Productivity and Progress

by Don Boudreaux on June 22, 2011

in Growth, Innovation, Myths and Fallacies, Seen and Unseen, The Economy, Work

In today’s Wall Street Journal, Russ explains that another name for the phenomenon that some people call “structural issues” is “progress.”  Here are key paragraphs:

But should we call this progress? In a sense it sounds like a deal with the devil. Replace workers with machines in the name of lower costs. Profits rise. Repeat. It’s a wonder unemployment is only 9.1%. Shouldn’t the economy put people ahead of profits?

Well, it does. The savings from higher productivity don’t just go to the owners of the textile factory or the mega hen house who now have lower costs of doing business. Lower costs don’t always mean higher profits. Or not for long. Those lower costs lead to lower prices as businesses compete with each other to appeal to consumers.

The result is a higher standard of living for consumers. The average worker has to work fewer and fewer hours to earn enough money to buy a dozen eggs or a pair of shoes or a flat-screen TV or a new car that’s safer and gets better mileage than the cars of yesteryear. That higher standard of living comes from technology. It isn’t just the rich who get cheaper TVs and cars, plus the convenience of using an ATM at midnight.

Somehow, new jobs get created to replace the old ones. Despite losing millions of jobs to technology and to trade, even in a recession we have more total jobs than we did when the steel and auto and telephone and food industries had a lot more workers and a lot fewer machines.

Why do new jobs get created? When it gets cheaper to make food and clothing, there are more resources and people available to create new products that didn’t exist before. Fifty years ago, the computer industry was tiny. It was able to expand because we no longer had to have so many workers connecting telephone calls. So many job descriptions exist today that didn’t even exist 15 or 20 years ago. That’s only possible when technology makes workers more productive.

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{ 99 comments }

Daniel Kuehn June 22, 2011 at 7:18 am

This is all great, but it’s also worth noting that there are structural unemployment problems that are worth worrying about that are not progressive – for example, the state-dependence of unemployment and inefficient job matching. There’s nothing salutary about these things that I’m aware of.

indianajim June 22, 2011 at 8:41 am

The term “state-dependence” as you’ve used it IS an issue worthy of consideration: What factors might be contributing to it? Wouldn’t it be important, for example, to consider dependency upon state hand-outs? (How many weeks, or is it years now, on the dole can the unemployed get?)

So isn’t “state-dependence”, that oh so scientific term explaining “unemployment problems” just another example of Department of Labor scientism? Isn’t is more important, given the size and scope of the Leviathan in the US to raise issues of state dependency writ large than “worry” about “state-dependent” unemployment “problems”?

And as for “job matching”, again, don’t you think it might be useful to consider the role of the Leviathan has played in inflating an education bubble via subsidized student loans. Do you really think that the gamut of hobby majors and worse ones would exist sans superfluous state subsidies? Doesn’t the ever greater dependency of students and state universities upon the state monies give rise to ever more college graduates with hobby major credentials? Haven’t state universities inflated the hell out of grades (they have) making GPAs a much less reliable measure of graduate’s achievments?

I could go on, and on; but I trust a man of your intellect will at this point concede that state dependency (in its many and varied forms) should not now be overshadowed by “worries” about “job matching” and “state-dependent” unemployment (if you are trying to understand the world that is; if you are trying to get a government research grant then your odds go up if you focus like a laser “scientifically” upon things like “state-dependent” unemployment and “job matching” “problems”).

dsylexic June 22, 2011 at 9:01 am

inefficient job matching? there is something called as trial and error.it makes the market robust.why is it a bad thing at all.if everyone found their dream job without efforts,we would all be robots.

Daniel Kuehn June 22, 2011 at 9:41 am

I’m not sure I understand what your criticism is.

Of course taking the time to search for a job is important. I’m just pointing out that “structural unemployment” is a broad issue and not all the elements of structural unemployment are as unambiguously positive as the one laid out in the post.

indianajim June 22, 2011 at 9:49 am

If you are not sure you understand the criticism, could it be that you need to read it again? Don’t forget: Haste makes waste.

vidyohs June 22, 2011 at 10:37 am

“I’m not sure I understand what your criticism is.”

There is disingenuous Kuehn demonstrating again how he comes by the nickname.

You give him a very specific critique, not ambiguous in any way, and he tries that rhetorical oblique move, again.

Daniel Kuehn June 22, 2011 at 11:02 am

Let me rephrase for you vidyohs.

I understand what he wrote. I don’t understand how that is a criticism of what I wrote.

vidyohs June 22, 2011 at 11:25 am

@Disingenuous Kuehn

“I understand what he wrote. I don’t understand how that is a criticism of what I wrote.”

LOL, and as sure as God made little green apples, the first is followed immediately by the second rhetorical oblique move.

Seth June 22, 2011 at 10:33 am

More paragraphs from Russ’s piece.

“It’s true, there are some structural issues in the labor market. New jobs are being created but not at the usual pace and not fast enough to soak up the unemployed. But President Obama is wrong to blame innovation. A bigger problem is housing, where hundreds of thousands of workers have lost their jobs. The source of that problem isn’t technology but an over-reaching housing policy and distorted finance. The solution is to let the housing market clear—let interest rates rise, stop subsidizing mortgages, and clean up the foreclosure mess. That would let housing starts return to something like normal.

The other challenge is simply confidence. Businesses aren’t hiring because they’re uneasy about the future. There’s no easy way to instill confidence, but we know how to kill it—create uncertainty about taxes and regulations. Reducing that uncertainty would certainly help.”

WhiskeyJim June 22, 2011 at 12:58 pm

The key here is that the market would have cleared years ago except for TARP.

When our pundits ‘measure the cost of TARP’, they would do well to take the costs of a lost decade to stagflation into their calculations.

Now Bernanke and Congress are trying to re-inflate the bubble! Good lord.

kyle8 June 22, 2011 at 5:43 pm

Not content to learn from other people’s experience, we have engaged in our own lost decade, to match Japan’s.

