Monday, September 10, 2012

Paul Craig Roberts on Economics

Paul Craig Roberts writes frequently for LewRockwell.com.  He has been really solid on foreign policy and civil liberties from a libertarian standpoint.  Unfortunately, I can't say the same for his economics.  He reminds me a bit of Pat Buchanan.  He understands some economics, but he makes some fundamental errors that are critical and it ruins much of his analysis.

In his latest article, Roberts writes about the latest unemployment numbers.  He discusses the fact that the unemployment rate is vastly understated, particularly due to it being much lower because of people being discouraged and giving up on looking for work.  So while I have my criticisms of some of the economics, there are some interesting statistics he points out.

Roberts really starts to get off track when he talks about the types of jobs that were created.  Of course, the number of jobs he is talking about (96,000 jobs) is insignificant.  It is practically a rounding error in a country of over 300 million people.  Regardless, he offers his opinion on the types of jobs being created.  He says they are "lowly paid third world jobs".  He says, "52% of the new jobs created by the American superpower are lowly paid waitresses, bartenders, practical nurses, and hospital orderlies."

But who is Roberts to say what jobs should and shouldn't be created?  Is he trying to central plan the economy himself?  If that is where consumer demand is, then the market is responding.  The fact that some of these are low paying jobs shouldn't matter either.  Unemployment is high right now, so we should expect lower wages to allow the market to clear.  It is supply and demand.  The demand for jobs is high, so we should expect wages to come down to clear the excess supply, which in this case is labor.

Roberts then goes on to make another statement showing his ignorance in economics.  After asking where the remainder of the jobs are, he answers, "A few thousand jobs in finance and insurance, jobs that absorb consumer incomes but produce no product."

This statement makes absolutely no sense.  If there is no product being produced, then why would consumers spend any money on them?  Are they just not products that he is interested in?  Does he not believe that companies which provide services should be entitled to pursuing a profit?  Does he think that if something tangible that can be held in your hand is not being produced, then it doesn't count for anything?

I discussed this subject over a year and a half ago.  I referenced an old article by Harry Browne.  Why do jobs have to be in manufacturing to count?  Roberts, and others with the same thought processes, do not understand that this is actually a blessing of the free market.  We live in a society dominated by "services" because we are relatively rich.  We don't need everyone farming, sewing clothes, and building houses.  These things can be done with a relatively small number of people because of new technology and past capital investment.

Paul Craig Roberts is certainly correct to be concerned about the American economy.  But he should not pretend to know which jobs should be created and what they should pay.  If the free market does not create any new manufacturing jobs, that is because consumers are demanding something else, or else there is no free market (which certainly is the case now).  It means that the manufacturing needs and wants of consumers are already being taken care of, whether it be by other Americans, Chinese workers, or technology.  If it is the case of too much government interference, then the solution is to get the government out of the way.  But nobody should pretend like he knows what jobs should be created and how much they should pay.  That is central planning.

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