Sunday, October 16, 2011

The Real Oppressor

Yesterday I was in a park speaking with some protesters and a man walked up and asked me what I felt about the American Jobs act, and after I told them I thought it was the most short sited bill I have seen recently they accused me of being a right wing oppressor. The plan of this act is to reduce unemployment and stimulate the economy by providing thousands of jobs in public works and extending unemployment benefits for the long term unemployed. By hiring thousands of government workers, they hope to give spending power to the many unemployed. What the propagators of this bill don’t understand is that this would only destroy wealth and lead to even more job shortages. They don’t understand the concept of opportunity cost, that all of that money must come from somewhere.

To address the first fallacy of their argument, there is no way that this bill could effectively reduce unemployment. We have approximately 9.1% of our nation’s workforce unemployed (according to the Bureau of Labor Statistics), and we have a population of a little over 300 million (according to the US census Bureau), doing some simple math this means about 27 million people are in need of jobs. To bring this number down by just one percent we would need to employ at least 3 million people. An undertaking of such magnitude would effectively break the bank of the United States. Just counting wages, if we paid each employed only 30,000$ a year that would incur a cost of 90 billion dollars. This doesn’t account for the rest of the unseen costs of materials and organization to put all of these people to work. But wait, there is more! By placing this cost on the government means we, the tax payer, must pay for this bill in the form of higher taxes. By increasing taxes it greatly reduces the ability of people to participate in entrepreneurship, which has been proven to be the number one creator of jobs. So in the short term we may gain some jobs, but the costs of doing so could easily cost more jobs than it creates. This just doesn’t make any sense.

The second fallacy is that using government capitol to stimulate spending aides the economy and promotes growth. This is entirely wrong; if I take the money out of your pocket and put it in mine I have not created any wealth. In fact by giving people money when they did not produce anything to earn it, it causes a system meltdown. People have no incentive to go to work when they can survive comfortably without it. Also all of this money has to come from somewhere, so there are the additional costs of lost opportunity. Imagine if that money was in the hands of driven individuals that earned that money themselves and had every incentive to make the most of it, the positive effects on the economy are literally countless because people have unlimited potential. Since the money spent has only negative effects on the economy it would be brutal to stack upon the already lagging US market.

Since this act has no practical way of employing even one percent of the population, will reduce the overall number of jobs, and will only drag down the ability of people to participate in entrepreneurship, it would be ridiculous to put into law. After I explained this to the man that called me an oppressor he thanked me for my time and wanted to look at other acts to see if they do had hidden costs he was not aware of. I may not be an oppressor, but this bill definitely is.

1 comment:

  1. As I always tell my students, if I have done my job well, you will likely lose friends and be disinherited by our family. You indeed correctly pointed to the opportunity costs & unintended consequences of such act but more importantly such acts forget that it's not about giving people jobs or reduce unemployment. If I was the case, as Friedman would say, "Just give people spoons!" You can bet that giving those public workers spoons to dig holes, to repair roads, to fix bridges will reduce unemployment and keep employed for a while. But the goal is to give them work, to get them to produce goods and services valued by the society, by the market. This is a crucial difference that people who support such acts overlooked because as we discussed previously they don't see the importance of opportunity costs and unintended consequences of such acts.