Year: 2017

How the Market Creates Jobs and How the Government Destroys Them

If the media tell us that “the opening of XYZ mill has created 1,000 new jobs,” we give a cheer. When the ABC company closes and 500 jobs are lost, we’re sad. The politician who can provide a subsidy to save ABC is almost assured of widespread public support for his work in preserving jobs.

But jobs in and of themselves do not guarantee wellbeing. Suppose that the employment is to dig huge holes and fill them up again? What if the workers manufacture goods and services that no one wants to purchase? In the Soviet Union, which boasts of giving every worker a job, many jobs are just this unproductive. Production is everything, and jobs are nothing but a means toward that end.

Imagine the Swiss Family Robinson marooned on a deserted South Sea island. Do they need jobs? No, they need food, clothing, shelter, and protection from wild animals. Every job created is a deduction from the limited, precious labor available. Work must be rationed, not created so that the market can create the most product possible out of the limited supply of labor, capital goods, and natural resources.

The same is true for our society. The supply of labor is limited. We must not allow the government to create jobs or we lose the goods and services which otherwise would have come into being. We must reserve precious labor for the important tasks still left undone.

Alternatively, imagine the world where radios, pizzas, jogging shoes, and everything else we might want continuously rained down like manna from heaven. Would we want jobs in such a utopia? No, we could devote ourselves to other tasks – studying, basking in the sun, etc. – that we would undertake for their intrinsic pleasure.

Instead of praising jobs for their own sake, we should ask why employment is so important. The answer is because we exist amidst economic scarcity and must work to live and prosper. That’s why we should be of good cheer only when we learn that this employment will produce things people actually value, i.e., are willing to buy with their own hard, earned money. And this is something that can only be done in the free market, not by bureaucrats and politicians.

The Destruction of Jobs

But what about unemployment? What if people want to work, but can’t get a job? In almost every case, government programs are the cause of joblessness.

Minimum Wage. The minimum wage mandates that wages be set at a government-determined level. To explain why this is harmful, we can use an analogy from biology: there are certain animals that are weak compared to others. For example, the porcupine is defenseless except for its quills, the deer vulnerable except for its speed.

In economics, here are also people who are relatively weak. The disabled, the young, the untrained—all are weak economic actors. But like the weak animals in biology, they have a compensating advantage: the ability to work for lower wages. When the government takes this ability away from them by forcing up pay scales, it is as if the porcupine were shorn of its quills. The result is unemployment, which creates desperate loneliness, isolation, and dependency.

Consider a young, uneducated, unskilled person, whose productivity is $2.50 an hour in the marketplace. What if the legislature passes a law requiring that he be paid $5 per hour? The employer hiring him would lose $2.50 an hour.

Consider a man and a woman each with a productivity of $10 per hour, and suppose, because of discrimination or whatever, that the man is paid $ 10 per hour and the woman is paid $8 per hour. It is as if the woman had a little sign on her forehead saying, “Hire me and earn an extra $2 an hour.”

This makes her a desirable employee even for a sexist boss. But when an equal-pay law stipulates that she must be paid the same as the man, the employer can indulge his discriminatory tendencies and not hire her at all, at no cost to himself.

Comparable Worth. What if government gets the bright idea that nurses and truck drivers ought to be paid the same wage because their occupations are of “intrinsically” equal value? It orders that nurses’ wages be raised to the same level, which creates unemployment for women.

Working Conditions. Laws which force employers to provide certain types of working conditions also create unemployment. For example, migrant fruit and vegetables pickers must have hot and cold running water and modern toilets in the temporary cabins provided for them. This is economically equivalent to wage laws because, from the point of view of the employer, working conditions are almost indistinguishable from money wages. And if the government forces him to pay more, he will have to hire fewer people.

Unions. When the government forces businesses to hire only union workers, it discriminates against non-union workers, causing them to be at a severe disadvantage or permanently unemployed. Unions exist primarily to keep out competition. They are a state-protected cartel like any other.

Employment Protection. Employment protection laws, which mandate that no one can be fired without due process, are supposed to protect employees. However, if the government tells the employer that he must keep the employee no matter what, he will tend not to hire him in the first place. This law, which appears to help workers, instead keeps them from employment. And so do employment taxes and payroll taxes, which increase costs to businesses and discourage them from hiring more workers.

Payroll Taxes. Payroll taxes like Social Security impose heavy monetary and administrative costs on businesses, drastically increasing the marginal cost of hiring new employees.

Unemployment Insurance. Government unemployment insurance and welfare cause unemployment by subsidizing idleness. When a certain behavior is subsidized—in this case not working—we get more of it.

