A Critical View on Production and Employment
In the landscape of economics, understanding the relationship between production and employment is crucial. Henry Hazlitt, an influential economist, articulated this point succinctly over 65 years ago in his book, Economics In One Lesson. He emphasized that the ultimate goal of any economy is to achieve maximum results with minimal effort. Hazlitt noted, “The whole economic progress of mankind has consisted in getting more production with the same labor.” He proposed that by enhancing production, full employment naturally follows. In his view, “production is the end; employment merely the means.”
Regrettably, this straightforward observation seemed to evade the attention of central planners in the United States when the economy faltered in 2008.
Encouraged by academic figures such as Paul Krugman, policymakers opted to address unemployment through vast government expenditures without considering their productive value. Their strategy revolved around stimulating job creation by increasing monetary supply and redistributing wealth through government intervention.
Deficit spending, which had been problematic for decades, soared to unprecedented levels. The national budget deficit more than tripled, and the debt as a percentage of GDP escalated from approximately 70% to nearly 100%. Washington’s leaders promised swift job creation and a return to 6% unemployment rates; instead, they left the economy in disarray.
The Ineffectiveness of Government Spending
This week, the nation witnessed dismay over the deadlock on the debt ceiling in Washington, coinciding with several reports indicating that the economy is struggling to recover. Both the housing market and manufacturing sectors continue to face challenges, and job opportunities remain scarce.
For instance, on Tuesday, the Commerce Department revealed that new home sales dropped by 1% in June. The following day, it reported a 2.1% decline in durable goods orders for the previous month.
Interestingly, on Thursday, the Labor Department announced a drop of 24,000 in initial claims for unemployment benefits, bringing the total to a seasonally adjusted 398,000. However, the employment growth during May and June was negligible, with only a 43,000 increase in nonfarm payrolls.
Clearly, the reliance on government spending as an economic cure has proven to be a significant failure. The prolonged struggle in Washington to negotiate spending cuts and raise the debt limit overlooks a fundamental issue—the nation is in financial distress, and debt-driven government expenditures hinder any potential recovery.
Even the most ambitious proposals fall short of returning deficit spending to pre-recession levels, which were already alarming. Achieving this would necessitate annual cuts of $1 billion, totaling $10 billion over a decade. Even if this were accomplished, the government would still add $5 trillion—a 33% increase—to the national debt within the next ten years.
A Call to Acknowledge Economic Reality
By the time you read this, the GDP data for June will have been released. We expect growth to hover around 2% or even lower, an insufficient rate to lower unemployment. Furthermore, any attempt to spur growth through increased deficit spending is now, for the first time in 17 years, politically unfeasible.
Growing numbers of individuals seem to grasp and resent the situation that has unfolded.
Central planners have stifled valuable employment opportunities for many. By redirecting investments away from productive ventures and mismanaging funds—while artificially keeping interest rates low—they have constrained capable individuals from supporting themselves and their families.
The consequences are evident: stagnant growth, high unemployment, and skyrocketing debt.
No matter how much money is spent, the government cannot boost production. Only private enterprises have the ability to do so. Until production increases, we are left with a tepid recovery as the best-case scenario. So, when can we expect an uptick in production?
Production will only rise when the government curtails its excessive expenditures and recognizes the futility of trying to engineer economic growth, redistribute wealth, or create a social utopia.
Sincerely,
MN Gordon
for Economic Prism
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