How to Create a Job: Creating Value, Not Just Work

Ben Powell, an Associate Professor of Economics at Suffolk University and a Senior Fellow at Independent Institute, talks about the difference between jobs that government creates and those that are created in the marketplace.
(see video at the bottom of this article)

transcript:

Milton Friedman was once traveling in Asia, and he observed the canal being built and he didn't see any heavy equipment making the canal. Instead he saw workers with shovels, lots of them. And he asked the government official who was with him: why don't these people have any heavy machinery? And the official said: you don't understand, this is a jobs program. Milton supposedly replied, well then you should take away their shovels and give them all spoons.

There are a lot of jobs programs floating around DC, including a new proposal from the president. Of course we all want unemployment to go down, but the key is how we make it go down. It shouldn't be forced down by simply creating jobs that don't create any value for anyone in society. Jobs themselves, They are not the end goal. The goal is the value that the job creates. Now, I doubt any of the job proposal that come out of DC are going to propose putting workers to work using spoons, but they will have the economic equivalent, jobs that don't create value. After all, the government could create a job by paying someone to just dig a ditch and then fill it back in, but in the end no value will be created for anybody. In fact, value would be destroyed, because the government would have to tax other people other places in order to create those jobs, and those taxes would destroy other jobs that create value.

Some jobs may create value, others would not, but all of it is ultimately not checked by the price system. That means instead of explicit jobs programs, what the government should focus on is providing the right institutional environment for growth. That environment is economic freedom. Economic freedom means: low taxes, small scope of government, lower inflation, strong protection of property rights, less regulation. Almost the opposite from what the federal government has been doing the last two years.

When you grant an environment of economic freedom entrepreneurs make investments to provide value for people in the economy. In order to do it, they have to hire workers. When entrepreneurs are working in the market, what they're doing is looking at where can I hire labor inputs and other inputs to create a good or service that a consumer is going to value. If in the end the value of what consumer places on it measured by how they're willing to pay for it is greater than the cost of labor and other inputs, the entrepreneur creates a job. The best jobs program really isn't a jobs program at all, it's a growth program.

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Brought to you by the Charles Koch Institute

original video at: http://www.youtube.com/user/EconFree YouTube channel.