Value is What Matters

There is one mistake I keep seeing over and over again, in the media, by politicians, by laymen, etc.  I feel it is my duty as an economist to correct this mistake.

Not all resources are equally productive.  The purpose of economic activity is to maximize benefit (output) while minimizing costs (input).*  However, not all mix of factors of production will get you there.  In short, when discussing economic activity, we must be sure to stress productive factors of production.

Consider the following: A nation has an army of ditch diggers (assume ditches are a useful output).  Each is employed with steam shovels.  Then something happens, and the steam shovels are replaced by an equal number of spoons.  What would happen?  The productiveness of the ditch diggers would fall, thus reducing the value of each ditch digger.  This is true even though the numerical amount of capital in the nation (its capital stock) has remained unchanged.  Why?  The productive capital has been replaced with less productive capital.  The value of the capital has been reduced.

Of course, it is possible to maintain the same level of output by adding in more ditch diggers, but since resources are scarce this would mean less laborers for other outputs.

Why do I bring this up now?  Well, a common mantra heard throughout this election is that “jobs are good.”  The US needs protectionist tariffs and closed borders to maintain jobs here in the United States.  But no one asks the important question: are the jobs being “lost” unproductive compared to alternative use of the resources?  A job program is easy: just ban all labor-saving devices: eliminate electric fans, washing machines, automobiles, elevators, computers, construction machinery, light-bulbs etc etc etc.  You’d easily create millions of jobs overnight.  But these jobs wouldn’t be productive!  Indeed, I predict one would see standards of living fall considerably should these measures be implemented.

The goal of economic activity is to maximize benefits, not maximize efforts.

*Not everyone constantly operates in this “profit-maximization” fashion, but that doesn’t mean it’s an unreasonable assumption.  Consider this: if you were offered two identical cars, one was $10k and the other was $5k, which would you choose?

30 thoughts on “Value is What Matters

  1. Value is what matters. That is why businesses competing against each other should decide how best to employ resources, not government or the political cronies who rely on government. Businesses competing against each other have strong incentives to create value for their shareholders and customers. Government and political cronies, on the other hand, have strong incentives to please politicians and special interest groups, which benefits those groups at the expense of everyone else.

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  2. The problem with your analysis is that you’re ignoring what I think is a critically important part of the equation – the fact that ignoring income, productivity, ability to consume, etc., the job itself has value to the employee. Of course there are many caveats to that as well: the job has to at least seem useful and productive, the job can’t be too unpleasant, etc. When politicians want “jobs programs” they usually say they want to create “good” jobs and it’s those caveats they’re addressing. Digging ditches with a spoon would not qualify as a “good” job.

    While Creative Destruction (at least so far) has brought unquestionably massive benefits to humanity in aggregate, in the detritus left in the wake of those processes are real human beings who are displaced from having jobs that they valued, many of them permanently (they never get another job), many of them crushingly depressed and suicidal, others violently angry, with a substantially reduced quality of life, not just because of reduced consumption opportunities, but because they’ve lost their place in the world which was significantly defined by having a productive job. Real humans with real and substantial pain.

    Perhaps there’s no solution and perhaps these folks simply need to be sacrificed to the future consumption benefits for humanity in aggregate, but that’s what the politicians are trying to solve or at least pay lip service to.

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    • Those people are not being sacrificed; however, if they are reacting to the loss of a job as you suggest, then they are committing economic suicide. Things change, and you have to be flexible enough to adjust to deal with those changes.

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        • No. Many people want to be a movie star or a professional athlete, but are not lucky enough to achieve such. They all are flexible enough to find other types of employment. Not being flexible enough is committing suicide because you can’t force people to give you what you want. Grow up.

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        • There are many losses that people are forced to deal with in life: death of a loved one, aging, investment losses, moving, marriage, divorce, children, etc. All those things can cause depression and anxiety in human beings. No one sacrifices them when these things happen. However, they can let their depression and anxiety cause them to do harmful things to themselves or even commit suicide. It is the same with job loss.

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          • LOL. Commanding me to “commit suicide” if I don’t “grow up”? Yup, sacrifice away. Oh wait! It’s not a sacrifice to you, is it? Just getting rid of dead wood and minor annoyances. People suffering? Bah, who cares? Let them eat cake and all that.

            And libertarians wonder why they’re considered heartless. I’ll certainly be saving a link to your very enlightening comment.

