Earlier this week President Obama articulated how he understands the concept of employment, explaining that, in his view of the universe, bureaucratic regulations are a good way to create jobs:
Obama Says ‘EPA regulations create jobs’
“When we put in place new common-sense rules to reduce air pollution, we create new jobs building and installing all sorts of pollution-control technology.”Yes, seriously, he said that. The President of the United States said it.
Obama’s fundamental misapprehension of employment economics reminds me of an intriguing paradox I observed first-hand just a few months ago when I visited a relative who lived in a suburban tract:
Twice a week, my relative hired a “gardener” to clean up the front yard. I put “gardener” in quotes because this young hardworking immigrant didn’t actually know anything about plants or gardens; basically his only task was to get rid of the leaves that fell from the trees in front of the house. He achieved this very quickly and efficiently by using a gas-powered leaf-blower. Perhaps when he was first hired his technique was to blow all the leaves into a big pile which he would then load into his truck for removal. A few may have gone into the neighbors’ yards, but hey, they were out of my relative’s yard, so problem solved. I imagine that over time, as he got hired by more and more people in the tract due to his low rates, he worked quicker and quicker and sloppier and sloppier, until the day I observed him, when he no longer even made a pretense of gathering the leaves into a pile; instead, he just blew them all into the neighbors’ yards, and then hopped into his truck and drove off to his next client. At three or four yards per hour, he was (metaphorically at least) raking it in.
But here’s where the paradox begins. The neighbors would come back from their jobs at the end of the day, and see all the leaves on their lawns, and they’d call up their own gardeners who would proceed to do the exact same thing in reverse — blow all the same leaves back into my relative’s and adjacent neighbors’ yards. This cycle would go on across the entire tract, because the same leaf-shedding trees had been planted along every street: everyone would hire gardeners to blow the leaves back and forth from yard to yard. At the end of each week, exactly nothing had been achieved: all the leaves were back where they started. And then the cycle would begin again.
A normal person would look at this situation and say, “What a monumental waste of effort. So much human labor for no purpose whatsoever; after all those man-hours, nothing has changed. All the leaves are back in their original positions.”
Obama would look at this same situation and say, “How can you claim that nothing was achieved? Forty-seven gardeners are now fully employed!”
But I look at it and see what the radical theorists see: It’s not true at all that nothing has changed. Maybe the leaves are all in their original positions, but a great deal of money has been transferred from the middle-class homeowners to the immigrant gardeners.
If you think that “economic redistribution” from the middle-class to the “working poor” is desirable, then you see the Leaf-Blower Paradox not as a paradox at all but as a neat mechanism for extracting money from the more-well-off and giving it to the less-well-off.
But then the question arises: Why bother with the leaves at all? A simpler way to achieve the same thing would be for the “gardeners” to just drive very slowly through the neighborhood and each homeowner would toss $20 bills in the backs of their pickups trucks. The end result would be exactly the same.
It’s called the Broken Window Fallacy, the diversion of capital from useful investments that create wealth to consumption (wealth destruction).
When liberals prattle the idea that 70% of the economy is consumption based, they ignore the reality that the 30% of economic activity is in wealth creation activities that produce the other 70%. Thus every dollar you take from a wealth producer, i.e. the rich, and divert it to consumption you just reduced the economic output by almost three dollars. Government spending does not increase GDP, it reduces it because the taxes and borrowed money (bonds) used to finance that spending came from the diversion of investment capital from what would have otherwise created wealth. When you create wealth you create jobs in the process, as it takes a worker to change raw material into the finished product. The true measure of GDP is found by excluding government spending.
Here’s a simple example of why consumption spending is wealth destruction: When I go to the grocery store to buy food, the beginning of the transaction is I want to exchange $100 of money for $100 of food, so between the store and myself there are $200 in assets. After I exchange my $100 of cash for $100 of groceries, there is still $200 in assets. One week later I have eaten the food, the net assets are now $100 not $200. The total assets in the system has shrunk, not stayed the same or redistributed. This goes to the heart of why Obamanomics is unsustainable. Contrary to Keynes, you can not just pay someone $10 to dig a hole and another $10 to fill it in to add up to $20 because that $20 had to come from somewhere. What Obama wants to do is have the Fed print the money indefinitely, then expect people to accept that printed paper to be equivalent to someone’s labor or goods.
This is a deceptively tough (and interesting) question.
What actually creates wealth? We usually think of products (goods = manufacturing, farming, mining, etc.). But 85% of US jobs are in the service sector! These can be great jobs — for the most part, non-outsourceable.
Let’s say that I create a demand for a new service: In office computer screen cleaning. This creates advertising jobs, sales jobs, transportation jobs, screen cleaner jobs.
I don’t think that leaf blower jobs are the same thing as installing pollution control technology.
I need to think about this some more.
– Larry Weisenthal/Huntington Beach CA
@dscott, #1:
Capital isn’t necessarily invested with the intention of creating new wealth. It can be and frequently is invested to obtain a greater share of existing wealth–a goal that can involve strategies that ultimately reduce the total wealth of a nation or are detrimental to the national economy as a whole.
Consider, for example, the fortunes that have been made by moving millions of former American jobs overseas. Those who have invested in the strategy have realized enormous profits by reducing the production costs of goods sold on the American market. While they’ve increased their own shares of the national wealth, they’ve simultaneously eroded national, state, and local tax revenues, put American workers out of work, and diminished the buying power of the very Americans they depend upon to buy their products.
Or consider predatory capitalism. Countless viable companies have been destroyed and countless American jobs have been lost so predators could carve up the carcasses and sell the pieces at a profit. There’s not much going on there in the way of new wealth creation. Piracy isn’t a wealth creation process, any more than ship wrecking, burglary, or bank robbery. That it can be technically legal doesn’t change that fact that it’s immoral.
As capitalism has an obvious negative side to it, public sector employment has an obvious positive side. To begin with, there’s the fact that a majority of public employees actually perform useful–if not outright essential–functions that the private sector doesn’t. In addition to that, public sector employees are consumers who buy private sector goods and services, the sale of which private sector businesses and private sector jobs depend upon. That dependence is an even more important factor when an economy is in recession.
The underlying anti-government, anti-public employee motive is about the diversion of wealth. It’s about diverting even greater shares of the total wealth into corporate America’s own pockets, without regard for the long-term consequences to anyone else.
They generally have their own version of the Broken Window Fallacy, by the way. This involves the supposed profitability of war. Money is made by supplying the enormously expensive tools necessary to reduce a nation into rubble, and more money is then made by participating in the subsequent rebuilding of what you’ve wrecked–all at the expense of the U.S. taxpayer. No doubt some recent examples will come to mind.
One of the commenters at Zombie’s post adds this cute illustration:
In the next election let’s make the liberal politicians the leaves and the voters the leaf blowers. I’m all gassed up. Are you?