A plant closes down in Detroit. Thousands of jobs are lost. Suddenly, workers who thought they had secure futures find themselves facing an uncertain job market and wondering how they'll be able to pay their bills and keep their families fed. And what do we have to say about all this? We say labor is a resource like any other, and when a plant closes RESOURCES ARE RELEASED TO PRODUCE HAPPINESS FOR CONSUMERS ELSEWHERE IN THE ECONOMY! Preposterous! How can we be so sure that these workers will get reemployed? We base our confidence on three reasons.

OUR FIRST REASON FOR BELIEVING THAT UNEMPLOYED WORKERS WILL BE REEMPLOYED IS THAT THE HISTORICAL RECORD SAYS THEY WILL. One of the great disservices of modern textbook presentations of the economy is that they present a picture of an economy at "equilibrium." Just the very sound of that word brings to mind comforting images of workers secure in their jobs, of firms happily producing the same goods year in and year out, of a world in which everything proceeds pretty much the same as it did yesterday, yestermonth, and yesteryear. O contraire!

This has never been the experience of the real economy. The real economy is characterized by tremendous turbulence. In 1800, approximately 80 percent of the population was involved in the production of agricultural products. In 1900, the number was close to 40 percent. In 1993, it was a little less than 3 percent. This incredible transformation of the U.S. economy over long stretches of time merely reflects the underlying turbulence that characterizes the economy--and labor markets--all the time. The table below shows the rate of job losses in the labor market from 1970 to 1993.

The occurrence of job losses isn't a recent phenomenon. It's something that happens all the time. And not just during the bad times. Even during times of overall growth for the U.S. economy, there is significant job churning; large numbers of workers are laid off and reemployed or voluntarily leaving jobs for better opportunities elsewhere. Furthermore, the process of job creation and job destruction is by no means a nice, even one. The pictograph below shows how net job creation was distributed across the United States during one particular year.

While jobs in California, Michigan, and New Jersey were declining in number, a substantial increase in new jobs was taking place in Idaho, Utah, and Texas.

But how can we know whether the process ends up creating more jobs than it destroys? Here's a simple test. Watch the candidates during the next presidential election. When the incumbent President stumps on the campaign trail to offer reasons for why the American people should vote for him or her, see if he doesn't say something like the following: "My fellow Americans, only I can offer you the hand of experience as we steer the ship of state through uncharted waters. Under my wise leadership, the U.S. economy created millions of new jobs. (INTERRUPTION AS SUPPORTERS ENTHUSIASTICALLY CHEER.) Under my careful guidance, there are now more jobs in the American economy than at any point in this great country's history. (INTERRUPTIONS AS SUPPORTERS CHEER EVEN MORE ENTHUSIASTICALLY.) And if you vote for me this coming November, I promise you that I will continue my tireless efforts to create even more jobs so that together, we can build a better, brighter future. Good night. And God bless America. (PANDEMONIUM ERUPTS AS SUPPORTERS YELL "FOUR MORE YEARS...FOUR MORE YEARS...")"

What is responsible for the creation of all these jobs year after year? The "wise leadership" and "careful guidance" of our politicians have relatively little to do with it. Historically, job creation in the U.S. economy has been practically a sure thing. If just about every President can brag at the end of his four years that there were more jobs than when he took office, then who happens to occupy the White House has relatively little to do with job creation. Instead, it has a lot to do with the dynamics of the economy itself. Why are we confident that laid off workers will get reemployed? Because historically they always have. Maybe not every worker, maybe not immediately. But it is indisputable that the U.S. economy has continued to create millions of new jobs--year in, year out--for decade after decade. The promise that the economy will continue to create new jobs in the future is a far more reliable promise than most of the promises you'll hear made on the campaign trail.

This brings us to our SECOND REASON for why we are confident that unemployed workers will be reemployed. It is no mere accident that the U.S. economy is able to continually find new ways to put to work the millions of workers who lose their jobs each year. There is a powerful dynamic--a magnet if you will--that serves to unite unemployed workers with the consumption desires of the members of society. To illustrate how this works, we're going to reveal some personal things about one of the authors of this book. (Don't worry--it's not going to be that personal.)

