One of the bizarre fallacies propounded by President Obama, the Congressional leadership, and their intellectual enablers such as Paul Krugman, is the notion that society should be organized to give people jobs, and that if the supply of jobs is insufficient to meet the demand, the government should step in and create an additional supply through economic policies.
Walter Block, restating an argument made famous by Frederic Bastiat, points out that nothing could be farther from the truth.
The purpose of an economy is to align production of goods with demand, so that people have their desires to consume goods satisfied. Dr Block points out that if we lived in a society where 30% of the population dug holes that were filled in by the other 30%, with the remaining 40% laboring to supply food, clothing, shelter and tools for the hole-diggers and hole-fillers, we would be far poorer than if that 60% were redirected to other forms of labor that produced things useful to the other 40%.
This becomes obvious when you consider a thought experiment. If you ask people to choose between having a job, and having the enough food, clothing, shelter etc, they will choose the latter in a heart-beat. People work primarily so that they can produce what they need in order to be comfortable, either by making the stuff they want to use directly, or making stuff that they intend to trade to other people for the stuff they want to use themselves.
Much of the proposed stimulus project is makework that is little better than hole-digging and hole-filling in. Absent the stimulus spending, the people who will be employed under the stimulus project would have to find tasks to busy themselves with that produced goods and services that people were willing to pay for. Instead of working to identify what unmet needs were most urgent and in the greatest demand, now they will coast, “earning” a paycheck, while working on either less profitable tasks, or even unprofitable ones, where the resources they consume are greater than the product they produce.
No doubt that some people would read the above paragraph and say, “Aha! But what if they can’t find anything to do? What if they can’t find anyone willing to hire them, don’t know how to subsistence farm, etc! What, Mr Free-Market Anarchist, should they just hurry up and die – making sure that they starve to death out of sight?”
At first, this seems like a powerful argument, until one considers what percentage of the population is actually unemployable? I would expect that they number no more than 5% of adults, perhaps 25 % of the entire population adding in the elderly and young children. And, these people are probably unemployable even under a government make-work project. Even if there was a massive shortage of workers, they would be unemployed and dependent on charity. Rather, most of the people employed under any job-generation scheme will be able-bodied.
Nor will the able-bodied be unable to find work. We humans live in a universe of scarcity. We always have unmet needs, we want more shelter, better food, better cars, better streets, better entertainment etc. Many of these needs are not met not because humanity lacks the raw materials or the land needed to realize these needs, but because there aren’t enough people around to satisfy them.
The only way to find out which of these unmet needs are th emost urgent is via the price system. People will pay more for labor that is needed to satisfy more urgent demands and less for labor that satisfies less urgent demands. The higher wages will act as a signal to the unemployed who can do the job to start doing the job.
The temporary unemployment that accompanies recessions occurs becasue the price system requires the passage of time to reach an approximate equilibrium. Essentially, in a recession, people who were producing things that were not in heavy demand stop that undesired production and spend some finite period of time looking for othe rthings to do. Simmilarly prospective employers need time to figure out where the shortages are, or to identify opportunities to start expanding production again.
By attempting to sabotage this feedback system, the proponents of the stimulus plan are setting the stage for long-term stagflation at best, and a future crash at worst. Not only are they shifting the problem of what to do with the unemployed into the future, they are encouraging, though false price signals, people to abandon productive pursuits in favor of the make-work projects being promoted by the state. If, for example, the state promotes the construction of dams, then people who otherwise would have chosen to become farmers or mechanical engineers or home builders will instead gravitate to civil engineering. They will then form a political group which strives to keep the emergency programs going indefinitely, much as farmers continue to agitate for the price supports borne from the “emergency” of the Great Depression, of the California Prison Guards’ Union agitates against the repeal of anti-drug laws. This would be bad enough if government official were to attempt, in good faith, to guess what the unmet needs in greatest demand were. When one considers the inevitable corruption and rent-seeking that accompany the establishment of such emergency programs, the true scope of the danger to the economy presented by the stimulus project becomes clear.
Barack Obama has been in office less than a month. The early signs are that he will prove to be a bigger disaster than George Bush.