August 23, 2014

What is a Job?

The usual chatter has begun following President Obama’s Sept. 8 call for a $417 billion government spending package designed to stimulate economic growth and create jobs while improving the nation’s crumbling infrastructure. As always, the commentary, both pro and con, focuses on speculation about the results of the program. Will this latest stimulus money actually reach “shovel-ready projects,” or will it again disappear down the black hole of state subsidies for Medicaid and education? How many jobs will the program actually create and what happens to those jobs when the program is over?
There is never any clear winner in debates of this nature. While the future is still unknown, Republicans will predict failure while Democrats will predict success. Once the program is over, Republicans will pronounce failure while Democrats will declare victory. The retrospective debate about the results of the program will go on until the media moves on to something else, only to be resurrected again at election time when Republicans will characterize the program as another “bridge to nowhere” while the Democrats will claim that it saved the economy.
There is rarely a definitive answer to questions about the results of gover

nment action, even after the fact. This may be one reason why most government programs never really end once they’re started. The answers are much less ambiguous and elusive when the discussion is shifted from results to rights. However, before exploring how this program affects the rights of the various parties involved, we must answer a previous question.
What is a job?
One might assume that everyone knows the answer to this apparently simple question, but I doubt that’s true. In fact, judging by what politicians, media, and even friends and neighbors have to say about jobs and unemployment, I’m convinced that almost no one in America today understands what a job really is.
As I’ve said before, a job is a transaction between a buyer and a seller. The employer is the buyer and the employee the seller, selling his services to the employer for a mutually agreed upon price. This is a voluntary transaction for both parties, just like the buying and selling of lawn mowers or breakfast cereal. The buyer offers to purchase services at the price he can afford and the seller decides whether to accept those terms or not. Both parties are free to decide not to go through with the sale at any time. Unless a specific term of employment has been agreed to, both parties are also free to cease doing business at any time. The employee can quit the job (refuse to continue selling the service) and the employer can terminate employment (refuse to continue purchasing the service).

There is only one way in which a purchaser of services can continue to employ people on an ongoing basis. The services provided by the sellers must produce products that make a profit. If the firm loses money, then the employer must increase his sales or lower his operating costs. The latter solution most often means purchasing fewer services (layoffs).

The voluntary association between buyer and seller of services (the employment contract) depends upon another voluntary association between the firm and its customers. The firm’s customers must choose to pay more for the firms products than the cost of producing them, including labor, material, rent, administration, and all other costs of production. It is that choice by customers that creates a market value for the products, for the market value is merely the amount of money the highest bidder will voluntarily pay. If no one was willing to buy the firm’s products at any price, then those products would have a market value of zero.
When the opportunity exists to sell products at a higher price than the cost of producing them, it typically attracts more than one firm, and those firms compete with each other for the customers willing to buy their products. Thus, employment opportunities become abundant in that particular industry, as more and more firms enter the market to take advantage of the opportunity.
Before the first product of any of these firms is produced, the owners must purchase the labor, materials, production facilities, equipment, and other capital goods necessary to make those first and all subsequent products. The owners purchase these capital goods and labor with savings – which are the result of consuming less than they produced over a period of time in the past. The only reason that they choose to invest these savings into the venture is the opportunity for profits. Without that opportunity, they would consume their savings in the present or hold them for security against future misfortune instead of risking losing them by starting the new firm.
As long as there are customers willing to buy the products that the firm produces, the model is self-sustaining and productive. From a societal view, both the owners and employees of the firm and the customers are adding more goods and services to society. Remember that the customers are only able to buy the firm’s products because of the products they’ve produced and sold to their customers, including employers. Just like the firm, they must produce products that other people are willing to buy voluntarily. This is what gives them their purchasing power.

There is one word that sums up the entire process of economic growth and job creation: choice. The market price of products, the wage levels that can be sustained in the production of those products, the number of people that can be employed, and the quantity of products that can be produced all depend upon the ability for economic agents to make rational choices in their own self-interest. Without freedom of choice, there can be no market, no division of labor, no prices, and ultimately no jobs. It is the degree to which all economic agents are free to make the best choices they can that determines how productive, efficient, and prosperous an economy will be.

