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Government Should Foster Wealth Creation, Not Jobs Creation

Creating wealth is a more sensible focus of government policy than creating jobs, says Federal Reserve Bank of Cleveland President Jerry L. Jordan.

Writing in a recent issue of the Bank’s Economic Commentary, Jordan rejects what he says has been the dominant view of economic policymakers for the last six decades -- that a competitive marketplace will fail to generate adequate employment opportunities. That view underlies the widespread advocacy of government programs to “create jobs.” But, Jordan says, that view is fading, and in the 21st century fostering an environment for wealth creation, not creating jobs, will be viewed as a primary objective of government policy.

Jordan says that government probably does not have the foresight to predict accurately the industries and occupations in which job creation should occur. Government jobs programs often end up merely protecting existing jobs, which hampers a necessary antecedent to jobs creation: jobs destruction. In the United States, sectors and industries that claim the highest rates of net new jobs created are generally those that have the greatest rates of jobs destroyed. “Can we conceive of any [market driven] jobs creation that is not preceded by the destruction of some less efficient, and therefore less prosperous jobs?” asks Jordan. “Indeed, can we conceive of any major advance that does not make obsolete some less efficient way of producing things?”

According to Jordan, governments promote wealth creation by assigning and protecting property rights and by providing for the enforcement of private contracts. In contrast, government redistribution of wealth necessarily lowers the incentive to create and accumulate wealth. Similarly, central banks promote wealth creation when they use monetary policy to protect the purchasing power of the nation’s money and thereby protect the property rights of the private enterprises that use the publicly provided money. The alternative -- allowing the purchasing power of a nation’s monetary standard to erode over time -- redirects productive resources from activities that create wealth toward efforts to protect existing wealth from the ravages of inflation.

Jordan supports his thesis by pointing out that economic prosperity often differs substantially on the two sides of a political border. Indeed, a study examining more than 100 countries over a 20-year period found that countries whose governments had a strong commitment to economic freedoms -- free personal choice, the freedom of exchange, and the protection of private property -- tended to be faster-growing and wealthier than nations whose governments were less committed to economic freedom.

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