Matthew Bishop writing in The Economist notes that 98 percent of net job creation in the United States from 1990 to 2008 came in non-tradable sectors. Ever since the recession hit, people have been treating this as some kind of scandal. But pre-recession, I think we would have seen it as common sense. Imagine that some genius invents a special kind of 40-foot steel box, such that if you put raw materials in the box and sail it around the Pacific Ocean for a while, out come manufactured goods. This would be a wealth-creating invention from a society-wide perspective. But naturally it would lead to losses of jobs in the box-competing sector, and consequently to employment growth in non-boxable sectors. That’s not despite the prosperity-creating features of box technology, that’s how the prosperity is created. Thanks to the boxes, we have as many (or more!) boxable goods than ever before, but we now have the ability to massively increase our production of non-boxable goods and services.
Bishop, who has a different take, says this job creation occurred “especially in government and health care — the first of which, at least, seems unlikely to generate many new jobs in the foreseeable future.”
Now as a pure forecast, that’s correct. We are unlikely to create a large quantity of new public sector jobs in the near future. But the rest of Bishop’s article is pretty bleak. That naturally raises the question here of whether or not this bleak outlook for public sector job-creation is a mistake. We don’t have magic boxes, obviously, but we do have China. Since China is drastically increasing its output of outputs that can be made in China and stuck in boxes, the sensible thing for us to do is increase our output of outputs that can’t be put in boxes. Residential investment, our answer for much of the aughts, is one potential set of non-boxable outputs. But the government is a leading provider of non-boxable services. Do people think crime is too low in the United States? I don’t. We could hire police officers. Are there no potholes? Why not build more preschools? Now of course you could organize the provision of pothole-filling or preschooling services in a few different ways, some of which would and others of which wouldn’t count as “government” employment by the BLS methodology. But it’s government money. It’s public services. If you don’t need as many workers manufacturing things, it stands to reason that the quality of your roads should be getting better and the bus should come more frequently. That’s good for the road builders and bus drivers because it means they have jobs, but also good for drivers and bus riders.
America is busy reducing the size of police forces. Is there some objective shortage of qualified policemen? No. Are we hit by a famine and we need to reallocate cops to go work on farms? No. Has a major source of foreign manufactured goods been taken over by Communists and now we need cops to staff factories? No.