Monday, December 22, 2008

From the Office of Monitoring the President Elect....

Above is a link to the transcript of Mr. Obama's Friday press conference. I wanted to highlight a few fundamentally flawed positions taken in the speech.

Whenever I've been asked how I measure the strength of the American economy, my answer is simple: jobs and wages. I know we will be headed in the right direction again when we are creating jobs instead of losing them, and when Americans are gaining ground in terms of their incomes instead of treading water or falling behind.

This is a clear misunderstanding of measuring economic strength. Jobs are supplied by owners of capital who see a way to use the labor of others (human capital) to create wealth for themselves. Economic Strength is measured by productivity growth, which is wealth creation for human capital. It is easy to attain full employment; consider that when every citizen lives on the farm and scratches the ground for a living, unemployment is zero (remember that unemployment measures only those looking for work who can't find it.) We can argue about whether or not growth in wealth is the best way to measure economic strength, or personal well-being, but job growth in a vacuum is meaningless. Ditto wage growth, unless we are talking about real wage growth, which is, again, related to productivity growth.

with the goal of creating two-and- a-half million new jobs and strengthening our economy for the future

See above for the jobs part. Strengthening the economy is indeed a good policy, if we are talking about policy which encourages productivity growth.

Whether it's creating green jobs

Lots of problems here. Green jobs seem to me to be a meaningless distinction. If people demand alternative enery, technology will be created to supply it, with concomitant jobs, assuming it can be done profitably. As I've discussed earlier, if environmental externalities need to be internalized, raise the final price with taxes, a la the Pigou Club as Greg Mankiw has discussed at length (as long as tax proceeds are actually spent on remediation). Capital creates jobs, not the other way around, and new speculative capital needs a high return to be invested.

that pay well and can't be outsourced,

Don Boudreaux has an excellent podcast about globalization and free trade over at, and reminds us that an outsourced job is an unambiguous positive (at least longer term). Cheaper production of the same goods creates wealth for consumers and producers, and signals to suppliers of labor that they can and should try their hand at something more productive

or raising the minimum wage in California

Why won't minimum wage mythology die? It is a clear negative for unskilled workers and restricts the demand for labor at a price where it may very well be willingly supplied.

protecting workers' rights, from organizing to collective bargaining, from keeping our workplaces safe to making our unions strong. Standing up for our workers means putting them back to work and fueling economic growth.

Capital puts workers back to work, capital which sees ways in which labor can be employed to create profits. Not governments. Also, unemployment is low both relative to history and the rest of the world. I have no problem with collective bargaining, as long as it doesn't become government-supported collective strong arming, which it does.

Doing so will not only help meet our energy challenges by building more efficient cars, buses and subways or making Americans safer by rebuilding our crumbling roads and bridges, it will create millions of new jobs in the process.

Again with the jobs. If we need new infrastructure, give capital the appropriate incentives and property rights to provide it, and it will be supplied.

When contemplating this world view, remember Say's Law, which, although somewhat flawed, has enormous truth and insight. I will be discussing this in detail in my next deflation post, but Say's Law says that supply creates its own demand, i.e. productivity is wealth, and money is simply a way of distributing productivity. This is why policies such as paying people to dig holes and fill them in again have negative real value, not zero value. Zero product is created, but the money supply is enlarged, which ultimately causes inflation.

1 comment:

maneesh said...

Increasing theft, vandalism and break-ins have resulted in most of us getting paranoid about the safety of our office. This increasing trend has snatched the peace of mind from you, and, like everyone else, I'm sure you're wondering what you could do to restore that peace of mind. Simple: Prevent attacks on your house by equipping yourself with a webcam software like GotoCamera