Under the title: “It's the jobs, stupids,” the editors of
the New York Daily News have published a piece on February 14, 2016 in which
they argue that the American economy must be made to create jobs.
They discuss what the two parties in America have
done for the economy in the recent past, and rebuke them both. They also
discuss what the contenders to the presidency of the United States are now saying, and
dismiss them all as inconsequential.
Well, maybe we should try something else. Suppose you are
given a magic wand to do with it the one thing you want most. As it happens you
want to create jobs for a large number of people – good paying jobs if at all
possible. What you try to avoid, however, is create side effects that will be
so negative, they end up offsetting the positive accomplishments of job
creation.
And so, you give yourself a few minutes to reflect on what
you'll do before waving the wand and letting its magic take effect. The first
thing that comes to mind is the old saying about hiring the unemployed to dig
holes in the ground and filling them again. This will allow them to earn some
money, you reason … money they will inject into the economy and help stimulate
it thus benefit other people too.
But you decide not to do that because the scheme will
increase the money supply without increasing the wealth underlying it. This
will create inflation whose impact will be that of taking from everyone in
society, and giving it to those who are not doing productive work. This leads
you to the idea that instead of digging holes and filling them, why not have
the unemployed build roads, bridges, tunnels, airports, seaports and all sorts
of useful infrastructure projects?
You decide this is a better idea, but it has the same
problem as the previous one. That's because the people who will get paid
producing the infrastructure projects will not spend the money they earn buying
those projects. Instead, they will spend it to buy the consumer items that
everyone else is buying. And this will cause inflation to rise the same as
before.
You do not reject that idea offhand but keep it on the table
while trying to refine your thinking. You now hit on the idea that the best
thing to do is to get the unemployed in jobs that will produce the goods and
services that they and the rest of society will buy. This would be perishable
goods such as processed foods and cosmetics, durable goods such as home
furnishings and appliances, and big ticket items such as cars and homes.
And so you see that in this way, the money supply will grow
but so will the amount of goods and services it will be chasing. In this case,
inflation may not be completely stamped out but will be kept under control.
You reason it will be a good idea to proceed in that manner.
In fact, you feel that the idea is so good, you can have some of the unemployed
work on the infrastructure that will be needed to facilitate, among other
things, the production of the cosmetics, the home appliances, the cars and the
rest.
Yes, you do realize that this development will contribute to
the creation of some inflation in the rest of the economy, but it will be small
compared to the real growth it will be responsible for. In fact, a little
inflation in a growing economy will be welcomed by those who live on the
interest they earn when lending the money they spent a lifetime accumulating.
You feel good, but you still don't know how to use the one
wish you are allowed to make. You concentrate your thinking and hit on the
notion that a mature industrial economy is made of 60 percent services, 25
percent construction and utilities, and 15 percent manufacturing. That is,
every dollar that's created in manufacturing ripples through the economy, and
creates another 6 or 7 dollars worth of services and construction.