What happens when the president doesn’t understand economics?

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In an NBC “Today Show” interview on June 14, President Barack Obama revealed a stunning degree of ignorance as to how the economy works.

Talking about his jobs council and the high level of unemployment, the President declared, “The other thing that happened though, and this goes to the point you were just making, is there’s some structural issues with our economy where a lot of businesses have learned to become much more efficient with a lot fewer workers. You see it when you go to a bank and you use an ATM, you don’t go to a bank teller. Or you go to the airport, and you’re using a kiosk instead of checking in at the gate.”

And if that was not bad enough, Obama labored on: “So, all these things have created changes in the economy. And what we have to do now, and that’s what this job council is all about, is identifying where the jobs for the future are going to be, how do we make sure that there’s a match between what people are getting trained for and the jobs that exist, how do we make sure that capital is flowing into those places with the greatest opportunity.”

The President of the United States seems to have stumbled upon the idea of laborsaving inventions and innovation driving economic change and advancement, and he doesn’t seem too crazy about all of this.

Quite frankly, it’s not unusual to hear people complain that automation creates unemployment. But it’s distressing when the President seems to buy into such a gross mistake on the economy. One has to wonder if the President ever took an economics class, or ever got advice from an economist not linked somehow to a labor union?

Well, in the hopes that the President or his staff might come across this column, and to help many other economically-challenged elected officials, let’s consider some basics on how economic progress is, and has been, achieved.

To the apparent surprise of Obama, laborsaving innovation and investments are not new. Rather, they’ve occurred for centuries. That’s what the Industrial Revolution, generally running from the mid-eighteenth century to the late nineteenth century, largely was about. Improved property rights, increased investment and technological leaps dramatically boosted productivity and efficiency, which generated increases in real per capita incomes, made more consumer goods available to the average person, and actually expanded the number of jobs.

In the early 20th century, Henry Ford transformed automobile manufacturing though his use of the assembly line, which capitalized on specialization and division of labor. Productivity skyrocketed, per-car labor costs plummeted, and the average American could now afford to buy a car. Again, employment rose.

And how about farming? As reported by the U.S. Department of Agriculture, 41 percent of our workforce was employed in agriculture in 1900. Today, it’s less than 2 percent. Why, and what have been the results? Innovation and investment has made agriculture far more productive. A USDA publication titled “The 20th Century Transformation of U.S. Agriculture and Farm Policy” summed matters up neatly: “U.S. agriculture has become increasingly efficient and has contributed to the overall growth of the U.S. economy. Output from U.S. farms has grown dramatically, allowing consumers to spend an increasingly smaller portion of their income on food and freeing a large share of the population to enter nonfarm occupations that have supported economic growth and development.”

It’s really quite simple: automation occurs when the costs of production can be reduced. That’s an economic positive. Such laborsaving innovation and investment means lower costs for consumers, and enhanced productivity for workers. These both lead to increased incomes and resources for the creation and purchase of new and improved goods and services. More jobs are created. That’s how the free market works when unencumbered by misguided and costly governmental policies.

Our employment problems today are not about businesses becoming more efficient, as President Obama asserted. And Mr. Obama’s creation of a jobs council, filled with political appointees, is not the answer. After all, the idea that government can figure out the jobs of the future, and correctly guide education and investment in particular directions, not only is grossly naïve, but a recipe for continued economic stagnation.

As has been the case, and will continue to be into the future, robust economic growth and strong job creation are all about economic freedom, including when it comes to entrepreneurship, investment and labor markets.

It’s a scary question to have to ask: What does it mean when the political leader of the nation with the world’s largest economy apparently misses fundamental points on how that economy works? The answer is that you get public policies that undermine entrepreneurship, private-sector investment, business in general, economic growth, and job creation. And matters are made worse by trying to fix these government-created problems by placing more resources in the hands of political appointees. When the U.S. president gets it wrong on economics, the nation’s economy and the global economy suffer accordingly.

Raymond J. Keating, chief economist for the Small Business & Entrepreneurship Council, can be reached at rkeating@sbecouncil.org. His new book is titled Warrior Monk: A Pastor Stephen Grant Novel.