Make Progress, Not Work | Econ Chronicles

Release Date
May 6, 2014

Topic

Free Markets and Capitalism
Description

As technological developments increased the US agricultural worker’s output tremendously over the last two centuries, the share of the population employed in agriculture fell from around 90 percent to around 2 percent.
The lay American public supposes that when workers lose their jobs, we become worse off — they suffer from what economist Bryan Caplan calls the make-work bias. But would anyone prefer to live in a society in which many went hungry and no one enjoyed the wealth, financial security, job growth, and innovation created as a result of all those workers losing their farm jobs?
Unfortunately, the more that democracies enact policies that reflect the make-work bias, the closer we come to such a society. Follow Caplan, author of The Myth of the Rational Voter, as he explains the gap between the lay public and the professional economist’s views about the merits and demerits of making work for individuals instead of letting them find work.

1) Industry is an Effort Followed By a Result (article) Frederic Bastiat contends that to aim to increase the proportion of effort to output is to imitate Sisyphus in his hopeless attempt to move a stone up a hill
2) Does Better Productivity Kill Jobs? (article) Michael Schuman cites a report from the McKinsey Global Institute to argue that productivity growth complements job growth
3) Productivity Growth, and Employment (article) Economist William Nordhaus argues that even within just the manufacturing sector, productivity growth has gone hand in hand with job growth
4) The Fallacy that Government Creates Jobs (article) Daniel J. Mitchell explains the fallacy that government creates jobs

Make Progress, Not Work | Econ Chronicles
Bryan Caplan: Especially during a recession, we almost automatically think that anything that saves jobs is good — and anything that destroys jobs is bad. But what would our world look like if we took this idea seriously? Two hundred years ago, virtually everyone was a farmer. In those days, virtually everyone had to be a farmer just to feed the population. People often went hungry, nonetheless.
Over time, though, people invented new and better ways to put food on the table: better seeds, better plows, better fertilizer, better energy sources. A farmer with a tractor was able to produce far more food than a farmer with a horse. A horse has about one horsepower. As food production went up, the fraction of people with farm jobs quickly fell.
Would it have been a good idea to ban the tractor to save those jobs? In hindsight, the idea seems silly. If government held back progress, we’d still be hungry, and we’d still be farmers. When people are losing their jobs, we almost always see disaster.
Humans suffer from what I call make-work bias: the tendency to judge economic performance not by production, but by employment. Time really is money — a lot of money. If a superfluous worker earns $30,000 a year to sit quietly at his desk, the world is roughly $30,000 poorer. Why? Because the worker could have been doing something productive instead.
Doing something productive instead sounds awfully vague, especially if you just lost your job. But the last two centuries of progress show that this isn’t just hand waving. New ideas have totally changed our economy and our labor market. The result is the unbelievably advanced civilization we see all around us. Think about the jobs people around you are doing. How many of these jobs could you even explain to George Washington?
If progress is hard to explain after it happens, it’s nearly impossible to chart before it happens. When tractors are replacing horses, who is going to have the foresight to say, “The unemployed will now go build an advanced industrial economy!” How about the foresight to say, “Let’s prepare the world for the Internet’s arrival a century from now!” The main thing we really know about progress is that progress is coming — unless we stop it.
Modern democracies rarely actually ban new technologies to save jobs. But many regulations inspired by make-work bias try to protect workers’ jobs, even if the workers aren’t producing much. Most European countries have intricate regulations that make it very costly to lay off or fire workers. In the United States, worker lawsuits serve a similar function.
One big downside of laws that protect workers’ jobs is that they make employers more reluctant to hire in the first place. You’re less likely to give a worker a chance if you know you’ll be stuck with him even if he disappoints you.
But there’s an even deeper problem with laws protecting workers’ jobs. Suppose the law had no unintended side effects. Everyone who wants a job for life, gets a job for life. What happens when demand for a worker’s skills dries up? What happens when new technology makes a job obsolete? A lot of workers will keep drawing a paycheck to produce little or nothing of value. And our whole society will be poorer as a result.
It’s tempting to say, “It’s a stagnant society, but at least it’s a secure society.” But it’s not even that. In the long run, stagnation is deadly. When disasters hit, rich societies have the spare resources to cushion the blow. Rich societies have the flexibility to adapt. The best social insurance is to make more progress — not to make more work.