The usual chatter has begun following President Obama’s Sept. 8 call for a $417 billion government spending package designed to stimulate economic growth, create jobs, and improve the nation’s crumbling infrastructure. As always, the commentary, both pro and con, focuses on speculation about the potential 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 like this. 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 government action, even after the fact. This may be one reason why most government programs never really end. The answers are much less ambiguous and elusive when the discussion is shifted from results to rights. To do that, we must answer a previous question.
What is a job?
One might assume everyone knows the answer to this apparently simple question, but I doubt it. In fact, judging by what politicians, media, and even friends and neighbors have to say about jobs and unemployment, I’m convinced 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. 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 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 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, 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 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 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 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 he can hope for is somewhere a bridge, building or road 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 worth less than the cost of producing them. Ironically, politicians will often boast that they created more jobs than their opponents, which actually means 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 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 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 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 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 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 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.