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On Jobs and Economic Dynamism

In my latest column for AIER I write about jobs and misguided efforts to protect particular ones. A slice:

When, decades ago, the prospects of earning a good living on the farm fell, the farmer wondered anxiously how his grandchildren would earn their living. He could not have known that some would work for companies called Apple, Google, FedEx, and Ikea, while others would be freelance web designers working out of their lofts in SoHo. (Fifty years ago, all web designers crawled on eight legs.) These jobs would never have existed had not human creativity and energy been freed from older occupations — which gets us to the most important thing that economists know about jobs.

In a free economy, we have jobs that we don’t want to lose only because we are free to lose the jobs that we have.

The great majority of jobs that permeate the modern economy are created by our freedom as consumers to spend our incomes as each of us sees fit – including our freedom to change how we spend our incomes – combined with our freedom as entrepreneurs to create new spending opportunities for consumers.

If this dynamic process of consumer freedom and entrepreneurial experimentation were stopped, in an effort to freeze all existing jobs into place, the very logic of our economy would go haywire. Rewards to entrepreneurs would disappear and consumers would at best be locked forever into an unchanging pattern of buying the same things year after year, decade after decade.

A much more likely outcome, however, of a regulatory regime that attempts to prevent economic change is that living standards would actually fall. Such a regime would suffocate entrepreneurship. Economic creativity and alertness to new opportunities would be killed. The reason is that entrepreneurship is necessary even to maintain the economy at a steady level of prosperity.

When existing sources of inputs start to run low, entrepreneurship is required to find adequate replacements. When consumers’ tastes change, only entrepreneurs can successfully discover – in competition with each other – how to reallocate resources in ways that don’t result in a decline in living standards. Ditto when there are changes in demographics. Entrepreneurship, though, can’t be awakened only when needed to ensure that living standards remain steady, and kept comatose whenever it might spark economic change that results in economic growth.

Determined efforts by the government to protect existing jobs by preventing economic growth would almost certainly turn out to be efforts that result in severe economic decline. And every job in such an economy – possibly excepting those of government bureaucrats – would wind up paying much lower wages in exchange for much harder work.

No job for economists is more vital than making this truth widely known.

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