W.E. Heasley June 22, 2011 at 7:24 am

Besides the ATM representation of Mr. Obama being a grand example of propositions put forth by the economically uninformed, it may have been a Freudian slip. You see, the ATM buts forth Obama Bucks which we all know solves all issues large and small. However, if we replaced the machine with one hundred people all dispensing one dollar bills, surely the Obama Bucks would have greater impact. Yes, that’s the ticket!

“I predict future happiness for Americans if they can prevent the government from wasting the labors of the people under the pretense of taking care of them“. – Thomas Jefferson

Bret June 22, 2011 at 7:31 am

Somehow, new jobs get created to replace the old ones.

Well, I can’t say that’s confidence inspiring. Somehow.

There’ve been lots of “somehows” in the past, but unfortunately, as the fine print in all the financial docs always point out, past performance is not necessarily indicative of future performance. Hopefully, somehow, we’re not quite where the sidewalk ends yet.

Don Boudreaux June 22, 2011 at 7:35 am

Take a look at history. In 1950 there were about 60 million jobs in the U.S. Today there are roughly 140 million.

muirgeo June 22, 2011 at 9:45 am
Nemoknada June 22, 2011 at 11:51 am

How many of those jobs are government positions you wish did not exist? You can’t crap on your cake and brag about it, too.

No doubt we have added private sector jobs, but so what? Have we added enough? What do they pay in real terms? Will we continue to add enough as the technology gets cleverer?

Roberts writes about how productivity helps “consumers.” I think he means consumers who still have jobs. The others, not so much. I doubt there are any more libertarians in the unemployment line than there are atheists in foxholes.

Yeah, I know: libertarians are all self-reliant he-men who would never need or accept unemployment benefits. Which is the point, really: liberarian economics is part and parcel of libertarian egoism. It’s not about maximizing wealth; it’s about maximizing wealth for the winners because the losers (i) deserve their fate, and/or (ii) are not my problem.

Economiser June 22, 2011 at 1:32 pm

Even your “losers” in the US have access to computers and the internet, both of which could scarcely be imagined in the 1950s.

The rich are getting richer and the poor are getting richer too.

muirgeo June 22, 2011 at 9:36 pm

“The rich are getting richer and the poor are getting richer too.”

Oh i’m sure it was just an oversight on your part but you forgot the data that backs up your claim. I mean I know you have it there somewhere… right? It’s not like you just made that up… of course not.

Ken June 22, 2011 at 10:00 pm

muirgeo,

“Oh i’m sure it was just an oversight on your part but you forgot the data that backs up your claim.”

Yes. It’s called the Statistical Abstract of the United States. It’s all there, if you can understand simple numbers.

Regards,
Ken

Sam Grove June 22, 2011 at 2:26 pm

Leftist straw man ad hominem attack on libertarianism.

Dan H June 22, 2011 at 4:09 pm

The “somehow” is an admission that no one can possibly know what one great entrepreneur out of billions of peoplecould come up with if left to his own devices. One great idea can create 100,000 jobs in no time. Who better to come up with these ideas? Billions of minds motivated by self-interest (profit), or a small group of politicians and czars motivated by a different self interest (power)?

The greatest economists could have never predicted Microsoft even ten years before the creation of Windows. It was one man with a vision, and a few investors that made it possible.

Ken June 22, 2011 at 4:53 pm

Nemoknada,

“How many of those jobs are government positions you wish did not exist?”

Less than 2.5 million are federal employees, civilian and military combined. There are a couple of things striking about your observation:

1. The federal government is currently consuming around 20% of the GDP, yet employs less than 1% of the population. Can you say kleptocracy?

2. The only way a federal job can exist is if the private sector is so profitable that the federal government can siphon off enough resources to sustain that job. Government jobs do not produce wealth, they merely consume it.

“Have we added enough?”

Have YOU added any jobs? Have you developed any process or piece of equipment that creates jobs? Or are you only interested in taking what someone else all ready has, relieving you of any responsibility of producing enough to sustain your life style?

I’m quite certain many of my previous jobs relieved many workers need to toil away doing things machines can do better and faster. And these machines never get bored with the same repetitive mind numbing jobs they get to do.

“Will we continue to add enough as the technology gets cleverer?”

Yes. Not only that, but people will be able to work less and consume more as people become ever more productive. The average number of hours worked today is far less than it was just 50 years ago, yet we consume far more than we did 50 years ago.

The goal isn’t to work as much as possible. The goal is to work as little as possible in order to live the lives we want. In other words, the goal is leisure and personal time, not the maximum number of hours logged at work. Unless you want to log a lot of hours at work. In that case, knock yourself out and reap the benefits of being richer than most.

“Roberts writes about how productivity helps “consumers.” I think he means consumers who still have jobs. ”

Are people without jobs no longer consumers? Do they no longer need food, clothing, shelter, etc? Of course they do. It is these people who are helped the most by falling prices, which are brought about by greater productivity.

The rest of your argument is just a tired ad hominem, with pretty much no basis in reality, that has been rebutted over and over again here on this site.

Regards,
Ken

Dallas Weaver June 23, 2011 at 12:37 pm

As someone who actually made contributions which have resulted in making farmed shrimp cheaper and more sustainable than zooming around devastating the ocean floor by clear cutting the bottom with shrimp trawlers, it is clear that the entire world has benefited from turning shrimp from a luxury food for the rich (in the 50′s to the early 90′s) to an all-you-can-eat commodity around the world. My vision is that shrimp will eventually be cheaper to produce than chicken and that even very poor people can have the high quality, good tasting shrimp. Inexpensive sources of protein are desperately needed in a world whose overpopulation is only continuing to increase.

It is true that the goal of expanded, efficient shrimp farming puts shrimp bottom trawlers out of business and puts an end to the resultant massive environmental impacts . Among other benefits, trawlers will no longer be able to kill turtles: it is a fact that necropsy of the dead turtles found after the BP oil spill last year revealed them to have been killed by bottom trawlers, not the oil in the water. The creatures had mud in their lungs, not oil.

