Free Markets, Free People

Robert Schiller


What part of “production” don’t these people get?

In today’s NY Times, Robert Schiller laments the lack of jobs brought by the “stimulus”.  Essentially, he posits, government focus is on the wrong thing.  Instead of boosting the GDP, the “stimulus” should be focused on creating jobs.  And where should government be focusing that effort?

Why not use government policy to directly create jobs — labor-intensive service jobs in fields like education, public health and safety, urban infrastructure maintenance, youth programs, elder care, conservation, arts and letters, and scientific research?

Would this be an effective use of resources? From the standpoint of economic theory, government expenditures in such areas often provide benefits that are not being produced by the market economy. Take New York subway stations, for example. Cleaning and painting them in a period of severe austerity can easily be neglected. Yet the long-term benefit to businesses from an appealing mass transit system is enormous. (This is an example of an “externality,” which the market economy, left to its own devices, will neglect.)

The problem with this idea, of course, is nothing is really produced.  In fact, the focus on kicking up the GDP isn’t the wrong focus.  And trying to produce make-work jobs or “service” jobs don’t help with that.  They certainly would keep those who got the jobs busy, but a clean subway will not lead to more jobs elsewhere.

The tendency to think like this is apparent among a certain set who believe that spending money on jobs, whatever the sector and whatever the labor, make a difference.   A job is a job is a job.

But it isn’t.  Government jobs are not jobs that “produce wealth”.  They consume wealth.  And they don’t certainly don’t produce jobs that do produce wealth.

That comes in the private sector where people produce things – to include services – that other people want and that old “voluntary exchange of value between two people” takes place and produces wealth, which in turn kicks up the GDP.

It is wrong-headed to think the government can “stimulate” employment by employing people in non-productive, busy work jobs.

If government has a role in a recession or depression it should be to clear the way with less regulation and provide the incentives through tax breaks for businesses to hire and expand. 

What is hold all of this up at the moment is the unsettled tax picture and regulation regime as well as new legislation the business world is still trying to digest and pending legislation which would further complicate recovery.  It isn’t rocket science.  Until the marketplace is much more settled than it is now, no jobs are going to be created and now businesses are going to expand.

You can paint and clean all the subway systems in the US and it won’t make any difference.  The mid-term elections, however, may.  If the GOP takes the House and closes the gap in the Senate, you may start to see some hiring and some expansion, based on the belief that the worst is over  – governmentally that is – and perhaps it is now safe to begin the long, slow process of recovery.

~McQ

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