Virtually every election season, we’re treated to a chorus on job creation. Who has saved more jobs. How will they protect your job. And who is going to be the grinch that takes your job away.
But perhaps our focus is misguided. Perhaps we should be focused not on creating jobs, but on eliminating them.
The biggest mistake people make when they think about the economy, is that they obsess over money. In truth, money is nothing more than an hollow intermediary, with no intrinsic value.
The true measure of an economy is something else entirely – how much stuff it can produce. This is basically what the GDP represents. How many computers can we make? How many cars can we build? How many houses can we construct? How many students can we educate? How many movie lovers can we entertain? How much corn can we harvest? This is the true essence of GDP.
Of course, when you look at the GDP report, it doesn’t explicitly list computers and houses and pop songs. That would be too much to read and process. Instead, it lists a single dollar value, representing the market price of all the stuff we’ve produced. Which is why people get fooled into thinking that GDP is all about money.
Except that it isn’t. The fact that USA’s GDP is 20 trillion but Japan’s GDP is 500 trillion (in local currency) means nothing at all. Money is a fiction. It can be printed or destroyed, inflated or deflated, in the blink of an eye. What really matters is how much stuff you can produce, and clearly USA can produce more stuff than Japan.
With that perspective of GDP, it’s easy to see how GDP is linked to prosperity. The more stuff your country can produce (per person), the more stuff people can consume, and the greater their quality of life will be.
Clearly there is more to quality of life than material prosperity alone. But it’s certainly a big component. Immigrants overwhelmingly move to countries that can make more stuff, not less.
It’s clear then that one of the primary goals of each country is to grow their economy. Ie, make more stuff. What do you think the biggest bottleneck is?
There are certainly many factors but one of the main ones is manpower.
When looking at industrialized nations, ranging from East Asia to Europe and America, we see a huge diversity of GDPs. From as little as $200B USD (New Zealand) to $20T (USA). Despite this 100x difference, their GDP-per-capita is remarkably similar, ranging mostly from $35,000 – $70,000. When looking at nations as different as Belgium, Japan and USA, the vast majority of their GDP differences can be explained in one word: population.
With manpower playing such a central role in GDP, it becomes immediately obvious how one can grow the GDP – by simply growing the workforce, or by finding ways to maximize the efficiency of your existing workforce.
Imagine if 50% of the population is working in a specific industry. And then one day, someone has a brilliant idea on how to automate everything. The vast majority of those jobs can now be eliminated, without lowering or worsening the output. What do you think the long term effects on the economy would be?
If you’re someone who’s obsessed with money, the answer may seem quite scary. “Tens of millions of people may lose their jobs, which may cause them to spend less money, which may cause even others to lose their jobs, and the economy may sink into major depression it may never recover from!”
If you abandon your focus on money, and focus instead on “stuff”, the long term answer becomes clear. Those tens of millions of people have now been freed up to work in other industries. Maybe not immediately, but eventually. There is no shortage of companies that can put additional workers to productive use – if nothing else, simply as waiters, taxi drivers, nannies and mailmen.
We can analyse until the cows come home, all the myriad downstream effects. But one thing is clear. The total amount of stuff your country can make, will go up. Why wouldn’t it – you now have millions more people to make more stuff with.
This isn’t an idle thought experiment. Over the past 150 years, the percentage of the American workforce working in agriculture has dropped from 50% to ~3%. And yet, despite all these tens of millions of jobs being eliminated, the average citizen has become vastly richer.
The unemployment rate has remained remarkably steady, even while the population grew from 40 million to 300 million. The tens of millions who would have otherwise been stuck tilling the fields, have been freed up to aid the economy in other more productive ways. Job creation isn’t the hard part – job elimination is.
Job destruction certainly can and will lead to short term turmoil. Particularly for those whose jobs have been eliminated. It can also lead to greater inequality, as wealth and income becomes more concentrated in the hands of the few. In the short term, Keynesian recessions are certainly something to watch out for as well.
But these are all problems that can be addressed by public policy. Unemployment benefits can cushion the short-term blow to the newly unemployed. A higher minimum-wage or earned-income-tax-credit can help those with lower paying jobs. And a more progressive tax system can prevent any rise in income inequality. Appropriate monetary and fiscal policies can make up for any short term shocks to the economy as well.
One thing is clear though. Over the long term, job destruction will lead to greater prosperity for the nation as a whole. Together with governmental safety nets and progressive taxation, a rising tide will lift all boats. The road to prosperity is paved not by protecting jobs, but by eliminating them.
Related Links:
The rise of Bullshit Jobs
Outlook Zen 
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