Saving Jobs Means Saving Us from Prosperity
A most pernicious fallacy.
One of the most pernicious fallacies in popular economic discussions is that we should adopt policies designed to save jobs. What was once just language used by those with a special interest in particular jobs (such as unions calling for import quotas as foreign cars became more popular) is now part of the Obama administration’s defense of its counterproductive “stimulus” program. “Jobs created or saved” has become the standard of an economic program’s success. There is so much wrong here, it’s hard to know where to start.
Let’s make the obvious point first: Creating jobs is easy, but it’s nothing to be proud of. In fact, destroying jobs is the real path to wealth.
To use an example I’ve used before: One way to create jobs on a big construction project is to take away the machines that dig out the foundation, and limit the workers to shovels. Or better yet, spoons. That will create lots of jobs. But that is not progress. Using more labor than needed to get the job done costs wealth. Better to use the machinery and free up all the shovel- and spoon-toting workers to produce output in addition to the foundation. By the same logic, we could create lots of jobs by destroying all the farm machinery. Surely, though, we would not be richer for doing so.
The rhetoric of saving jobs is as misguided as the rhetoric of creating jobs. We want jobs to disappear – that’s how we define progress! Think of all the jobs that weren’t saved over during the twentieth century. Agriculture employed about 40 percent of Americans in 1900. Today it’s less than 2 percent. Are we really worse off for not having saved those jobs? Or consider this picture from 1947:
Telephone operators are nearly, if not totally, extinct 63 years later. Has the loss of those jobs, or those in agriculture, meant massive unemployment? Hardly. In fact, the six decades since that picture was taken were ones of steady increase in the number of Americans working, and an even larger increase in the percentage of women.
But, goes the objection, if we invent substitutes like digital switches, then the cell phone, to replace operators, where will the new jobs come from? One easy answer is that someone has to make the new technologies. That’s true enough, but it’s only part of the story. The rest is that new technologies open up new possibilities. Yes, we’ve lost lots of telephone operator jobs and we’ve gained some in the production of the substitute goods, but we’ve gained a lot more jobs like these:
Cell phones need apps and someone has to write them. And cell phones make possible new ways for firms to interact with customers. Someone has to write and implement that software and design the website, not to mention manage the process. The real gains that offset the jobs lost are not just with the new technology directly, but all the other kinds of new opportunities that it opens up.
The women today who would have been operators generations ago are now better educated, doing more interesting and productive work, taking home higher wages, and far more independent as a result. Meanwhile, the rest of us reap the bounty of all the new technology that destroyed those old jobs. My $30 per month unlimited data plan in 2010 would have covered just a couple of long-distance calls placed through those operators in 1947.
The rhetoric of “saving jobs” means that we never progress from telephone operators to software engineers. It means that we never progress from rotary dial phones with per-minute costs representing many valuable hours of labor to the Internet at our fingertips for the equivalent of two hours of work per month at the average wage and phone calls that cost nothing on the margin. Saving jobs means slaving away in manure-laden fields under the hot sun and brutal cold for 12 or 14 hours per day to feed your own family, with a little left over to buy a few necessities — rather than jobs with far better working conditions and far better pay and hours, jobs that afford most Americans the ability to pay other people to cook and serve their meals several times a week.
Saving jobs means putting the engine of human creativity in neutral if not reverse. The healthiest economies are those that consistently destroy jobs by inventing new and better ways to satisfy existing human wants with less and less labor, while freeing other labor to satisfy new and not-yet-dreamed-of wants.
Whenever you hear politicians talk about the jobs they’ve saved, just think of your ancestors scraping out a living on the land, or a room full of women spending their days plugging wires into holes, and then think about how much better off we are because no one bothered to save those jobs.
Comment by John B. Switzer, PhD on 19 August 2010:
Prof. Horwitz, thank you for your reminder of how free-market economies work!
