Unemployment Solutions: Both Weird and Scary

There was a brief moment of joy at the news that retailers hired 206,000 new people in November. But only one day later, the other shoe dropped: Jobless claims are, again, past the 400,000 mark — meaning that the unemployment problem is, overall, getting worse, not better. The broadest measure of unemployment exceeds 17%. It is much higher among new college graduates. And this doesn’t even speak to the larger problem of job downgrades; there’s a personal tragedy embedded in each one.

The longer the unemployment problem persists, the more we are seeing oddball theories and proposals for dealing with it. Ben Bernanke remains enthralled with the antique view that the way to cure unemployment is to depreciate the value of money. You have to blow the dust off some old Keynesian macroeconomics texts, surely to be found in some dingy library somewhere, to see his rationale.

I’ll cite two additional cases in point (one news story and one commentary) as indicators of a more widespread problem.

A New York Timesnews story by Adam Davidson regrets how the economic changes of the last half-century have made job opportunities fewer than ever. He cites the common complaint about international trade. Steel, textiles, toys, furniture, electronics were once domestic industries, but these goods are, mostly, made overseas now, presumably, leaving less for us to do.

This is the common protectionist line, and it is rooted in fallacy. Offloading these industries where they can thrive more efficiently does two things: saves American consumers money so that they can save or spend on different things, and saves American workers from wasting time making things that can be made more cheaply elsewhere, so that they can do things that are more productive, rewarding and remunerative.

The end result should be more and better jobs at home. (I’ll get to why that is not happening in a bit.)

His second complaint is straight out of the Luddite playbook. Davidson regrets how technology (capital) has replaced human hands with machines. This isn’t about technology only recently online. He regrets that “countless secretaries were replaced by word processing, voice mail, email and scheduling software; accounting staff by Excel; people in the art department by desktop design programs.” It gets worse. He seems to regret even your ability to buy a bookshelf at OfficeMax because there are no longer “a bunch of people…helping measure things and making sure everything worked correctly.”

My goodness. He might as well regret the invention of the wheel, because those employed to carry others around on their backs are now out of work. If we take this logic far enough, we would be back to the Stone Age, when, it’s true, everyone had jobs to do. Then again, the living standards were rather low.

It seems trivial to point it out, but market-created technology is not violence to society. It appears because we want it, and we want it because it helps our lives. We become better at what we do. The outmoded technology no longer needs to be made — shed a tear for typewriter manufacturers! — but there are new jobs in making the new technology, and industries that use that new technology can expand because they are more efficient than ever.

I’m sorry for wasting your time by pointing out some commonplace refutations of brainless nostrums, but apparently, there is nothing so brainless that it is unworthy of being featured in The New York Times. And if it is being featured there, it strongly suggests the need for refutation. So let us visit yet another piece along these lines, this one even wackier and more wicked than the last one.

In “The Age of the Superfluous Worker” by Columbia sociologist Herbert Gans, we discover an even-more-bizarre explanation of why unemployment persists. He begins by pointing out that having surplus workers is hardly a new problem; it has been an issue faced by all countries in all times. But in the old days, he writes, surplus workers were afflicted with “illnesses” that caused them to be “incapacitated” or were otherwise “killed off.”

Wow, bring back the old days, huh? What’s more, he writes, wars were a blast, because they “absorbed the surplus” of labor by employing people to kill or be killed. Ah, the salad days of mass bloodshed when “sufficient numbers of those serving in the infantry and on warships were killed or seriously enough injured so that they could not add to the peacetime labor surplus.”

Sadly, those days are long gone, he writes, because people are so much healthier now. Not even war works its magic on the labor pool anymore: “Iraq and Afghanistan wars have left many more service members injured than killed.” (This whole line is based on a myth that war and death have an economic upside.)

So we are in a pickle. Gans says that we need an “industrial policy” that brings together government and business to make new jobs. An example he offers: “Reducing class sizes in all public schools to 15 or fewer would require a great many new teachers, even as it would raise the quality of education.”

We could have government employ some people to dig holes and other people to fill them back up again. Laugh if you want, but this is precisely what J.M. Keynes suggested in his General Theory. His plan was to have government fill up bottles with money, throw them into mines, fill the mines with trash and have private enterprise set loose to find them. Voila, no unemployment. He failed to add that this would be incredibly stupid and a ghastly waste of resources. (The best refutation of this fallacy should be distributed by the case.)

Gans ends his theorizing with the suggestion that government restrict everyone to working only 30 hours per week. When that time is done, presumably, others will be standing right by to step in to fill up the rest of the week, while the first workers go home to vegetate and wait for their turns at the wheel again. Actually, I don’t know why he says 30 hours per week. We have a growing population. Maybe we should all be forbidden by law from working more than 10 or five hours per week! That would, surely, bring prosperity.

All these cockamamie theories are deeply dangerous, and they evade the incredibly obvious point as to why there is unemployment in the first place. If you read economics books from the 15th-19th centuries, there was hardly a word written about unemployment at all.

Why is that? Because there is more than enough work to do in this world. There is no shortage of jobs, now or ever. The only question concerns the terms of exchange between the worker and the person who is being hired. Only in the 20th century and, mostly, beginning during the Great Depression has there been widespread unemployment, and that is because of the government’s interventions in the relationship between workers and employers.

What kinds of intervention? There are legal restrictions that make hiring and firing a litigator’s paradise. There are high payroll taxes that vastly increase the cost of new works. There are minimum wage laws, labor union privileges and “child” labor laws that cartelize the workplace to benefit the few at the expense of the many. There are restrictions on immigration that make it very difficult for many businesses to function and expand. If you could somehow get rid of all these problems in one fell swoop, the so-called unemployment problem would vanish rather quickly.

The problem of unemployment is not really an economic problem; it is a political problem. It is one of the many costs imposed by a state that involves itself in things it ought to leave alone. But rather than eliminating these costs, there is a growing fascination with wacky ideas, which will only guarantee that a bad problem grows ever worse. If you know a New York Times editor, send him or her a book on the basics of economics, and soon.

As for Bernanke, he has never met a problem in life for which he doesn’t see the solution as more paper-money printing. If he could find a way for the Bureau of Engraving and Printing to hire 7 million people, and another 6 million to fly the helicopters needed to distribute the new bills, we’d had full employment, and absolutely no reason to work.


Jeffrey Tucker

The Daily Reckoning