Unemployment in the days before employment regulations and benefits

[stone]

I thought this was interesting:
http://stumblingandmumbling.typepad.com ... story.html

What stands out here is that a highish rate of joblessness is quite normal. It is the 1945-73 period of full employment (for men!) that is historically odd, not today's joblessness. In fact, between 1855 and 1939 the unemployment rate averaged 5.1% - higher than the claimant count rate is now........

Michal Kalecki was spot on: "unemployment is an integral part of the 'normal' capitalist system."
- The idea that free market policies can generate sustained full employment lacks any historical foundation, unless you want to argue that there were severe labour market regulations that caused mass unemployment in the 19th century; "Damn those Factory Acts!"
-Claims that the welfare state has created a culture of dependency in which folk don't want to work look silly. High unemployment was the norm in the pre-welfare state era.

[Benko]

Stone,

If common sense was not sufficient i.e. Rewarding behavior produces more of that behavior, you could do a small controlled study to tests the effects of e.g. Welfare to discover the obvious results. 

Given that innumerable factors contribute to unemployment those graphs say nothing about the one factor of interest in this discussion.

[moda0306]

I think we have a potential semantic issue and "statistical reality" issue to deal with here.

Unemployment, as it is measured in most of economics (by both conservative and liberal economists) is NOT somebody choosing not to work.  It is somebody who can't find work even though they desire it.

If we can assume that a certain amount of "unemployment" is people who are simply being too picky or lazily taking advantage of unemployment and not looking hard enough, rather than TRULY being unemployed, this is worth factoring into the analysis.  And I think we'd be foolish to say that there is NONE of this. 

Some Austrian economists don't even think the concept exists.  The market will find a price for anything.  It's a fallacy to assert that you are "unwillingly unemployed."  You're simply not willing to work at prices the market is willing to bear.

But if we ARE willing to admit that no matter what the cause, there IS such a thing as unwilling unemployment, then we have to come to terms of what kind of problem it is.

I believe, and stone may agree, that it's a demand problem, not a "rich are over-taxed" or "regulations suck" problem.  I certainly don't expect people to agree with me based on that little blurb, but for the purposes of avoiding a hijack and organizing our thoughts on the topic, if we can acknowledge that it is POTENTIALLY a short-fall of aggregate demand that causes unemployment, then we can move to the next piece...

Does having more fiat resources on the balance sheets of unemployed people make an economy more likely to increase aggregate demand.  I believe so. Some may not.  But once you get to this, we have a bit of a chain of logic.

1) IF "unwilling unemployment" truly exists, and
2) IF The majority of people on unemployment are "unwillingly unemployed," and
3) IF unemployment as a result of a recession is coming as a result of a shortfall of aggregate demand, and
4) IF dropping money on the balance-sheets of unemployed folks has a net-increasing effect on aggregate demand, THEN

- The payment of unemployment insurance proceeds, paid in the wake of high unemployment caused by a recession, is going to DECREASE unemployment, all-things being equal.

This is why it's a fallacy to say that subsidizing things will increase that thing.  It's a fallacy of composition, something that usually happens when attempting to analyze the impact of a goverment operating in a relatively closed system.  You have to judge the affects of a larger system based on how that system behaves as a whole.  Not how individual pieces of it behave.

Sure, individually, having unemployment benefits will decrease my willingness to actively look for work if I'm laid off.  But government policy affects the whole economy.  Not just me.

[Benko]

Moda,

If you are not a lawyer or negotiator, you should be.

I do not know enough economic terminology to understand your explanation.  Let's keep it simple though.

1.  True or false many factors (aside from welfare) affect employment?

2.  If that is true, then how can you use use a graph of unemployment to conclude anything about  the effects of any one of those factors on unemployment?

[stone]

Benko, you get some economists saying that the only reason for unemployment is government meddling -that in an unadulterated free market we would have full employment. It's weird then that the one period in the past couple of hundred years when we had persistent low levels of unemployment was the one period when the government had full employment as its priority and was meddling with all its might to that end. That in itself caused some other problems I agree, but I think its worth seeing things as they are.

https://en.wikipedia.org/wiki/Unemployment

There remains considerable theoretical debate regarding the causes, consequences and solutions for unemployment. Classical economics, New classical economics, and the Austrian School of economics argue that market mechanisms are reliable means of resolving unemployment. These theories argue against interventions imposed on the labor market from the outside, such as unionization, bureaucratic work rules, minimum wage laws, taxes, and other regulations that they claim discourage the hiring of workers.

[moda0306]

Benko,

If you are not a lawyer or negotiator, you should be.

Thanks... I think.  I know what you medical guys think of lawyers, so I'll perhaps reserve too much pride from that compliment .

1.  True or false many factors (aside from welfare) affect employment?

2.  If that is true, then how can you use use a graph of unemployment to conclude anything about  the effects of any one of those factors on unemployment?

