Saturday, October 8, 2011

When Jobs Don't Count


Job creation is not bad, if the jobs created are value-producing jobs which add to the REAL GDP of our country.

Let's look at a typical household -- mine. I have a job at an office where I provide value to the overall market through utilizing management and clerical skills. I earn a set amount of income which I bring home to my family as a paycheck.

My wife sees that paycheck and says, Wahoo!

We're kind of an old-fashioned household where I make the money, and she takes care of the bills and the household upkeep. She works hard, and uses a portion of my income to buy little extras like groceries, clothes for the kids, etc.

Now, let's say that she wants to use a portion of my income to buy new drapes, but I want to use that same portion of money to buy a lawn mower which I will use to mow neighborhood lawns and thus add to our overall household income. We argue a little, she gives me that look, and I cave in. We have nice drapes, but no lawn mower.

Has our overall GDP (i.e. household income) increased?

No. We have taken our limited funds, redistributed them, and our house looks nicer. She provided work, received money, used that money to purchase stuff, but our overall income stayed the same. Actually, we're poorer in the long run because money which could have been used for capital investment was used toward cosmetic, short-term comfort.

Now, the USA is a household and in that household the Government is the wife of Small Business. Small business works hard and actually increases the income (the real GDP). Small business (and large business) brings home the bacon. The government works hard, too, but doesn't actually increase the income; it actually drains the real income by using the household income to buy drapes, build roads, feed welfare recipients, etc. These are NOT bad things. But, they do drain our economy.

When the government-wife wants to use money for a new ironing board and the small-business-husband wants to use that same income for new tools, new workers, and new resources, then small business should win. This would increase the overall income of the household n the long run. However, government gives small business that look which says trouble is coming, and small business forks over the money, in the form of taxes, to the government.

Government declares that it will use this money for job creation, but these jobs will be ones which drain the REAL income of our country. The people will work hard, get paid, and be happy. But, in the long run, our economy will suffer loss of capital, production, and overall growth.

It's wonderful that the stay-at-home government-wife wants to work so hard around the house. But a flurry of activity at home merely serves to mask the fact that the small-business-husband has unfulfilled earning potential which can only be realized through the actual production of value-providing goods and services OUTSIDE the home.

That's where free trade and economic growth actually occur.

Sorry, Obama, er, I mean, honey.