Spoons or Tractors?

There is a well-known story about economist Milton Friedman, who once was traveling overseas and observed scores of road builders moving earth with shovels instead of machinery. When he asked why the job was not being done with machines, his host said they needed to keep employment high in the construction industry. If they used tractors or modern road-building equipment, the job would require fewer workers. Freidman then asked, “Then instead of shovels, why don’t you give them spoons and create even more jobs?”

This is a good question and one that applies to many debates today in the United States. We are told constantly that some policy development is good if it creates more jobs, even if the jobs are the equivalent of Freidman’s spoon jobs. Case in point, an op-ed by Washington Post columnist David Ignatius telling Joe Manchin that he should support climate change provisions in the proposed House reconciliation spending package.

Ignatius writes about a study on decarbonization, noting it predicted that “decarbonization efforts will employ at least 1.5 million.” Ignatius concludes: “‘Save the planet’ should be a powerful enough argument to fund climate change proposals in the budget deal. But if that doesn’t work for you, how about: Jobs, jobs, jobs?” Presumably, we could create 3 million jobs if we used less efficient technology to decarbonize. Why stop there? Why not 6 million? The point of fighting climate change is not to create jobs; it’s to decarbonize the planet at the lowest-possible cost.

We see the same logic at work when it comes to the impact of artificial intelligence on jobs, with endless arguments about whether AI created or destroyed net jobs. What difference does it make? The point of AI is to let organizations do things better or more efficiently, not to create or preserve jobs.

This focus on job creation reflects a fundamentally incorrect view of the economy, one developed after the Great Recession, where economists following John Maynard Keynes focused on the demand side of the economy rather than the supply side. There was and is a deeply held view that economies will not naturally achieve full employment and that government must step in, including creating make-work and limiting automation. There is simply no evidence that economies won’t tend toward full employment (when the economy is not in a temporary cyclical recession and when the government does not interfere with labor markets, such as paying people not to work or limiting the ability of companies to downsize). As ITIF has shown, the scholarly evidence shows there is no negative effect of productivity on total jobs. But there is a significant negative effect that comes from slowing automation or encouraging the substitution of less efficient technology for more efficient productivity. And that means, by definition, slower GDP and wage growth.

None of this is to say that we shouldn’t increase our efforts to fight climate change, including implementing carbon capture. We definitely should. But let’s be clear: Leaving aside the benefits to the climate, all those working in carbon capture are a cost, not a benefit. Workers there mean fewer workers producing other goods and services Americans value.

So, let’s stop arguing that something is good because it creates jobs and bad because it destroys some jobs. What matters is the output.