Notes Book

Too Many Jobs

Jobs are not the solution. Jobs are the problem.

As the Nobel economist, Friedrich August von Hayek, pointed out, prices are economic signals that allow people to efficiently coordinate their economic actions. A worker that neither knows nor cares how about the prices of the goods and services she uses in the course of her work is not an efficient economic actor.

An independent entrepreneur cares deeply about the prices of the goods and services she uses in her work. If she doesn't, she can't have a profitable business. She is motivated to produce the most output at the least cost.

An employee, on the other hand, only needs to worry about maintaining a good relationship with her boss. Her paycheck is assured as long as he does that.

Jobs vary widely in their access to pricing signals. Employees in large government and corporate bureaucracies are most insulated from economic reality.

Employees in small businesses pay more attention to price signals and are more motivated to act efficiently on this information.

What makes small business the engines of economic growth is not that they create jobs, but small businesses efficiently produce goods and services. If a small business "creates" enough jobs, it becomes a big business, and a drag on the economy. In order to make our economy more efficient, we need to encourage businesses to at least stay small, if not reduce their size rather than encourage the trend toward huge conglomerates.

Currently, the government wants small businesses to add jobs. This will only make them less efficient. Small businesses need to interact with each other through the marketplace rather than succumbing to the w2 disease. Multiple small businesses interacting with each other as independent agencies are more efficient than a single larger businesses where the interactions are between employees. Interactions between employees are not efficient because of the loss of economic signaling information and decreased motivation to be aware of cost/benefit considerations.

A person with a guaranteed income has little motivation to make his operations more efficient. In large organizations, such efforts are often viewed with a great deal of suspicion.

A person who depends on the amount and quality of the goods and services she produces for her income has a great incentive to produce as much as possible at the lowest practical cost.

So why are these widely know economic facts so routinely ignored in public discussions of economics? I believe it is because of distortions of the economic and social order caused by taxation. Those who benefit from the collection of large amounts of taxes have incentives to encourage workers to become employees rather than independent entrepreneurs, because employees pay a larger percent of their income in taxes than entrepreneurs. Employees can't deduct expenses, so tax collectors get more money and don't have to have arguments about what constitutes a legitimate business expense.

We are conditioned to think of the government as the whole economy. When we hear on television that "we" have a terrible debt, and "we" are broke, we should be aware that what is actually meant is that the government would very much like to have more tax revenue.

As government takes a greater share of the output of the economy, the taxpayers develop more will and expertise for avoiding taxation. Eventually government revenue falls because people are "illegally" keeping more of their money. This is called a recession or depression. Government has to go through the stages of grief over the lost income before the "recession" can end. When government stops trying to steal too much from the people, the recession will end.

Jobs are not the solution; jobs are the problem. A system that actually rewards people for the useful goods and services they produce is the solution. That system exists to the degree that government does not interfere with the free market. People need to take ownership.