Productivity kills Jobs?

Recently Congressman Jesse Jackson Jr. (D-IL) remarked that Apple’s iPad was “probably responsible for eliminating thousands of American jobs.” Further, he tried to link it to the recent bankruptcy of Borders Books as well, quipping that “Why do you need to go to Borders anymore? …just buy an iPad and download your book…”


Such an expression of sheer ignorance of basic economics is astounding. And from a sitting U.S. Congressman no less makes it all that much more sad and appalling. But I guess I shouldn’t be too hard on Jesse. This fallacy has been with us for a long time. Every time some new tool that enhances productivity (and thus lowers costs) is introduced it is decried as terrible because it will put so many out of work. The benefits (lower prices) are ignored. But after awhile the controversy dies down and we’re all much happier to be paying less for our robot built cars, our sewing machine made clothes and our machine harvested food.

So why does this myth persist? Well quite simply because it is true – people do of course lose their jobs – in the short term. However it is disingenuous to evaluate productivity gains over a narrow time frame and summarily conclude the outcome as negative because a few will lose jobs.  That’s like planting seeds and a day later noting that nothing has yet sprouted therefore the seeds must be worthless. Productivity gains take time to take root and spread their fruit of lower prices throughout the economy. As people spend less money on the newly cheaper goods they now have more money to spend on other goods. The increase in demand for these “other goods” drives job creation. Of course it does take time for people to retrain or to move to where the new jobs are, it doesn’t happen overnight. That’s why we have Unemployment Insurance. In the “big picture” there are no job losses, in fact there will be net job gains if the productivity enhancements are sufficiently large.

But some inevitably want to prevent the process from ever starting because of short term fears, thus they use the power of government to act as a break to these productivity gains. Government will either subsidize the outmoded industry or attempt to penalize the new entrant through punitive taxes or burdensome regulations. This only happens of course if the “harmed” industry has a sufficiently well funded lobbyist group. This explains why sugar is more than twice as much in the US than in all other countries (due to the trifecta of tariffs, quotas and subsidies) whereas typewriters have practically gone the way of the Dodo. Government meddling in the market simply makes the process take even longer (we’ve been waiting since 1812 in the case of sugar!) by eliminating most if not all of the cost savings achieved and thus the net additional jobs that could have been created.