Monday, July 8, 2013

Misallocation Leads to Training for the Wrong Jobs

I will be pointing at various excellent observation made by John Allison in his recent book, The Financial Crisis and the Free Market Cure. There are many. Several provide expanded insights into the effects of government intrusion into the economy. A favorite of mine is that one of the elements of the misallocation of investment in a welfare state is the training of people for the wrong jobs. The example in the crisis discussed in Allison’s book is the people trained in house construction. Way too many houses were constructed, meaning we had way too many people employed in that sector. They should have been employed and trained in some other occupation. Instead, we have lots of carpenters, bricklayer, etc., who then found themselves unemployed. When they looked for work, they tried to find a job doing what they were trained to do, but few if any employers needed those skills. To find a new job they need new skills, new training, somehow. Possibly many of these people are the ones who have given up in finding work and are no longer counted as part of the labor force.

The worker who choose to become a construction worker because of the plentiful work (at the time) choose to do so because government policy and manipulation of the economy gave him false information. You can’t expect someone in this country to see through all of the mess and realize that being in construction was a bad idea. Further, seeing that it was a bad idea and looking at things in the correct light does not provide the information necessary to decide what a good course of action would be. (This would be the context of someone who has not yet decided on a personal goal and career. Even then, the amount of earnings one’s goal could achieve is a rational consideration, and the welfare state economy does not provide good information.)

As Ayn Rand said, the government is the cause of unemployment, and one of the ways the result occurs is by the misallocation of investment.

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