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          • Ah, the “LOL” tell for cognitive dissonance. It appears that name-calling and making stuff up is all you have left. Remember when the bigger government side was all about the policy details? You became what you hate.

            I’ll certainly be saving a link to your very “telling” comment.

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          • No problem saving the links to mine. I’m perfectly proud of what I wrote.

            And as long as you’re proud of commanding someone to commit suicide, then we’re both happy and got something of value. Excellent!

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          • Ah, even more cognitive dissonance.

            And, as long as you’re proud of your inability to understand, then we’re both happy and have something of value. Excellent!

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          • I see that you also use logical fallacies and make stuff up at Cafe Hayek too. And, many commenters over there point that out to you in detail. You really should not be proud of your inability to make logical arguments or provide supporting evidence.

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    • bretwallach

      … the job itself has value to the employee.

      That can be determined by asking the employee whether they would do that job for no pay if they were independently wealthy and didn’t need the money. ‘Yes’ tells us the work itself is reward enough. ‘No’ means the employee DOESN’T value the job itself, but the income earned by doing it. It’s a trade off.

      Digging ditches with a spoon would not qualify as a “good” job.

      “Good” is a subjective term. A person might consider digging ditches with a spoon to be a better job than digging ditches with their hands, and they might consider it better than no job at all. I’m not sure anyone but the person doing the job can determine whether it’s ‘good’.

      While Creative Destruction (at least so far) has brought unquestionably massive benefits to humanity in aggregate …

      Considering that creative destruction only occurs if and when consumers decide to make different choices, there’s no reason to think it won’t continue to bring unquestionably massive benefits to mankind – unless you believe consumers will begin making choices that make them less well off. And change only occurs at the the speed at which consumers accept that change.

      … in the detritus left in the wake of those processes are real human beings who are displaced from having jobs that they valued, many of them permanently (they never get another job), many of them crushingly depressed and suicidal, others violently angry, with a substantially reduced quality of life …

      OMG! That’s awful! (jk) Calm down for a moment. What do you suggest as a solution? Should consumers be denied free choice? Should we all be forced to contribute to a fund to provide psychological counseling for these poor folk? What should we do?

      … that’s what the politicians are trying to solve or at least pay lip service to.

      Nonsense. Politicians are trying to attract votes and reward their supporters. Of all possible solutions, a political one would invariably be the worst.

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      • Ron H. wrote: “That can be determined by asking the employee whether they would do that job for no pay if they were independently wealthy and didn’t need the money.”

        No. Note that I didn’t say that the job itself is the ONLY value to the employee. Just an important value in addition to the pay. Note that people who retire early, die early, which I think is pretty good evidence that at least some people need to work for mental health and to feel that their place in the world has value.

        Ron H. wrote: “Considering that creative destruction only occurs if and when consumers decide to make different choices…”

        Schumpeter and others thought that Creative Destruction was driven primarily by innovation. I’m pretty sure it’s not limited to just the demand side (consumer choices). My belief is that the accelerating rate of Creative Destruction is causing chaotic responses which are reducing consumer choices and well-being relative to what they might otherwise be if change were slowed somewhat.

        Ron H. asked: “What should we do?”

        A solution is moderate, across-the-board, consistent tariffs. The revenue from tariffs can offset other taxes and be revenue neutral. The tariffs won’t stop international trade, just slow it slightly, acting like baffles in a waterbed to keep things from sloshing around chaotically.

        Ron H. wrote: “…a political [solution] would invariably be the worst.”

        A violent revolution probably falls under “political solutions” and yes, that would probably be the worst.

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        • Yep, tariffs are the “solution” if you want to cause many people working in import and export businesses as well as in international shipping to lose jobs as your tariff program is implemented. Yup, sacrifice away. Oh wait! It’s not a sacrifice to you, is it? Just getting rid of dead wood and minor annoyances. People suffering? Bah, who cares? Let them eat cake and all that.

          And bigger government advocates wonder why they’re considered heartless. I’ll certainly be saving a link to your very idiotic comment.

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        • bretwallach

          No. Note that I didn’t say that the job itself is the ONLY value to the employee. Just an important value in addition to the pay.

          And my question was about a person who didn’t need the money. All their basic needs are well satisfied. Would they do the job for it’s own rewarding sake?