Licensing. Regulations and licensing also cause unemployment. Most people know that doctors and lawyers must have licenses. But few know that ferret breeders, falconers, and strawberry growers must also have them. In fact, government regulates over 1,000 occupations in all 50 states. A woman in Florida who ran a soup kitchen for the poor out of her home was recently shut down as an unlicensed restaurant, and many poor people now go hungry as a result.

When the government passes a law saying certain jobs cannot be undertaken without a license, it erects a legal barrier to entry. Why should it be illegal for anyone to try their hand at haircutting? The market will supply all the information consumers need.

When the government bestows legal status on a profession and passes a law against competitors, it creates unemployment. For example, who lobbies for the laws which prevent just anyone from giving a haircut? The haircutting industry—not to protect the consumer from bad haircuts, but to protect themselves against competition.

Peddling. Laws against street peddlers prevent people from selling food and products to people who want them. In cities like New York and Washington, D.C., the most vociferous supporters of anti-peddling laws are established restaurants and department stores.

Child Labor. There are many jobs that require little training—such as mowing lawns—which are perfect for young people who want to earn some money. In addition to the earnings, working also teaches young people what a job is, how to handle money, and how to save and maybe even invest. But in most places, the government discriminates against teenagers and prevents them from participating in the free enterprise system. Kids can’t even have a street-corner lemonade stand.

The Federal Reserve. By bringing about the business cycle, Federal Reserve money creation causes unemployment. Inflation not only raises prices, it also misallocates labor. During the boom phase of the trade cycle, businesses hire new workers, many of whom are pulled from other lines of work by the higher wages. The Fed subsidy to these capital industries lasts only until the bust. Workers are then laid off and displaced.

The Free Market. The free market, of course, does not mean Utopia. We live in a world of differing intelligence and skills, of changing market preferences, and of imperfect information, which can lead to temporary, market-generated unemployment, which Mises called “catallactic.” And some people choose unemployment by holding out for a higher paying job.

But as a society, we can insure that everyone who wants to work has a chance to do so by repealing minimum wage law, comparable worth rules, working condition laws, compulsory union membership, employment protection, employment taxes, payroll taxes, government unemployment insurance, welfare, regulations, licensing, anti-peddling laws, child-labor laws, and government money creation.

The path to jobs that matter is the free market.

Originally published in The Free Market 6, no. 5 (May 1988)

Note: The views expressed on Mises.org are not necessarily those of the Mises Institute.

From Lewrockwell.com, here.

Happiness, Not Drunkenness

The so-called “minor tractates” (masekhtot ketanot) of the Talmud include textual material which dates to the time of the Mishnah which was arranged, expounded upon, and then formally redacted during the Geonic era into fourteen separate discussions. In printed editions, these smaller tractates usually appear just after Seder Nezikin. One of them, Masekhet Soferim, appears just after Avot De-Rabbi Natan and discusses various laws related to the public Torah readings and various sacred books.

In Masekhet Soferim 20:1 (19:1 in some editions), it says:

“And we do not make the blessing on the new moon except for on motza’ei shabbat when a person is happy (mevusam) and in nice clothing…”

The word “happy” (mevusam) is the adjective describing someone who has performed the action of livsumei, used in Rava’s statement on b.Megillah 7b. If we understand livsumei to mean “getting drunk” then we have to reasonably conclude that Masekhet Soferim is instructing one to do kiddush levanah while intoxicated. Such a reading is not only incorrect, but absurd.

The word livsumei means “to make [something] pleasant or sweet” (from the Hebrew word bosem, referring to spices) not “to become drunk,” and it is being used here to metaphorically indicate “happiness,” i.e. the happy mood resulting from the proper observance of the weekly Sabbath was considered – at least by this opinion – to be the best time to recite the blessing upon the new moon.

The Ra’avyah (Rabbi Eliezer ben Yoel HaLevi, 1140-1225) also appears to confirm such a meaning for livsumei. His text of the Gemara was apparently at slight variance from our printed editions. He quotes Rava as saying:

מיחייב איניש לבסומי נפשיה עד דלא ידע בין ארור המן לברוך מרדכי

This reading appears to make even more sense (especially in immediate context, as will be explained below) and very likely means:

“A person must make himself happy (lit., pleasant) to the point that he doesn’t know the difference between ‘Cursed be Haman’ and ‘Blessed be Mordekhai.’”

In his commentary, the Ra’avyah makes no mention of drinking or drunkenness on Purim, but only cites his unique version of the Gemara (cf. Sefer Ra’avyah, Megillah, Siman 564) which he apparently views as being enough of a straightforward instruction regarding the nature of celebration of Purim.

