Want Progress? Lose the Spoon Jobs | The Daily Economy

Politicians want to create jobs, “good-paying union jobs,” in existing industries.  But that’s not what markets do. The “destructive” part of creative destruction eliminates jobs in existing industries. In a dynamic economy, innovations in division of labor can create good-paying jobs  in new industries, but new industries require entrepreneurs, not politicians.

Frederic Bastiat had two devastating satires of how policies designed to “create jobs” actually cause economic disaster. The first was the “Candlemakers’ Petition,” asking government to require heavy curtains and blacked-out windows, to create jobs making candles. Second was the “Seen and Unseen,” where breaking windows would create jobs for glaziers and carpenters.

In both cases, the problem comes from ignoring “the unseen”: the people making candles, or repairing broken windows, would be doing something else without the misguided policy. And the resources spent on unneeded candles, and wasted windowpanes, would have been spent on something else. We see the jobs, but we don’t see the costs of foregone alternatives given up to “create” those jobs .

I recently was thinking about another famous story of “creating jobs,” one that is often told about Chicago economist—and Nobel Prize winner—Milton Friedman. Stephen Moore told one version of the story, in The Wall Street Journal:

At one of our dinners, Milton recalled traveling to an Asian country in the 1960s and visiting a worksite where a new canal was being built. He was shocked to see that, instead of modern tractors and earth movers, the workers had shovels. He asked why there were so few machines. The government bureaucrat explained: “You don’t understand. This is a jobs program.” To which Milton replied: “Oh, I thought you were trying to build a canal. If it’s jobs you want, then you should give these workers spoons, not shovels.”

A little digging (ha!) reveals that essentially the same story is also told about other famous people, and the supposed location of the incident ranges from China and India to Canada or the UK. But it turns out that none of these is the actual origin of the tale, which was first put in print in Philadelphia in 1901.  That version goes like this:

An incident which struck me at the time as quite amusing occurred not long since on North Broad Street. A steam shovel at work had attracted a large number of spectators, including two Irishmen, who, judging by their appearance, were toilers temporarily out of employment.

As the big shovel at one lick scooped up a whole cartload of dirt and dumped it upon a gondola car, one of the Irishmen remarked: “What a shame, to think of them digging up dirt in that way!” “What do ye mane?” asked his companion. “Well,” said the other, “that machine is taking the bread out of the mouths of a hundred laborers who could do the work with their picks and shovels.” “Right you are, Barney,” said the other fellow.

Just then a man who had been looking on and who had overheard the conversation remarked: “See here, you fellows. If that digging would give work to a hundred men with shovels and picks, why not get a thousand men and give them teaspoons with which to dig up the dirt?”

The Irishmen, to their credit, saw the force of the remark and the humor of the situation and joined heartily in the laugh that followed, and one of them added: “I guess you’re right, Captain. The scoop’s the thing after all.”

—Philadelphia Public Ledger

The example is amusing, and the fact that the unemployed laborers came around to see “the force of the remark” is a tidy closing of the circle. But don’t they have a point? And isn’t that point especially forceful when it comes competing with other countries, which after all are using “cheap labor” and not steam shovels to take “our” jobs?

That’s certainly the argument many policy-makers have used to justify tariffs, quotas, and other kinds of trade barriers: we have to protect American jobs! Stop shipping jobs overseas!

To see why that logic is no better than “give them spoons!”, one has to consider the nature of international trade in manufactured goods.

The Only Way to Gain Jobs is to Lose Jobs

A good angle to approach the problem of “losing jobs” is ask a simple question:

What country in the world lost the most manufacturing jobs between 1990 and 2010?

The answer (and it’s not close) is China.

In 1990, Chinese “manufacturing” in many cases consisted of a large shed, filled with tables and containing hundreds, maybe thousands, of men or women working with needles and thread, or looms, or a hammer and some pieces of leather, or a small hand-operated metal press and boxes of parts. 

The scale of the employment was huge, perhaps 100 million or more.  But the productivity of these workers, in 1990, was terrible.  One person, working as hard as he can work, with a hammer and a shoe last and some cut pieces of leather, can produce no more than 2 or 3 pairs of shoes in a day.  A thousand workers, working hard (and they didn’t, always, because these were state-run factories where quotas rather incentives dominated) might produce 5,000 pairs of shoes in a day, and the quality was decidedly inferior.

In the mid- to late-1990s, China began doing two things.  First, they cut back on state-owned factories.  Millions of workers lost their jobs, whole cities were out of work.  Second, China’s private sector began to exploit the division of labor by developing highly specialized factories that made toys, clothing, and simple electronics. These factories, because they were substantially automated, were much more productive than the old system of exploiting cheap labor. China began to exploit productivity. Moving from hundreds of men with shovels to handful of men driving bulldozers and trucks actually increases the amount of work done, with less labor. All of those jobs that had produced, and paid, little were wiped out by jobs that produced, and paid, more.

To be fair, this has also been happening in the US. Our total manufacturing has actually increased dramatically, without pause, over this whole period. But the number of manufacturing jobs in many industries has fallen, as workers have become more productive. Still, overall, there has been a sharp resurgence in US manufacturing, as many companies have engaged in “on-shoring.”

In short, the US did not “ship our jobs” to China. If anything, China lost more manufacturing jobs than we did. The whole world lost jobs to increased productivity. As a result, prices of many products have fallen, in some cases substantially, if we adjust for inflation.

Why did this happen? China began to use a market system to reward investment in increased productivity. When one factory converted from a thousand people with sewing machines to twenty people operating an automated production line, the 980 people who had “lost” their jobs found other jobs elsewhere, and at an increased wage, because those industries were automating also. In many cases, that is true in the US as well, though there are some industries where the transition to new jobs has been slower.

But having slower adjustment in the US is not surprising, because China started at a much lower level of wealth and prosperity. China’s GDP per capita is almost $13,000; in the US, that number is nearly $70,000. The US no longer has the option to give out spoons, or for that matter shovels, to “create” jobs, because no one is willing to work at the wage that spoon-jobs pay. Most American workers spend their time using some version of a bulldozer, whether that be writing code or using physical machines that increase productivity. It’s still true that “the scoop’s the thing, after all.”