Who Needs Jobs?

The chain saw was a great invention. Stihl, a German company that is still thriving, manufactured the first chain saw in 1926. Until then, loggers had to fell and deb-ranch trees with axes and cut the logs with handsaws oper­ated by two men. The chain saw expanded the productivity of the fellers who cut down the tree, as well as of the buck-ers, who trim the top and the branches and cut the logs into specified lengths. The growth of productivity was especially dramatic after 1950, when chain saws became light enough to be manipulated by a single man, even if they were still twice as heavy as they are today.¹

Banning chain saws, tractors, or combine harvesters is not as cranky an idea as it may appear—if you adopt a certain approach. Banning has always been a preferred activity of governments and, with a few exceptions, the trend has only accelerated during the last decades. If you look around you, in both economic and social life, you will find a large number of goods or activities that are forbidden, from incandescent light bulbs to running businesses without permits or licenses, to recreational drugs, to many sorts of sexual encounters, to many other things. When outright bans were impossible, partial ones were imposed. Tobacco is prohibited by law in many places, including private places like restaurants and bars. Drinking is prohibited for patrons younger than a certain age and in certain places. Many sorts of trades are banned, not only on financial markets but also for ordinary consumers. Similarly, a worker and an employer cannot agree on terms that violate labor legislation and regulation . As Robert Nozick once remarked, socialism—he could have used the more general term “statism”—is about prohibiting capitalists acts between consenting adults.¹

Everything is subjective in the sense that it gets interpreted or evaluated in the mind of each individual. The enterprise of science consists in verifying that subjective interpretations fit the external reality, but the internal real­ity of each individual remains subjective. What motivates an individual to act this way or that way is subjective, even if the individual has an obvious interest in making sure his intentions do not contradict external reality. In particular, value is subjective: the very act of valuation resides irreme­diably in the minds of individuals. Facts can be ascertained outside of individual subjectivity, but values cannot. The value of anything for a given individual is the subjective value he assigns to it. Whether one prefers dark or white chocolate, television or hunting, heterosexual or homosex­ual sex, is subjective.

We have already considered the objection that some people—ascetics, monks, adherents to voluntary poverty like Thoreau, or enemies of modernity like Kaczynski—do not like consumer goods that are purchased on the market . But this does not mean that they hate all con­sumption. They may still like homespun cassocks, for exam­ple, and other subsistence goods produced by unpaid work. Man does not live by pure ideas alone. According to their own individual preferences (and the constraints they face), these people may choose more leisure and less consumption, and are more inclined to produce their consumer goods as a do-it-yourself enterprise. What they don’t like, in fact, is only certain forms or certain levels of consumption. Their indi­vidual preferences are covered by the economic theory used thus far. They just have different preferences.

rIf somebody gets a job, according to a certain argument, it means one fewer job available for others. If one additional worker is employed, another one must lose his job. If an older worker does not retire, one fewer job is available for the young. French socialist prime minister Pierre Mauroy put it clearly in his 1981 injunction: “When it is time to retire, leave the labor force in order to provide jobs for your sons and daughters ... release jobs so that everyone can have a job.” ¹ There is a fixed quantity of jobs available, and who­ever takes one prevents others from getting it. A predeter­mined lump of labor is required to run the economy, and these jobs have to be shared. Hence, it is important to orga­nize this job sharing. Otherwise, some individuals who need jobs won’t have one.

Even if a new worker does not steal an existing job, as the lump-of-labor fallacy would have us believe, he may compete with workers who are already producing what he is now supplying. Consequently, the price of these goods will be pushed down. The impact will not be significant if only one newcomer lands in the labor market, but it will be if many do. Workers whose products now sell at lower prices will earn lower wages. The case is not so clear if the new workers produce a good or service that nobody was producing before—say, a smartphone. Yet their products may compete with older products—such as dumb phones—whose prices will be pushed down. On the other hand, the new workers will be pushing up the prices of the goods and services for which they bring a new demand on the market. They will therefore benefit some individuals and harm others. How can we be confident that the net effect is positive?

Many believe that exchange, when it takes the form of international trade, can be harmful to “the country.” This illusion hides the fact that countries are made of individuals, and that if an exchange benefits individuals, it must also benefit countries.

