Strong economies are also messy

According to the US Bureau of Labor Statistics, North Carolina businesses shed nearly 920,000 jobs over the latest 12-month period. Do you find that astounding? Disturbing? Terrifying?

Nah, don’t worry. Such a rate of job loss is fairly normal. Businesses shrink. Some shut down entirely. Their employees, contractors, and vendors must find other sources of income. Land, buildings, equipment, and other capital get repurposed. Investment flows elsewhere.

You see, I never claimed that we experienced a net loss of 920,000 jobs. During the same 12-month period (through mid-2024, these data take a while to analyze and report), North Carolina businesses added 959,501 positions. The job-creation rate (new positions divided by total employment) ranged from 5% to 6.6% per quarter. To further complicate the picture, some of those jobs have since disappeared!

Most economic statistics the media report and politicians discuss are net numbers, not gross. During 2024, North Carolina netted 69,000 new private-sector jobs, an increase of 1.6%. Add in government and total employment rose by 84,000 last year, up 1.7%.

These figures suggest robust, although not quite sizzling, growth. North Carolina’s job market is stronger than that of most other states. But if you stare too much at the net tree, you can miss the broader forest. Employers in our state didn’t add tens of thousands of new jobs to a stable base of some 5 million. The base is never really stable.

During those 12 months, some 40,000 new business establishments opened in North Carolina, according to BLS. At the same time, about 217,000 existing establishments expanded their workforce explosively, moderately, or slightly. Others held the line, or slimmed in some areas so they could add in others, or downsized to become more profitable, or downsized in an attempt to return to profitability, or simply failed.

As a group, then, North Carolina employers added nearly a million positions and lost almost as many. Some jobs fit both categories! This constant churn in the labor market is a feature of free enterprise, not a bug. It maximizes the opportunity for people to do their best work, earn the best return on their investment, and provide the best-possible mix of goods and services at affordable prices to satisfied consumers — which is, of course, the purpose of economic activity in the first place.

Market actors are hypothesis testers. They hatch an idea, get others to buy into it, start or expand a company, open a new location, take a new job, train for a new job while retaining a current one, buy a new car, try a new restaurant, or make some other potentially consequential decision based on their best read of the information available to them. Then they assess the results and, having now added to their stock of information, adjust accordingly.

Throw out any economic model someone taught you that assumes the existence of “perfect information.” There’s no such thing. Information is costly to gather and hard to interpret. It can also be fleeting. What is true today may no longer be true next year, next month, or even tomorrow.

Can some government authority overcome this problem with “rational planning”? No, says economist and North Carolina native Thomas Sowell.

“It is not merely the enormous amount of data that exceeds the capacity of the human mind,” he wrote in his breakthrough book “Knowledge and Decisions “(1980). “Conceivably, this data might be stored in a computer with sufficient capacity. The real problem is that the knowledge needed is a knowledge of subjective patterns of trade-off that are nowhere articulated, not even to the individual himself.”

Thus “there is no way for such information to be fed into a computer,” Sowell concluded, “when no one has such information in the first place.”

Central planners promise to achieve comparable or better results without the “mess.” They are misleading at least themselves. If we want a strong economy, we must accept instability and churn. It’s a package deal.

John Hood is a John Locke Foundation board member. His books Mountain Folk, Forest Folk, and Water Folk combine epic fantasy and American history.