Sadly, it is almost impossible to obtain aquaculture permits in the US. Therefore, almost all aquaculture jobs are being created in other countries, where aquaculture is the fastest growing agricultural sector. The issue for offshore and other aquaculture in the US is not wages, nor financing nor demand for fresh seafood. The problem lies in the difficulty obtaining permits and regulations created by many too many government employees trying to justify their jobs by creating bureaucratic hurdles. Having a dozen or more regulatory and permit hurdles to leap where each agency or bureaucrat is given the power to adjust the height of the hurdles upwards, makes the permit process effectively impossible in the US.

In any given country, productivity improvements can result in “structural” unemployment, if the government prevents adaption to the change and bans future innovation from being implemented. We are in such a state today when several potential jobs growth sectors are excluded by permit times, bureaucratic delays, NIMBY responses, etc.

We have excluded all manufacturing jobs from this country in fast changing and fast responding markets by making the permit times for new manufacturing facilities far too long. Could you get permits for a 100,000 employee i-Pad manufacturing facility in California fast enough to following the increasing demand? Most assuredly not! Indeed, you couldn’t get the bureaucratic traffic studies done in the time it took for the market demand to double. Apple Computer was forced to turn to China with its ability to respond quickly and efficiently to the demands of the times.

When the price of silicon for solar cells went up as a result of high demand a few years ago, in China someone built a billion dollar chemical processing plant in a single year. That the plant paid for itself in 4 months at the high silicon prices. In the US, you couldn’t even get a significant portion of the environmental report done in a year, let alone new power lines, and permits for a chemical processing plant and construction.

Jobs may indeed be lost due to automation. However, this frees up money which can then be used to expand in other job-producing areas, but only if the ability to expand in these other areas is allowed. Job loss and unemployment in America are not due to the use of ATM machines. This state of affairs is due to the unwillingness and inability of our society to permit the creation of jobs which could be filled by workers displaced by the ATM machines.

We simply must stop saying NO to change and giving veto power to everyone whose provincial self-interests might be impacted by the desperately needed YES.

vikingvista June 22, 2011 at 5:25 pm

Don’t the unemployed benefit from lower prices? You are confusing free trade with trade unions. It is the M.O. of the latter to increase both prices and unemployment.

kyle8 June 22, 2011 at 5:56 pm

Nemoknada, we have had this discussion before, and you are still wrong. I guess you just want something to worry about.

I suppose that it is possible that technology, increased productivity, and a higher standard of living will result in a loss of jobs, IT NEVER HAS IN THE ENTIRE HISTORY OF MANKIND!! But I suppose it could happen.

Or, you could find something real to worry about like a runaway government.

BCanuck June 22, 2011 at 9:28 pm

I don’t think libertarians are anymore self-reliant than the average person. They still rely on a network of family, friends and professional aquaintenances plus general civilization all around them. Few libertarians choose live on desert islands or mountain tops where they must be self-reliant.

Where you would see a difference is libertarians are less reliant on government. An unemployed libertarian may go the food bank or Salvation Army shelter and seek help and charity from others rather than accept government unemployment money hand-outs. But he stil relies on others in such a situation. Which is a better choice: accepting help willingly and voluntarily given by your fellow citizen OR seeking money taken by the Government in the form of forced contributions, aka taxes?

Nor are libertarians less caring about their fellow human beings. And I don’t think they are more judgmental and think that people ‘deserve their fate’. Thinking for yourself and working hard can lead to success but life can be randomly tragic or kind. Libertarians only think that the Government isn’t moral and/or efficient by dispensing care (and punishment) through politicians and bureaucrats.

YOU may think that government is the best way to create a peaceful and prosperous society but it doesn’t change that fact that government is FORCE. Goverment relies on FORCE. It can be a democratically elected goverment and be a society of laws but it is still force and coercion at the root. Libertarians would argue that a society with little or no government is morally superior and would be more peaceful and prosperous than the typical bureaucratic State now the norm throughout the world.

muirgeo June 22, 2011 at 10:01 pm

There were roughly that many 140 million…. ten years ago.

http://2.bp.blogspot.com/-JWpT8IEaxHE/TgHvp277WBI/AAAAAAAAADs/2BspWxZMeVM/s1600/Employmentj.jpg

Not working….

rpl June 22, 2011 at 8:32 am

Well, I can’t say that’s confidence inspiring.

Perhaps not, but it is at least honest. On the other hand, all those people who claim to have a sure-fire solution that will bring prosperity for everyone, they’re not being honest with you because they have no more reason to think their solutions will work than Russ has to believe that “somehow” jobs will get created, as they have in the past. Russ, at least, has historical precedent on his side.

Hopefully, somehow, we’re not quite where the sidewalk ends yet.

In the past new jobs have, in fact, appeared to replace the ones lost to trade and technology. Is there some reason to think that this time will be different? Why are you so convinced?

dsylexic June 22, 2011 at 9:03 am

well if we call the “somehow” as the invisible hand,people like you would want to point to emma rothschild and other sundry leftists mischaracterization of adam smith,i guess. there is no winning with you folks

Sam Grove June 22, 2011 at 2:27 pm

there is no winning with you folks

You’ve figured them out.

vikingvista June 22, 2011 at 12:33 pm

It isn’t just somehow. The increased purchasing power is an incentive to the entreprenuer, because it means increased purchases. Competition spreads that new purchasing power around. New resources, including labor lost, and more, are what produce those new purchases. Resources therefore don’t generally lose real value, they just get reallocated to different ends.

WhiskeyJim June 22, 2011 at 1:05 pm

Shouldn’t the economy put people ahead of profits? Well, it does.

Beautifully worded.

Somehow, new jobs get created to replace the old ones.

Actually NOT ‘somehow.’ Entrepreneurs risk their livelihoods and their security to produce something new for which consumers are willing to pay them. Sometimes they are successful. Sometimes they fail. But it is the never ending search to provide value that ‘creates’ new jobs and defines progress.

You don’t ‘create’ a job. You create value, which sometimes involves labor. Anything else is just playing with the porridge.

