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Wednesday, June 24, 2009

Unpatriotic frontloader


Video taken with my new iPhone 3GS.

The dings in the background come and go because I don't have my seat belt on. The next iteration of seatbelt warnings should recognize that the car isn't moving and therefore it shouldn't complain that I am not wearing my seatbelt.

I thought it amazing as I watched the frontloader doing its job through the window while sitting in the Bank of America. The driver came and went with such regularity and in such quick time this economist couldn't help but to be once again amazed at the amount of dirt that was being moved by one guy and a machine and how many men had been "put out of work" by the frontloader.

It is tempting to think that those who were put out of work by the machine should now be favored by putting the machine aside and allowing the shovels and human sweat to come in its stead. While that would create jobs it would also be a disaster in terms of trying to facilitate recovery and growth.

Why?

Because the men who were displaced by the machine didn't just sit around and sulk about it. They figured out that there were a lot of other jobs than shoveling dirt and moving it from one place to another. Some of these other jobs already existed but many others did not. The new jobs associated with new products and services, that is what defines economic growth. How then, it is reasonable to assume that if individuals who are "unemployed" and somehow become employed on government projects will somehow directly lead to growth?

Even those who are unemployed are only unemployed because wages are somehow not adjusting downward and therefore the individual who might be willing to work for, say, $6 per hour is not able to get a job because the prevailing wage rate is, say, $10 and the quantity of labor demanded is artificially low. How does the government's intervention in the form of hiring a bunch of labor supposed to fix this? The demand for labor might increase in the short run but it is not sustainable and the government's competition for labor essentially crowds out the private sector's demand. In a static world that might not be important, although one could have a philosophical debate in which I would still argue for private sector employment, but in a dynamic system which is what the world actually is, the crowding out by the government programs/stimulus, whatever, stiffles economic growth.

Benefit of parking the frontloader: 20 jobs hired by the government (seen by many)
Cost of parking the frontloader: 20 much more exciting jobs might not be forthcoming (unseen by most). As Friedrick Bastiat pointed out some three hundred years ago, people notice the seen and ignore the unseen, yet in economics it is the unseen which is often the most important variable.

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