More Government Jobs Will Not Solve Joblessness

Back in 2010, and amid a particularly difficult stretch for the economy, a conservative economist teamed up with lefty economist Dean Baker in support of what they referred to as “work sharing.” As the duo put it at the time, “Under a work-sharing program, firms are encouraged by government policy to spread a small amount of the pain across many workers. In a typical arrangement, a worker might see his weekly hours go down by 20%, and his salary go down by about 4%.” 

The economists viewed “government policy” as necessary to make what vandalized basic economics possible, and in this case, the proposed policy was government checks to make up for some of the earnings lost by sharing workers. Salary declines under the arrangement wouldn’t match reduced work hours thanks to others; in this case, American taxpayers who would fund a policy idea that just screamed Washington, D.C., and its distance from reality. 

Who was the conservative behind this most questionable of ideas? It was none other than Kevin Hassett, then of AEI, and presently Chairman of President Trump’s Council of Economic Advisers. In his support of work sharing, Hassett ignored the basic truth that jobs aren’t finite, nor does the acceptance of a job deny someone else the ability to work. 

Jobs Are a Function of Investment

In truth, jobs are a function of investment. Because they are, jobs are in a sense limitless. So long as there are individuals willing to delay consumption in favor of saving and investment, there will always be plentiful work opportunities. The latter is particularly true if returns on investment are good. If you love jobs, you must love big returns for the investors who create them.

In Hassett’s case, he was approaching the issue of employment in backwards fashion. Indeed, imagine an entrepreneur pitching venture capitalists about his start-up idea with “job creation” prominently listed as one of the benefits. Such an individual would be laughed out of many rooms. Companies are rewarded for doing more with less, not the wasteful use of more to animate the ideas of economists. This explains once again why “government policy” was required to bring life to the vision of Baker and Hassett: “work sharing” could never pass muster in the private sector simply because human capital is too expensive, and by extension too precious, to be so needlessly wasted. 

Hassett’s work-sharing proposal that thankfully never saw the light of day came to mind recently while reading about his interview with Politico’s Ben White. Talking to White about how to fix unemployment, Hassett observed that:

We’ve not done a good job as a society at thinking about how do we take people who have become discouraged and reconnect them. And it’s such an urgent problem that government programs that directly hire people might be part of the solution.

So there you have it. Hassett’s answer to the problem of discouraged workers is a helping hand from government. About his solution, readers should be skeptical. 

Governments quite simply cannot bestow happiness or optimism.  They also can't encourage the discouraged. It’s all earned. While governments can reduce the living standards of others in order to feed or employ the discouraged, while they can provide them with work that is almost never terminated, they can’t give them encouragement or happiness. Confidence that brings with it happiness is hard work. If it were easy, it wouldn’t result in joy to begin with.  

Much more problematic about Hassett’s comfort with New Deal-style make work programs is that they’re a reminder of what Hassett missed with Baker back in 2010: work opportunities are always and everywhere an effect of investment. Always. That they are speaks to how unfortunate it would be if Hassett’s policy musings were to become actual policy.

That work is an effect of investment is a statement of the obvious. Work requires money that’s not been consumed. Hassett knows this intimately by virtue of his own admission in 2010 that government spending would be necessary for his “work sharing” idea to become reality. Ok, but governments only have money to spend on artificial job creation insofar as there’s less investment in the private sector. Applied to the present, and Hassett’s suggestion that “government programs that directly hire people might be part of the solution,” this faux federal generosity could only reveal itself to the extent that fewer opportunities are being created in the private sector. That the latter is true speaks to the self-suffocating nature of Hassett’s policy suggestion. 

The Creative Destruction of Jobs

Hassett's policy ideas run counter to the ever-increasing odds that we'll get to do work that doesn’t feel like work. Indeed, as this column regularly points out, your work options 150 years ago were nearly singular: you could have a job so long as you wanted to work on a farm. But thanks to savings and investment that gifted the developed world with the original “robots” of the wheel and tractor variety, farm productivity surged so much that precious human capital could be directed toward the fulfillment of previously unmet needs. In short, the destruction of jobs through savings, investment, and subsequent technological leaps is what led to the explosion of new work forms that amplified talents previously unrewarded.

Thinking back to agricultural work that was once a near certainty for everyone, readers might stop and imagine how “discouraged” many once were. How many readers today would thrill at the idea of farm work as the only source of sustenance? Technology once again expanded work options that freed those not suited to the farm, along with all manner of other dated work forms, and it continues to do so. In a capitalistic economy, jobs destroyed signals new job opportunities that accent talents previously unremunerated. Does anyone think there were endless career options for the football-minded in 1875? There are today. 

Readers should keep this in mind in light of Hassett’s suggestion that the federal government hire “discouraged” workers. He’s seeking the opposite of technological advance whereby the feds consume more of the investment that drives it. To be blunt, Hassett's policy ideas run counter to the ever-increasing odds that we'll get to do work that doesn’t feel like work.   

In short, Hassett’s pursuit of government-bestowed employment ensures more worker discouragement, not less. Work that that we all love has been, and will continue to be, an effect of private-sector innovation. Hassett’s proposal would slow progress for it giving the federal government more say in the allocation of precious resources. And that’s why we should hope that Hassett’s perch at CEA brings with it lots of theory, but very little implementation of same. 

Reprinted from RealClearMarkets