth manifested through the production of more with less. 

Government policy should be focused primarily on achieving real economic growth, growth that is attained via increases in labour productivity. The creation of jobs should not be the overarching goal of fiscal expenditure, but rather a by-product of stimulating economic growth.

Government may not be good at creating good jobs, however, they are certainly capable of destroying them. But that is an entirely different matter.

The previous letters can be found here.

Any Government can achieve full employment if they want to. They just create make-work jobs for everyone. But that is never sustainable. The best way to create jobs, is to have a growing economy and a private sector that needs to and can afford to hire more staff,

Tags: , ,

11 Responses to “J is for Jobs”

  1. thePeoplesFlag (168 comments) says:

    The New Zealand Initiative – What you get when even the cloistered ACToids of the Business Roundtable finally worked out everyone thought they were a joke.

    But this dogs breakfast of tired Randian re-treads and ACT party acolytes shows that even when you change a pigs name and give it some lipstick, it is still a pig with lipstick.

    Vote: Thumb up 2 Thumb down 7 You need to be logged in to vote
  2. wikiriwhis business (3,883 comments) says:

    We must switch from socialist keysnian Fabian economics to Austrian free market economics with less and even lesser govt, regulation and stifling of the economy.

    Then sack the Reserve Bank governor and the entire Reserve Bank.

    although, good to know the corruption in the banking sector is being weeded out.

    Get out of those Oz owned banks.

    Vote: Thumb up 1 Thumb down 0 You need to be logged in to vote
  3. Bob R (1,332 comments) says:

    ***Government may not be good at creating good jobs, however, they are certainly capable of destroying them. ***

    Not sure if George Washington, Alexander Hamilton or the South Koreans would agree. It depends on the state of the economy. Ha-Joon Chang has some interesting papers on this:

    “He cited several high-growth Asian countries as examples.

    For South Korea, it was government intervention that started POSCO, an iron and steel company that has grown to be the third largest in the world. Moreover, it supplied steel to the automobile and shipbuilding industries and was therefore a crucial foundation for Korea’s industrialization.

    It was government officials – ridiculed as bureaucratic, lazy, and incompetent by some free-market economists – who had to intervene.

    What did these Korea officials do for the steel industry?

    Subsidies and protections, said Chang.

    He said what South Korea did for the steel industry was in accordance with the ‘infant industry argument,’ a theory that was first postulated by Alexander Hamilton, the US Treasury Secretary under George Washington.

    In addition, the United States and other countries successfully practiced this theory early in their development.

    Now, they’ve outgrown the need for it..”

    http://www.ibtimes.com/yes-government-can-pick-winners-ha-joon-chang-268043

    Vote: Thumb up 2 Thumb down 1 You need to be logged in to vote
  4. Tom Jackson (2,458 comments) says:

    Any Government can achieve full employment if they want to. They just create make-work jobs for everyone. But that is never sustainable. The best way to create jobs, is to have a growing economy and a private sector that needs to and can afford to hire more staff.

    Horseshit. Markets fail to create many jobs that need doing, which is why the government steps in.

    And this crap from the sort of people who want folks to pick up litter in order to receive the dole. You can’t have it both ways.

    Their days are numbered anyway post Piketty.

    Vote: Thumb up 2 Thumb down 4 You need to be logged in to vote
  5. lprent (102 comments) says:

    The best way to create jobs, is to have a growing economy and a private sector that needs to and can afford to hire more staff…

    Rather explains why after 5 years National is still steadily falling behind the slow increase in the number of people in the workforce. Rather than doing the things that help the economy really grow and the whole of the private sector expand, they expend all of their crony efforts on a monopolistic dairy industry with the very small number of new jobs.

    Sure we get a massive growth in the exports of dairy sector with the benefits splashing into the pockets of those with large investments in it – like many of the National MPs. Meanwhile exports and jobs in every other sector are either static or in the case of manufacturing are still declining (down 3.3% in the March year).

    I guess that explains the National focus. Feathering their own pockets and pissing away the private sector jobs for everyone else is important to them. Ask Judith Collins about her efforts to increase exports for her husband about where her priorities are.

    Vote: Thumb up 3 Thumb down 6 You need to be logged in to vote
  6. wat dabney (3,655 comments) says:

    Markets fail to create many jobs that need doing, which is why the government steps in.

    Well, a handful of public goods perhaps. But they are very few.

    And this crap from the sort of people who want folks to pick up litter in order to receive the dole. You can’t have it both ways.

    Picking up litter isn’t intended as job so much as an incentive for finding a job, which is a whole nuther thing entirely.

    Vote: Thumb up 0 Thumb down 1 You need to be logged in to vote
  7. Tom Jackson (2,458 comments) says:

    Well, a handful of public goods perhaps. But they are very few.

    Hardly. Most modern societies include the entire welfare state as correcting for market failures, so that’s ⅓ to ½ of the total. Health and education for starters.

    Picking up litter isn’t intended as job so much as an incentive for finding a job, which is a whole nuther thing entirely.

    Both. It’s a socially useful, but unpleasant, task.

    Vote: Thumb up 1 Thumb down 1 You need to be logged in to vote
  8. niggly (799 comments) says:

    lprent – RBNZ stats show employment increasing from 2.21 million in 2007 (pre GFC) to 2.22 million in 2013 (post GFC).

    http://www.rbnz.govt.nz/statistics/key_graphs/employment/

    Excel graph (see tab9 – employ) http://www.rbnz.govt.nz/statistics/key_graphs/graphdata.xls

    Even as unemployment increased during and after the GFC.

    I don’t suppose you’ll do the decent thing and actually quote the truth rather than make things up eg when next misleading your readers about the National Govt on The Standard?

    Vote: Thumb up 2 Thumb down 1 You need to be logged in to vote
  9. hj (6,321 comments) says:

    “In The Myth of the Rational Voter: Why Democracies Choose Bad Policies, prominent economist Bryan Caplan identifies the ‘rational irrationality’ of this ‘make-work’ bias. There is indeed a tendency to underestimate the economic benefits of actually conserving labour rather than creating more jobs for the sake of more jobs.”
    ……….
    A company rationalises and frees up labour but dont worry as there will be compensatory benefits elsewhere: something else will crop up for those people to do.
    Suppose however resources are limmited. Imagine people living on an island where one group own the productive land. The workers on that land are paid for their work and family members are looked after (representing the genes or kin). Suppose a new manager “frees up” staff. It could be that there isn’t another way to make a living for the other people apart from fishing (say). Some people may face starvation leading to civil war. The key here is that the NZ initiative are cornucopians whose models don’t figure limits.

    WAH Back in TExarse
    http://blogs.wsj.com/five-things/2014/04/28/5-things-about-growth-in-texas/
    http://www.planetizen.com/node/68566?utm_source=newsletter&utm_medium=email&utm_campaign=05012014

    Vote: Thumb up 0 Thumb down 0 You need to be logged in to vote
  10. wat dabney (3,655 comments) says:

    Just saw this howler.

    Most modern societies include the entire welfare state as correcting for market failures, so that’s ⅓ to ½ of the total. Health and education for starters.

    I suggest you find out what ‘market failure’ means before using the term.

    The idea that there would be no education and healthcare if the state didn’t monopolise it is simply risible.

    Vote: Thumb up 2 Thumb down 0 You need to be logged in to vote
  11. mikenmild (10,595 comments) says:

    Maybe he meant partial market failure. I think his meaning was pretty clear.

    Vote: Thumb up 0 Thumb down 0 You need to be logged in to vote

Leave a Reply

You must be logged in to post a comment.