[Got a coffee? Got at least ten minutes to burn? This is going to be a long one, even for me, so don't even start unless you've got some time. ]

What’s something good and positive and useful that you and your neighbors can do, naturally, almost without thinking, and that your government with all its resources cannot do (yet frequently claims to have done)?

Lies, Damned Lies, and Political Utterances

Politicians and their apologists keep using phrases like “job creation” and “the XYZ government created Xty-thousand new jobs last month.” I don’t like that they do it, and I don’t like that nobody calls them to task for it. Media just let them make assertions like those, and pass them along unquestioned. That’s wrong because there are impressionable people out there who:

a) lack the education and training to recognize the error/falsehood of the statement, or

b) lack the wit or intelligence - even if they have been taught better, but

c) yet nevertheless have the vote.

Let’s lay it out in a bald assertion of unpleasant fact and then go back and explain the reasoning, for the benefit of those who have the interest and the capacity to “get it” if it’s explained for them: -

Government can’t create jobs.

Whenever you hear a politician (or an apologist for some politician) assert that he-or-she-or-the-government “has created jobs”, “can create jobs”, or (usually just before election time) “will create jobs”, they are lying or mistaken. Government physically cannot create jobs. No government has ever created a single job. Governments can do exactly two things to jobs:

1. destroy them
2. displace them.

Immediately, the politician (or apologist) blusters “Don’t be silly. We create jobs all the time! What about big, expensive project XYZ that created thousands of direct jobs and tens of thousands of indirect supporting jobs in the service and supply sectors?”

If you are naive and uncritical, you might swallow that contention whole, without question… which makes us wonder what you are doing here… but let’s continue anyway.

The politician making the statement might conceivably believe it, but that’s rather unlikely. Normally a person needs to be fairly astute to become a successful politician, so it’s more likely that the politician knows the difference and cynically counts on your gullible nature to secure your vote. That is, chances are 100-percent that the statement is wrong and chances are better-than-even that the politician knows that and is simply lying to you.  Politicians pander. Lying is the cheapest form of pandering.

What’s a Job? What is Wealth?

Real jobs are created only when wealth is created. That’s a simple, accurate statement with profound implications. Think about it. Break it down.

First, what _is_ wealth, and how is it created? Then, how are jobs created?

So start with wealth. What is it? Look up some dictionary definitions - it’s OK, you can do it on-line right now in another browser tab - I’ll wait.

Are you back?

Good.

So what did you learn? All the definitions revolve around the concept of value.

You have wealth. You might have a lot, or you might have very little. However much you have, you can make more. And I mean, literally “make” it. But wealth is in your head. Sounds metaphysical, but it’s quite straightforward.

If you got lost in the back woods and ran out of food, but you had a 10-kg bar of gold in your pack, would you be wealthy? If nobody is around who wants to trade the gold for food, how wealthy are you? If somebody appeared who had no gold, but who had two sandwiches, and (when you’d been starving for several days) offered you one of their sandwiches in exchange for your bar of gold, how valuable is 10 kilograms of gold. Roughly one sandwich?  Wealth is value and value is imputed. Value that’s imputed to a given thing can change with changing circumstances. That is, it depends on what’s in your head at any given time, and what’s in the heads of people around you.

How do you make wealth? Easy. Only two ways: you find it or you create it.

There’s really no part of the world that is unclaimed “property” any more, so in almost all cases, wealth is created and not simply found. You do it every day.   What?  Getting antsy?  Wondering why I don’t just spit it out? Wait no more.

It’s All In Your Head

It takes two to make wealth. You and at least one other person. It also takes an exchange. And it requires a change inside both your heads.

You and another person could each have whatever goods and abilities you both have, and live near each other for years and years, and not create a penny of wealth between you. But, as soon as you make some kind of voluntary exchange, you create wealth.

Your exchange doesn’t need to include money, though it commonly does. What it needs to include is for you and that other person to exchange some goods or services. Each of you might have something, or be able to do something that the other person does not have and wants, or cannot do (or cannot do well) and wants it done.

Maybe it’s simple, like one of you is a good gardener and the other of you is good with computers. You come to an agreement that the computer-savvy person will set up something computer-ish for the other person (or explain how to do something), and the other person will repay by providing some gardening advice and help.   Each of you is willing to trade a bit of time doing the thing that they do well in order to receive some help with a thing that they don’t do so well.

When you make the trade, each of you gives up something that you have (your time and a little skilled effort) for something that you value even more. The total value in your combined little world has increased, just because something that each of you owned has changed ownership to where it is more valued than before, voluntarily.