The Sheiltot De-Rav Ahai Gaon: From Pretext to Context

Probably the greatest and most cohesive proof that the meaning of livsumei is “to make oneself pleasant” comes from the Sheiltot De-Rav Ahai Gaon (8th century). Divided into sections according to the weekly parashah, each section in the Sheiltot contains both halakhic and hashkafic Q&A that is arranged topically. The answers to the questions asked are selected from the Gemara and the Midrash and often contain readings that do not match our printed editions of the Talmud. More often than not, Geonic works such as the Sheiltot and the Halakhot Gedolot hold more accurate versions of Talmudic passages and are regularly used by Talmudic scholars to solve textual difficulties – and it appears the statement of Rava in b.Megillah 7b is no exception.

In Parashat Vayakhel (Sheilta 67), Rav Ahai Gaon relates the dictum of Rava as follows:

ואמר רבא מיחייב איניש למיכל ולמישתי ולאיבסומי בפורייא עד דלא ידע בין ארור המן לברוך מרדכי

“Rava says, ‘A person is obligated to eat, to drink, and to be happy (le-ivsumei) on Purim until he doesn’t know the difference between ‘Cursed be Haman’ and ‘Blessed be Mordekhai.’”

It seems that Rav Ahai’s version of the Gemara (or, perhaps his elucidation of it) is meant to mirror the pasuk in Kohelet 8:15 which says, “And so I praised happiness (simhah), that there is no good for a man under the sun except to eat, drink, and to be happy…”

The Netziv (Rabbi Naftali Tzvi Yehudah of Berlin, 1816-1893), in his Emek HaSheilah to this passage, has a lengthy comment which features his very thorough assessment of this citation of the Sheiltot:

האי מאן דבמאדים יהי גבר אשיד דמא א״ר אשי אי אומנא אי גנבא אי טבחא אי מוהלא אמר רבה אנא במאדים הואי אמר אביי מר נמי עניש וקטיל

“One who is born under Mars will be one who sheds blood, as Rav Ashi observed such a one will either be a surgeon, a thief, a slaughterer, or one who circumcises. Ravah said, ‘I was born under Mars.’ Abaye responded, ‘You also inflict punishment and kill.’”

After hearing the pronouncement about those born under Mars and what their professions will be, Ravah notes that he too was born under Mars and yet he engages in none of these professions. Abaye responds to Ravah that he is nevertheless a violent person. According to the Hatam Sofer, Abaye made this statement in reference to the very incident of Ravah and Rabbi Zeira at the Purim seudah!

That there is in reality no such thing as astrology or astrological influences is the topic for another discussion. However, within the general Persian worldview of the hakhmei Bavel in the Gemara it seems that what took place during their Purim seudah was not due to drinking at all, but was instead attributed to the predisposition of Ravah to violence. The Gemara also states that specifically during the month of Adar is when a person’s individual mazal is very strong (b.Ta’anit 29b), which may – in the view of the Amoraim – have pushed Ravah over the edge toward being actively violent. In fact, when this story is related in the Sheiltot, it entirely lacks the word ivsum (intended as “became drunk” – a word present in the Gemara’s version) before kam Ravah (“Ravah arose [and slaughtered Rabbi Zeira]”) and does not seem to attribute Ravah’s violent episode to drinking at all.

Instead, the Hatam Sofer explains that Rabbi Zeira refused to make a seudah with Ravah the following Purim because there was a clear and present danger (i.e. shekhiah hezika – see there) that needed to be avoided, as it is forbidden to rely on miraculous intervention for safety in the face of practical realities. This is perhaps instructive for us today when choosing what company to keep for the Purim festivities. There are those who will undoubtedly be violent and inappropriate on Purim, but such people should be avoided out of a concern for our personal safety and the safety of our children.

Conclusion

The version of the Sheiltot supports the reading of the Ra’avyah, Rav Sa’adia Gaon, and others who never viewed Rava’s statement as being a reference to becoming drunk, and therefore saw no need to exclude it from the halakhah, as did the Ran and Rabbenu Efraim. Instead, Rav Ahai Gaon in his Sheiltot understands Rava to be referencing a normal, Biblical rejoicing where the Jewish people eat, drink, and are happy (Kohelet 8:15). The word livsumei is either a reference to rejoicing or to the eating of delicacies, as mentioned in the direct context of the Gemara just before the statement of Rava. The narrative of Ravah slaughtering Rabbi Zeira was not due to drinking at all, but was instead due to Ravah’s supposed astrological inclination toward violence, caused by the supposed strengthening of his mazal during the month of Adar. Rabbi Zeira’s refusal to make another seudah with Ravah is also not due to his prior excessive drinking, but due to the prohibition of relying on miracles in the face of practical safety concerns. On that page of the Gemara, the story should be seen as a related tangent – something that is highly common in the flow of the Talmudic discussion – being apropos because of the context of the incident having taken place at a Purim seudah.

It should now be abundantly clear that there is simply no way to justify the drunken and intensely shameful behavior that is perpetrated year after year on Purim in the name of Torah and Judaism.

Purim Sameah,

Kol tuv,

YB