Carte Blanche: State Destruction of Wealth and the 'Make-Work' Ideology
Take a look a the reactions in the mainstream media over Amazon’s decision to pass up the New York location. They cite only two factors regarding this incident: the jobs that will not be “created” in the city and the taxes that the state cannot collect from Amazon. Both narratives treat the decision as jobs “evaporating” because the state simply did not offer enough incentives and subsidies at the taxpayer’s expense. It seems to be a consensus in the mainstream that the function of state and local governments is to create jobs for the economy, which can happen through two different ways that both come at the expense of society and destroy real wealth. This misunderstanding is put forward by politicians using job creation as a proxy for overall economic health.
Imagine Robinson Crusoe works every day collecting coconuts to consume for himself. He produces 6 per day climbing trees, and the island is about 1 mile wide. Eventually, a meteoroid falls and destroys everything on the island except Crusoe. Here’s the study question: is Crusoe’s problem the fact that he will starve because there are no longer trees on the island, or is the problem that he can no longer work? Crusoe’s problem is that he will starve without the coconuts. He was not working before because he loved to climb trees, he was working to produce goods to sustain himself. We, therefore, establish the fact that the purpose, and wealth generating aspect of labor is the good or service produced, not the “work-making” aspect.
We can imagine other hypothetical situations where we can make work, like one hundred percent tariffs, or the abolition of all technological inventions that have ever replaced human labor. John Maynard Keynes wrote the famous fallacious example of the government burying bottles of cash for “workers” to dig up and earn the money. In 1845, the great French economist and political philosopher, Frederic Bastiat wrote the satirical article Candlestick Makers’ Petition. The article is from the narrative of candlemakers that are petitioning the government to abolish all windows in buildings, to protect their careers from the unfair competition of sunlight outsourcing candlemaking. Now, statists in support of modern make-work deals will probably regard this as “just theory” and an oversimplification. However, if we understand that the petition is, in fact, absurd, imagine in your own words why the hypothetical petition is absurd. Obviously, society will be less wealthy if the candlemakers’ petition is granted, because instead of possessing enough lighting plus whatever amount of money they would have spent on candles, they only possess candles. In other words, labor and resources are shifted from what was most productive, to what is now relatively less productive than would otherwise have existed in a free market.
An increase in real wealth is determined by capital accumulation that marginally makes workers more productive. We are more wealthy when we can purchase more goods and services compared to the labor we put into making them. The things we produce, to maximize pleasure and minimize pain, make us relatively better off. It is goods and services, not making work, that brings an increase in living standards. Labor would not be defined as labor itself if it was not a multitude of unpleasant tasks that we only perform because the benefits we gain from it are more valuable to each of us than the costs. Governments cannot create resources independently, they can only arrogate wealth from the population or shift resources around to different locations. All things considered, governments, through their various “job creating” activities cannot cause a net increase in wealth.
Free markets efficiently allocate capital and resources in an economy by location, time, and through infinite other factors that cannot be arbitrarily conceived of without a profit and loss system. When governments induce companies to move locations or expand in a way they would not have otherwise expanded with subsidies or incentive packages, they shift wealth and resources around by location. If free markets allocate resources efficiently, the new centrally planned economy must be less efficient than it otherwise would have been. We can think of this loss of wealth by what is unseen in what labor and resources would have likely done without these crony capitalist deals. When a deal like that of Amazon in New York, or of Foxconn in Wisconsin is made, the so-called jobs created are jobs that would otherwise have existed in another location. However, the “would have been” location is not the only thing lost. When a business is moved by government and needs to hire new labor, it can only hire labor away from previous occupations where they were producing something different. So if Amazon had continued with its New York operation, the city would have gained the new jobs and the services and products created by these workers, and they would have lost the product of the labor that was reallocated to the new Amazon operation. The point is that there is no net increase in wealth. Employees are moved from their previous occupations to Amazon and there is an increase in production for the company. On the other side of the coin, there is a loss in employment in wherever the Amazon employees had worked previously and a decrease in production in whatever they were producing (probably embodied by downsizing and rising prices). The difference is that labor and resources are shifted from what was previously more productive to what is now relatively less productive.
Conservatives seem in general, to understand the error of the make-work fallacy when it comes to tariffs, but fail to see the embodiment of the exact same fallacy through means of crony capitalism. David Marcus completely falls for this in The Federalist claiming, “These are fine things to think about in the abstract, but on the ground in Queens, there will now be 25,000 fewer jobs than there were going to be.” He actually thinks if the government does not centrally plan Amazon, then 25,000 individuals will be sitting around doing nothing in New York. Leftists, on the other hand, call out cronyist deals like Amazon and Foxconn but fall for the make-work scheme in the form of public “investment” projects. As pontificated by Vishaan Chakrabarti at Buzzfeed News, “Critics dismiss the idea that Amazon would have helped grow [the] tax base, pointing to the subsidies it was scheduled to receive and falsely claiming those dollars could have otherwise been spent on schools and subways.” He makes it sound like the only benefit of private enterprise is to hand over money to the State. Politicians love to siphon resources out of the voluntary sector in the name of “making work”, but they destroy real wealth overall. Presenting the full embodiment of this fallacy are the universal employment plans embraced by many of the Democratic presidential candidates for 2020. If we are operating under the economic illiteracy that labor itself is valuable, and not the fruits that it generates, refer back to the Robinson Crusoe example. The same method, of considering where the labor and money would be without government action, holds true for job “creation” in the form of public “investment”. With this in mind, it is easy to imagine how these “job creating” government projects are destructive to the real economy.
Given that both of these plans to “make work” are destructive to a real economy, why are they so popular to politicians? Probably because we incorrectly use job growth as an indicator of overall economic health. This view is rooted in mainstream media and in every way politicians view an economy. Throughout history, our increase in real wealth can be seen in the natural abolition of the most unpleasant jobs and the decrease in the hours we need to work. It can be seen in the rise of service sector jobs, the idea of art and entertainment as careers because now we have machines to do the work for us. For politicians, however, not only are their “job creating” schemes popular through misconceptions of the public, but they give more power and resources to the government. Even worse, they often cite the perverse, government, definition of “competition” to justify their actions. State and local governments believe that if they make more “deals” with corporations, make more public “investments”, and take more from the private sector they are making their city more “competitive”. If this is competition then it is at the expense of property rights and economic liberty to compete.