April 04, 2010
Thomas Friedman has refrained from discussing economics in his columns for some time and the world was happy. But, now he’s back with a vengeance. He begins his column with today’s “fun fact”:
“Between 1980 and 2005, virtually all net new jobs created in the U.S. were created by firms that were 5 years old or less, …. That is about 40 million jobs. That means the established firms created no new net jobs during that period.”
The rest of the column is devoting to touting the importance of new firms, which Friedman tells us are started disproportionately by high IQ foreigners. He therefore emphasizes the need to have a more open door for high IQ immigrants.
Making the U.S. more open to highly educated (I don’t think we will be admitting foreigners based on IQ test results) immigrants is undoubtedly good policy. It would be great if doctors, lawyers, economists and other highly educated professionals got to enjoy the same sort of competition with low-paid workers in the developing world that manufacturing workers, dishwashers and custodians currently face. However, Friedman’s conclusion about the special importance of new firms is utter nonsense.
The claim that most net new jobs came from new firms conceals the fact that existing firms added tens of millions of jobs in this 25-year period. Of course existing firms also lost tens of millions of jobs. We can say that the net job creation for existing firms was zero, but if we did not have an environment that was conducive for the job adders to grow (how many jobs did Microsoft, Apple, and Intel create after their first 5 years of existence?), then existing firms would have lost tens of millions more jobs.
The notion that anything meaningful can be learned by lumping the job adders with the job losers to say that existing firms created no net jobs is too painful for words. Suppose we looked at the 50 states and found that 10 had net job creation while the other 40 had no job growth. Friedman’s methodology would tell us that we should ignore the 40 states with no job growth because jobs are only created in the dynamic 10. (Oh no, I probably gave Friedman the topic for his next column.)
Please, please someone take away Thomas Friedman’s license to write on economics before he kills logic again.
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