A debate is waging over how — and occasionally whether — the government should react to the financial crisis. The decisions they make in the coming weeks will have profound impacts on our prosperity in the coming decades.It is a job we elected politicians to perform — but it’s not a job they’re qualified for.Only 6.7 percent of Congress has an economics degree, according to the Center for Economic and Entrepreneurial Literacy, but this statistic fails to capture the economic illiteracy found on both sides of the aisle.In regards to Obama’s “recovery plan,” John Cochrane of the University of Chicago said a fiscal stimulus is “taught only for its fallacies” in modern economics courses.I have laughed with many fellow economic majors at Sen. John McCain’s assertion during the Republican presidential debates that he is glad “whenever they cut interest rates. I wish interest rates were zero.”Few things bring D.C. together more than misunderstandings of economics.But politicians don’t read this column, so instead of yelling at the white brick walls of the Securities and Exchange Commission, this column is the first in a four-part series directed at you, the voter.In “The Myth of the Rational Voter: Why Democracies Choose Bad Policies,” economist Bryan Caplan argues the public makes “systematic” errors when voting on economic issues.Caplan identified four common biases in the public’s economic understanding based on the Survey of Americans and Economists on the Economy (SAEE). The most relevant is the “make-work” bias. Because economic laymen benefit individually from having a job, they associate economic growth with the creation of new jobs.But just because something destroys jobs doesn’t mean it’s bad for economic prosperity.In fact, the destruction of obsolete jobs drives economic progress.To increase the amount of wealth to share, there must be a corresponding increase in the amount of wealth created per worker — called productivity.”In 1800, it took nearly 95 of every 100 Americans to feed the country. In 1900, it took 40.
Today, it takes just 3,” according to Michael Cox and Richard Alm in “Myths of Rich and Poor: Why We’re Better Off Than We Think.”When farming’s technology and methods improved, productivity increased, and many Americans were put out of a job. According to economic laymen, this should be considered a tragedy.But, through the hindsight of history, we can see that making farmers’ jobs obsolete — far from doing damage — allowed for tremendous increases in the standard of living.Over the past two centuries, we have seen the advent of automobiles, antibiotics, microwaves, computers, televisions, telephones and the toothbrush.When technological advances made Americans abandon agricultural jobs of yore, the result was economic progress that benefitted Americans in every social class.When Americans gained the freedom to flee the farm, they turned their attention to the toothbrush.Before you curse the changes of the 21st century that might make certain American jobs disappear, ask yourself if your outrage is applied universally.If you would have wanted politicians of the past to prevent the progress of the plow, then you’re also wishing your significant other of the present would not be able to brush his or her teeth.If your outrage cannot be applied universally, then it’s just a naive complaint disguised as a noble critique.This destruction of obsolete jobs and the creation of more productive jobs is something that Cox and Alm refer to as “churn.””Through relentless turmoil, the economy re-creates itself, shifting labor resources to where they’re needed, replacing old jobs with new ones. … What we have in place of long hours in the fields is the wealth of goods and services that comes from allowing the churn to work, wherever and whenever it might occur,” Cox and Alm said.This is why, despite the reservations found in the public, economists are universally in favor of increased technology in the workplace, according to SAEE.Conversely, just because something creates jobs doesn’t mean it’s good.As Caplan wrote, “if you pay a worker to twiddle his thumbs, you could have paid him to do something socially useful instead.”Obama brags that his spending bill disguised as a stimulus will “create” 3 to 4 million jobs. Even if this is true, how many jobs will be destroyed by the taxes to pay for the plan? And will the new jobs be more or less productive than the old ones?We may not know the answers to these questions for decades.In the free market, incentives encourage workers to be as productively employed as possible, but when the government acts, there is no such guarantee.If it wasn’t for the public’s “make-work” bias, politicians would have to work harder to sell their often-misguided strategies.And that’s a tragedy.Come back next week to find out if you should “buy American.”—-Contact Daniel Morgan at [email protected]