The usual chatter has begun following President Obama’s Sept. 8 call for a $417 billion government spending package designed to stimulate economic growth and create jobs. As always, the commentary, both pro and con, focuses on speculation about the results of the program. Will this latest stimulus money actually reach “shovel-ready projects,” or will it 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 of this nature. 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 continue until the media move on to something else. The debate will be resurrected at election time when Republicans will characterize the program as another “bridge to nowhere” and the Democrats will claim that it saved the economy.
Even after the fact, there is rarely a definitive answer to questions about the results of government action, as compared to government inaction. 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. But before exploring how Obama’s program affects the rights of the various parties involved, we must answer a previous question.
What is a job?
One might assume that everyone knows the answer to this apparently simple question, but I doubt that’s true. In fact, judging by what politicians, media, and even friends and neighbors have to say about jobs and unemployment, I’m convinced that 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, and the seller decides whether to accept those terms or not. Both parties are free to decide not to go through with the sale. 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 some product that makes 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 the buyer and the 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 firm’s 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 created, the owners must purchase the labor, materials, production facilities, equipment, and other capital goods necessary to make its products. The owners purchase these capital goods and labor with savings — which are the result of consuming less than they (or their lenders) produced over a period of time in the past. The only reason they choose to invest these savings 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 a new firm.
Almost no one in America today understands what a job really is.
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, the owners, employees, and customers are adding more goods and services to society. Remember that the customers are only able to buy the firm’s products because of the products they’ve produced and sold to their customers, including their employers. Just like the firm, they must produce products that 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 who can be employed, and the quantity of products that can be produced — these all depend on the ability of 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 that one begins talking about the government’s “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 whenever President Obama (and neither he nor the Democrats are by any means alone on this) refers to government spending programs as “investments.” 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. I refer to the choices made by taxpayers not to purchase that car, bridge, building or road, but to purchase something else, something they actually want and are willing to pay for. 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. Customers do not choose to do this 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.
Government-created jobs actually make society poorer, because they result in products that are worth less than the cost of producing them.
When government intervenes, not only are taxpayers forced to purchase products that 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 the return he desired for his money. The best he can hope for is that somewhere a bridge, building, or road that he had previously chosen not to pay for gets built, or some service is rendered at a higher price than anyone had been prepared to pay. Employers who happen to be the beneficiaries of government intervention are able to make profits that would otherwise be unavailable to them, but only because the government has forced taxpayers to pay at least part of the operating costs.
While society does get a new car, bridge, building, or road, and some people get government services, 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. Government-created jobs actually make society poorer, because they result in products that are worth less than the cost of producing them. Ironically, politicians often boast that they created more jobs than their opponents — which actually means that 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 that people would voluntarily buy. But 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, Frédéric 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 his products? If such a right existed, then no company need 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; the government would oblige; and the economy would support every one of the otherwise bankrupt businesses.
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 he is not satisfied with the price. Government interventions, such as minimum wages, obviously interfere with this right. In fact, it is the seller of services (the employee) whose rights are most infringed by minimum-wage laws, which prevent him from selling his services below a certain price even if he wishes to, thereby enabling employers who otherwise could not afford him to offer him a job. That anyone believes that 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 that are at issue with this program are the rights of the unwilling buyers, 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 in which any government can ever create a single job. The fact that the debate between either major party is over how the government could create jobs, rather than whether the government should attempt to create jobs, reinforces the fact that liberty is not even a consideration in the formulation of federal government policy.
It is the government’s thousandfold trampling of liberty that has created the economic malaise that the government is now trying to end. If we ever want to see the 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 will become clear: Start securing our rights instead of violating them. Stop wasting our money, and our opportunities, in the misguided attempt to “create jobs.”