Academic journal article Economic Commentary (Cleveland)

Jobs Creation and Government Policy

Academic journal article Economic Commentary (Cleveland)

Jobs Creation and Government Policy

Article excerpt

Is creating jobs an appropriate focal point of public policy? Federal Reserve Bank of Cleveland President Jerry L. Jordan argues that creating wealth, and thus allowing for the highest standard of living, is the more sensible approach for both government and monetary policymakers.

Before the Great Depression of the 1930s, the notion that government ought to be responsible for creating jobs would have seemed absurd. Today, however, we commonly hear aspiring politicians declare that their number-one economic objective would be to increase employment. The intellectual justification for gearing government budgetary and monetary policies toward fine-tuning the economy (and, in particular, toward generating more employment) was provided by John Maynard Keynes' The General Theory of Employment Interest and Money.1 Since the book's publication in 1936, the dominant view of economic policymakers has been that a competitive marketplace will fail to generate adequate employment opportunities. This view underlies the advocacy of government programs to "create jobs."

I am reminded of a story that a western businessman told me a few years ago. While touring China, he came upon a team of nearly 100 workers building an earthen dam with shovels. The businessman commented to a local official that with an earth-moving machine, a single worker could create the dam in an afternoon. The official's curious response was, "Yes, but think of all the unemployment that would create."

"Oh," said the businessman, "I thought you were building a dam. If it's jobs you want to create, then take away their shovels and give them spoons!"

In the final decade of this century, the Depression-era way of thinking about the role of government is fading. In the 21 st century, creating work for people will not be viewed as a primary objective of government policy; fostering an environment for wealth creation will be.

Creating Work versus Creating Wealth

Work is the necessary means of achieving wealth: In order to be consumers, we must also be producers. Whatever good intentions are presumed, when the government focuses away from creating wealth and onto creating jobs, it inevitably engenders a lower average standard of living. A successful, wealthaugmenting government policy should simultaneously reduce the work burdens of the labor force. That does not mean people will need to share jobs, take low-paying jobs, or become unemployed. Wealth creation occurs as the "muscle" component of employment diminishes and the "brainware" component increases.

The work record of industrialized countries in the past century is clear. In the United States, for example, the average workweek has fallen by more than 40 percent in the last hundred years. Among the benefits of wealth accumulation is the increase in leisure that it affords. Very poor nations are typically characterized by people who work most of their waking hours. To do otherwise would be disastrous. Where one finds impoverished nations with high rates of joblessness, one also finds political/economic systems that have large disincentives to create and accumulate wealth.

The distinction between creating wealth and creating "work" can be illustrated by an economy that has experienced a catastrophic natural disaster. A well-known feature of market economies is that in the wake of a disaster, such as a hurricane or earthquake, employment and production tend to rise. One conclusion might be that market economies routinely hoard unused labor services-workers who are gratefully called into service by the new demands of rebuilding houses, roads, and all of the other investments that were damaged or destroyed.

But clearly, society is not better off because people are working long, hard hours. A more reasoned conclusion is that these natural disasters are destroyers of wealth-and creators of work in the sense that households and firms must now toil harder to help recover from their losses. …

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