A little over ten years ago, one of the authors of this book (let's call him "Bob") took his first job teaching economics at a large, public university. Bob's first teaching position paid him $27,500 a year, an average wage for someone just leaving graduate school at that time. This was the first real job Bob had ever had. Now don't get the wrong impression. He had previously worked at a number of different jobs while going to school. He delivered newspapers, worked the graveyard shift at an all-night gas station, operated the night desk at an executive hotel, ran his own painting crew during summer vacations, etc. The guy wasn't lazy. But none of these jobs paid any real money. For Bob, $27,500 seemed like an impossibly large sum. Bob just couldn't imagine how in the world he was going to spend all of that money. (Just so you don't stay in suspense, you'll be relieved to know that he did eventually get it figured out. All the money got spent just fine, thank you.)

Now let's fast-forward through Bob's life, ten years later. He makes a lot more money now. But here is the amazing thing. You would think that with all the extra money Bob is making, his desire for additional goods and services would have slacked off a little bit. Not at all. If anything, his desire for goods and services has increased--not decreased. When Bob was a single guy coming out of graduate school, he rented a little apartment. He didn't have much furniture, and his wants were pretty simple. Just give him some good economics books, leave him alone, and he was happy. Now Bob owns a home. And now that he has a home, Bob needs furniture inside the house so it doesn't look so empty. When he lived in his little apartment, his living room furniture consisted of a couple of bean bags. Now that he has a respectable home, bean bags won't do. Owning a home has created a desire for furniture that Bob never had when he rented a simple apartment.

Bob also has a lawn around his home. When Bob was living in an apartment building, he never bothered with how the outside of his place looked. But now he is concerned with keeping up with the Jones' (actually, the next door neighbor he has to keep up with are the Browns). Their lawn looks really nice. And so Bob feels pressure to make his lawn look nice. He buys trees and shrubs to keep it nicely landscaped. He hires a lawn service to keep it fertilized and growing, and he spends lots of money keeping it watered during the hot summer months. This is the same Bob who didn't care a whit about how the outside of his old rental place looked. Having a nice home in a nice neighborhood has created a desire for a nice lawn. A desire that Bob never had when he rented a simple apartment.

And it goes on and on. Bob is now married with four kids. He worries about having enough money to pay doctors' bills, glasses and braces for the kids, about having enough money so that his kids can go to college. He works hard to make sure that there's money in the bank--or at least sufficiently small balances on his credit cards--so that he can replace the refrigerator, or the cars, or the roof. And we're still not done. Because Bob also has a lot of things that he would love to do, but can't afford right now. In ten years of marriage, Bob and his family have never taken a real vacation. He'd love to go to Disneyland, he'd love to have a fancy computer system to play games on and hook up to the Internet. And he'd love to not have to work so hard so he could have more time to spend with his wife and kids.

Well, that is Bob's story. Admittedly, it is not a very exciting one. Then again, Bob is not a very exciting guy. But that's the point. His story is typical. When he was starting out in his first job, Bob couldn't figure out how he'd ever spend all the money he was making. Now he can't ever imagine making so much money that he'd run out of things to spend it on. The more he makes, the more new desires he discovers for additional goods and services. At least in this respect, Bob is not unusual. It's just human nature.

Ask yourself: Do you know anybody who complains about having too much money? Despite the fact that Americans enjoy the highest standard of living ever known in the history of the world, there is absolutely no evidence to suggest that they have had enough. They want better computers, safer cars, improved health care, more vacation time, and the list goes on. And so we are led to this fundamental fact about consumers: CONSUMERS HAVE INFINITE DESIRES FOR ADDITIONAL GOODS AND SERVICES. They are a bottomless consumption pit. No matter how many goods and services the economy manages to dish up, consumers will always want more.

Now we come to the powerful principle which explains why we have confidence that workers will get reemployed when they lose their jobs. On the one hand, we have unemployed workers who want to work. On the other hand, we have consumers with infinite desires for additional goods and services. And in the middle are entrepreneurs who stand to gain substantial profits by bringing these two sides together. This is the ultimate explanation for why the economy creates more jobs each year. Why shouldn't we have every expectation that entrepreneurs will continue to match workers with consumers? What will keep entrepreneurs from performing this role? You tell us.