          Note that people who retire early, die early, which I think is pretty good evidence that at least some people need to work for mental health and to feel that their place in the world has value.

          People who die soon after retirement are often people who have no meaningful lives outside of their jobs, and are unable to find rewarding activities after leaving those jobs. Such people might live longer, happier lives if they just didn’t retire.

          Retirees have more time to spend on rewarding activities that may be unrelated to their previous careers.and which may or may not include monetary compensation. They have more choices of ways to spend their time.

          Schumpeter and others thought that Creative Destruction was driven primarily by innovation.

          Yes he and they did, and he and they were correct. Creative destruction IS driven by innovations which fickle consumer choose by voting with their dollars. Those that receive a large number of votes may cause the obsolescence of some previous choices, which will then exit the market, perhaps taking some jobs with them. Others may not be accepted and will die on the vine. Thus instances of creative/destructive only occur as fast and as often as consumers accept them.

          I’m pretty sure it’s not limited to just the demand side (consumer choices).

          But it is. New innovations can’t replace anything unless consumers choose to switch from the old to the new.

          My belief is that the accelerating rate of Creative Destruction is causing chaotic responses which are reducing consumer choices and well-being relative to what they might otherwise be if change were slowed somewhat

          Did consumers tell you that? If not, I’m not sure where you got that impression, because as I wrote, consumers are in complete control of every change that occurs. I think some older folks are somewhat bewildered by the rapid rate of changes around them, but I’m not sure they are harmed by it, unless you think unsteadiness and occasional falling are caused by rapid technological changes occurring nearby.

          My sister-in-law never learned to program her VCR to record future episodes of her favorite TV shows, I used to feel sorry for her, but now that particular skill has no value, so I’m not sure she has been harmed at all.

          A solution is moderate, across-the-board, consistent tariffs.

          Bite your tongue! I don’t see how tariffs would slow the worldwide rate of innovation, but in any case tariffs harm consumers – period. There is no upside for consumers, so it appears you are suggesting intentionally harming consumers in order to protect them from some vague, unspecified harm from frequent innovations that make their lives better, even though your suggested remedy won’t do that. I don’t see the logic.

          The tariffs won’t stop international trade, just slow it slightly, acting like baffles in a waterbed to keep things from sloshing around chaotically.

          I haven’t noticed any chaotic sloshing around in the global market recently, but I haven’t been looking for any, so I could have missed it. Maybe you can point out some specific occurrences
          .
          A violent revolution over vast improvements in human well-being world wide? I don’t know where that would be coming from either.

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          • Ron,

            >—“…consumers are in complete control of every change that occurs.”

            We are in substantial agreement about the benefits of free trade versus tariffs but notice how, in that quote above, you lapse into the kind of thinking in terms of aggregates that you usually are so implacably opposed to.

            Consumers in the aggregate enjoy a kind of control over what is offered to them that is usually decisive. Individual consumers, in contrast, have very little ability to “control” the options offered to them in the marketplace.

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          • “Individual consumers, in contrast, have very little ability to “control” the options offered to them in the marketplace.”

            Sure they do. Each individual can say “yes,” “no,” or choose an alternative to every good or service offered to them. That is how a market works.

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          • >—” Each individual can say “yes,” “no,” or choose an alternative to every good or service offered to them. That is how a market works.”

            Yes, that is how a market works. That is a very good description of the amount of “control” an individual has over the choices available to him.

            It’s a lot like your ability to “control” what your government does by choosing to emigrate to another country you like better if you prefer that option to staying.

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          • “That is a very good description of the amount of “control” an individual has over the choices available to him.”

            Saying “yes” or “no” or choosing an alternative good or service are the options for most things in life. The reason is simple: Other people have the freedom of choice too. For one to increase his or her options, he or she would have to enslave others.

            “It’s a lot like your ability to “control” what your government does by choosing to emigrate to another country you like better if you prefer that option to staying.”

            No. A consumer can easily drive to another competing store buy the good or service that he or she desires. He or she has options and can easily exercise those options at minimal cost. Government does not work that way. When government wants to you buy or not buy a certain good or service, it punishes a consumer with additional taxes or the threat of prison. Businesses do not do those things. When you decide to emigrate, you have to pay a tax for leaving. Walmart cannot tax you for deciding to leave that store to buy the same good from Target.

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          • >—“A consumer can easily drive to another competing store buy the good or service that he or she desires.”

