Last Tuesday President-elect Trump said, “My Administration will be focused on three very important words: jobs, jobs, jobs.” Mr. Trump emphasizes geography: American policies should encourage economic growth “right here in America.” Nothing wrong with that.
He follows a hallowed tradition of politicians emphasizing jobs and talking about the number of people employed as if it were the only measure of economic well-being. This is effective political communications about economics and quite common.
Any time a policymaker does this he or she is oversimplifying. Employment levels, that is, jobs, are an important metric of economic health. Maximizing the number of people working is a laudable goal for policy. But jobs are not the only thing we should care about. Economically we are more than just workers.
- We care not just about how many people are working but also about how much we are earning. We are wage-earners.
- We care not just about wages but also about non-wage benefits like employer-paid health insurance premiums and employer contributions to retirement savings. Wages plus benefits equals total compensation.
- We care about the prices of the goods and services we buy. Those prices can be affected by the extent of domestic and international market competition and also by inflation. We are consumers.
- We can only spend what the government doesn’t take from us, so we care about the taxes we pay. We are taxpayers.
- On the flip side, we may receive cash or other transfer payments from the government. Some of us are recipients of government benefits.
- And since many of us own financial assets we care about economic growth and its effects on financial returns. We are investors.
Politicians talk about economic policy as if having a job is the only thing that matters to you. While being employed is critical to your economic status, you are more than just a worker.
When thinking about economic policy, each of us is a worker and a wage-earner, a consumer, a taxpayer, and often an investor and a recipient of government benefits.
OK, but so what? Does it really matter if politicians oversimplify and talk only about jobs, rather than about jobs and wages and compensation and prices and taxes and benefits and market returns?
It matters if political rhetoric drives policy to prioritize one element over the others. If we ignore a policy’s effects on consumers and taxpayers and measure only its impact on jobs, then we are getting an incomplete view of that policy. If we measure a policy’s success only by counting how many more jobs will result without considering the effects on wages and prices and other measure that matter, then we’re going to choose bad policies.
I am not arguing we should ignore the employment effects of a policy; I am not arguing that jobs don’t matter. Quite the opposite. We should start by looking at the effects on jobs and then keep going, analyzing the effects on wages, non-wage benefits, prices, taxes, transfer payments and financial returns. We need to measure, estimate, and understand all the economic effects of a proposed policy change, not just the one effect that is easiest to communicate.
Example 1: Buy American provisions, aka domestic content restrictions, require the government to buy certain things only from American producers. This helps steelworkers while harming taxpayers and those who use the government’s services (a fixed number of tax dollars buying more expensive steel will buy fewer rail cars and buses). We should evaluate these policies not just on the American jobs they create or protect, but also on the Americans’ taxes they increase and the services they reduce for other Americans.
Example 2: Erecting trade barriers with China and other sources of inexpensive imported goods would help American workers in the protected industries, at least in the short run. It would also raise prices for those products. We should consider the effects on both American manufacturing workers and on American Walmart shoppers. If we ignore the latter, much larger group, we’re not making good decisions.
Example 3: A large deficit-increasing increase in government spending or cut in taxes next year (aka fiscal stimulus) could, by itself, increase employment and wages. It could also lead to higher inflation and harm consumers. Or the Fed could react to the fiscal stimulus by raising interest rates more rapidly. This would slow growth in interest-sensitive components of our economy, at least partially offsetting the effects of fiscal stimulus. Higher interest rates would also affect financial returns, the ability of American farms and firms to export goods, and the prices of things we import. Policymakers need to look at the complete set of impacts of a proposed fiscal stimulus, not just at the gross number of jobs someone thinks it will create.
Jobs are important and Mr. Trump deserves credit for signaling early that he will prioritize faster economic growth. We should not single him out for focusing his rhetoric solely on jobs, as most other politicians do the same. At the same time, each of us is more than just a worker, and the number of jobs is not the only measure of a good policy. When we forget this we risk doing more harm than good.