Sunday, 4 May 2014

J is for jobs

The NZ Initiative is trying to improve the economic literacy of Kiwis using an A-Z format. The latest is J, for jobs, and it starts off badly by referring to
"...a common mistake in voters’ understanding of economics. That is, the belief that government should create jobs. ...contrary to such popular opinion, job creation is not – and should not – be the goal of government policy."
NZI suggests there are two reasons: Bryan Caplan, and communism. Need they say more? Well, yes please, but they don't. Specifically they don't confront two obvious counterarguments.

One is about preferences. In democracies, governments are supposed to be servants of the people so they "should" do what voters want them to do. At the individual level, economic well-being is entirely subjective. Some individuals do actually want there to be more jobs either for themselves or someone dear to them.

I don't really mind if the NZI want to lecture people about what they should want. I doubt it will change minds, but if that's how they want to spend their money, fine. What does rankle though is the hook they are using: the suggestion that voters shouldn't want more jobs because "economics", when a more honest statement would be "NZI thinks you shouldn't want government to worry about jobs". Don't hijack my profession to sell your beliefs, please.

This brings us to the second counter-argument which is about what governments can and cannot do. The failure of communism does not prove that governments can't and shouldn't try to create jobs; it only proves that communism failed. But there are also examples of sensible government policies that are designed to create jobs either implicitly or explicitly.

Most generally, standard economics shows how economies can get stuck in a bad equilibrium with high unemployment and low growth and predicts that governments are the only entity than can jump-start such economies. Macro-economic predictions based on these concepts have been fully vindicated over the last five years (a demanding test period for any theory), yet the kind of "ignore the jobless" line NZI advocates is dominating the decision-making in the USA and Europe and perpetuating a horrible situation for millions of people there.

Closer to home, you've probably noticed that NZ exports logs whereas IKEA exports much more highly processed & profitable flat-packed houses and furniture. Why is that? Is it inevitable? How come we are killing forestry workers by the dozen for a low-value trade? Are we engaged in a race to the bottom?

Look at all that low-value bark edge we are shipping overseas. This is basically all we do with our trees. Even if the logs were just broken down into square section lumber, we'd save ship space and add value. But we could do so much more.

Why don't we? Well basically its because of the NZI attitude, which is in essence conservative. The status quo is aligned to log exports, and the fact that this equilibrium is bad for workers (not enough jobs and excessively hazardous jobs) is not something that "should" concern the government, or voters, because communism.

This is why I basically like what Labour are saying about the forestry industry. They are looking for ways to make the existing jobs safer, and offering business-friendly incentives for investment in further processing.

That's not to say that I endorse everything Labour says about forestry - I haven't even read all of that stuff. But economic analysis leads me to the view that there are potentially some quite big issues here, and that "caring about jobs" is one way a government might spot them.  So I dispute the view that "economics" says voters "shouldn't" want governments to care about jobs.

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