EKIP– Expert Club for Economics and Politics A Different Opinion
It is not uncommon during a crisis for representatives of the economic profession to note the presence of "backlogged" units of all production factors and give their prescription for the path to prosperity. In their words, "for the economy to start growing again, government spending must increase." But what is actually happening?
The greater amount of these expenses will be reflected in a decrease in the unemployment rate and an increase in the size of the gross domestic product (GDP) - two indicators, based on the level of which they draw their conclusions about the state of the economy. Accordingly, according to their understanding, the lower the unemployment rate and the higher the GDP, the better the state of the economy. But are higher employment and, accordingly, greater economic activity really economically rational in themselves?
Among the authors of such rhetoric and a supporter of the theory from which it derives is the Nobel laureate in economics Paul Krugman. In a number of his speeches, Krugman expresses the opinion that in the case of high unemployment and declining GDP, the state should increase spending, which "will return us to full employment faster than anyone can imagine." The curious reader may wonder how the goal of full employment and economic activity, financed and directed by the state, fits into the context of a person's economizing activity? To answer this question, we must begin by explaining why a person works in the first place.
A person works because he prefers to have more of his wants satisfied rather than less. Therefore, to improve his well-being, he must increase the production of the means of satisfying his wants. This production is limited by the scarcity of factors of production, one of which is his own labor. Therefore, a person works to increase his available stock of consumer goods, or in other words, labor efforts are made with the aim of realizing such circumstances in which the individual has relatively more goods (utility) available for consumption than he would otherwise have.
This means that in the relationship between the relative scarcity of resources and a person's desires, work is a means to an end, not something that contributes to it in itself. In fact, a person would be better off if he did not have to work. He would be better off consuming what he wants directly, rather than engaging in time- and resource-consuming processes. But work is a production process that involves limited resources and has its opportunity costs.
Precisely because a person would prefer not to work if he could then still get what he wants (as evidenced by the fact that he constantly tries to optimize the labor process so that with less work he has more goods for consumption), the relationship between labor and utility cannot define labor as an end in itself, but as a means.
According to the French economist Frédéric Bastiat, the confusion between labor and utility stems from the shortcomings of the labor theory of value. In his Economic Harmonies, he notes that the confusion stems from the mistaken perception of labor as a measure of utility:
“Here we are confronted with the great, eternal, and undesirable error which arises from the wrong definition of value and its confusion with utility. For every man, utility alone is of importance; and value cannot serve as its measure. The division of labor has led some economists to measure the welfare of society not by consumption, but by the labor expended. Following their example, we have arrived at this strange reversal of principles, where we now favor labor at the expense of its results. The line of reasoning is this: the more labor is employed, the more value to us. Therefore, we must increase labor.”
As attractive as the concept of full employment may be (mostly) to politicians, it is fundamentally flawed because it focuses on stimulating some economic activity that takes place outside the context of the individual's saving of resources. It makes production the ultimate goal, detaching it from the preferences of consumers and satisfying their most urgent needs first. This is 'production for the sake of production', as Ludwig von Mises characterized it in his book "Socialism".
In light of what has been said so far, the claim that increasing employment through government spending will help the economy is false. We don't need artificially created jobs, we need freedom. The freedom to do what you are good at, and the freedom to provide consumers with what they are willing to buy. We don't need industries that are financed by stealing from consumers, but ones that provide them with utility.
In fact, as Peter Schiff says, the goal of the economy is not to create jobs, but to minimize them - people work, participate in the division of labor, and innovate because they want to work less. The goal of the economy is for people to have more consumer goods at their disposal with less effort to acquire them.