All of this goes out the window the minute that one begins talking about the government “creating jobs.” By definition, nothing the government does allows any individual freedom of choice. This is where most people get confused, because they imagine the government to be a wealthy benefactor with money of its own. This misconception is reinforced when President Obama (and neither he nor the Democrats are by any means alone on this) refer to government spending programs as “investment.” It all sounds very prudent and morally sound until one considers what is really going on.

Whenever the government “invests” in a particular industry, whether it is producing “green” cars, bridges, buildings or roads, it is overriding the choices made by customers in the past. What customers and what choices? The choice by taxpayers not to purchase that car, bridge, building or road. As we’ve seen, when there are people willing to buy products at a price higher than the cost of producing them, there are entrepreneurs ready to take advantage of that opportunity and the products get produced. They do not choose to do this in order to help society, but to help themselves. Nevertheless, they do help society by producing the needed or wanted products and employing the people necessary for that production.


Not only are taxpayers forced to purchase products that they have previously chosen not to buy, but the entire nature of the employment contract is fundamentally changed. No longer does an employer purchase services from an employee for the sole purpose of realizing a return on his capital investment. Now, the taxpayer is forced to purchase the services of the employee, with no hope of a return. The best that he can hope for is that somewhere a bridge, building or road that he had previously chosen not to purchase gets built. Meanwhile, the employer is able to make profits that would otherwise be unavailable to him, because the government has forced taxpayers to pay at least part of his operating costs.

While society does get a new car, bridge, building or road, the value of those products is lower than the cost of producing them. This is why government-created jobs end as soon as the government stimulus money is removed. If the products produced and the jobs related to producing them were economically viable, entrepreneurs would already be creating them. Therefore, government-created jobs actually make society poorer, because they result in products that are worth less than the cost of producing them. Ironically, politicians will often boast that they created more jobs than their opponents, which actually means that they created more poverty than their opponents.

By definition, all government spending comes from savings, because it is wealth produced by economic agents but not consumed. Therefore, government-created jobs actually destroy capital, as no self-sustaining production or profits result from that capital investment. Not only is that capital wasted and destroyed on the unproductive temporary jobs, but it is no longer available to create other jobs producing products that people would voluntarily buy. In terms of the economic harm caused by government stimulus, this is only the tip of the iceberg. For more, read Peter Schiff’s testimony to Congress on this subject as well as one of his primary sources, Bastiat’s That Which is Seen and That Which is Not Seen.

Once you understand what a job really is, a lot of what you hear about jobs from politicians and the media sounds completely outlandish. You may hear it stated that everyone has a right to a job, but that can’t be true. How can anyone have a right to force other people to buy their products? If such a right existed, then no company would ever go bankrupt. Whenever it began losing money, it would simply appeal to the government to protect its right to force people to buy from it.

More often you will hear that everyone has a right to “a living wage,” but this makes no more sense. The price of any product in a free society is the result of mutual agreement between the buyer and the seller. Either party has the right not to make an exchange if they are not satisfied with the price. Government interventions like minimum wages interfere with this right. In fact, it is the seller of services (employee) whose rights are more infringed by minimum wages laws, which prevent him from selling his services below a certain price even if he wishes to. That anyone believes that the government has a legitimate authority to set an arbitrary price level and then forcibly prohibit people from selling their services at a lower price speaks volumes about how little we value freedom in the land of the free.

No, the supposed right to a job or the right to forcibly fix the price of a job are not real rights. They both involve initiating the use of force against other people and no one has a right to do that. In fact, the true rights that are at issue with this program are the rights of the unwilling buyers of these services, the taxpayers. They have a right not to be forced to buy goods or services against their will. Yet violating this right is the only way that any government can ever create a single job. That the only debate between either major party is over how the government can create jobs, rather than whether the government should attempt to create jobs, reinforces the fact that liberty is not even a consideration in the formulation of federal government policy.

Yet, it is its own colossal trampling of liberty in a thousand other ways that has created the economic malaise that the government is attempting to respond to right now. If we ever want to see those unemployed people get back to work, we have to understand what a job is and how and why jobs are created. Then, the government’s part in the solution becomes clear: start securing our rights instead of violating them and stop wasting our money in the misguided attempt to create jobs.