Notice that the most important aspects of the creation of wealth have occurred inside the heads of the parties to the transaction:

a) it was voluntary

b) each person believes that they have come away with something of greater value to them than what they gave up in the transaction. Each of the participants is now in possession of more total value than they owned before the transaction. The total of wealth in the world has increased by your simple trade. Multiply by millions and billions of transactions, large and small, every day, and you have a lot of wealth being created.

All your life, anything that you ever gave away or traded away, you valued less than whatever you received in return. Only if you were cheated or robbed was that rule not true. Think about it. Every single time you did something for somebody, or gave them something, you got something in return that you valued more. Often it was visible, material value (like money or barter); sometimes it was just the satisfaction of doing a good deed or the pleasure of seeing a face light up with delight and gratitude… or… karma points. Either way, what you gave/traded away was of less value to you than what you got in return. If the other party valued what they received more than what they might have given up, then the transaction was a net positive sum. Thus is wealth created.

Now, look again. and see how wealth is not created…
Say, once again, that you and that other person have the same starting goods and/or skills, but you (the person reading this) don’t particularly need or want anything that the other person has (or can do) while that other person _does_ want something from you.  Now let’s say that you two make the trade described above, with one little difference. It’s done without your agreement, against your will. The other person has a gun and orders you to make the trade. You were not about to do it until they threatened and coerced you.

Is wealth created in this second version of the exchange? Some would say it has been, because a transfer of valued items or services has occurred. Others (the people with functional brains) would say that wealth has not been created; but rather theft has happened (more precisely robbery). Wealth has only been re-distributed from the legitimate owner to someone with no legitimate title to it - unless you believe “might makes right”, in which case, why are you bothering to read this? For the rest of us, theft/robbery/fraud do not make a legitimate transfer of wealth and so do not increase wealth.

But if the person with the gun gives you something in return, doesn’t that make it a wealth-creating transaction?

Nope. They came out ahead by coercing you, but you lost both the value of the good or service that you did not wish to give up _and_ the opportunity cost associated with it. Somewhere is a third party who _does_ have something that you want and who also wants what you have/can-do, and was willing to make a fair, voluntary trade for it. But the person with the gun has made that impossible.

Wealth is in your head… and the heads of everybody else. If you didn’t freely take part in the exchange, and if you don’t believe that your situation, your wealth, has improved, then it has not. No amount of assertion or gun-waving by somebody else can make it true.

OK, so what if the person with the gun gave the gun to some friend of theirs, and the friend was the one who instructed you (on pain of being shot) to make the trade of your good or service for what the second person was willing to give to you (which might be nothing or which might be something that you don’t particularly want). Or similarly, if the third fellow, now holding the gun for his friend, simply took from you and gave to his friend (whether he gave you anything in return or not) - does that make it OK?

Does it become OK to steal from other people if we don’t get our own hands dirty but have an agent do the dirty work on our behalf? Most people (and the common law) would say no. It’s not OK. It’s theft/robbery and fencing of stolen goods.

All of that (above) to illustrate that wealth is created by voluntary trade. Wealth is not created when the trade is coerced. When transactions are coerced, the result is redistribution and possibly destruction of wealth, but no net increase.

From there, we can move to jobs and their creation (or displacement/destruction).

If you are like most adults, you are employed by someone. That’s a fair assumption because there are far more employees than employers, mostly because it’s harder to be an employer. For convenience, we’ll lump contractors and freelancers in with “captive” employees (if you’d like to dispute this or any other point that I make, feel free - I’ll approve-for-viewing any comments that appear coherent and reasonably free of name-calling).

With few exceptions, the person who employs you expects to get more value from you than s/he is expending on your pay and overhead. Otherwise, why employ you?

Some people really dislike that notion and make random noises about fairness, as though it’s somehow unfair of a “boss” to pay you less than the full value of the work that you do. The people who hold that thought fall into three categories of limited mental capacity:

1. Naive - this one is fixable by life experience and even a modicum of attention
2. Inherently naturally stupid  - not fixable
3. Ideologically prevented from applying rational thought - rarely fixable without a life-altering traumatic event.

Remember how wealth exists only because of what exists inside your head (state of mind) and what exists inside other people’s heads? Well the transaction that we call employment is just a version of contracting for services, which in turn is just a trade of:

• something that an employer values less (money and the use of infrastructure), in return for
• something that the employer values more (skilled work from you),

while that same trade from your perspective is

• something that you value less (your skill and a certain amount of your time and effort) in exchange for
• something that you value more (a reliable, comfortable place to work, proper tools, and - most of all - money that you can use for your own purposes).

