The following originally appeared on EconomicFreedom.org, a project of the Charles Koch Institute. The Institute republished it here on July 31, 2015.
With unemployment still above 9 percent, Americans are searching for answers that will lead to quality, lasting job creation. Past failures of jobs programs show that addressing the symptom instead of the disease has yet to lead to real job growth. Instead of talking about jobs programs, what needs to be discussed is how to provide the right environment for growth: economic freedom. Watch this video to learn more.
Milton Friedman was once traveling in Asia, and he observed a canal being built. And he didn’t see any heavy equipment making the canal. Instead, he saw workers with shovels — lots of them. And he asked the government official who was with him, “why don’t these people have heavy machinery?” And the official said, “you don’t understand. This is a jobs program.” Milton supposedly replied, “well, then you should take away their shovels and give them all spoons.”
There are a lot of jobs programs floating around DC, including a new proposal from the President. Of course we all want unemployment to go down, but the key is how we make it go down. It shouldn’t be forced down by simply creating jobs that don’t create any value for anyone in society. Jobs themselves, they’re not the end goal. The goal is the value that the job creates.
Now, I doubt any of the jobs proposals that come out of DC are going to propose putting workers to work using spoons, but they will have the economic equivalent: jobs that don’t create value. After all, the Government could create a job by paying someone to just dig a ditch and then fill it back in, but in the end, no value would be created for anybody. In fact, value would be destroyed, because the Government would have to tax other people, other places, in order to create those jobs, and those taxes would destroy other jobs that create value.
Where some jobs may create value, others would not, but all of it is ultimately not checked by the price system. That means instead of explicit jobs programs, what the Government should focus on is providing the right institutional environment for growth. That environment is economic freedom.
Economic freedom means, low taxes, small scope of government, lower inflation, strong protection of property rights, less regulation. Almost the opposite of what the federal government’s been doing the last two years. When you grant an environment of economic freedom, entrepreneurs make investments to provide value for people in the economy. In order to do it, they have to hire workers.
When entrepreneurs are working in the market, what they’re doing is looking at, where can I hire labor inputs and other inputs to create a good or service that a consumer’s going to value? If, in the end, the value that consumer places on it, measured by how much they’re willing to pay for it, is greater than the cost of the labor and other inputs, the entrepreneur creates a job.
The best jobs program really isn’t a jobs program at all: it’s a growth program.