Creating Wealth

Published on 24th May 2005

 

Government policies are commonly evaluated in terms of how many jobs they create.  Restricting imports is seen as a way to protect and create domestic jobs.  Tax preferences and loopholes are commonly justified as a ways of increasing employment in the favored activity.  Leaders point with pride to the number of jobs created in the economy during their administrations.  Supposedly the more jobs created the more successful the administration.  There probably has never been a government spending program whose advocates failed to mention that it creates jobs.  Even wars are seen as coming with silver lining of job creation.

Now there is nothing wrong with job creation for jobs understandably, are an important way for people to create wealth.  So the emphasis on job creation is an understandable one.  But it is easy for people to forget that creating more wealth is what we really want to accomplish, and jobs as well as policies are merely a means to that end.  When that elementary fact is forgotten, people are easily duped by arguments that elevate creation of jobs to an end in itself.  While these arguments may sound plausible, they are used to support policies that destroy wealth rather than create it

The purpose of all economic activity is to produce as much value as possible with the scarce resources [including human effort] available.  But no matter how far we push back the limits of scarcity, those limits are never vanquished.  Scarcity will forever prevent us from securing all things we desire.  There will be always jobs to do – far more than can ever be done.  So creating jobs is not the problem.  The problem is creating jobs in which people produce the most value.  This is the point of the apocryphal story of an engineer who, while visiting China, came across a large crew of men building a dam with picks and shovels.  When the engineer pointed out to the supervisor that the job could be completed in a few days, rather than many months, if the men were given motorized earth moving equipment, the supervisor said that such equipment would destroy many jobs. “Oh,” the engineer responded, “I thought you were interested in building a dam.  If it’s more jobs you want, why don’t you have your men use spoons instead of shovels?”

Another advantage of market wages is that they force employment to consider the opportunity cost of hiring workers – their value in alternative jobs – and to remain constantly alert for ways to eliminate jobs by creating the same value with fewer workers. 

All economic progress results from being able to provide the same, improved, goods and services with fewer workers, thus eliminating some jobs and freeing up labor to increase production in new, more productive jobs.  The failure to understand this source of increasing prosperity explains the widespread sympathy with destructive public policies.

It would be of value to employ workers to produce something of value, rather than to partially undo damage that is inflicted needlessly.  Unfortunately, absurdity does not implement.  Using the jobs- creation justification, politicians commonly enact legislation that increases the effort required to produce a given amount of value.

One of the arguments for restricting imports is that will create[or protect] domestic jobs.  True, it will create domestic jobs.  But also like a break in a rail line, import restrictions make it more costly to obtain valuable products.  The only reason a country imports products through foreign trade than by producing them directly.  In this way trade is like a technological advance, freeing up workers and allowing them to increase the production of goods and services available for consumption.

Import restrictions create jobs in the same way as dynamiting our railroads, bombing our factories, and requiring that workers use shovels instead of modern earth moving equipment would create jobs.  Always keep in mind that creating jobs is a means to the ultimate end of economic activity which is creating wealth.

Adapted from Dwight R Lee’s Creating Jobs Versus Creating Wealth

 

 


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