Creating Jobs Is the Wrong Goal
President Barack Obama and presumptive Republican nominee Mitt Romney seem to agree on something: the primary policy goal of the federal government should be increasing the level of employment. Obama would seek to achieve this goal through fiscal policy; Romney thinks the private sector can lead a fuller recovery if only the government would get out of the way.
Obama and Romney, however, are both wrong. Increasing the level of employment is an inappropriate policy goal for the federal government. Instead, policymakers should aim for a sustained increase in the level and rate of growth of productivity, real output, and living standards.
There is, I admit, considerable overlap between these sets of objectives. Most policies which would increase the level of employment would also increase real output and living standards, at least in the short run. And yet there is more than a semantic difference between "pro-jobs" and "pro-growth" public policy.
Milton Friedman long ago crystallized this point when he asked a pointed question during a visit to a canal-building project. The government representative overseeing the work told Friedman they were not using earth-moving equipment because it was meant as a jobs program. Friedman responded: "Oh, I thought you were trying to build a canal. If it's jobs you want, then you should give these workers spoons, not shovels."
Public policy should not aim to make work. Making work is easy if one accepts the trade-off with productivity. Rather, the proper goal for public policy should be, in essence, to create jobs worth working or to create the conditions under which such jobs will be created.
In some cases, in fact, this will make the job of government to destroy jobs. Trade agreements which result in the offshoring of low-skill jobs, or research-and-development subsidies which support the development of labor-saving technology, actively conflict with a "pro-jobs" policy. They are what government should do, however: both free trade and technology (with public support to retrain workers) would dramatically advance productivity, real output, and living standards.
A "pro-growth" rather than "pro-jobs" strategy could be distilled to this: (1) Leave the task of aggregate demand stability to monetary policy; (2) Don't use fiscal policy to reduce aggregate supply; use it to support the highest and fastest growth path possible.