“No Man’s life liberty or property is safe while the legislature is in session”.

- attributed to NY State Judge Gideon Tucker

Wednesday, August 24, 2011

Luddite Economics

As a person with a substantial academic background in economics and business, it always pains me to hear politicians- of any partisan stripe- talk about jobs as if they are simply created out of thin air. Or to hear officeholders, especially presidents and governors, say 'I created' so many jobs.

Right now, as Republican governor of Texas Rick Perry campaigns, he, and the media, are full of the 'I created' speak. But real conservatives don't believe government creates private sector jobs, per se. Unless, of course, they nationalize something or give money to a company specifically for job creation.

But, mostly, the best one can say about a government executive is,

'S/he orchestrated ab environment of regulatory restraint, moderate taxes and generally favorable conditions for business, thus attracting new companies and facilitating higher employment.'

Further, hearing politicians negatively remark on technology's impact on employment, like Wonderboy did recently, also pains me greatly.

To vilify ATMs, the internet and/or other capital-equipment based productivity increasing tools is to be an economic Luddite.

These inventions either improve existing products and services for customers, lower prices of goods and services, or provide new capabilities, such as online search for and purchase of goods or services. All good things. Things which improve living standards, when measured by consumption and satisfaction per dollar.

That many of these technological improvements or facilitators also result in the elimination of jobs and businesses is simply part of the advance of human civilization.

As a corollary, I think it represents a serious mistake for government officials, e.g., presidents, senators, representatives, governors, to speak of government institutions focusing on 'job creation,' per se.

Since governments don't, and shouldn't, directly create jobs, it would be better to know that those elected officials are working to create environments which are favorable to the growth of existing businesses and the birth of appropriate new ones. Both of which may create jobs.

Yes, ideally one thinks of full employment as a good thing which stimulates economic growth. But that doesn't mean that, say, by borrowing or taxing to raise money, a government entity can then just pay that money to people for "jobs," whatever they may be, and magically create sustained, healthy and productive economic growth.

As I noted in this recent post on my companion business blog,

""All economic problems are about removing impediments to supply, not demand," Arthur Laffer reminds us.

I highlighted Art Laffer's comment because it seems useful to me to focus on the true fundamental nature of man's economic problem: scarcity. Economics has always been, at root, about how to allocate scarce resources for the production of goods and services to satisfy a population's demands, at prices which satisfy both producer and consumer. "

Thus, productivity is a good thing. Producing more goods or services with fewer inputs results in the freeing up of more resources. Perhaps lower prices.

And without productivity growth, there can't  be non-inflationary wage growth for workers. Nor, for that matter, non-inflationary growth at all, absent simply adding more resources, such as people or materials.
Productivity increases allow healthy, sustainable and non-inflationary economic growth by releasing resources for other uses, instead of just requiring more resources for a society's economic growth.

Higher productivity is a good and necessary aspect of an economy, not a phenomenon to be lamented or denigrated, as some politicians are in the habit of doing.

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