You say jobs, I say rhetoric

  • Article by: STEVEN G. HORWITZ
  • Updated: May 23, 2012 - 10:09 PM
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President Obama's last State of the Union address found him in full campaign mode. His mantra was that of virtually every politician in both parties -- job creation.

"My message is simple," he intoned. "It's time to stop rewarding businesses that ship jobs overseas and start rewarding companies that create jobs right here in America."

That kind of rhetoric and policy prescription suffer from an all-too-common misunderstanding about basic economics. Everyone wants more people to have jobs.

But if value hasn't also been created, new jobs are only creating unnecessary work. It's time we focus on creating value first. Jobs that can sustain a real economic recovery, instead of empty numbers, will follow.

It's not just Washington politicians who are to blame for the popular misunderstanding about job creation -- celebrity economist Paul Krugman has committed the same error on the pages of the New York Times.

Krugman claims that the Republican plan for an economic resurgence relies too heavily on the "heroic entrepreneur," failing to recognize that "successful companies -- or, at any rate, companies that make a large contribution to a nation's economy -- don't exist in isolation."

For Krugman, that means they don't exist in isolation from government spending.

Krugman's view of the general argument for the importance of free markets is utterly mistaken. His criticism of Apple reveals the problem. He points out that the "heroic" Steve Jobs created only about 43,000 Apple jobs in the United States (though around 700,000 overseas).

But the real job-creation numbers that matter are all the ancillary jobs created through the invention of the Mac, iPod, iPhone and iPad. Those inventions destroyed some jobs (think of all that's been automated) but, along with every other related technological innovation, created tens of millions of jobs in programming, Web design, app design, hardware maintenance and so on.

Apple itself might have created a modest number of jobs, but the value it has brought through its innovations has enabled many others to create millions.

There are two lessons here.

First, rather than existing in isolation, the entrepreneur exists in a social context that helps determine how effective his or her actions will be. The most heroic entrepreneur cannot be very productive if he or she is shackled by government regulations or is trying to operate in a market with ill-defined or poorly enforced property rights.

Entrepreneurs can succeed only when the market is allowed to provide needed signals about what people want and whether they've provided it.

Second, and even more important, many of today's politicians are much too concerned about "job creation" when what they should be concerned about is value creation.

Creating jobs is easy; it's creating value that's hard. We could create millions of jobs by destroying every piece of farm machinery on U.S. farms. The question is whether we would actually be better off by creating those jobs. And the answer is a definite "no."

We want labor-saving, job-destroying technology because that creates value. It makes us able to do things at lower cost and thereby frees labor for more urgent uses.

So the next time anyone starts talking about "job creation," you can stop listening. Jobs come when entrepreneurs are free to create value as they see best. The case for freeing markets is that such freedom best enables individuals to find ways to use their knowledge and skills to create value for others -- and thereby create wealth for themselves.

The more of that wealth that value-creators can keep, the more likely they are to continue to create it. And even if a value-creating innovation destroys jobs in the short run, the increase in wealth it creates will bring a great deal of job creation in its wake.

Aiming directly at job creation is a recipe for waste and poverty.

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Steven G. Horwitz is the Charles A. Dana professor and chair in the Department of Economics at St. Lawrence University in Canton, N.Y. He wrote this article for the Providence Journal.

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