There is a common fallacy among most people in this country that employment is in and of itself a sign of wealth. In fact, this belief is not just reserved to John Q. Public, it is something that many professional and intelligent economists fall for time and time again. Paul Krugman gleefully (and unknowing how stupid it was) quoted a Keynes passage some time back that shows the absurdity of this belief:
Pyramid-building, earthquakes, even wars may serve to increase wealth, if the education of our statesmen on the principles of the classical economics stands in the way of anything better.
It is curious how common sense, wriggling for an escape from absurd conclusions, has been apt to reach a preference for wholly “wasteful” forms of loan expenditure rather than for partly wasteful forms, which, because they are not wholly wasteful, tend to be judged on strict “business” principles. For example, unemployment relief financed by loans is more readily accepted than the financing of improvements at a charge below the current rate of interest; whilst the form of digging holes in the ground known as gold-mining, which not only adds nothing whatever to the real wealth of the world but involves the disutility of labour, is the most acceptable of all solutions.
If the Treasury were to fill old bottles with banknotes, bury them at suitable depths in disused coalmines which are then filled up to the surface with town rubbish, and leave it to private enterprise on well-tried principles of laissez-faire to dig the notes up again (the right to do so being obtained, of course, by tendering for leases of the note-bearing territory), there need be no more unemployment and, with the help of the repercussions, the real income of the community, and its capital wealth also, would probably become a good deal greater than it actually is. It would, indeed, be more sensible to build houses and the like; but if there are political and practical difficulties in the way of this, the above would be better than nothing.
Of course, most of us who have a decent head on our shoulders realize that when you fail to produce something, your employment is not worth the money you are being paid for it. In the private sector, if you produce less than people are willing to pay you, you will operate at a loss and eventually go out of business. The same is of course not true of government employment, as the government can tax the people or print the money to pay anyone whose employment is nonproductive. Not all jobs are created equally, and it would do the so-called professional economists much good to remember the fact…
Again, unemployment is not the cause of the problems, it is indicative of them. It is not an end. What we are doing, then, is treating symptoms. Another commentator enters with a reductio ad absurdem of the above way of thinking:
David D’Alessandro argues that America’s economy would be strengthened if government forced suppliers to hire more workers to produce the goods and services that these firms sell to Uncle Sam (“Make ‘em hire,” Sept. 20).
That is, Mr. D’Alessandro wants to oblige certain firms to operate with inefficiently large numbers of workers.
If it’s true that the path to economic efficiency is paved with mandated inefficiencies, government should go beyond Mr. D’Alessandro’s relatively modest proposal. It should require also that, say, restaurants assign a minimum of three waiters to each table. That every taxicab be driven at each point in time by two drivers (one steers while the other operates the foot peddles). That barbershops designate two barbers to perform each haircut. That schools man each classroom during every minute of the school day with two teachers. And that newspapers publish only columns and op-eds written by at least two writers.
Given that profit-seeking producers greedily seek to operate as efficiently as possible, available opportunities to encourage economic recovery by prohibiting such efficiencies are legion!
Donald J. Boudreaux
And we could not be complete without noting that Bastiat pre-refuted this nonsense in the 1800s, with an essay I posted months ago. Old myths never die, it seems…