1. True

2. You can use a graph to prove a negation of an assertion.

For instance, if you were to argue, "Democratic presidents cause recessions within a short period of them being in office due to (factor a, factor b, factor c, etc)"...

If I showed you a graph that showed that there have been consistent streams of democratic presidents that have had growing economies, then I haven't PROVEN they caused them, but I've proven your statement false.

But this doesn't really apply here.


But if you're saying that "stone's graph doesn't prove much," I actually agree.  The whole "capitalism causes unemployment" thing is a bit of an odd statement.  Capitalism vs what?  Are we really "capitalist" or some mix?  What mix yields the lowest unemployment, consistently?

Capitalism is JUST ONE theory of property norms, and even within capitalist thought you have a pretty wide disagreement on how property is established, what "rights" people have over property, etc. 

I do believe that there are multiple factors that cause economic adjustments we call "recessions."  Here are a few:

1) Use of debt (an economic obligation to another) to grow economically, rather than not engaging the "liability" side of your balance-sheet, and living with less growth opportunity.  Causes higher growth, in some cases actually reduces risk if used properly, but at higher systemic risk if used improperly.

2) Use of a single unit of payment based on a finite source (like gold, or even the Euro).  If a macro economy can "repay" its debts by just giving a guy a pig, plumbing his bathroom, or doing his taxes, you have a flexible economy if there is a malinvestment debacle or "payment-system shock."  If a macro economy HAS to use dollars to repay debts and is accustomed to using dollars to buy stuff, you have a huge amount of rigidity you have to overcome somehow (central bank & fiat currency, perhaps), or live with the shocks of.

3) Buying shit we don't need for limited short-term gain.  The less "necessary" our purchases our, the more volatile the demand for those items will be in a shock.  I say this while shaking my head at myself, however, because the very addictive nature of these things is what makes them survive recessions.  eg, liquor stores.

4) Go into debt obligations for long-lived assets that don't add material fundamental value to our lives... similar to #3... but this is especially important to highlight that we're combining #1-3 into one big clusterf*ck of risk.


For all this, I don't think allowing our economy to sputter at 80% capacity due t an economic Mexican Standoff is going to make things "better" for us in these regards, which is why I remain a "Keynesian" of sorts.

[stone]

I agree with moda about how overall demand across the whole economy needs to be viewed in order to understand this. Individual motivations are very important for ensuring people do useful work rather than wasteful work but IMO economy wide issues need to be heeded to make sure legions of people (and machines) aren't left waiting on the sidelines despite being ready and willing to work.

[MachineGhost]

I agree with moda about how overall demand across the whole economy needs to be viewed in order to understand this. Individual motivations are very important for ensuring people do useful work rather than wasteful work but IMO economy wide issues need to be heeded to make sure legions of people (and machines) aren't left waiting on the sidelines despite being ready and willing to work.

Willing to work doesn't mean productive.  That's what "full employment" showed.  No one will hire a willing worker if it won't be productive.  Demand doesn't exist in isolation; it is partner with supply.  Both have to be working.  It is better not to hire a willing unproductive worker because it would decrease society's overall living standards.  The only way to overcome this law (to nasty long-term consequences) is via government intervention.  Paying a Citizen's Dividend makes far more sense than the myth of "full employment" which is a relic of Industrial Age mythology.  That way productivity stays optimal.

[Benko]

The only thing I'll add is a very memorable quote I once heard spoken at Hyde park corner (London if my fallible memory serves).  It is humerus but also illustrates a certain mindset (a European import we can do without):

The unemployed perform a very valuable function:  they help keep all the unemployment bureaucrats employed.

[moda0306]

I agree with moda about how overall demand across the whole economy needs to be viewed in order to understand this. Individual motivations are very important for ensuring people do useful work rather than wasteful work but IMO economy wide issues need to be heeded to make sure legions of people (and machines) aren't left waiting on the sidelines despite being ready and willing to work.

Willing to work doesn't mean productive.  That's what "full employment" showed.  No one will hire a willing worker if it won't be productive.  Demand doesn't exist in isolation; it is partner with supply.  Both have to be working.  It is better not to hire a willing unproductive worker because it would decrease society's overall living standards.  The only way to overcome this law (to nasty long-term consequences) is via government intervention.  Paying a Citizen's Dividend makes far more sense than the myth of "full employment" which is a relic of Industrial Age mythology.  That way productivity stays optimal.

Well of course supply and demand are two sides of the coin.  In fact, supply is really the main constraint of economics.  But in a world of currences, debt, overhead, etc, we have to pay attention to society's willingness to part with money to purchase a good/service, and what happens when you upset the payments system.

And yes, full employment doesn't measure productivity, but simply whether someone's "working," even if their just digging ditches just to have another guy fill them back in again, or even more ironically, actually DESTROYING wealth (bombing cities in Germany/Japan).

