Daily Speculations

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The Chairman
Victor Niederhoffer

06/11/2004
A Word on Jobs

Those who hate enterprise, those who ignore secondary and long-term effects, agrarian reformers disguised as Keynesian economists like to pay attention to the jobs situation in the economy to the relative exclusion of output. Such attention is usually focused on the employment report albeit now that they no longer can decry the jobless recovery because there are jobs, they are somewhat temporarily muted until the next time they can gild the lily with such fallacies. This is a variant of the thinking if we dug a hole in the desert and then filled it or broke a window pane and then repaired it that this was good for the economy as it increased spending. But the total amount of output determines our standard of living. and people's tastes and productivity change.

Gwartney and Stroup in "What everyone should know about economics and Prosperity" are particularly good on this point". Politicians (and permabears and pessimists) often erroneously talk as if the creation of jobs is the source of economic progress. More employment will not promote economic progress unless the employment expands output. We do not need more jobs. We need more productive workers, more productivity-enhancing machinery, and more efficient economic organization.

Sometimes specific jobs will be eliminated. Clearly modern technology has largely eliminated the jobs of elevator operators, blacksmiths, ditch diggers, and buggy men.
These changes, however, merely release human resources to be used to expand output in other areas. Other tasks cannot be accomplished with the newly released resources, and as a result we are able to achieve a higher standard of living."

Let us always buy the market, nay take out the canes to the full extent of our stately estates, a few days after big declines attributable to fears about jobs loss in the face of output increases (and this is tested), and deposit the overplus a few weeks later in our bulging vaults as we profit from yet another economic fallacy.

06/11/2004
Comment from Donald Boudreaux:

Trying to interpret his arguments as generously as possible, I gather what your correspondent worries about is consumption in excess of production for a long period of time, and achieved in ways that threaten to reduce long-term prosperity.

We could indeed consume our capital unwisely the proverbial act of burning the dining-room table in the fireplace just to produce a bit more heat. Perhaps your correspondent believes that modern high-finance provides too many such opportunities, either for group A (the financiers) to consume the capital of group B (innocent, benighted ordinary folk), or for people in general, including financiers, to make decisions that seem wise but turn out to be consistently impoverishing.

In his last remark to you the one he sent at 14:22 on June 10th he suggests that there s something amiss with speculation against events that reduce output (such as crop failures).

Looked at very narrowly, it does indeed seem bizarre: speculator Jones is wealthier (can consume more) because farmer Smith s crops were destroyed. But, of course, looking at the matter this way is improper. What must be examined is the institution of speculation (which you, Vic, know vastly better than I do). In the first (and least-important) place, when speculators who go long prove to be mistaken, they suffer become poorer, even though total output is higher, relative to demand, than they expected it to be. Looking at the long span to a speculator s career his successes and failures reveals that a closer correspondence between any increases in his wealth and increases in output arguably enhanced by his activity.

Likewise, the examination is more revealing if it encompasses, not a single speculator, but all speculators. Those who are especially incompetent or unlucky will be offset by those who are especially competent or lucky.

Of course, the examination is best if it encompasses all economic agents. While some people do enjoy the good fortune of consuming during their lifetimes more than they produce, others suffer the opposite fate while the typical person consumes in value roughly what he or she produces.

Because investing, insurance, banking, and other financial activities and institutions generally encourage greater wealth-producing activities, they enable people generally to consume more over time.

Donald Boudreaux is head of the economics department at George Mason University.