Dave June 22, 2011 at 7:39 am

I thought it was a good column, but do we have empirical evidence about the magnitude of this claim:

“There’s no easy way to instill confidence, but we know how to kill it—create uncertainty about taxes and regulations.”

It’s not that I buy the Keynesian explanation either, but my intuition is that tax and regulatory uncertainty is not what is primarily holding back confidence/job growth. Yet I keep seeing this claim, at best accompanied by a piece of anecdotal evidence, and usually not even that. Do we really believe that most businesses are shying away from expansion into profitable opportunities right now because they are so worried about drastic changes in tax and regulation in the future? I think the health plan that was passed may cause some hesitation for expansion at the threshold that would make providing insurance mandatory, but that doesn’t explain 9% unemployment…

Scott June 22, 2011 at 7:45 am

The economy is suffering because governments helped cause global malinvestments, people believed that government intervention could perpetually hide said malinvestment, and that in america a service economy could actually create wealth.

vidyohs June 22, 2011 at 11:37 am

What would you call empirical evidence? If the owner of a company employing 50 + people tells you that the reason he directs his company to get as much out of each employee as possible, because he is afraid (his words) to hire more because of his uncertainty of those precise reasons, taxes instability and regulatory uncertainty, plus his worry over the value of the dollar sliding steadily downward, plus his worry over the President’s seeming determination to see all of American business unionized, should we believe him – take his word for it; or, in your search for empirical evidence do we withhold belief until we audit his books and see what his hiring practices have been in the past?

I took his word for it. The man I speak of was the defendant in the deposition I took yesterday, and I had a chance to chat with him on a long break. Business is very much my interest, so I probed him on the subject, and he didn’t take much probing to unload his opinion of the last two years of Bush and now the first two years of Obama, and where this is all evidently taking us.

But, that gentleman isn’t the only one to express those opinions. My son-in-law is the inheritor and now CEO of a small business that employs about 30 people, and his comments are in the same vein.

To make it brief, my circle of friends and acquaintances included a large number of small business owners or men highly placed in large business; across the board you won’t find a Keynesian among them.

Does getting it straight from the horses mouth count as empirical, as long as the horse isn’t a looney lefty, I will accept it as such.

Dave June 22, 2011 at 1:05 pm

Vidyohs, that’s anecdotal. I believe you, just as I believe that regulatory and tax uncertainty reduce confidence and job growth at some margin and magnitude. The question is: what is that magnitude, and how does it stack up to the other causes of our sluggish economy / job market?

The problem, as it pertains the column, is this:
1) Obama put forth a theory of a structural problem.
2) Russ dismantled Obama’s theory eloquently and correctly.
3) Russ then puts forward an alternative theory of what’s holding back the economy / job market, and pins it on regulatory and tax uncertainty.

If he had stopped his column after #2 (the bulk of the column), it would have been bullet proof. But by offering an alternative explanation to Obama’s, Russ has implied that it is the most important problem with regard to unemployment. I don’t know that there is data to support that, but if there is, I would love to see it.

Again, I don’t agree with Keynesians or lefties, but if you’re going to put a statement like that out there in the WSJ, you had better be prepared to defend it, or else you risk sounding like an ideologue, and you will not convince the undecided to see your point.

John Dewey June 22, 2011 at 2:31 pm

“Vidyohs, that’s anecdotal.”

Certainly it is. And when one hears enough anecdotal evidence, he should realize that there is truth to the assertion. If you are undecided about whether the reasons Russ provides are inhibiting job growth, why don’t you go find more evidence to support or refute his statement?

The author of a piece appearing on the WSJ Opinion page should not be required to provide supporting data. This is not a scientific journal.

Russ Robert’s argument is logical. It is supported by anecdotal evidence. That’s likely enough for most folks. If you need more evidence, search for it yourself.

Dave June 22, 2011 at 3:12 pm

John,

“And when one hears enough anecdotal evidence, he should realize that there is truth to the assertion.”

I agree that there is some truth, but it does not seem to me likely to be the primary reason high unemployment is so high. I’m questioning magnitude. I work for one of the largest companies in the world. In the past several years, we have had layoffs, and we have offshored a large number of jobs. We also recently made plans to hire a large number of skilled workers in the US. I was involved in making those plans. At no point during those discussions did anyone say anything along the lines of, “But wait – shouldn’t we avoid hiring people because the government might raise taxes or impose regulations in the future?” That’s my anecdotal evidence. It proves very little for the economy as a whole, just as anecdotes to the contrary prove little.

“If you are undecided about whether the reasons Russ provides are inhibiting job growth, why don’t you go find more evidence to support or refute his statement?”

The burden of proof is always on the one making the assertion. I am making no assertions about why unemployment is so high. If the burden of proof is always on the skeptic, then we could have an endless number of claims that we would have to treat as equally valid. Maybe I should assert that unemployment is so high now because the Patriots lost Super Bowl XLII. Seasonally Adjusted Unemployment was only 4.8% that month and climbed steadily higher afterward. Football fans were so distraught that they fired lots of workers, and haven’t hired them back. According to your beliefs,if you disagree with me, the burden of proof falls on you. But at least I was able to offer some supporting data so the conversation can be had…

John Dewey June 22, 2011 at 3:52 pm

Dave: “The burden of proof is always on the one making the assertion.”

I could not disagree more.

Russ provided a logical explanation for lackl of job creation. You questioned his logic, and so the burden is on you to provide evidence or counter-arguments. All you have offered is:

1. your intuition;
2. a single anecdote.

If you have an argument – other than your anecdote about not hearing Russ’s explanation at one company – please provide it.

Dan H June 22, 2011 at 4:02 pm

John Dewey is absolutely correct.

Russ provides a logical assertion. You accuse Russ of being wrong. The burden is on you, the accuser, to refute him.

If I say A = C, and my reasoning is that I have discovered that A=B, and B=C, then it is up to you to disprove that either A=B or B=C (or both). If you cannot disprove the basis for my assertion, then I have won the argument.