But having people willing to work with nothing to do is a phenomnon that should be explored, just as make-work projects and the implications of that should be.  In exploring the former, I would say that I do believe some of it is BS (people just need to change their expectations and they will be employed), but this would be a vast UNDER-employment and extremely inefficient, so that there is essentially important structural demand deficiency element to this that results from the things I mentioned earlier. 




Benko,

The federal government payroll is an asininely low part of the federal budget. While I honestly do have concern about government employees trying to manufacture a need for their own position, I worry much more about this in the military than any other federal arena, and actually much more at the state/local level than the fed level, were payrolls are a far higher amount of relative expenditures.

[stone]

http://mrzine.monthlyreview.org/2010/kalecki220510.html

I agree with moda about how overall demand across the whole economy needs to be viewed in order to understand this. Individual motivations are very important for ensuring people do useful work rather than wasteful work but IMO economy wide issues need to be heeded to make sure legions of people (and machines) aren't left waiting on the sidelines despite being ready and willing to work.

Willing to work doesn't mean productive.  That's what "full employment" showed.  No one will hire a willing worker if it won't be productive.  Demand doesn't exist in isolation; it is partner with supply.  Both have to be working.  It is better not to hire a willing unproductive worker because it would decrease society's overall living standards.  The only way to overcome this law (to nasty long-term consequences) is via government intervention.  Paying a Citizen's Dividend makes far more sense than the myth of "full employment" which is a relic of Industrial Age mythology.  That way productivity stays optimal.

Michal Kalecki in 1943 agreed with you about a citizens' dividend (as I do too). That was central to his vision for full employment capitalism:
http://mrzine.monthlyreview.org/2010/kalecki220510.html

  Nor should the resulting fuller utilization of resources be applied to unwanted public investment merely in order to provide work.  The government spending programme should be devoted to public investment only to the extent to which such investment is actually needed.  The rest of government spending necessary to maintain full employment should be used to subsidize consumption (through family allowances, old-age pensions, reduction in indirect taxation, and subsidizing necessities).  Opponents of such government spending say that the government will then have nothing to show for their money.  The reply is that the counterpart of this spending will be the higher standard of living of the masses.  Is not this the purpose of all economic activity?

[moda0306]

Not to go all China on everyone, but if we are going to start handing out a Citizen's Dividend, don't we have some responsibility to persuade [or force] people not to have large families? They don't do this for welfare and it has had the negative effect of more babies = more $. How is this supposed to work?

The marginal economic benefit provided by government if you have a kid would be far less in a world with universal citizens dividend replacing a portion of our welfare safety net.

I think the big question is, would certain current welfare programs be reduced in the face of a citizen's dividend.

Further, while I'm abundantly concerned about over-population, I wouldn't be surprised if people are having fewer kids today (on average, per capita) than any time in history.

[MachineGhost]

Not to go all China on everyone, but if we are going to start handing out a Citizen's Dividend, don't we have some responsibility to persuade [or force] people not to have large families? They don't do this for welfare and it has had the negative effect of more babies = more $. How is this supposed to work?

Excessive breeding correlates with poverty.  So when a Citizen's Dividend raises everyone's standard of living, logically the birth rate should decline.  I do think that the Citizen's Dividend needs to be less than the combined total benefits of social support (which is around 30K-40K) to keep some incentive in the machine.

But yeah, the idea of those plumb dumb, impoverished black women popping out babies left and right to get welfare checks is very unthrilling.  But from things I've read over the years, that stereotype  may be largely conservative strawman mythology rather than fact.  I also think its more of a cultural problem, not poverty.  We treat our blacks like crap compared to the UK.  I'm always surprised by the wholesale integration over there.

[Libertarian666]

Not to go all China on everyone, but if we are going to start handing out a Citizen's Dividend, don't we have some responsibility to persuade [or force] people not to have large families? They don't do this for welfare and it has had the negative effect of more babies = more $. How is this supposed to work?

Excessive breeding correlates with poverty.  So when a Citizen's Dividend raises everyone's standard of living, logically the birth rate should decline.  I do think that the Citizen's Dividend needs to be less than the combined total benefits of social support (which is around 30K-40K) to keep some incentive in the machine.

But yeah, the idea of those plumb dumb, impoverished black women popping out babies left and right to get welfare checks is very unthrilling.  But from things I've read over the years, that stereotype  may be largely conservative strawman mythology rather than fact.  I also think its more of a cultural problem, not poverty.  We treat our blacks like crap compared to the UK.  I'm always surprised by the wholesale integration over there.

Guess what percentage of all births are to unmarried women in the USA?
Sit down before reading the answer...
http://www.cdc.gov/nchs/fastats/unmarri ... earing.htm

[Lowe]

Isn't single motherhood the best indicator of future problems, such as academic underperformance, delinquency, and negative social behavior?  It does not look like there are a lot of productive workers coming down the pipe.