KERN: The false god of 'full employment'

The common measure of a politician's good intentions is how many jobs he will Photo: AP

WASHINGTON, December 16, 2013 — It seems that every political news story not about Obamacare is about jobs and creating jobs. With the latest statistics showing that official unemployment is at its lowest in five years, the stock markets continue to hover near historic highs.

But what is a “job,” and what does having one mean?

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To labor statisticians, a job is any activity for which you report being paid, regardless of how temporary or sporadic the work or how little you are paid. If you mow a lawn or shovel a sidewalk and you get paid, you have a job that month and are employed. If you have no income at all and you are not looking for work, you are not unemployed. Full time students, members of the military, prisoners and other institutionalized people, and retirees are not in the civilian work force and do not count among the unemployed if they don’t work. People who have given up looking for jobs are also not in the work force and are not unemployed.

Many people assume that “full employment” means prosperity. This is because of the influence of statist economists like John Maynard Keynes and Paul Krugman, who think that workers’ wages, whether spent directly or taxed away and spent by government, promote prosperity. Hitler’s Germany provides them with a shining example; everyone, including the unwilling, had a job. By the numbers, Germany emerged from the Great Depression years before the rest of Europe and the US.

But Germany’s full employment and spending produced nothing useful to the population. Its spending — 35 percent of GDP on military hardware and training — merely took away resources that could have made the German people better off, and diverted resources to a single-purpose war machine. Its purpose was not to enrich anyone but to destroy, which it did.

For the government, “creating jobs” is a chimera. Any time the government spends money on something, it claims to create jobs. Where do the construction workers at a government construction site come from? A lot of them come from other job sites; the government work pays better than the market. That leaves the private contractors with fewer workers, or with less-skilled workers to do the productive work.

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When that new government building opens, and the agency inside hires 500 people, have there been “500 jobs created?” No. Many of these new jobs will be filled by people who leave their present work. Only to the extent that some of the 500 were unemployed people, looking for work, are there new jobs.

That is not the end of it. What do government employees do? They do not produce anything. No homes are built, no production is gained. So these 500 are now unproductive workers, but they are getting paid — by productive workers. This leaves less for the productive workers to enjoy and use for their own families.

What do government workers do? Many create regulations and enforce the rules. Often, these rules are disguised as ways to help the remaining productive people to work harder. Perhaps, in rare circumstances, that may be the result, but mostly they create opportunities for more government work. Regulation takes time and requires documentation, which must be produced and double-checked before submission to the government. All this documentation takes away from productive time. Then, when the regulators get hold of the documentation, it is checked again (more unproductive work), and then enforcement begins.

Productive workplaces are queried, raided, and fined. Court battles erupt. All this activity, too, takes away from production of anything useful, while providing jobs for law clerks, lawyers, prosecutors, investigators, bailiffs, jailers, and perhaps a few bankers. None of this activity, expensive though it is, and paycheck-producing as it is, produces anything.

The consumer ostensibly has more money to spend, because the consumer has a job. Everything that consumer wants to buy is more expensive, because of all the government infrastructure, salaries, and enforcement mechanisms; the costs of the private-sector’s extra bean-counting and compliance costs; plus the productive sector’s legal protection and documentation from regulatory action — not to mention compliance itself.

Consumers have less to buy because their resources are plundered by the regulatory behemoth and the diversion of physical resources to the government structures and workers. What is available costs more, because of the same scarcity of resources and the money-pumping of borrowed and printed dollars, which lower the value of money, into the accounts of the newly-hired government workers.

Overall, the economy, even if everyone is employed, if worse off, because there is less to buy and because the money is debased, making surviving goods less-available and more-expensive. It “worked” temporarily for Hitler, but when his military buildup was big enough, his people were starving and had to make do with state-issued clothing, wooden plumbing pipes, and rare and expensive cars, Volkswagen notwithstanding.

Hitler “solved” this problem by finally using his stockpiled resources, starting in Poland in 1939. His war brought jobs to everyone, along with widespread misery, and the loss, forever, of irreplaceable resources, among which were the lives of tens of millions of people then, and hundreds of millions of their never-to-be born descendants.

Who knows what contributions they could have made?

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Tim Kern

Tim Kern taught economics for fifteen years, and discovered that understanding life is easy; it’s recognizing reality that takes practice. He holds a music degree, and later earned an MBA in finance from Northwestern University. He has lived across the US, and now makes his home in Anderson, Indiana.

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