Comment by Jacob Steelman on 19 August 2010:
In a laissez faire economy jobs are not lost but change. In fact the number of jobs is likely to expand but in new areas. There is always more work to be done in any business and any economy then there are people to do the work provided government has not intervened in the economy to distort the cost of labor. When in 2005 Australia’s Liberal government did away with restrictive employer-employee laws that kept wages artificially high unemployment immediately dropped and help wanted signs began to appear in most shop windows as market wages dropped approximately 15-20% All of a sudden the number of jobs increased. This change became the primary focus of the Labor Party in the 2007 elections when it unseated the Liberal government. Not surprisingly when the previous restrictions were re-instituted by the Labor government in 2008 unemployment began to rise from the low of under 4% (under the Liberal government) to near 6% under the new Labor government and it remains over 5% today. Gone now are the help wanted signs in the shop windows.
Pingback by “Saving” Jobs Means Destroying Wealth - Civitas Review Online on 19 August 2010:
[...] saving jobs through political means, as this Freeman article points out, stands in the way of economic progress. Let’s make the obvious point first: Creating [...]
Comment by George Schwappach on 19 August 2010:
On a tour at the Hershey factory, there was a photo of hundreds of woman wraping kisses behind a machine that wrapped thousands every minute. I asked the tour guide “were all those jobs lost with this one machine?”
Answering with the tone of a tear in her eye, she said “Yes, these machines have been stealing our jobs for years”
Hershey employs 13,700 people in candy production. I’ll bet there weren’t more than 500 when the photo was taken in the 20′s.
Some people just can’t appreciate just how good they have it.
Comment by David Orel on 19 August 2010:
I just discovered this site and it feels like I am in heaven…
Comment by Vince Skolny on 19 August 2010:
“Saving jobs means putting the engine of human creativity in neutral if not reverse.”
Absolutely true; unfortunately, the vast numbers of those to whom the rhetoric appeals believed they’re owed a living for staying in neutral.
Comment by Andrew Kunian on 19 August 2010:
Think how big the economy would be if we “saved” the jobs of:
sailors in the whaling industry in New Bedford in 1860
or
buggy whip makers in 1900
Comment by Sheldon Richman on 19 August 2010:
David Orel, welcome! Visit often.
Comment by david.marsilia@gmail.com on 19 August 2010:
In the interest of learning from our mistakes the logic of this article makes perfect sense. The question remains why this concept so difficult in practice. Insensitivity! Why does the M Friedman concept of business exclusive focus on stockholder value fail to have its desired effect on efficient transformation? Choose any one of the above examples. The society at large is forced to make adjustments in terms of fulfilling the requirements of the new technology. Normally, after displacement of the former workers additional training is required. The typical reaction being calls for various government action to fill in the gaps. These reactions cost business in the form of taxation and / or expenses related to lobbying against government forcibly requiring the business to subsidize the retraining effort. What if business simply and proactively made the investment to increase the workers capabilities. The benefits would be to head off government intervention, public relations boost, enhancement of long term employee loyalty, assure long term viability of the enterprise through increased engagement and still maintain shareholder value through cost reduction and improved productivity.
Comment by Alex on 19 August 2010:
What if people really liked the old jobs better than the new ones? And what about the costs (re-training, having to move house, just plain inconvenience, etc) associated with changing jobs?
This article shows the positive aspects of losing jobs. But let’s not forget that there are negative aspects too, and it’s perfectly possible for someone to conclude that the negatives outweigh the positives. Having lots of new fancy toys may – or may NOT – be worth the cost. There is more room for debate here.
Comment by Anonymous on 19 August 2010:
What a poorly constructed argument. As if a large chunk of that “damaging” stimulus package was not geared towards scientific research.
Comment by akaGaGa on 19 August 2010:
Alex makes a good point: we don’t all agree on what constitutes progress. Personally, I think we might all be better off getting some dirt under our fingernails.
