Friday, 10 August 2018

Overestimating Costs & Underestimating Benefits

On a day when the socialist Tory Chancellor Philip Hammond wants yet more penalties for firms doing well and providing lots of value, I was reading in Bloomberg about how Amazon is going to create another 100,000 full time jobs in the United States over the next 18 months. Still not everyone at Bloomberg seems to understand economics, as this little remark shows:

"Amazon's move could do less to help the U.S. economy than is immediately apparent. Research groups have argued that the company kills more jobs than it creates because it has disrupted the traditional retail industry."

It's a peculiar concern because it misjudges how Americans become richer. When a natural monopoly like Amazon creates hundreds of thousands of jobs over its lifetime and kills other jobs in the process, it is following the principle of 'creative destruction' - making us richer by improving efficiency and increasing value.

A new company that creates a natural monopoly by doing what it does well in spite of competition is analogous to a new technology - enriching us by doing more for less work. Jobs are the cost of doing something, not the benefit of doing something - that's why we have to pay people to do those jobs. Getting more benefits for less work makes us richer, not just intrinsically, but extrinsically too, as it frees up labour resources to go and produce other things to increase our consumption potential.