"President Barack Obama and presumptive Republican nominee Mitt Romney
seem to agree on something: the primary policy goal of the federal
government should be increasing the level of employment. Obama would
seek to achieve this goal through fiscal policy; Romney thinks the
private sector can lead a fuller recovery if only the government would
get out of the way.
Obama and Romney, however, are both wrong. Increasing the level of
employment is an inappropriate policy goal for the federal government.
Instead, policymakers should aim for a sustained increase in the level
and rate of growth of productivity, real output, and living standards...
Milton Friedman long ago crystallized this point when he asked a pointed question
during a visit to a canal-building project. The government
representative overseeing the work told Friedman they were not using
earth-moving equipment because it was meant as a jobs program. Friedman
responded: "Oh, I thought you were trying to build a canal. If it's jobs
you want, then you should give these workers spoons, not shovels."
Public policy should not aim to make work. Making work is easy if one
accepts the trade-off with productivity. Rather, the proper goal for
public policy should be, in essence, to create jobs worth working or to
create the conditions under which such jobs will be created."
This seems wrong to me, and I don't think a snarky Friedman anecdote makes it right. An important task of the federal government is to maintain full employment: to "create jobs". This
tells you nothing about how they should create jobs, of course. Should
they create jobs in a way that wastes taxpayers money and scarce
No, that's dumb. It's going to destroy jobs in the
private sector if federal work is done less productively than it could
be. It will waste labor and it will waste capital. The problem
with the canal project was not that it was intended to create jobs. The
problem with it was that by doing inefficient work it unexcusably drew
resources away from more valuable work, destroying other jobs that could have been done.
The correct approach would have been to use earth-moving equipment and then build a second or a third or a fourth canal (and employ earth-moving equipment makers in the process)!
Now, Evan's response to that may be "I agree with that - jobs are great if we don't sacrifice real output, productivity, etc. to get them". But then I'd have to ask him why he was under the impression Obama or Romney or anyone else ever thought differently. I'm not a big fan of Romney, but I give him more credit than that!
There is a real trade-off between productivity, real output, and employment. For one thing there's a simple inter-temporal trade-off. Increase real output today may cost real output tomorrow. But there's also instances where we'd prefer job creation to real output growth, and you don't need the outrageous claims of that canal builder to get there. Most Americans access the benefits a market economy has to offer through employment income. If you're not employed your access to those benefits is severely curtailed. Secular real output growth as a result of productivity has been by far and away the greatest anti-poverty program. But insofar as labor market troubles keep people from accessing that there is a potential trade-off to consider.
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