            Whether it is desire for particular goods and services or desire for the type of government that you fantasize about so much, the ability to desire things is not limited by real world options. Only the ability to fulfill those desires is.

            That is why, whether you realize it or not, individuals have a very limited ability to “CONTROL” the options the world presents to them even though they do have the ability to choose between those limited options.

            Any individual may or may not be satisfied buy the choices a market economy offers. Any individual may or may not be satisfied with the choices of governments that the real world offers. Dissatisfaction is always among your options.

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          • “. . . the ability to desire things is not limited by real world options. Only the ability to fulfill those desires is.”

            The ability to fulfill your desires by peaceful, voluntary exchange is what markets are all about. The ability to fulfill your desires by violent, involuntary means is what the government you desire is all about.

            That is why, whether you realize it or not, individuals have significant ability to “CONTROL” the options available to that individual.

            “Dissatisfaction is always among your options.”

            Dissatisfaction because you cannot always get what you want is normal. The desire to get those things through peaceful, voluntary exchange is also normal. The desire to get those things through violence and force, whether you do the violence yourself or through others like government, is not. Such actions are criminal.

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          • Greg Webb,

            You like to indulge in the rhetoric of anarcho-capitalism but, unlike Ron who is a real and consistent anarcho-capitalist, you are a poser. You are perfectly happy to see the coercive powers of government used for the purposes you want them used for. You just think it should be up to you to decide when that happens. That is actually a form of authoritarianism. I remember when you played a garden variety Republican Party member on the internet complaining bitterly about RINO’s.

            You dropped that identity about the time you dropped your last name in your internet comments. Of course it’s easy enough to tell who is the author of your comments. They alway read like some impoverished MadLib with the same few phrases and slogans repeated over and over.

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          • Ah, the “personal attack and making stuff up” tell for cognitive dissonance. That is what you do when you are wrong and know it. Otherwise, you would have dazzled us with your “brilliant” argument.

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          • Greg G.

            Any individual may or may not be satisfied with the choices of governments that the real world offers. Dissatisfaction is always among your options.

            But “None Of The Above” is not.

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          • Greg G.

            The difference, of course, is that if you vote for something in a market you will get what you voted for, and not something else you didn’t want. If you DON’T vote for something you will NOT get it, and you won’t be forced to pay for it anyway. Also you may vote as often as you like and each time you will get exactly what you voted for. You aren’t stuck with something you may or may not have chosen, for several years into the future. And there’s no need to agonize over voting for the cleanest turd to avoid something worse.

            Speaking of turds: What’s really frightening to me is that in less than three weeks one of these clowns will probably be the president-elect of the US of A.

            http://i2.wp.com/www.appliedcynicism.com/wp-content/uploads/2016/10/debate-clowns.jpg?fit=800%2C393

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          • Greg G.

            You caught me…sort of. I’ll admit to a minor misdemeanor in this case.

            Actually, maybe not. My use of the word ‘consumers’, above, could refer to multiple individual consumers, as was intended and not to consumers as a monolith. Obviously all consumers never do one thing or another in unison.

            How’s this: Innovators control what is offered on the market. Individual consumers select from among those offerings by voting with their dollars, and a critical mass of affirmative voters (critical to the producer) determines which innovations may continue to be offered over a period of time. Individuals have no direct control over how long any particular offering will remain on the market, but they may accept or reject any or all currently available offerings.

            Creative/destructive changes occur when a sufficient number of individual consumers change their votes so that the number for one producer falls below the critical mass for that producer, and rises and remains above the critical mass for another. In this way consumers, both individually and as members of a group, determine which innovations continue to remain on the market.

            This is nothing like the political world in which voters are offered basically two choices by the Coke party and the Pepsi party. There are other minor players, but they get very little shelf space, and it’s never happened that anyone voting for a third party actually got what they voted for.

            In this strange world voters are essentially asked to vote for either coke or pepsi, and they will get one of those whether they choose that one or neither one. That will be their only drink for 2 or 4 or 6 years with no option of changing or opting out completely, and they will be forced to pay for the one they’ve been assigned whether or not they actually drink any.

            After a big deal ceremony on choosing day during which voters must remember their own names and then stab holes in a piece of thick paper, those worthies apply a sticker to their clothing that proudly proclaims “I chose!” even though that’s not exactly what happens. Democracy in action!

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