Monthly Archives: May 2009

Gross Versus Net Job Creation

One of my pet peeves is when politicians trumpet their particular program as a “job creator.” In Michigan, we have the Michigan Economic Development Corporation, which is a partnership of the state government and local governments and is headed by a board of directors comprised of business people. According to their website, they “have the ability, authority and reach to serve as a one-stop resource for business retention, expansion and relocation projects.” The idea behind this project is to create jobs in Michigan.

Similarly, the Obama administration has been trumpeting “green jobs” as the jobs of the future. Government subsidies of these types of companies, the administration argues, will lead not only to a better planet, but to greater job creation.

I have no doubt that these types of initiatives create jobs. After all, Jeff Daniels tells me that the MEDC creates jobs in all of the commercials. However, this is gross job creation whereas I am concerned with net job creation. In other words, as Bastiat would argue, these programs highlight what is seen and ignore what is unseen.

To give an example, when President Obama was pushing the stimulus package, he repeatedly highlighted the fact that moving health records to an electronic form would create jobs. Of course this is true. There must be somebody who accomplishes this task. However, isn’t it also true that those who do the filing in doctor’s offices around the country will no longer be necessary. Thus, it is not clear whether this creates jobs on net. This is not to say that this policy is undesirable, but rather that the “jobs creation” justification is not entirely clear. (Also, I am not singling out the Obama administration. I chose this example because it has long been a political talking point.)

It is particularly disheartening, however, to see the same claims made by economists. For example, Paul Krugman recently made the claim that such restrictions on greenhouse gas emissions would give companies “a reason to invest in new equipment and facilities even in the face of excess capacity.” Again, there is little dispute that companies will have to adjust their behavior and invest in new equipment (otherwise the policy isn’t effective). However, is there any reason to believe that this type of investment is beneficial? Don Boudreaux provides an excellent response:

Technological innovations benefit society not by giving firms “a reason to invest in new equipment and facilities,” but by reducing costs – not by making resources scarcer (by artificially increasing demands for them) but by making resources go farther in their capacity to satisfy human desires.

If “a reason to invest” were sufficient to restore economic vigor, then war and natural disasters would do the trick even better than would government restrictions on greenhouse-gas emissions.

Again, this is not to say that any of these programs are necessarily bad. Certainly, if one thinks that global warming is a serious threat, then perhaps a policy that limits greenhouse gas emissions is a good policy. The problem, however, is that these policies and programs are often not sold on their direct purpose or merits. Rather, politicians use arguments of economic growth and job creation.

Silver Lining

I have long decried the subsidization of ethanol. However, it appears that this incredible waste has produced a positive externality:

Two soft drinks with connections to the past were launched this week for a national eight-week run.

Pepsi Throwback and Mountain Dew Throwback are sweetened with sugar made from cane and beets, unlike their namesakes, which use high-fructose corn syrup, the mainstay for soda pop since the 1970s.

The intent, said Pepsi spokeswoman Nicole Bradley, is to remind baby boomers what the drinks tasted like back in the 1960s and ’70s. “And for millennials, they’re something new,” Bradley said.

More consumers are forsaking corn syrup, which is criticized as a contributor to obesity. The price of corn syrup has risen with the advent of corn-derived ethanol for fuel, undercutting the cost advantage it held. [Emphasis added.]

I will admit to being one of the idiots mentioned in the article who has paid a 50% premium in the past for cola with actual sugar rather than HFCS — although, in my defense, I really do not drink that much soda.