Comment by Ken on 20 August 2010:
Employment i.e. the JOB is not the only means of producing. If more workers realized the benefits of independent contract, we would not have a wage slave class for politicians to manipulate and exploit.
While employment may be comfortable for most, it is not the best method of progress, especially in todays system of controlled labor. Think about how much further we would advance if 50% of the workforce became entrepreneurs, creators, inventors?
I have not hired an employee since 2001 and find that contracting independents is far more productive than employees. Granted, some may argue that operating a factory requires employees but this is only because IRS rules largely prohibit hiring independents in place of employees.
Mechanization will always replace manual labor with more output and better product, thank goodness for inventive minds!
Comment by Bill Waddell on 23 August 2010:
Eliminating jobs through productivity only creates wealth if the displaced people are channeled into other wealth creating occupations. When we displace people through the illusion of free trade based on a terribly misunderstood and misguided interpretation of Ricardo’s theory of comparative advantage, and then have the displaced people working at Starbucks we have not increased wealth – we have only transfered it to China.
Those great productivity booms cited – reduction in farm labor, whaling labor, etc… only became wealth producing because they paralleled a growth in manufacturing. The dispalced farmers and whalers became manufacturing employees. Now we are reducing manufacturing labor without such a parallel increase in other wealth creating activities. We send manufacturing to China and the displaced employees become greeters at Walmart, and the great prosperity the article promises is not being realized.
And before anyone comments on the loss of manufacturing jobs being driven by productivity rather than outsourcing I recommend you look into how the Bureau of Labor Statistics calculates productivity – and their acknowledgment that they cannot discren the difference between outsourcing to China and actual productivity improvements.
Comment by D. Saul Weiner on 23 August 2010:
This article makes an important point, but I am disappointed that Professor Horwitz doesn’t mention, even in passing, that we don’t have a free market economy. And that the dynamic that he describes may not be such a wonderful thing if it is being driven by forces which suppress or detract from free market activity.
Sure it is good that farming has become more productive through mechanization. Yet right now many farmers in our corporatist system are struggling while those who are trying to make a good living by meeting consumer needs for, say, providing high quality unpasteurized milk, are under attack by government officials, if not being shut down altogether.
It might also be noted that many jobs and businesses might in fact be saved, and we may well be well-served in this regard, if government were not so busy taking our money that could be better deployed elsewhere.
Comment by D. Saul Weiner on 23 August 2010:
The heavy current unemployment would certainly be more tolerable if it were a short-term impact of technological advancement. Unfortunately, it is to a large degree the result of malinvestments undertaken as a result of government and Fed policy and the unwillingness of our government to allow these same failed businesses to go under and to allow successful ones to thrive and new ones to emerge.
Comment by Robin on 25 August 2010:
@Alex: People will require higher wages for jobs they like less than their old ones. In fact wages will be as much higher as to outweigh the worse job.
Comment by Joe Schmoe on 26 August 2010:
@Anonymous
Who’s scientific research? Free market or government? Government has a tendency to burn billions of dollars on meaningless and useless expenditures (*cough* NASA *cough*) while the free market actually funds that which is beneficial to the average person.
And nobody but the Fed actually knows where the money went, so enough bullshitting.
Pingback by The Freeman: záchrana pracovních míst znamená záchranu před pokrokem : Devian.cz – Pravá volba on 27 August 2010:
[...] The Freeman, Saving Jobs Means Saving Us from Prosperity, autorem je profesor Steven Horwitz window.fbAsyncInit = function() { FB.init({appId: [...]
Pingback by Obama’s ‘created or saved jobs’ fantasy steals wealth from real job creation « Clear Thinking on 11 February 2011:
[...] at The Freeman Online by debunking Obama’s “saving jobs” fallacy. Horwitz writes: One of the most pernicious fallacies in popular economic discussions is that we should adopt [...]
Comment by wmcleod on 23 February 2011:
I too, just discovered this site and am so relieved that it exists. I have been looking for someone else to articulate this point about “job creation.” And so well articulated too.