Sunday, January 22, 2012

Unemployment is symptom of bigger problem

Published in The Tennessean, Sunday, January 22, 2012 and Forbes

by Richard J. Grant

Those who argue that construction of the Keystone XL pipeline should be approved by the president because it would support tens of thousands of jobs get the story backwards. The jobs should be created because the product delivered by the pipeline is highly valued by potential customers. There is no problem with demand. No one doubts that American and other customers would willingly pay enough to cover the cost of the project, which would pipe oil south from the Alberta tar sands.

Politicization of the “jobs” issue is understandable. With many people currently unemployed or underemployed, there are many potential voters looking for a sign that help is on the way. This creates a market for politicians who are too quick to put the cart before the horse. “Job creation” becomes an end in itself; the purpose of the job is secondary. The goods or services that are produced are relegated to the role of means.

This approach to economic management explains why we hear politicians, and their favorite economists, decrying the “lack of demand” in the economy. They either don't care, or have no idea, what demand is.

Demand, in any relevant sense, cannot exist other than as expressed through the choices of a real person who, to get what he desires, voluntarily offers in exchange something of value to another person. Whatever work might be involved in carrying out this transaction could be called a job. But any such job is worth doing only if the transaction that necessitated the job is worth carrying out.

When people are free in “the pursuit of happiness,” there is no limit to work opportunities. Compared to our imaginations and desires, there is always a scarcity of workers and other resources to meet those desires. Every unemployed person, regardless of their talents or handicaps, is an entrepreneurial opportunity.

When we observe involuntary unemployment, we need to ask why. In the case of the Keystone XL pipeline project, we know that many workers must now look elsewhere because a politically motivated president had the power to say “no.” This could and should have been a defense against property takings; instead it satisfied only a political constituency with meddlesome preferences.

Involuntary unemployment, when it persists, is not natural. When people are free to set their own terms and prices, work opportunities are unlimited. When people are not free, but subject to inappropriate regulations and excessive taxation, problems arise.

In general, it is a failure to define and protect property rights that results in the unemployment or underemployment of people and their resources. How many businessmen have wasted how many hours justifying themselves and their actions to some committee of politicians or bureaucrats?

Are those politicians and bureaucrats productively employed or destructively employed? When they institute laws that protect people and their property from infringement by others, they facilitate peaceful cooperation. But when they interfere with trade and the use of private property, they are limiting employment and contributing to social strife.

The unemployment that we observe is the result of our failure to limit the size and power of our own government. It is no solution that we now call for that government to treat the symptoms by creating jobs. Nor do we need a government that becomes, like the jobs it creates, an end in itself.

Richard J. Grant is a Professor of Finance and Economics at Lipscomb University and a Senior Fellow at the Beacon Center of Tennessee. His column appears on Sundays.

Twitter: @RichardJGrant1

Copyright © Richard J Grant 2012