Create Wealth, Not Jobs

Expanding on my previous post, many people have fallen into the trap of believing that the solution to unemployment is to create more jobs. On paper is seems to make sense. If people don’t have jobs then the solution is to create jobs. However, unemployment is a symptom of a problem, not the actual problem itself:

But employment is not an end in and of itself. Rather, it is a means to an end: namely the increased standard of living that the worker obtains by trading his labor for wages.

In a free market, employment is a value creation process — with jobs stemming from the wants and needs of consumers as conveyed through the price system.

It is this productive nature of free-market jobs that make them desirable and capable of increasing a worker’s standard of living.

Wages spring directly from, and are proportional to, the degree in which a job creates wealth by helping to satisfy an unmet need. As is the case for all mutually-agreeable trades in a free market, both sides gain and wealth is created: the worker receives wages that he values more than his labor and the consumer receives a product or service he values more than its price.

In other words, a worker’s wages are reflective of the additional wealth he helped create, which enables his newly improved standard of living.

Because government-created jobs are devoid of this wealth creation process, they are merely a transfer of wealth from taxpayers to the program’s beneficiaries.

Unemployment stems from a lack of wealth. Most often the lack of wealth is caused by government. Through their burdensome regulations governments place roadblocks in front of entrepreneurs that prevents them from creating new wealth. Through their burdensome taxes governments siphon wealth from practically everybody under their rule. Government regulations also force currently existing wealth to be misallocated.

Solving unemployment by having the government create jobs actually exacerbates the problem. Since governments needs to siphon more wealth from the economy to create jobs there is less wealth in the hands of producers and consumers, which means consumers aren’t able to buy as much so producers respond by producing less. Eventually the drop in production forces producers to lay off employees, which increases the amount of unemployment. You can see where this vicious cycle ends up.

The solution to unemployment is to reduce the amount of wealth being siphoned by governments. With more wealth in hand entrepreneurs can create more wealth, which will actually allow the unemployment issue to be solved.