|
Jobs are not "public goods"
by King Banaian
We all gain our income by persuading someone else to give it to us. For the vast majority of us it comes from the persuasion of another person or organization to exchange money for a service or good we provide through our own effort. We call it "a job". The job is not an end in itself for us but a means to an end.
Every day in Minnesota, more than two million people engage in this human activity of exchanging their services for something that they can use for to fulfill our unlimited wants. Markets are wonderful instruments for telling us where our talents might be used and what income they might provide us. The market is an institution in which people engage in what Adam Smith called our natural propensity to truck, barter and exchange, and our labor is one of the resources traded in markets.
We don't like to labor. Leisure is a good, but leisure is better with more income -- you have more opportunities to enhance your leisure time when your income is higher. So we seek high prices for our labor (wages). But we don't sell all our time because all work and no play gives Jack no time to enjoy his leisure.
Employers are people too. They evaluate the potential gain from hiring someone to assist them in the production of the goods and services they offer people. By taking on the risks inherent in a profit-and-loss system, employers assure that what is produced has value to consumers while providing their assistants or employees with income.
So jobs have value to both firms and workers. When employment declines, it signals that the goods traditionally made are at least temporarily not of value. Sometimes the switch is more difficult because the goods are no longer desirable to consumers, like buggy whips in the dawn of the automotive age. But most people see the problem in Minnesota today as being a temporary decline in output.
Some propose then that government can provide for a cushion in this period by additional spending. This is folly however. First, any government spending must be paid for by taxes. Any additional employment created by the government is offset by the loss of income to those workers who used to receive the money now collected by the government in taxes.
Second, without a profit-and-loss system in place, there is no assurance that the goods and services provided by public employment have greater value than the goods that used to be produced before higher taxes were charged. Indeed, if they had greater value, one must wonder why they were not provided by the private sector already? Some will say that government is needed to provide "public goods", but people in a market economy are always seeking ways to overcome the types of "coordination failures" that proponents of public spending throw out to support higher spending.
That creativity is what leads us out of recessions. Flexible prices, excellent communications and information flow move firms and workers to find new profit opportunities. Government is largely powerless to improve that process. But by engaging in public expenditures, government can slow down that process by temporarily bidding away labor from new creative solutions to fulfilling our wants. The workers hired to build a new building for government are not available to build a new factory, or help remodel a plant for a new product line. And the money that would have been invested to these new ideas has been sapped to pay for the government program instead.
During the greatest experiment in substituting public for private spending for employment, a government leader came into office facing unemployment of 17.4% and said "Our greatest primary task is to put people to work. This is no unsolvable problem if we face it wisely and courageously." That leader raised government spending more than three times its previous level as a share of GDP in five years ... and the unemployment rate at the end was 17.4%.
Franklin Delano Roosevelt won two more elections to president after that. But the New Deal did not work then, and it won't work now.
King Banaian is a Minnesota Free Market Institute Economic Fellow and Chairman of the Econmomics Department at St. Cloud State University. |
