Ignoring the unemployed

Much airheadery on British riots. Some historical background provided by Gareth Steadman Jones’ Outcast London on the Victorian specter of the mob. One point. There has been much discussion of ‘social exclusion’ and the beneficial consequences of labour market participation. There is something to this although much popular discussion about social policy suffers from a redemptive model of discourse in which individual policy tools are to be relied on to achieve multiple and often ill-defined goals. One thing I remember from first-year economics is the principle that each policy goal usually requires one tool. Increased labour market participation is often supposed to achieve multiple goals: increasing productivity even although many of those brought into the workforce by increased participation may have low levels of productivity (the biggest group of potential high productivity workers out of the workforce are probably women married to high income men I suspect); reducing the burden on taxpayers to sustain a welfare system (in fact it costs more to get some people into the labour market than to leave them outside, its rather like argument that e-learning saves money if it is going to work it requires more money); transforming the lives of those who leave welfare and go into the workforce (probably is something to this in some cases but it involves the anti-liberal assumption that adults are not aware of their own best interests). We could consider how the horizons of the parliamentary left have shrunk to getting people into jobs, any jobs.

Worth a read on this is James Galbraith’s 1999 paper:

High-income countries subsidize and support the pay of low-productivity people. They do not rely on markets. They provide high minimum wages, buyers for farm produce, jobs in vast public bureaucracies, free health care and higher education. As a result, low-productivity people stay put in their low-productivity jobs. They do not migrate in large numbers toward the high-productivity sectors, in the pursuit of higher pay. The pay in such jobs is not so much higher, all aspects of living accounted for, to make the trouble of earning it worth their while. This is the secret, it appears, of fuller employment in richer countries.

This suggests that the real and relevant rigidities of today’s Europe are entirely different from those proposed by the conventional view. Indeed, they have nothing to do with supposed inflexibility of relative wages inside any particular country. On the contrary, increasing relative wage differentials would only cause even more low-productivity people to abandon their present employments in favour of the job queue and the dole.

The relevant rigidities are to be found rather in the thinking of Europe’s central authorities on two levels. First, these authorities are unable, or unwilling, to foster the development of macro-economic policies that can effectively build Europe’s peripheral economies through national programmes of full employment—and that, indeed, once did so in the heyday of national Keynesianism from 1945 to 1970. Second, they have been unwilling to make the vast income transfers, across national lines, that would be required to make rural or service-sector or even civil-service life in Spain as attractive as it is in Sweden.

Most of all there have to be jobs. Consider this recent analysis on indigenous employment which shows major increases in employment levels (even excluding CDEP) from 1994 to 2008. A booming labour market lifts all boats. Outcast London makes this points about the employment boom of World war I which brought into employment may whom social analysts had dismissed as inherently ‘pauperised’ (the old term for welfare dependency). Classical Marxism always argued that the rationale for socialism was to achieve higher levels of productivity and economic growth than a decaying capitalism. State socialism promised much in this area but delivered less and less as time went on. However the current capitalist crisis should revive the focus of the left on these issues. Yet conservative elites have largely given up on the agenda of growth. The United States is an obvious example but even here in Australia leading conservatives want a fiscal tightening that will slow growth. Some conservative commentators have doubts about this but content themselves with blaming the government rather than holding the opposition to account. An example of how the establishment right caves to populist extremists. It is striking how about the ‘libertarian’ vacuities of the boom when the slogan ‘freedom’ was considered to provide a guide to policy conservatives have flipped back to a deeply pessimistic view of economic cycles as inherent to capitalism and as incapable of alleviation. It is noteworthy that observers have followed in the footsteps of the early 1930 LSE non-Keynesians such as Evan Durbin and Hugh Dalton to argue that this admission established a case for socialist planning. Why the conservative hostility to growth? Ideology plays a role but in Australia there is a simpler explanation. An economic slowdown means lower interest rates and a potential recovery of the property market. Home owners count politically more than home buyers and much more than those on the margins of the labour market marooned either in safe National or Labor seats.  As George Megalogenis says:

Offer a leader the choice between lower unemployment and a booming housing market, and the cynic who understands history will pick a recession with capital gain ahead of a recovery with flat or falling property prices

Next time you hear someone complaining about welfare dependency ask them their views about fiscal policy.

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