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Dumb Idea: Investment Creates Jobs

William Baldwin
Forbes Staff 
url: http://www.forbes.com/sites/baldwin/2013/03/18/dumb-idea-investment-creates-jobs/
3/18/2013 @ 8:15AM 

Investment is good, but not because it increases the number of people it takes to do something.

“Job-creating investment”–how often have you heard that phrase, especially from a Republican politician defending tax breaks for the wealthy? This economic claim is 180 degrees out of alignment with reality. The point of investment is to eliminate jobs.

Suppose you want to harvest forage crops. A $190 scythe will do the job. If you want to go faster, increase your investment by $471,595. Buy a model 7980 harvester from Deere.

A politician promoting the transition from scythes to farm machinery would, of course, talk about job creation. “Bring those jobs to East Moline! There will be jobs on the assembly line, jobs in the paint shop, jobs in the dealerships and jobs for the mechanics! Jobs! Jobs!”

But the modernization of agriculture does not replace 100 farm jobs with 100 farm machinery jobs. If it did, there would be no point to the exercise. You might as well have those workers out in the fields as sweating over parts bins in a Deere factory. They’d get more fresh air and sunshine.

No, the point of mechanized farming is to replace 100 farm jobs with only 50 factory and dealership jobs, or maybe only 5. On such job elimination is built the improvement of living standards over the past two centuries.

The correct line from the politicians would be: “Let’s cut the tax rate on dividends and capital gains to 15%, so that we can speed up the elimination of jobs.”

Bill Gates deserves admiration for working to eliminate polio. We should also be thankful for his other accomplishment. He eliminated a million secretaries.

A commenter says that companies invest not just to replace labor but to expand. Yes, companies invest in order to expand. That is the main reason they invest. But that is not quite the same thing as saying that the investment created the jobs.

If there is demand for houses, there will be demand for copper, and the copper miner will buy a new earth mover and employ a driver to run it. But it isn’t the investment in the machine that created the demand for the labor. It was the demand for copper that created the demand for the labor. The investment in the truck simply enabled the copper company to meet the demand for its product with one driver rather than with 50 blokes pushing wheelbarrows.

William Baldwin
Forbes Staff 
url: http://www.forbes.com/sites/baldwin/2013/03/18/dumb-idea-investment-creates-jobs/

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