2020-02-05

On jobs and welfare

We often hear the expression "this creates jobs". But job creation cannot be good in itself. The state could create well payed jobs for everyone for doing nothing. Even with jobs, if nobody produces food, then people would starve.

What is important is welfare creation - goods and services, that is often accompanied by occupied people that have jobs. Such welfare creation should equate to a better life for the ones who consume that created welfare. There are many nuances here. In these days, only a fraction of jobs is actually involved in creating goods and services that directly affect the quality of life.

There is a high portion of jobs that are involved in organizing the welfare creation and redistribution. This includes management, state administration, banks, lawyers, police and more. Without a system to control the fair exchange of goods through money, people would tend to break contracts and steal from the welfare created by others.

While such "administrative overhead" is needed on the long run for the actual welfare creation and consumption, it's harder to evaluate the added value to welfare and the fair share of welfare that people involved in such activities are entitled.

Individuals can thrive having a well payed job while doing nothing useful. However, a country cannot thrive by having too many people that consume welfare without adding value to the general welfare.


Public policies

Armed with the "welfare" approach, we can more easily evaluate the impact of various public policies that we are offered. Is lowering the taxes creating more welfare or it only creates redistribution from some citizens to others? The answer is often in between, but sometimes the impact of a policy becomes very clear if we just think about the increased welfare created by a policy. Just looking at money might fool you.

There are cases when monetary-only activities can create welfare for a country without actually creating welfare that can be consumed. One example is offering financial services to other countries. Still, if these financial services are bought without constraint, we can assume that the services are actually useful for the "buying" country to create welfare. Therefore, it is maybe fair for the remote country to pay for these services.

Paying is actually sending goods from the paying country to the selling country. Because of money, things can be more complex, like a chain of goods exchange involving many countries. However, the end result is that the selling country will receive imported goods in the value of the sold services, while the paying country will export goods in the value of the received services. Sometimes these exchanges might involve selling fixed assets (think land, companies), but I would not enter into details here.

A more special case is when a country is borrowing money. That country get the accept from the country that borrows to consume more welfare than created now. The country who borrows promise to provide even more goods (plus interest), in a chain of goods exchange that ends up in the country that loaned the money. The country that loans money accepts to consume (for now) less than it produced when it accumulated that money. The balance can change in time while money can devalue or a country might not be able to pay at all.

What I propose is to always evaluate welfare creation when assessing a public policy. Questions can be:
  • "Will this policy create more welfare for locals or abroad (export)?"
  • "Will this policy improve the fair distribution of welfare?" (fair is not equal)
  • "Can we solve the same administrative tasks consuming less resources (including people)?"
  • "If we free these people from these jobs, will they create more welfare elsewhere, or at least we improve the fairness of welfare redistribution?"

Layoffs

Think layoffs for instance. People gets... fired, sometimes in large groups. There are only rare cases of companies that are not creating any welfare. A company that is losing money is just a company that creates less welfare than it consumes. However, some of the consumed welfare is not necessary taken from consumption. Many consumed materials and services would not be consumed otherwise - the company don't reduce overall welfare by consuming it.

When we talk about consumed materials and services, the question is if these resources are likely to create more welfare if they are released to another company. Some goods can be created in any amount (think software), while other depend on limited supply and have ecological impact (think lithium). Releasing some of the resources may or may not create more welfare elsewhere.

The same is with people: if they are fired, they may or may not create more welfare in another job. If they don't get a job, they will not create public welfare (except maybe for themselves). In this case, the only reason to do the layoff is to reduce the welfare redistribution to such people that ended up involved in an activity that was not producing enough welfare - compared to consumed resources. Keeping these people in the job and lowering wages would actually result in more overall public welfare - however this might be abused by companies.

It is also the case when welfare creation is not correctly rewarded for various reasons. A company that creates high quality products might be pushed from the market by companies with poor quality products that seems good enough at first. Public policies should aim to keep companies honest, by requiring fair warranty service and giving fines for product misrepresentation.

One interesting issue is the production of goods that gets defective very fast. While monetary approach would see that we consume more products, actually we have the same welfare as having a more reliable product, only with a higher ecological impact. There should be a balance between encouraging product innovation and wasting resources to replace goods that could function longer if designed properly.


A country cannot be only "selling market"

If a country sells to another country, it receives money at first. However, those money are only useful if they can be used to purchase something. If the local coin has no value, it's like giving the products for free. Of course, you can exchange that coin for another more powerful coin, but even this exchange is conditioned by the goods that you can acquire in the local coin.

