The Cost of Labor

If, in the future, there existed a society wherein all people instantly had access to an unlimited quantity and variety of all conceivable products, we would generally consider that society to be Utopian. We do not presently live in that society, because anything we wish to consume has to be produced through labor, and human labor is not infinitely efficient. As labor becomes more efficient through industrialization and free trade (see previous blog “On Protectionism and Xenophobia” for the impact of free trade on efficiency) we use fewer laborers to produce the same amount of goods, and thus can produce more goods and move closer to that Utopia. In other words, jobs are a cost, not a benefit in the economy.


Unemployment is not, therefore, a problem of our goods not costing enough in human labor. Imagine some major technological breakthrough spurs another industrial revolution that cuts the labor cost required to produce all the goods and services the economy presently produces by 80%, eliminating 80% of the demand for labor. Those who want to “create jobs” by creating the need for labor would have you believe this would lead to 80% unemployment and general economic Armageddon. A more reasonable observation might be that we could maintain our present standard of living by only working one day a week instead of five. Alternately, we could simply quintuple our production and use the same amount of labor to be five times as rich. Either way, we ought to recognize that using less labor per unit of production makes us more rich, not less. To think otherwise is generally termed the make-work fallacy.


The President ran afoul of this rule last week when he implied that high unemployment is partially due to the fact that ATMs and other electronic kiosks have taken the place of human workers:


“There are some structural issues with our economy where a lot of businesses have learned to become much more efficient with a lot fewer workers. You see it when you go to a bank and you use an ATM, you don’t go to a bank teller, or you go to the airport and you’re using a kiosk instead of checking in at the gate.”


These, like all labor saving technologies, are unqualified improvements to our economic well being. These “structural issues” are a natural part of the job market which the job market regularly adapts to. They do not foist unemployment on the economy unless other factors are preventing the economy from creating new jobs to replace those which are naturally lost over time. Blame those factors, not progress, for unemployment.


Similarly, Obama’s “green jobs” initiatives are often marketed as economic boons because they’ll create high paying jobs. You may note that America does not suffer from rolling blackouts. From this we may assume that America is actually currently producing all the energy we want to consume. To increase the number of jobs in an industry which does not need to increase output simply means more labor is being wasted in that industry without actually producing anything. Green jobs initiatives, particularly in electricity (read: wind and solar plants), will simply drive up the costs of energy, driving up the cost of everything produced with energy, causing consumption to decline, making us all poorer.


A common contention of those who want to regulate the economy is that without a technocratic elite running things, the market will not on its own make the best choices given our economic needs. Libertarians generally respond by appealing to the idea of an emergent market order which can gather and interpret diffuse information better than any central planning board. I think this response too readily jumps into heavy theory, when a much simpler objection exists. Our President thinks we would be richer if we did things that basic economics tells us will make us poorer. Clearly, we don’t have a technocratic elite in charge of our government. Nor are we likely to ever have one, since presidents and legislators are elected by laypersons who generally support candidates who propose policies which laypersons believe to be best, not policies which are necessarily objectively best. We cannot begin to talk about whether a central planning board of experts can regulate the economy until after we establish that a central planning board of experts can even exist within a democratic system. Even if we accept for the sake of the argument that the market can make mistakes that hypothetical omniscient planners can prevent, fallible politicians concerned more about poll numbers than proper economic theory can make all manner of errors that the market never would. The market, after all, won’t complain about ATMs.