From the employing perspective, if you started a little business and made a modest success working from your basement, but found that you needed some help to grow that business, you might hire somebody to do a specific set of tasks. This would allow you to do other important work for your budding company. Perhaps you’d need somebody to do the grunt-work like order-fulfillment (stuffing boxes and labeling them), or specific specialty tasks like book-keeping/accounting, legal representation, etc.

In all cases, you would employ your hired help only to the extent that they were of more value to your business than the wage or fees that you paid for that help.

If you paid each person exactly the value that they brought to the business, there would be no profit, no net return on that investment, no reason for having them there other than for the most temporary stint. The tiniest imperfection in the operation of your business would put it into negative cash-flow and the business would die. Both you and your employees would be jobless because you couldn’t/wouldn’t control your costs to keep them lower than your revenue.

Instead you have to ensure that every outgo from your business brings a positive return or, in the exception case, that the cost of an employee (or hired service) to perform a “necessary evil” (something that must be done, but doesn’t generate return on its own merits) is compenstated by some other aspect of your business. Anybody with a functional head on their shoulders can understand that. Revenue must exceed costs, or you don’t have a business; you have a money pit.

What’s difficult for some to understand is that such a mechanically simple and straightforward principle must also apply to them, when they are the employee. If what you produce is not worth more than what your employer pays you, then you are too expensive to keep around. The only exception is where you develop skills in “necessary evil” areas, where employers must have the service whether it’s a net drain or not (think of tax accountants and lawyers and other compliance with government regulations).

Even in the case of “necessary evil” skills, if somebody else has the same skills and is willing to work for less, then the employer should rightfully hire that other person instead of you.

Ordinary (and extraordinary) people create jobs by spending and investing. Government doesn’t have any wealth of its own. It has your money and my money. We are the ones who created the wealth - all they did was take it from those who can and do create wealth.

All that government can do is take money away from people before they have a chance to spend it or invest it, and then give that money to other people whom the government prefers. By doing so, they displace jobs.

The taxpayers each had needs and wants, on which they would have spent their money according to their own choices. Each of those expenditures would have gone to somebody who made or sold the desired goods, or who provided the desired service. That is, people create jobs by spending their money, voluntarily, on things that they need or want (that includes investments and savings, not just retail purchases). They examine their own situations and decide what is most important or most desired at any given time. The people who are willing to answer those wants and needs are compensated by employment.

When government takes money away from people, those people no longer get to spend or invest that money as they wish. All that potential wealth which arises only from freely-entered transactions, is prevented from coming into existence. Now government confers that money onto other people who will do things (or sometimes not do anything) that the original taxpayers were not willing to pay for. At the very least, this is displacement of jobs from somebody the original wealth-holder was willing to employ, onto somebody the government decides is more deserving (more likely to generate votes?).

By doing so, government causes the actual jobs that are generated to be worth less than the jobs that would have been created if the money had gone where the original earners had been willing to spend or invest. “Creating” a job in another province/state, or in a failing industry, creates a job that is worth less than the jobs that would have been created by the original earners simply spending or investing where they wished to spend and invest.

A job fails to exist where I and my neighbors live and work (either it disappears or it is never allowed to come into existence), and a job is artificially generated or preserved somewhere that there’s not enough real (non-political) demand to make that job happen without intervention. That artificial job then carries the extra costs of maintaining it where it’s not economically viable. It carries the overhead of all the bureaucrats that had to “take a cut” (their salaries and their overhead costs) along the way. Instead of encouraging people to move where the real jobs are (meeting the real needs and demands of ordinary, wealth-creating people), government subsidizes people who want to stay where jobs aren’t, but who demand to be treated as though they have some “right” to a certain type of job in the place where they happen to desire to live. So government cannot “create” jobs. It can only take them away from where they would otherwise have existed.

Finally, go back to that point about the employer reasonably expecting to get more for what s/he pays to the employee than that employer values what s/he is paying out.  If the government gives our money to somebody else, then in a wealth-creation scenario, we should get a return (from that “employee”) that we value more highly than the value of our tax money that was transferred to that “employee”. Because we did not willingly pay that person, but were coerced into doing so, we do not get full value for our money (or for our time and effort that we expended to earn it before it was taken away). Therefore, compared to a transaction where we willingly pay somebody, we have lost value. Endless assertions by politicians, bureaucrats and their apologists do not change that fact. Thus again, government has not created a job, they have merely displaced (at least) one job with one of lesser value.

Or that’s how I see it anyway.

Copyright November 2008

Phew! That was a long one. Hope it didn’t hurt your eyeballs. Go look out a window for a few moments.