James June 22, 2011 at 4:47 pm

I agree with Dave on this. Although the argument proposed by Russ is logically sound (business owners certainly don’t like uncertainty about taxes and regulations), there does not appear to be a strong rationale to think that it is one of the most important causes, or even an important cause, of the lack of confidence/job growth.

Dave June 22, 2011 at 5:08 pm

Ideologues rely on anecdotes to confirm their biases. Don’t get me wrong; ideologically, I am quite similar to Russ. I agree with roughly 95% of what he writes on this blog. But I still require evidence and proof.

Here is some evidence that taxes are not the main problem (the data set goes through August 2010, but that should be OK because unemployment had peaked almost a year earlier by then):

http://graphics8.nytimes.com/images/2010/09/14/business/economy/economix-14smallbizprob/economix-14smallbizprob-custom2.jpg

It is from a survey of small business owners asking them to name their “Single Most Important Problem.” Taxes are relatively high on the list, but they have always been high. Not just because of recent uncertainty about them. The answer of “Government Requirements and Red Tape” is harder to measure across time because of the nature of the graph, but it looks like its growth is relatively small in recent years. And that answer is certainly less common now than in the mid-1990s when unemployment was much lower. “Poor sales” is clearly the answer that has increased the most. Now, a Keynesian would look at that and declare that aggregate demand is the problem. I am not making that claim. But it does suggest that attitudes toward taxes have not changed much in decades, while the unemployment rate has skyrocketed just recently along with the “Poor Sales” answer. That certainly lines up with my own anecdotal, large company hiring experience.

So to recap, Russ made a claim with no evidence, just theory, to support it. I expressed skepticism about the magnitude of tax and regulatory uncertainty as it affected unemployment relative to other factors. I have now presented evidence that suggests his claim is not correct, as least as it pertains to small businesses and their perceptions of taxes and regulations. I’ll let you all google the literature pertaining to the contribution to job growth by growing small businesses to make that connection. But please continue making anecdotal claims about your uncles and neighbors. As I said, I believe you, but those anecdotes do not prove much.

Dan H writes,

“If I say A = C, and my reasoning is that I have discovered that A=B, and B=C, then it is up to you to disprove that either A=B or B=C (or both). If you cannot disprove the basis for my assertion, then I have won the argument.”

True, but Russ did not use the transitive property in his argument, so your point is moot. He didn’t actually bother to prove the claim that I am refuting, and hasn’t presented any data to support his statement that I am aware of.

John Dewey June 22, 2011 at 7:27 pm

Some evidence which contradicts the evidence Dave has just provided:

Thirteen months ago, Towers Watson surveyed 661 large U.S. employers about how they expect Obamacare to impact them.

Over 90% said they believed the Patient Protection and Affordable Care Act (PPACA) will increase their company’s health care benefit costs. Just about every economist will tell you that increasing the cost of labor will cause firms to use less of it. And some of these firms are planning to do just that: 12% have already decided they will reduce employment as a result of the higher costs of PPACA

John Dewey June 22, 2011 at 7:50 pm

From the April-2011 Small Business Survey (900 businesses) conducted by the U.S. Chamber of Commerce:

Please read the following statement and respond whether you agree or disagree

“The taxation, regulation and legislation from Washington makes it much harder for my business to hire more employees”

Strongly Agree: 47%
Somewhat Agree: 29%
Totally Neutral: 15%
Somewhat Disagree: 5%
Strongly Disagree: 3%

John Dewey June 22, 2011 at 8:00 pm

So let’s recap:

Dave has provided “evidence” which is not exactly relevant (‘Single Most Important Problem” is not “Reason We’re Not Hiring”) to support his skepticism about Russ’s argument.

I have now provided evidence from three separate surveys showing that fear of taxes, expected higher health care costs, and regulations are exactly making it difficult for firms to hire.

Please note that I did not provide this data until Dave provided survey results with shich I disagreed. The burden of proof to refute Dave’s argument was on me.

vidyohs June 22, 2011 at 4:38 pm

No Dave, it isn’t anecdotal. Anecdotal is when you get it relayed through one or more middle parties.

Having someone tell you, I did this in relation to that qualifies as empirical data.

Dave June 22, 2011 at 5:11 pm

I can’t believe I have to explain to you what anecdotal evidence is…

Wikipedia has a pretty good entry: http://en.wikipedia.org/wiki/Anecdotal_evidence

I’m using their 2nd definition of the term:

“…evidence that may be true but cherry-picked or otherwise unrepresentative of typical cases

(2) Evidence, which may itself be true and verifiable, used to deduce a conclusion which does not follow from it, usually by generalizing from an insufficient amount of evidence. For example “my grandfather smoked like a chimney and died healthy in a car crash at the age of 99″ does not disprove the proposition that “smoking markedly increases the probability of cancer and heart disease at a relatively early age”. In this case, the evidence may itself be true, but does not warrant the conclusion.”

vidyohs June 22, 2011 at 6:14 pm

@Dave
You’re right, it is anecdotal to you, my mistake.

Dave June 22, 2011 at 6:41 pm

No, it is anecdotal to everyone, including you. It’s too small of a sample to make generalizations.

vidyohs June 22, 2011 at 7:12 pm

No Dave, your dismissal of anecdotal evidence as told to me is not as well thought out as you’d like to pretend. Anecdotal evidence as was presented to me as truthful testimony from some one considered to be honest is, is the kind of justification as sworn testimony to send someone to prison for life, possibly even forfeit their life.

To a jury, all eye witness testimony (and who a better witness than the person doing it) is anecdotal and as sworn testimony I’d say it become empirical evidence.

When a man whom I suspect of being honest tells me he is doing something, I do not take it as anecdotal, he is telling me what he did.

Dave June 27, 2011 at 7:40 pm

“When a man whom I suspect of being honest tells me he is doing something, I do not take it as anecdotal, he is telling me what he did.”

I still can’t believe you never understood this point. I don’t dispute that your contacts are telling you factually correct statements about themselves. Anecdotal evidence means that those stories, while true, cannot be extrapolated to the population at large because the sample size too small.

