Julie and I both noted that President Obama’s remark about ATMs reveals the mindset of a man who knows zilch about how economies work. George Mason economics professor Russell Roberts finds a parallel for the president’s mindset:
The story goes that Milton Friedman was once taken to see a massive government project somewhere in Asia. Thousands of workers using shovels were building a canal. Friedman was puzzled. Why weren’t there any excavators or any mechanized earth-moving equipment? A government official explained that using shovels created more jobs. Friedman’s response: “Then why not use spoons instead of shovels?”
Okay, no jokes about spoon-ready projects.
Roberts notes some older examples of technology replacing workers: tolls collected by E-ZPass, auto workers by robots, textile machines, etc. But doesn’t all this just mean that class derided by the president as “fat cats” gets richer?
The savings from higher productivity don’t just go to the owners of the textile factory or the mega hen house who now have lower costs of doing business. Lower costs don’t always mean higher profits. Or not for long. Those lower costs lead to lower prices as businesses compete with each other to appeal to consumers.
The result is a higher standard of living for consumers. The average worker has to work fewer and fewer hours to earn enough money to buy a dozen eggs or a pair of shoes or a flat-screen TV or a new car that’s safer and gets better mileage than the cars of yesteryear. That higher standard of living comes from technology. It isn’t just the rich who get cheaper TVs and cars, plus the convenience of using an ATM at midnight.
Somehow, new jobs get created to replace the old ones. Despite losing millions of jobs to technology and to trade, even in a recession we have more total jobs than we did when the steel and auto and telephone and food industries had a lot more workers and a lot fewer machines.
Why do new jobs get created? When it gets cheaper to make food and clothing, there are more resources and people available to create new products that didn’t exist before
Wish we had a president who already knew this. Let’s hope a light bulb goes off in his head-but it would have to be one of those mercury-filled, government-mandated CFL bulbs!