Free international trade is efficient, but don’t imports destroy jobs? It is not easy to imagine how international trade could simultaneously benefit most people and destroy jobs that these very people want in order to buy goods and services. Yet, some people apparently think that imports do destroy jobs. Al Franken, a US senator from Minnesota, argues that reducing the sugar quotas and tariffs would destroy American jobs.¹ Many seem to believe that importing computers and electronic gadgetry from China has the same results. Numerous other examples of this error could be given.

If you dig a hole for no other purpose than immediately refilling it, you will not generate any income for yourself. You may solve your job problem—for the digging and refilling will keep you busy—but not your income problem, and therefore not your consumption problem. Moreover, unless you enjoy digging holes, you will not have gained any utility either. This suggests that the solutions to the problems of working, earning an income, consuming, and maximizing one’s utility are not necessarily the same. Forbidding technical progress would create jobs, but reduce income and consumption for most people. Forbidding imports may create jobs, but would have the same negative effect on income and consumption. Individuals work in order to earn income, they want income in order to consume, and they want to consume (due consideration being paid to leisure) in order to maximize their utility. What does this imply for the sorts of jobs that are desirable?

Exchange is the foundation of efficiency, including in jobs. A job is efficient when it embodies a series of exchanges that benefit all parties. The self-employed person, who creates his own job, directly sells something his customers want. A job holder sells his labor services to an employer who values them because this exchange allows the firm to sell at a profit something its customers want. The supplier of labor services, the supplier of goods produced with these labor services, and the purchasers of the final goods all benefit; otherwise, they would not engage in exchange. We would therefore expect that preventing any of these acts of exchange destroys efficient jobs. If a self-employed worker and his voluntary customers are prevented from exchanging, each loses what would otherwise have been his benefits from exchange. Similarly, if a worker and an employer are prevented from entering into a labor contract on terms on which they mutually agree, they both lose, and so will the consumers of the final products that are, or would have been, supplied by the employer.

One simple distinction that should be kept in mind is that between the level and the growth of GDP or income. Remember that income (the sum of all incomes) is equivalent to production (or GDP or output): what people produce is what they earn. Economic growth has to do with the increase in the level of income. It usually refers to a continuous increase in the level of income over time. The period of a continuous increase is somewhat arbitrary, but a one-year growth in the level of GDP caused by, say, a one-time arrival of new workers on the market would not count as what we normally call economic growth. Moreover, growth in the level of income that would be no larger than population growth would mean that the average individual is no better off. Economic growth, as generally understood, is thus a continuous increase in per capita income. Our questions are, how is economic growth related to jobs, and what causes economic growth?

It is a strange but common assumption that consumers and workers are irrational, while the state is the summit of rationality and omniscience. This view of the world is upside down. Accepted wisdom also claims that government can or should create jobs. Looking at the world “upside up” will help us understand why governmental make-work programs cannot create efficient jobs.

Arecession can be defined as “a general, unwanted, self-perpetuating but temporary, mutual reduction in exchange.”¹ In a recession, people want to buy and sell more than they are actually able to. The Great Recession of 2008– 2009 is an example; another one is the Great Depression, which started in 1929 (a depression is a deeper and longer recession). Less exchange implies fewer jobs and employment available on the market. Since the reduction in exchange is unwanted, the consequent unemployment is involuntary. In a recession, society is stuck under its production frontier. In these circumstances, Keynesians argue, the state can increase aggregate demand by creating jobs for the unemployed or with other forms of spending. Jobs created in the process would not have existed otherwise and are thus efficient, for they bring society back onto, or closer to, its production frontier. Does this objection, which was already alluded to in the previous chapter, make sense?

The golden thread of this book can be woven with a few words: jobs are costs, not benefits. The benefits are what is desirable, and must be distinguished from the costs incurred to enjoy them. I have reviewed many objections to this apparently revolutionary, but rather standard economic principle.¹ There is no reason to fear technology: even if, admittedly, it can create short-term disruptions, it allows people to work less and consume more. There is no fixed pool of jobs or incomes to be divided among people. Each supplier creates his own demand and, thus, his own job and his own income. Exports are also a cost: the more jobs exported, the better, because this means more consumption for less work. The ultimate normative criterion is welfare, not jobs nor even consumption. Only efficient jobs—jobs that serve to produce at the lowest cost what people want—contribute to welfare. By preventing exchange, public policies destroy efficient jobs. Economic growth is of interest not because it creates jobs, which it might or might not do, but because it increases most individuals’ welfare. Even during a recession, it is far from obvious how government can create efficient jobs when the costs of intervention are taken into account.