“To a jury, all eye witness testimony (and who a better witness than the person doing it) is anecdotal and as sworn testimony I’d say it become empirical evidence.”

In a trial, one event happened. That sample size IS the population in question. That’s not true for a subject like the United States unemployment rate. Yes, your friend is a point of empirical evidence, but the conclusions you can draw from that to the population at large are very limited. And that’s true even if it’s 10 friends, or however many you’ve talked with personally.

John Dewey June 22, 2011 at 7:30 pm

And more evidence that taxes and health care regulations are inhibiting hiring comes from a September, 2010, Office Depot survey of small and medium businesses:

“According to the latest Office Depot Small Business Index, which surveyed more than 1,000 small business customers, 56% of small businesses are expecting increased profits within the next six months, while 59% expect an increase in their total business sales. However, 81 percent of respondents stated that they had no plans to hire within the next six months, citing reasons such as higher healthcare costs (18%), fear of higher taxes in 2011 (15%), lack of available credit (14%), and continued economic uncertainty (14%). “

Dave June 27, 2011 at 7:34 pm

The effect on employment of profits is lagged by about a year. Check out the graph to the right here. That appears to be a pretty tight relationship, with the change in profits preceding the change in employment by 12 months.

WhiskeyJim June 22, 2011 at 1:12 pm

Let’s reverse this question, just for fun.

Let me be king for 1 year.

I will immediately begin to remove regulations. I predict the economy (not me) will produce 500,000 jobs a month within 4 months. And in six months, it will be throwing off more than that.

So let’s ask your question this way. Do you think that is possible?

kyle8 June 22, 2011 at 8:16 pm

Not exactly. It would take more than just removing regulations at this point, (although that is certainly a laudable goal).

We have an inherent uncertainty because anyone who has their eyes open can see that our government is headed for a crises in which it cannot pay it’s bills and will be like either California or Greece.

Unless spending is brought under control as well as regulations then business uncertainty will be the order of the day.

Whiskey Jim June 22, 2011 at 9:26 pm

Well, much spending is forced because of regulation:)

For instance, I believe I could create a free market in health care, with the attendant decrease in costs and prices while improving supply and quality, merely by removing regulation already in place.

Ron H. June 22, 2011 at 3:23 pm

Dave,

Do we really believe that most businesses are shying away from expansion into profitable opportunities right now because they are so worried about drastic changes in tax and regulation in the future?

The answer is in your own question. depending on what assumptions a business owner makes about future taxes and regulations determines whether the expansion or new venture he is considering appears be profitable. When this is uncertain, the most prudent course of action may be “wait and see”.

gil June 22, 2011 at 3:39 pm

“Do we really believe that most businesses are shying away from expansion into profitable opportunities right now because they are so worried about drastic changes in tax and regulation in the future?”

Yes, we do.

The 9% is what we can see and with time that number will recede (hopefully anyway). What is truly tragic however, are the incalculable opportunities that will remain unexplored and the currently unimagined creativity that will remain forever unleashed as a result of the fear and apprehension. This is where the real damage is. And as opposed to the unemployment rate, we will never be able to put a number on it because it will remain forever unknown.

Seth June 22, 2011 at 5:18 pm

“Do we really believe that most businesses are shying away from expansion into profitable opportunities right now because they are so worried about drastic changes in tax and regulation in the future?”

It’s not so much that they are explicitly saying ‘we’re uncertain, don’t hire’ (though some are), rather it tends to factor implicitly into the evaluation of potential profitability.

For example, companies may protect against these additional risks by using a higher discount rate in their evaluations or allocate fewer resources to innovation and pass on opportunities that would have been viewed more favorably in an environment without the extra regulatory risk.

Since all investment is a gamble, it’s tough to determine which will pay off. It’s best to let as many of those bets get placed as possible. If regulatory risk is causing only the safe bets to get placed, its no surprise to me that we’re not getting the innovation to create more jobs.

Scott June 22, 2011 at 7:40 am

Seems to me that increased technology allows people to work a lot less and still provide the same standard of living. Increased technology does not kill jobs. (on the macro level of course)

muirgeo June 22, 2011 at 9:57 am

It should but it doesn’t when your labor pool suddenly expands by 1 billion… then you get this;

http://www.irle.berkeley.edu/events/spring08/feller/productivity_wages_graph.gif

muirgeo June 22, 2011 at 10:06 am

And this…note the graph;

http://www.stanford.edu/group/scspi/

Libertarianism works when everyone has access to a job. Americans just need to be a little patient because there are 2 billion people now in line for jobs… and they’ve been moved to the front of the line…

Gordon Richens June 22, 2011 at 10:55 am

Indeed. It still comes as a shock to many that people with money to invest have far more options than they did just a decade ago – which underscores the massive “but” to Scott’s comment.

With a constant regulatory and tax environment, technological change can be good. But introducing such external uncertainties as taxation, regulation or inflation, technological change can be a catalyst for capital flight – which is why the sub-prime meltdown was such a game-changer.

gil June 22, 2011 at 6:08 pm

2 billion people? Wouldn’t it be the responsibility of their governments to ensure Where are their governments??? Why are their governments not creating their own jobs for them, wholly created from within their borders so as not to entice their citizenry to steal our jobs which were made, designed and manufactured in our country??

I mean, there’s only a limited number of these things to go around and every government must ensure that there are enough of them within their borders! Can’t find them? Well as my mom would say: Look more! I’m sure if they looked hard enough they would find those jobs somewhere within the confines of the borders. Maybe it’s under the bed or something.

And what happened to child prostitution? Is this no longer a viable option in those parts? Did basic human decency and compassion just get the better of these people, or was it their dignity? But Muirgeo is 100% correct in his assertion that because we are Americans we inherently deserve to be in the front of the line and get first pickings at the job factory or wherever it is they create jobs.

Whiskey Jim June 22, 2011 at 9:29 pm

+ like +

And don’t forget garbage sorting, and burning dung.

