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Commentary: Productivity Leads To Prosperity

Eliminating tax on business tools and equipment will benefit, not hinder, the economy

This is what the vast majority of Americans used to do.

Mlive columnist Rick Haglund is worried that a proposed cut in the property tax now imposed by the state and local governments on business tools and equipment "may be a job killer," because it would facilitate producing more goods and services per worker.

He turns instead to an economist's suggestion that the state may be better off "giving special tax breaks on new investments" as a potentially better idea.

“The big story in manufacturing in the past 60 years or so has been an astounding increase in productivity," Haglund wrote. "It takes just 177 manufacturing workers today to perform the same amount of work that required 1,000 workers in 1950 … by eliminating taxes on that equipment, state policymakers might actually be helping manufacturers reduce payrolls rather than add to them.”

A simple case study, however, reveals why few serious economists actually take the notion of increased productivity killing jobs seriously.

When this country was founded, approximately 90 percent of people worked in agriculture. By 1900, growing enough food only required 40 out of every 100 workers. Today, less than 1 percent of U.S. workers feed not just America, but many more people all around the world.

The massive increase in farm productivity is purely due to technology. Farmers used to harvest grain with a sickle, but then came Mr. McCormick’s reaper, followed by motor-driven tractors and combines. More recently, chemical and biological advancements have greatly increased yields. With each advance, fewer workers were needed to grow food. To cite just one example, today American farms produce five times as much corn on 20 percent less land than 70 years ago.

And yet the loss of all those “farm jobs” did not produce the 89 percent unemployment implied by the kind of “static” analysis Mr. Haglund implicitly employed here. Why?

Because the greater efficiency in farming equipment freed up resources to move into other areas of the economy. Those farm job “losers” were not the end of the story. Among other things, people who formerly would have picked beans moved into manufacturing. More recently, many who formerly would have worked on production lines entered the service economy, which is much broader and more remunerative than often suggested by blithe caricatures.

All this is something Americans understand almost intuitively. If “more jobs” were the ultimate goal, it could easily be realized by outlawing tractors and assembly lines. Yet imagine how foolish we would regard it now had 19th century state governments tried to stall technological advancements in agriculture because they “cost jobs.”

What we seek instead is greater prosperity, and although the process can be messy and create uncertainty for some individuals, there is only one way in the world to achieve it: Increased worker productivity, generated by advances in technology and knowledge.

Policies that slow this — like taxing business tools and equipment — are the road to a less prosperous state and nation.

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See also:

Do Pricing Guns Create Jobs?

There Is an Endless Number of Jobs

Natural Disasters Are Good?

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