What is the purpose of the economy?
What is the purpose of an economy? Although some of us are familiar enough with inflation to know it can run amok, some people think in dollars and are therefore forced to believe that an economy is for creating money. This is false and indeed quite dangerous. They should look no further than Germany in the 1920s to definitively refute that outdated theory.
A more common idea today is that the economy is for creating jobs, and although this is equally wrong, the reasons are not as clear to most of us.
Here’s another historical example for context: the Soviet Union. While records were notoriously unreliable at the time, there is some evidence that the early U.S.S.R. had higher levels of employment than the United States and much of Western Europe. And is it really so hard to believe? In a country dotted with forced labor camps and extravagantly wasteful government projects, why shouldn’t employment reach record highs? Clearly, employment alone stops neither rolling famine nor persistent misery.
The reason is that economies are not for creating jobs. Much like the amount of money in circulation, how many jobs we create is arbitrary. In principle, both are only bounded by the dysfunction of the economy that sustains them. Instead, the true purpose of an economy is to create value — that is, actual tangible benefit to the people of the world. Food, health, happiness.
On March 10, the Department of Labor released the new jobs report for February. It was President Trump’s first full month in office. The gain of 235,000 was hailed as robust and substantially better than the 190,000 monthly average for 2016. Nevertheless, just as the number of dollars we print does not tell us anything fundamental about the health of our economy, we must always ask whether added jobs have created added value.
This precise argument developed between free-trade advocates and protectionists in the aftermath of the president’s controversial deals with Boeing and Carrier Corp. We can rest assured that a gain in jobs had been secured. Less sure is whether they were being artificially minted with hidden inefficiencies, cronyism and one-off deal making.
Back in September, the president pledged that he would create 25 million jobs by 2027. This promise notwithstanding, the already low unemployment rate and impending deluge of baby-boomer retirements will make the creation of so many new, productive, value-creating jobs extraordinarily difficult.
A forceful and determined man is likely to make good on his word. From someone whose rhetoric and policies have the occasional flavor of mercantilism, the problem is less that he might fall short of his promise than that he might succeed.