Gil June 22, 2011 at 9:56 pm

God only know why child prostitution should ever be viable.

Scott June 22, 2011 at 7:15 pm

This graph fails to produce a single conclusive point. Where is cost of living? An income gap alone is not the problem. What if everyone made $100k per year, but the top 1% made 5 million per year. That’s a big income gap you’d say, but that wouldn’t be a problem if all our lower wage earners could live comfortably.

“suddenly expands by 1 billion” what is this supposed to mean? 1 billion people were born yesterday and they immediately matured and came of age? I guess “suddenly” has a more dramatic affect. On a side note, here’s another massive failure of international poverty programs that encourage the poor to have more children.

To explain my previous point, what difference does it make what happens on the micro level to jobs as a result of technology? You wouldn’t expect people to still be making wagon wheels now that that technology has been eclipsed by automobiles, would you? The point is that the jobs will be created by entrepreneurs because there will never be a lack of effort that people would like to see expended, meaning there will always be things to create, improve, maintain, because people will never stop in their desire for more wealth and a better standard of living.

Scott June 22, 2011 at 7:28 pm

Am I expected to believe that wages should increase when productivity increases due automation? Sorry, that makes no sense. Why would a company invest in automation if its labor costs would go up for the increased productivity of a machine? Instead what your graph fails to show is what happens to prices when productivity due to automation increases.

Whiskey Jim June 22, 2011 at 9:31 pm

Am I expected to believe that wages should increase when productivity increases due automation?

Scott, who gets paid more, the guy with shovel, or the guy driving the front end loader?

Why?

Scott June 23, 2011 at 9:36 am

You’re implying a sequence of events that don’t necessarily happen.

Second, not every automation requires increased skill levels from the new worker.

Third, the other most obvious point that I made (and you missed) is that the other shovel guys were laid off, found another job etc, and (oh my god!) the company’s labor costs went down.

dsylexic June 22, 2011 at 9:05 am

labor/jobs are a means to an end-which is to enjoy the fruits of the labor. labour is misery.we want lesser jobs and more prosperity.

dave smith June 22, 2011 at 9:37 am

I love the comment(s) in the WSJ calling for technology to replace cushy tenure track jobs. The types that make those comments are just my favorite.

Name Redacted June 22, 2011 at 10:08 am

Its gonna happen, computers will eventually make education cheaper and some form of testing should make the certification aspect of college also cheaper.

muirgeo June 22, 2011 at 9:50 am

As Russ said, “Somehow, new jobs get created to replace the old ones.” They will come when an equilibrium in wages and working conditions and standard of living between our workers and Chinese workers and other 3rd world workers is reached.

But for now…its great to be a CEO…. http://www.irle.berkeley.edu/events/spring08/feller/productivity_wages_graph.gif

muirgeo June 22, 2011 at 10:02 am

Again…. things will not get better until demand picks up. Demand will not pick up until our wages pick up. Wages will not pick up until employment picks up. Employment will not pick up until working conditions and living standards for the average American worker approaches those of the average Chinese worker.

So yeah somehow new jobs will be created to replace the old ones that were off-shored…. but it could be a long long time….

We are in deep doo-doo… time to pray to the Invisible Hand God.

Emil June 22, 2011 at 3:00 pm

“Employment will not pick up until working conditions and living standards for the average American worker approaches those of the average Chinese worker.”

1) it’s the other way around. The working conditions and the living standards for the average Chinese worker are (fast) approaching those of the american worker. This is a good thing.

2) what do you have against the Chinese? Are they not allowed to compete with us on the job market?

muirgeo June 22, 2011 at 4:21 pm

“2) what do you have against the Chinese?”

Hmmm… maybe the fact that they are communist. It kind of bothers me that we send kids towar to die for this country fighting communist. It bothers me that we make rules for our citizens to make society civil, to keep the rivers clean, to prevent cjhild labor, to abolish salvery…. then we open open the flood gates and force our workers to compete with communist workers who have none of the same protections. Trade with communist China is more a form of endentured serviture than free trade.

As Greider states so well;

“The great multinationals are unwilling to face the moral and economic contradictions of their own behavior – producing in low-wage dictatorships and selling to high-wage democracies. Indeed, the striking quality about global enterprises is how easily free-market capitalism puts aside its supposed values in order to do business. The conditions of human freedom do not matter to them so long as the market demand is robust. The absence of freedom, if anything, lends order and efficiency to their operations.”

Ken June 22, 2011 at 4:56 pm

“maybe the fact that they are communist”

The Chinese government is Chinese. Again you conflate government with the general population. The government and the governed are NOT the same.

Regards,
Ken

Ken June 22, 2011 at 6:54 pm

Edit: “The Chinese government is communist”

Dan J June 23, 2011 at 2:50 am

Communism is to socialism is to collectivist govt programs

As is Darwin’s evolutionary man is to ape is to amoeba

As is Obama to Carter is to FDR is to Marx

Dan J June 23, 2011 at 2:59 am

Thnx mister failed FDR mindset…… Let’s mandate minimum pricing on products and services set by preferred industry leaders and higher minimum wages…. That should make things pick up……
Maybe a blue eagle in windows that shows business solidarity. More management of agriculture by govt to artificially raise prices…… Then the fundamental transformation would be complete……. Equal misery and poverty amongst most just as FDR was creating.

Name Redacted June 22, 2011 at 10:06 am

Russ, it isn’t uncertainty thats the problem now. Its certainty of a bad result. They know their future marginal costs to labor will rise a lot, so why invest in new workers that have to be trained only to have to fire them again soon after when costs rise.

Jason Collins June 22, 2011 at 10:45 am

I feel that Obama is getting a bit of a rough deal through some poorly chosen words – I think he’d agree that the “structural issues” such as the reduction in bank tellers are progress. However, these sorts of articles are always nice to see as there are plenty of vested interests out there who wouldn’t agree.

vidyohs June 22, 2011 at 11:46 am

Now why would Obama have used poorly chosen words in a speech? Kind of hard to answer when we know he uses a teleprompter in everything but a “good morning” greeting to his staff, and even that may be debatable.

