As my lone reader (hi Mom!) will know, I have an interest in economics. I have put off introducing my economic thoughts into this blog, since I thought it would dilute the focus of this blog, but now that I have been giving more thought to the philosophical underpinnings of economics, it seems that I have no reason not to introduce this topic to this blog.
Alex Binder, of Christian Economics, has provided an argument that the government could be an “employer of last resort” in the case of the economy experiencing drawn out unemployment. He has written this post and a later post as a reply to Darwin of DarwinCatholic, who had already replied to the first post. As can be seen, I’m jumping into a developing discourse, so hopefully I can stay afloat, considering my paltry knowledge of economics in general. So here goes.
A job guarantee program provided by the government seems that it would prolong, if not unemployment in absolute terms, underemployment and could also harm total contributions brought to society overall by workers who gain experience and a wage in the private sector.
First, as I’m sure you’d grant, a job received through a job guarantee program would, for the hired individual, count as underemployment. They would not be able to work as long as they wish, nor would they be working in an area that they possess particular expertise. I’m assuming it’s a given that the work of this program would be something pretty much everyone could do, but most people who become unemployed in this sort of recession are coming from specialized fields. For as long as this job guarantee exists, the incentive is lowered for these individuals to look for work and lower their wage expectations so that they can get back to work quicker, seeing as they have a way of bringing in money to satisfy their immediate needs and because they will also be spending time working in an underemployed position rather than searching for work. Yet, for a great amount of people who have become unemployed, they have become unemployed precisely because they were making too much for their position to be sustained, insofar as we consider their wages to be the result of consumer demand for their products and services. (As it is, the shifting of demand could be due to the application or negation of distorting effects on the economy by the government. So surely some of this unemployment must count as structural, considering the distorting effect of the government on consumer demand and producer supply?) Wouldn’t it be better for these individuals to more quickly find work in their own specialized field because they more rapidly realize that their position is worth less than they were previously making?
Further, individuals who put off employment in their specialized field (or maybe just from entering a specialized field, it needn’t be the case that they find work in the same field as they were previously employed, if they were even previously employed, like college students wouldn’t be in this sense) are also putting off gaining experience and, by corollary, value-adding to the society. The effects wouldn’t be immediate, but if we suppose that a person who finds work 3 months quicker in a specialized field and can give an output of 10 utiles after a year’s experience, 15 after 2 years, and so on, after a lifetime of work with even an extra year’s worth of experience in that field they would contribute greater than an arithmetical amount of comparative utiles to society. Moreover, they would, if we assume they have found a lifetime career, also bring in more income over the longer run, because they have an extra year where wage raises could come into effect and accumulate. The job from a job guarantee program would be, in comparison, “misemployment,” to make somewhat of an analogy to Mises’ concept of “malinvestment,” where capital is misallocated and so generally wasted, usually due to government distortion of the markets (as we saw with the housing bubble).
So it seems that a job guarantee program would, overall, decrease the amount of value added to a society, due to its prolonging underemployment and contributing to “misemployment.”
Bryce… first of all, I’m a little offended that you think your mom is the only one who reads your blog. ;)
Secondly, yes, many people have stubbornly refused to believe that their level of expertise is actually worth less in the current economy than they think they’re worth. I’ve fully accepted substantially less, but many Americans feel entitled to their current standard of living – they’ve worked hard, they’ve “earned it” – and so don’t want to “settle” for less than they feel they are worth. Yes, this is contributing to the problem.
This said, unemployment is also a serious problem. I think I understand your argument here, but then I want to know what you would do instead. The church cannot possibly care for all the masses who are unemployed, without health insurance, etc. We’re just not equipped to do it. Nor would the church plus all the social service non profits. So if that leg of the stool can’t take care of people and you’re arguing the government ought not, then the only leg left on the stool is business. Its great for business if there are more consumers who will spend money to buy business’ goods and services. The question is: who or what will put that spending money into consumers’ hands? Some businesses will have to “gut it” for the sake of the rest of the economy as a whole, taking on losses or break evens so that their employees become consumers and then spending resumes and then businesses as a whole begin making income again, which allows them to start expanding again.
It seems our economy is stuck. No one wants to hire. Profits aren’t good enough. But profits won’t be good enough because their aren’t enough consumers with money buying the goods and services. How do we jump outside the vicious cycle? If you say no government involvement (employment for all argument in this particular blog, I suppose akin to programs run under the Depression’s New Deal), then what? How is a chronically unemployed person to get on with life?
REV
Well, people having less incentive to lower their wage expectations is only a part of it (i.e. the ludicrously long unemployment insurance the government provides), but then I was only addressing the proposal of the government being a “hirer of last resort.”
Businesses have plenty of capital at their hands at the moment, but I think a lot of them are wary of investing in workers because of a phenomenon called “regime uncertainty.” Quite simply, they don’t know how much any individual worker will cost them to employ, because they don’t know how much the federal government is going to “stick it to them” through mandated health coverage of such an extent, regulations concerning the payment of wages and overtime, and so on. If they were to hire now, they might hire too many workers (based on how much they’re going to have to pay those workers due to oncoming regulations) and would find themselves operating at a loss, meaning they’ll just have to fire all those workers.
The great duration of unemployment is not because businesses don’t want to be charitable, in fact they want to hire workers and increase output, but they don’t know that the government will let them do so in a profitable way.
So I would repeal a lot of the regulation coming down from the federal government.