Therefore, macro-economically, a country can only import so much welfare as it produces itself. A country can sell properties for a while in exchange for goods, but on the long therm a country can only consume a value equal of the local production. Sometimes the exchange can be a little unfair, but overall the import consumption increases with the the country's export.


Earth scale

If more people are involved in useful goods and service creation, individuals would experience better welfare in average. It's always a question of redistributing goods, however it is very unlikely that someone who produces more goods than before would actually receive less goods than before to consume. Therefore most of the people would benefit from this.

So, if we take the poor countries and we help the people there to produce more goods and services, we will all experience a higher level of welfare. The only concern remains natural resource exhaustion, however we are not there yet for most of the materials.


Financial speculation

While it might be better to let companies to produce and sell anything that is required on the market, we should be at least morally critical about the relation between welfare creation and it's reward. For example, if you invest money in a company, maybe that money will help it to create more goods and produce a more satisfactory life for others. In this case, your gain might be deserved.

There are other morally questionable activities that can produce personal welfare, that don't create welfare. For example speculating on Bitcoin you can gain welfare that is not backed by welfare creation. While this is legal, it does not contribute to global welfare, it will only redistributes welfare from the ones who lose on this game.


Final word

We should discuss more about welfare creation and less about jobs or money. Money is important for individuals to access to a share of welfare, however a country's welfare depends more on the overall produced welfare.

We should think more about how the state can approach better the problem of job creation and destruction. I have the feeling that this is handled far from optimal. A lot of welfare creation is lost by not taking enough care at the destruction of jobs. A lot of resources are oriented to stimulating job creation that is unlikely to create welfare.

Always look at the welfare creation: is this creating a better life, overall, for people?

See also: The Economy theory - goods and money


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6 comments:

Anonymous said...

Interesting article, so, what is your opinion about universal basic income. Based on your first paragraph it seems you think it would not work?

Also, let's make the distinction between money and welfare. Money does not equal welfare.

Here is an example: recently Elon Musk wrote few strange tweets (probably very stoned) that made Tesla valuation go down with about 12 bln USD.
That the cost of the most expensive military air carrier the US navy has. Now, if someone would destroy that carrier completely you would say that a lot of welfare has been destroyed. But what welfare exactly do you think a few sentences on twitter really destroyed?

Also, you mention speculation on Bitcoin (actually you can speculate on anything, bitcoin is not better or worse example). Speculation is a zero sum game.
You win what someone else loses (in terms of money), however welfare is not.

Strange theory said...

Basic income is very tricky to fine tune.

First, you don't want to let people stave when they go through a bad period. Also, it might be cheaper to give some money to people then to fight the effects of hungry people (stealing, crimes). Also, you want that people to have enough so they can offer some chances for their offsprings to learn and be better in the next generation.

On the other side, if that basic income too high enough, it makes people to not want to work. This moves the burden to create welfare to fewer people. This is both nor ethical nor economical, as fewer people would produce less welfare to redistribute. On the communist country where I grew up, equal retribution created scarcity of very basic products, including food. Actually, most people were employed, however many were close to a zero productivity.

Strange theory said...

Money are a kind of tokens that enables you to claim some welfare. Not all welfare is money (land, buildings), but all money has virtually some corresponding welfare.

The issue is, some of the welfare that backs up money is only promised. When that welfare is not created (economic crisis), money can lose value (inflation).

Same, when a company's promise don't seem to hold anymore, the company loses his monetary value, while no welfare is destroyed. What is destroyed is the perceived potential of that company to create welfare in the future.

Strange theory said...

You can speculate that people would need more olive oil next summer, this is a healthy speculation. Rising price might also enable producers to create more olive oil.

When you speculate on something that don't have an attached welfare, that is only gambling.

Anonymous said...

Correct, so money=welfare+promises. What if I argue that promises >> welfare in this equation. So actually money ~= promises.

So yes, it's a token, but it only holds value as long as you trust some system and its' promises (some would argue that it is unlike bitcoin).

Strange theory said...

Actually, the promise is what gives value to fiat money. It's the promise to repay the load, by creating welfare.

When you have some money, you have a share of all promised welfare in the country/world (tokens). After a while it might value more or less then estimated initially.

This promise is the only intrinsic force that creates demand for a certain coin: https://meaningofstuff.blogspot.com/2015/01/debt-gives-value-to-money.html

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