Protecting Jobs

Protecting jobs sounds like a good thing to do (if you don’t think very carefully about what it means). Free markets protect jobs that are performing desired tasks better than someone else can. President Trump’s protection of steel workers’ jobs by imposing tariffs on competing sources of steel (mainly Canada) is protecting a relatively inefficient industry and thus “protecting” a lower standard of living for our country at large. “Protectionism” protects us from innovation and exciting technical changes that we eagerly embrace when offered in the market.

This week’s Economist magazine has an interesting article on the latest economic disruption (known to economists as “creative destruction”).  “Today the latest bonanza is in full swing, but instead of steel and sand it involves scripts, sounds, screens and celebrities.” https://www.economist.com/leaders/2019/11/14/who-will-win-the-media-wars

Movies (cinema or film for the more sophisticated) were only available in movie theaters when I was a kid more than half a century ago and yes they were already talkies (don’t be a smart ass). Then there was TV and we could watch movies there if we could stay up late enough. Cable TV packages greatly broadened the choice of channels.  Then video players and cassettes meant that we could choose what movies we wanted to watch and when.  We used to get CDs from Netflix in the mail.  I think I still have an unreturned diskette somewhere.  Maybe I will frame it so that my grandchildren can marvel at such historic relics.  In 1985 Blockbuster Video opened and we could skip the mail and browse thousands of films for rent.  They filed for bankruptcy in 2010 and the last two stores (in Alaska) closed last year.

“This week Disney launched a streaming service which offers “Star Wars” and other hits from its vast catalogue for $6.99 a month, less than the cost of a DVD. As the business model pioneered by Netflix is copied by dozens of rivals, over 700m subscribers are now streaming video across the planet. Roughly as much cash—over $100bn this year—is being invested in content as it is in America’s oil industry…. This binge is the culmination of 20 years of creative destruction (see Briefing). New technologies and ideas have shaken up music, gaming and now television.” The Economist

We can look at these amazing technical and business innovations in several ways:  1. A lot of jobs were destroyed as newer technologies replaced older ones and the jobs associated with them.  2. Fortunately no one succeeded in “protecting” them and we, the consumers–the targets of greedy profit seeking capitalists, enjoyed the greater benefit of more entertainment, more conveniently delivered and costing less.  3. New jobs were created to provide these new services.

“Disruption has created an economic windfall. Consider consumers, first. They have more to choose from at lower prices and can pick from a variety of streaming services that cost less than $15 each compared with $80 or more for a cable bundle. Last year 496 new shows were made, double the number in 2010. Quality has also risen, judged by the crop of Oscar and Emmy nominations for streamed shows and by the rising diversity of storytelling. Workers have done reasonably. The number of entertainment, media, arts and sports jobs in America has risen by 8% since 2008 and wages are up by a fifth. Investors, meanwhile, no longer enjoy abnormally fat profits, but those who backed the right firms have done well. A dollar invested in Viacom shares a decade ago is worth 95 cents today. For Netflix the figure is $37.” The Economist

Such dramatic disruptions can be painful for some–those whose jobs were lost or whose investments lost value. We need to adopt policies that minimize that pain. But thank God we didn’t try to protect those jobs and share values and the older ways they reflected.

About wcoats

I specialize in advising central banks on monetary policy and the development of the capacity to formulate and implement monetary policy.  I joined the International Monetary Fund in 1975 from which I retired in 2003 as Assistant Director of the Monetary and Financial Systems Department. While at the IMF I led or participated in missions to the central banks of over twenty countries (including Afghanistan, Bosnia, Croatia, Egypt, Iraq, Israel, Kazakhstan, Kenya, Kosovo, Kyrgystan, Moldova, Serbia, Turkey, West Bank and Gaza Strip, and Zimbabwe) and was seconded as a visiting economist to the Board of Governors of the Federal Reserve System (1979-80), and to the World Bank's World Development Report team in 1989.  After retirement from the IMF I was a member of the Board of the Cayman Islands Monetary Authority from 2003-10 and of the editorial board of the Cayman Financial Review from 2010-2017.  Prior to joining the IMF I was Assistant Prof of Economics at UVa from 1970-75.  I am currently a fellow of Johns Hopkins Krieger School of Arts and Sciences, Institute for Applied Economics, Global Health, and the Study of Business Enterprise.  In March 2019 Central Banking Journal awarded me for my “Outstanding Contribution for Capacity Building.”  My most recent book is One Currency for Bosnia: Creating the Central Bank of Bosnia and Herzegovina. I have a BA in Economics from the UC Berkeley and a PhD in Economics from the University of Chicago. My dissertation committee was chaired by Milton Friedman and included Robert J. Gordon.
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