Published in The National Post, June 24, 2004.

Plumber Economics
by
Pierre Lemieux

 

Buzz Hargrove preaches about “Canada’s most important export industry”and the “150,000 direct jobs” in the automobile industry. Like 17th-century mercantilists, he does not understand that exports and jobs are not the source but the consequence of prosperity. Adam Smith and popularizers such as Frédéric Bastiat have demonstrated the fallacies of the old mercantilist reasoning. That was two centuries ago. Since then, we have also learned that, if an analogy is necessary, the economy works like a computer processing information, not like a mechanical pipe system. Mr. Hargrove’s mercantilist economics is plumber economics. The short economic response to the old pro-export, anti-import, mercantilist argument is twofold. First, whatever we export has, one way or another, today or tomorrow, to be paid with imports. Second, just as we work in order to consume, we export in order to import, not the other way around. For a country as a whole (to the extent that such an aggregation makes any economic sense), exports are a cost, not a benefit. Jobs are not the goal or the measure of economic activity. If they were, Mr. Hargrove himself would be lobbying for a prohibition on all automobiles not made by hand. Lots of jobs would be created ­ compared with the less than 1% of the Canadian labour force actually occupied in the automobile industry. But no Canadian could afford to purchase these cars. The president of the Canadian Auto Workers would reply that “every job in a major auto assembly facility supports an estimated 7.5 jobs in total.” In plumber economics, these jobs are called “indirect jobs.” The problem is that when you add up the indirect jobs supported by all industries, the total is many times the actual labour force. Counting “indirect jobs” may be a fine PR argument but, economically, it amounts to double counting. If you work in the automobile industry, our neo-mercantilist theoretician writes, “or if you work in an industry that depends on this industry, you’re gambling with your job if you vote for Stephen Harper.” And what if you work for an industry that depends on an industry that depends on the automobile industry? Is Mr. Hargrove trying to sell us the idea that all jobs in Canada depend on the automobile industry? Now, there is certainly one job that depends on the automobile industry: Mr. Hargrove’s job. (In all fairness, though, we must admit that his job also depends on labour laws and the Rand formula.) His own interests, as a trade union apparatchik, are aligned with the mercantilist establishment’s interests, against consumers, taxpayers and poorer workers. Mr. Hargrove does not like Stephen Harper’s “platitudes about ending ‘corporate welfare’,” which he disdainfully rejects as “populism.” If it is true (let’s hope it is) that the Conservatives “are badly out of step with the industry’s consensus,” this shows they are on the side of the people. Economics sides with the general interest, not with special interests such as business and trade unions.