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The Chairman
Victor Niederhoffer
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.
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.
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.
A Word on Jobs
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."
Comment from
Donald Boudreaux:
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.