Does it Make Economic Sense to Pay People Not to Produce?
January 19th, 2010 |
With the unemployment rate hovering near ten percent and consumer demand taking a nosedive, it seems like an ideal time to consider paying people not to produce. Too many new cars hitting the market? Then let’s pay people not to build new cars. Too many houses? Let’s pay the construction workers to sit home for a spell. By paying people not to produce we will lower the amount of unsold goods clogging our economic arteries and still put money in the pockets of everyday people who will go out and spend it, therefore stimulating demand. It’s a win-win situation if I’ve ever seen one.
Now you may think, at first glance, this is a totally preposterous idea. You may think there is no way we can afford to pay people to not produce. But the idea is not without precedent.
We can always use farmers as an example of the government paying people not to produce. I grew up on a farm and I remember all the “set aside” and PIC programs the government came up with to help the proverbial family farmers stay on the farm even though commodity prices were at depression levels when adjusted for inflation. But all those programs put together were small potatoes compared to another massive economic program designed to pay people not to produce. No government program could dream of being as successful at paying people not to produce as our financial markets.
Before you laugh and move on, give me a couple of minutes to present my case.
When it comes to paying people, there are hardly any jobs in our economy that pay better than work in the financial field. In a good year most professional stock and commodity traders on the floor of a major exchange earn more as a bonus than most of us make in a lifetime. And what do they produce for the big bucks they pull in? When it comes to real goods and services of real value to the real working people of the world the stock and commodity traders produce, let’s see, well, um… absolutely nothing.
The truth is a nation’s wealth lies not in its financial markets and financial instruments. It is dependent on neither its stock markets nor its derivatives. No, a nation’s true wealth, like Adam Smith tried to tell us so many long years ago, consists of the goods and services which a nation produces for its citizens and the productive facilities which produce those goods and services.
At their best, the financial instruments can only represent real wealth. In and of themselves they can never be real wealth. At their worst, the financial instruments and the markets which trade them lead to a serious and damaging misallocation of resources where more energy and resources are devoted to trading mere pieces of paper and less attention is given to producing the real goods and services which enrich all of our lives and make us all wealthier in real terms.
Our economic system is paying a lot of people a ridiculous sum of money not to produce anything but paper profits which, as we’ve repeatedly seen over the centuries of investment bubbles, can disappear in the blink of an eye. The precedent has been established. Now we just need to make better choices concerning whom we pay not to produce and how much we choose to reward them for their lack of production.
Copyright 2009 - Peter Van Schaik
The author has been a student of economic theory and economic statistics for over thirty years. He is the editor and publisher of Van Schaik’s Economic Outlook, a website forecasting business cycles in the U.S. economy. You can see the website at http://jpetervanschaik.googlepages.com.