Safer to conclude that those words were on the teleprompter and written by someone as equally ignorant of business as is Obama.

Face it Jason, Obama’s only true qualification for President was his skin color and its appeal to the political correct call to diversity; however, we do have to recognize that Obama’s knowledge and skills regarding business negatively exceeds that triviality, as does those of everyone he surrounds himself with.

Jason Collins June 22, 2011 at 1:22 pm

The comment was made in a one-on-one interview – and you can see the interviewer (not the teleprompter) that he is looking at.

vidyohs June 22, 2011 at 4:35 pm

Do you routinely see Obama’s teleprompter? Not seeing it is no proof that it wasn’t there. Especially on a TV set where such things are the norm. Of course you could believe that the entire interview was not scripted and was totally off-the-cuff. You could, but I don’t.

Whiskey Jim June 22, 2011 at 9:33 pm

I agree vidyohs.

Generally though, I can tell when Obama is just talking. He fumbles and repeats himself A LOT. It is generally almost like listening to a different person.

vikingvista June 23, 2011 at 2:23 am

Turns out they have to start typing phonetically on the teleprompters lest he go on about dead marines again.

Jason Collins June 23, 2011 at 7:53 am

From http://www.uclaforecast.com/contents/archive/2010/media_120710_1.asp (be nice to see the actual report, but Leamer is the director of the company that put out the release):

Leamer argues that the national job markets certain structural problems that have created a mismatch between what employers are looking for and what unemployed workers have to offer. These structural issues include the loss of manufacturing jobs to a variety of “competitors” both technological (robots, microprocessors) and human (foreign workers and recent immigrants willing to work for less) and the housing crisis that continues to jeopardize the construction sector.

nailheadtom June 22, 2011 at 11:20 am

Federal policies that produced malinvestment in housing inevitably produced commitments by individuals to seek their livelihood in housing. The housing bubble produced trained electricians, plumbers, cement finishers, real estate agents, mortgage service employees and appraisers who will need to find other ways to make a living. Minimum wage laws, unemployment insurance and government efforts to prop up the housing industry impede this re-assignment of skills and, in fact, restrict the access emerging industries have to the pool of available labor.

Another Dave June 22, 2011 at 1:57 pm

Russ is whistling past the graveyard. Innovation is great, and everybody loves lower prices. What about the underclass? What about when people who would have been the lower-middle class 40 years ago are forced into the underclass by a lack of decent jobs due to offshoring and robots? How many baristas can the Google-ocracy support?

John Dewey June 22, 2011 at 2:44 pm

Another Dave,

Offshoring and automation have been increasing for decades. Yet American businesses have continued to create millions of “decent” jobs.

If you believe that retail jobs are the only service sector jobs, then perhaps you need to do some research about the American economy, You might want to start at the Bureau of Labor Statistics website and look at the Occupational Employment and Wage Estimates. You would learn that:

2.2 million Americans work as truck drivers

3.3 million Americans are registered nurses and LVNs

4.9 million Americans work in installation,.maintenance and repair occupations

You can find much more at the BLS website. My suggestion is that you learn there about jobs in the U.S. rather than listen to some demagogue on cable TV.

Rugby1 June 22, 2011 at 3:23 pm

” How many baristas can the Google-ocracy support?”

Millions. You do understand that in the labor market people do not stay in the same job forever? People actually work their way up and often delay gratification in order to generate long term positive returns.

People in the “underclass” or often people at the beginning of their careers, this is nothing to worry about. Moreover who cares if jobs get offshored or some positions are replaced by “robots.” Other jobs will spring up.

Let me give you an example. A hypothetical car factory lays off 2/3 of it’s hourly workers because innovation allows for robotics to build several portions of the car. Ok? Now you may just see the job loss, but ask yourself; How were those robots designed, once designed who built the prototype, how were they put into production, once put into production they had to have been sold, then packed, transported, installed, maintained/services, and eventually disposed of. How many other jobs were created in that process that you never see becuase they were small numbers of jobs created by disparate groups? As Thomas Sowell would say, when you look at the labor market, look beyond stage one. What you find is pretty amazing.

Rugby1 June 22, 2011 at 3:24 pm

Darn it. Or = are.

I_am_a_lead_pencil June 22, 2011 at 2:11 pm

“Demand will not pick up until our wages pick up.”

Because capitalists don’t engage in new production until worker wages are sufficiently high…..egads.

Dan H June 22, 2011 at 3:18 pm

Muirgeo is an idiot. Supply begets demand dummy, not the other way around. The fundamental fact about economics is that you can’t consume more than you produce. It’s fundamentally impossible in the aggregate. Imagine yourself on a desert island. Can you consume food before you acquire it? Umm, no. You must produce first. Cold hard facts. That’s the way the world is. It isn’t easy, but things now are a hell of a lot better than they were even 50 years ago (much less 200 or 5000 years ago). If production did not have to precede consumption, we’d all be sitting on the banks of the chocolate rivers eating candy to our hearts delight while jacking each other off and ejaculating rainbows.

Whiskey Jim June 22, 2011 at 9:36 pm

LMAO

Reuvain Borchardt June 22, 2011 at 7:34 pm

the always-humble Don has a letter to the editor in today’s WSJ as well… a great day for Cafe Hayek! http://online.wsj.com/article/SB10001424052702304070104576398063595279314.html?mod=ITP_opinion_1

Molon Lobe June 22, 2011 at 9:00 pm

Its a shame the Luddites who protest about “justice” are the very ones who have never run a business, never created a job, never employed anyone.

Are we to return to the era of elevator operators, milkmen, and carhops? In other word lets stop progress for lots of menial jobs. Think of the tens of thousands of people who would be employed if we got rid of computers and returned to typewritters and had to employ armies of office workers. Forget your standard of living would collapse as the price of goods skyrocketed.

Its good to wrap yourself in the flag of “social justice” regardless of the consequences.

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