Now don't get us wrong. We do not subscribe to a fairy tale world in which all workers become instantly reemployed once they are laid off. It takes time for entrepreneurs to figure out how they can use these workers. There may be periods when the unemployment rate rises because it is not immediately clear to entrepreneurs how best to employ these idle workers. But entrepreneurs will figure it out. As long as government hasn't created barriers that make it difficult for firms to reap the rewards of matching workers to consumers--barriers like minimum wages, mandated benefits for all employees, and burdensome regulations on small businesses--entrepreneurs will continue to employ workers to satisfy consumers' demands. That is the powerful dynamic that serves as a giant magnet to bring together willing workers and hungry consumers. Thus, OUR SECOND REASON FOR BELIEVING THAT UNEMPLOYED WORKERS WILL GET REEMPLOYED IS THAT THE INFINITE DESIRES OF CONSUMERS PROVIDE AN INCENTIVE FOR ENTREPRENEURS TO HIRE UNEMPLOYED WORKERS IN ORDER TO PRODUCE ADDITIONAL GOODS AND SERVICES.

Still unconvinced? Perhaps you're thinking that all this is fine and good, but it assumes that workers can produce additional goods and service. Maybe they can't. Maybe they don't have any skills that would allow them to produce things that consumers want. As a result, no firm wants to hire them after they're laid off. Isn't that possible? Theoretically, yes. But then we have to ask ourselves another question. Why was the workers' former employer willing to pay them so much money if they didn't have any other employment opportunities?

Let's see if we have this straight. The Federal Mogul Company--a firm interested solely in increasing its own profits--was paying $32 million to workers who had no other employment opportunities? What's wrong with this picture? Why did the firm feel compelled to offer so much money to these workers to begin with? If there really were no other jobs for these workers, they would gladly have been willing to work for less. And the firm could have hired its workforce for only $30 million, or $20 million, or less. So why was it paying $32 million, and not less?

The reason is simple. The firm paid its workers $32 million because it was forced to. Anything less, and the workers would have refused to work for the Federal Mogul Co. and would have taken jobs elsewhere. To argue that these workers have no alternative employment doesn't make any sense given the large sum of money Federal Mogul Co. was paying them. Such an argument implies that Federal Mogul Co.--and other firms like it--are really bleeding heart philanthropists who pay wages far in excess of what they have to. We have heard a lot of charges made against the labor practices of corporations, but excessive generosity isn't one of them!

Okay. Let's consider one more possibility. Maybe the firm paid the lowest wages it could when it hired its workers, but that was many years ago. Now these workers are older. Not only that, but the labor market has deteriorated where the firm was located. When it laid its workers off, those workers found it a lot more difficult to find jobs than when they first went to work for the firm, many years ago. Isn't this possible?

The first thing to note is that this argument still assumes that the $32 million in labor costs is far in excess of the amount required to keep those workers from taking jobs elsewhere. But we're willing to concede that maybe this happens sometimes in the real world. After all, we're reasonable people. Maybe in the real world it does happen that workers are laid off and the only jobs that they can find are jobs that pay less than what the workers made before. Does that destroy our argument? Consider once again the Profit Table for a firm that closes down in Detroit and opens up in Juarez.

From the perspective of society's happiness, the costs represent $20 million in goods and services that will be withdrawn from the U.S. economy. The revenues represent the $32 million of happiness from the additional goods and services that get produced when these workers get reemployed. Suppose the former employees of the Federal Mogul Co. are unable to find jobs that pay the same wages they had before. Instead, suppose these workers all end up making only two-thirds of what they made at their old jobs. That means they find jobs that pay them $24 million in wages instead of $32 million. Then instead of society receiving $32 million of happiness from additional goods and services, it only gets $24 million of happiness. SOCIETY IS STILL BETTER OFF.

In return for gaining additional goods and services that produce $24 million of happiness, we have to send $20 million of goods and services south of the border. We're still ahead in the happiness department by $4 million.¹ In fact, as long as these workers end up with new jobs that pay more money than what the firm is paying its Mexican workforce (more than $20 million), society as a whole ends up being better off. We can be confident that this will happen. After all, if the next best employment opportunities of these laid off workers paid less than $20 million, they probably would have negotiated with the company for a wage which would keep the plant from shutting down.

In conclusion, OUR THIRD REASON FOR HAVING CONFIDENCE THAT THESE WORKERS WILL BE REEMPLOYED IS THE FACT THAT THEIR WAGES WERE SO HIGH TO BEGIN WITH. We emphasize that this conclusion does not require workers to get reemployed at new jobs paying wages equal to their old jobs. In order for plant relocations to increase society's happiness, American workers need only get reemployed at wages that are higher than that received by the foreign workers who replaced them. The lower the wages of their foreign substitutes, the more likely that will happen. And that loud sucking noise you hear is the sound of American households feverishly consuming the additional goods and services that foreign plant relocations make possible.