Does Government Create Jobs?

Many people have been talking about job creation lately, especially politicians. But is government the best creator of jobs? And is job creation the best thing for the economy? Professor Steve Horwitz explains that there is a difference between creating jobs and creating wealth. Creating jobs is relatively easy, but the most economic progress is made when jobs are eliminated because they become unnecessary. This does lead to some unemployment, but the alternatives are worse. To prevent transitional unemployment would also halt innovation, growth, and the reduction of poverty. So what is the best way to create valuable, meaningful jobs? Professor Horwitz says, "The best job-creation program in human history is the free market and the entrepreneurship it generates."

Original source: LearnLiberty YouTube channel

transcript:

Milton Friedman went to China on a tour. The Chinese delegation there showed him the new canal building project that they were working on. Freedman asked the delegation: can I ask you why do you have men digging this canal using shovels. How come you're not using earth movers or bulldozers And a member of the Chinese delegation responded: oh, well if we used the big machines we wouldn't be able to create as many jobs. And Friedman said: oh, it's a jobs creation program, I thought you wanted to build the canal. If it's jobs you want, take away their shovels and give them spoons.

Prof. Steve Horwitz:

Job creation is on lots of people's lips, especially politicians. I would argue that creating jobs is easy. It's creation of wealth that's hard. For example, we could destroy all farm machinery. That would create millions of new farm jobs overnight. But I don't think anyone think that's the real solution to our problems. The point being that economic progress comes not so much when we create jobs, that's easy, but when we destroy jobs that we no longer need.

A hundred years ago over forty percent of the populat

ion was involved in agricultural jobs of one sort or another. Today that's under two percent. Yet agricultural output has boomed thanks to mechanization and the invention of all kinds of farm machines. What happened to those old agricultural jobs? As mechanization has made farm products cheaper, people have had to spend less of their money on food and are able to spend their money on other kinds of things. The story of human progress has been our ability to eliminate jobs by economizing on the scarcest resource of all - human labor, in order to make the things that we want.

Of course, new innovations don't happen all at once. They happen gradually over time. And all technological innovation means that workers have to learn new skills and some are likely to be unemployed for some period of time. And while that unemployment is bad, the alternatives are worse. These labor transitions are the price we pay for economic progress. To prevent them would be the halt growth, innovation, and the reduction of poverty.

Job destruction also signals young people about where the new jobs for the future will be. New jobs that come up that have replaced the old jobs that were once in agriculture. Over the course of 20^th century we've gone from the nation of farm jobs to industrial jobs, to service jobs, to knowledge jobs. And market signals can indicate to people what sorts of skills they should be investing in, and where the new jobs in the future will be.

Governments do not have these signals. In fact, many government jobs programs are really about meeting the needs of politicians, not the needs of consumers and the marketplace. Governments are good at creating work, but they are not good at creating value generating jobs. If it's valuable jobs you want, you need people like Bill Gates or Steve Jobs, who know how to create value and generate meaningful jobs. The best job creation program in human history is the free market and the entrepreneurship it generates.