Job Creation = Economic Growth?

In the media we often hear politicians and pundits talk about job creation in relation to economic growth, the underlying assumption presumably being that there is a causal relationship between the two. Is that true? If so, how are they related?

Economic Growth Job CreationIf the only goal of economic policy was to create jobs, doing the right thing would be a easy as having people do all sorts of menial things. Everyone could have a personal assistant just for the sake of creating jobs! Better yet, why not hire several people: one to make your breakfast in the morning, another to drive you to work, another to get you coffee and snacks while at the office, and so forth? It makes one wonder why the skyscrapers of New York weren’t built without the use of any modern technology to spread the work or why the famous Dutch canals were not dug using teaspoons to ensure maximum employment.

The aforementioned goes to show that if one were to consistently apply this “logic” of creating jobs to effect economic growth, ludicrous conclusions would follow, not in the least the demonization of all technological innovation for causing job losses – in the short term anyway. Along the same lines it could be argued that we should all go back to living like hunter-gatherers because back in the Stone Age, there was zero unemployment! Needless to say, that is all complete nonsense.

That is not to say, however, that there is no relation between economic growth and job creation. In most cases economic growth will likely – though not necessarily – lead to more jobs. Nonetheless, the two may not be related in the way often surmised.

First of all, it should be noted that the government has no money of its own. Therefore, it can only give to one person what it has already taken from someone else, i.e. it steals from Peter to pay Paul. Consequently the idea that the government can create jobs is an utter fantasy; that is to say in the final equation there is zero net job creation. As a matter of fact, to assume zero net job creation is extremely optimistic still. More likely there will be negative job creation, or a loss of jobs.

Even if a central bank were to print money out of thin air to fund a government program that allegedly creates jobs, the burden would fall on the citizens in the form of rising consumer prices. Similarly, when a government issues bonds to finance a so-called “jobs program”, future generations are saddled with the debt. In short, the taxpayer invariably ends up footing the bill. In addition, the inherent inefficiencies of a central bureaucracy coupled with fraud and special handouts to the politically connected, have historically always led to a net loss for the taxpayer.

Aside from all these problems, policies aimed at boosting employment usually do not specify the type of employment to be created, despite the huge implications this could have. Just consider the jobs that were created during the dot-com bubble or the housing bubble; those jobs probably weren’t all that desirable for the economy at large, as became evident after said bubbles popped and employment in the artificially inflated IT and real estate industries quickly plummeted. So much for job security

The housing bubble is a great example of a government-made disaster fueled by low interest rates and money printing, which in turn fueled a surge in demand for real estate as prices went through the roof. For most people the resulting malinvestments only became obvious after it was too late. Though these policies might not have been explicitly pursued in the name of job creation, they did create jobs – temporarily and at huge expense to us all (bank bailouts, anyone?), but still.

Before jumping on the job creation bandwagon try to recall the last time you spoke with someone that desperately wanted to work more – or, for that matter, when you last wanted more work. The truth of the matter is most people want more leisure. Leisure is fun, work generally is not. Consequently, most people will prefer more leisure over more work unless the expected advantages, financial or otherwise, outweigh the disadvantage of having to work longer hours.

As long as we are aiming for maximum employment, though, the best means of achieving that goal is to let the free market run its course so that consumers (meaning you and me) can voluntarily decide where employment will or won’t arise and who will or won’t put people to work. Voting with your dollars, pounds, euros or francs also happens to be a much better solution from a moral perspective as it does not involve the use of force, fraud and coercion by a centralized institution called government.

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