Comments

  1. Dangerous Dan says:

    Good article Tom. Well written ,not too deep; I’m pasting it along to friends so they can begin to understand these principles.

    Thanks again.
    Dan in Fort Wayne ,In.

  2. Thank you Tom for your article.

    I have a different view of what a Job is and this is mainly from observations made. A job is a place of employment where the trained can go and do what they are told. It does not matter if it has profit or you would not have Government jobs nor would you have drug creation jobs, or jobs to kill people. In fact a Job can truly be defined as some place you will go to do something even if you do very little. I see people that do not do much all day long living very well on the backs of others all because they have a JOB. Job does not define productive at all and is very opposite in that products with demand create exchange. If no demand exists there should be no exchange yet today we see no demand creating jobs all the time. So it is a place of employment isn’t it when it does not produce at all levels.

    We also have wealthy who have never produced a thing there entire life and have had others produce it for them. Some would say these are smart people but sure as I sit here smart people are those who produce and experience and learn by that which they put out the door. This would actually indicate it is the producers of this nation that provide for the rest wouldn’t it? This means the free thinkers. the solution finders, the evaluator, the refiners and those that assure the product is what we say it is. Our monitoring of demand our catalyst for exchange and if done on equal terms (in a competitive market) will regulate exchange based on demand of service.

    Government does not create jobs because in order for it to expand it creates deficit, it lacks demand for such services and rightfully so because you are very correct it cost far more for such a service. But most services are not of big demand because there is no focus on refinement and workability there is only a focus to expand itself.

    Today this society has its primary focus on wealth and not what it is that produces and for what reasons it is producing these. We look for jobs to collect money for as little energy as possible rather than the focus on what we will deliver to drive up our demand. This is done by measurement and the excitement of experiences by customer willing to attempt such a product.

    I can go out to 20 companies and 19 will be focused on the bottom line and 1 will focused on how to serve the customer. 20 will survive because of the lack of choices and one will be stellar by demand alone.

    Its not jobs that create completions, it is producing Americans that bring these about and the focus the product and delivery and a measurement of demand while the rest serve themselves with the little money they get as others take it away. Maybe just maybe we should change what it is we focus on.

  3. David McKittrick says:

    While I agree, in principle, with the ideas expressed in your article, entrepreneurs are not able to freely enter the market and provide the “investment” (i.e. roads, bridges, airports etc.) that consumers might freely purchase. In most cases, the State (in this case indivudual States) have, by legislative fiat, set themselves up as the monopsony buyer of the assets and monopoly provider of the services. Given these conditions, (and without even having to adress the public goods issues) it’s a given that less than optimal supply will be provided to consumers. In order for the market in infrastructure to supply the optimal quantity, private entrepreneurs need to be able to compete on equal footing with government suppliers. While we’ve taken baby steps in the right direction through PPP, we’re a long way off having a framework for enabling that competition.

    There’s no reason, other than legal ones, that the vast majority of infratrucutre shouldn’t be provided by entrepreneurs with State governments participating only as one of a number of bidders for the assets or concession to manage and profit from the assets created.

  4. Sherry says:

    Good job. Great discussion and clearly instructive. The comments are also instructive. One problem that continues to bug me, is the fact that lodges, clubs, orders, brotherhoods, etc. operate through the free market pathways to create imbalanced power within the small town economies and that filters up into the statewide power transfer and on into the federal level. These power units are usually secretive and always use favoritism to produce market imbalances. I am one who loves the idea of a free market operating in society. But, a single black ball of a great idea can stop an economy in its tracks. How do you handle this issue?

    • Tom Mullen says:

      People have a right to freely associate and agree to buy or not buy anyone’s products. That is not a “market imbalance.” That is freedom of association and privacy. Generally, no secret meetings or handshakes will make consumers choose to pay more for a product of similar quality. However, in a scenario in a small town where people voluntarily agree not to buy a newcomer’s product, they are well within their rights. Obviously, there is no way to “handle” that other than by violating their rights by forcing them to buy the product. The new business can fight it out through persuasion or set up shop somewhere else. No one is guaranteed success.

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  2. [...] Regarding employment, the legislation is arbitrarily selective in the racism that it prohibits. As I’ve said before, the employment contract is merely a buyer-seller arrangement. Employers are buyers of a product [...]