Friday, 27 July 2012

Shovels, Spoons & Internet Banking

Larry Broderick of the Irish Bank Officials Union was on the Radio speaking on economics with the practised fluency of an atheist talking about transubstantiation.  Mr Broderick declared that there was a need to “maximise” the amount of people employed in AIB & because he was being interviewed by State owned radio this outrageous nonsense was not challenged.

The opposite is the case, not just for AIB but for every single business that exists. Employment must be minimised as far as possible, not just for the sake of the business but for the economy too.
There is a story, repeated to the point of clichĂ©, about Milton Friedman (The story is most likely apocryphal & the original words belong to William Aberhart of Alberta). Friedman (the story goes) was in China in the 1960s & saw a large group of men digging a canal. When he asked why no earth moving machinery was being used, his hosts told him that this was a Job Creation Project. Friedman told them if they were really serious about Job Creation they would take the shovels & give the men spoons…..

No business can successfully work on spoons instead of JCBs. Every worker employed in a business is a cost, a bigger cost because we tax employment but a cost nonetheless. Every cost has to be charged to the consumers of the business’s products or services. Customers may pay but they may just also go elsewhere.

Competition enforces frugality & that frugality is good for all of us. Every resource is scarce, every input, every good, is not only scarce but has alternative uses. You want more turkeys? Then we have less chickens & hens or more grain consumed & poultry houses built. 

Labour, for all the best efforts of Trades Unions & Governments to obscure the truth, is no different. More people employed in banks mean less to work in other areas. Doing more business online does not just reduce AIB’s costs, it reduces costs & frees up resources for the rest of the economy. Internet banking, by reducing bank costs, benefits the entire economy.

Flint knappers went out of business but were employed by the tin smelters, once the only way to dig a canal was with picks & shovels & a lot of men. Each improvement, each displacement makes people available to satisfy our needs in other ways & our needs are insatiable.

Competition making us all better off can only happen in a free market. Broderick & his septic economics have no power but Broderick & a few politicians might have a disastrous effect on our economy: history is littered with examples of efforts to protect employment in some industry at the cost to the general good. Reagan famously cost America billions by protecting the six thousand jobs in the steel industry with tariffs, losing an estimated twenty six thousand jobs in industries forced to buy more expensive steel  (Thomas Sowell).

We need AIB back to profitability & off the governments hands quickly. Banks are not social services, they are companies in a capitalist economy. The less efficient the economy works, the poorer we all are. Poorer is fine for those that start out with plenty, deeper poverty for the already badly off is disastrous. 

Free trade & small Government make us all better off, it is important never to let go that in favour of old fashioned economic error dressed up as compassion & masquerading as a social concern.

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