News & Analysis
The Solution to Unemployment Is Less Monetary Stimulation Not More
Young jobless 'scar' starts to heal as more begin work ... "Not only is youth unemployment costing us billions now, but the damage done to the future employment and earnings prospects of those affected will cost us billions for years to come, every year, long after the economy as a whole has recovered." Being cast out of the jobs market at such a young age can cause permanent damage. When employers start hiring again, there are more people competing for each job. – UK Telegraph
Dominant Social Theme: It took some time but the system is working and employing young people once again.
Free-Market Analysis: This is a hopeful article but one that leaves significant questions in its wake. One could ask, for instance, how is it that modern economies can from time to time generate such vast unemployment? And why, most recently, has this unemployment been so difficult to cure?
The Telegraph article above is hopeful about unemployment, stating that, "Total unemployment has been remarkably low during the most recent recession, peaking at 8.4pc compared with 10.7pc in the 1990s, but the hard times have fallen disproportionately on the young."
This has been the case in Spain, too, where 50 percent of youth are supposedly out of work along with 25 percent of the total population. This is a disaster by any measure as government unemployment figures almost inevitably understate the reality of the working environment.
US figures have been portraying a picture of less than 10 percent unemployment when the figure is probably 20 percent or even 30 percent. UK figures are probably similarly understating employment. Here's some more from the article:
The statistics are compelling. At the peak of the 1990s slump, 17.8pc of 18-24 year-olds were unemployed, and 20pc of 16-17 year-olds. This time, the comparable figures were 20pc and 39pc. Part of the rise can be attributed to the fact that more young people are now in further education, thereby reducing the size of the pool of workers against which those unemployed are measured. But the underlying story remains one of a disenfranchised generation.
Given the high cost of going to university, the options are hardly attractive. As James Carrick, an economist at Legal & General Investment Management, put it: "You've got a choice of no work or debt."
The latest recession has been particularly hard on the young due to a strange dynamic in the UK labour market. Rather that cut jobs, companies cut hours and froze pay. John Philpott, an independent labour market economist at The Jobs Economist, speculated that redundancy costs might have been the incentive. But, for whatever reason, it led to an effective recruitment freeze.
For the legions of young people leaving education, it meant there was no work to go to. In boom times, youth unemployment tends to be double general unemployment – it was running at about 10pc before the crisis against the wider economy's 5pc, Mr Philpott said – but since the recession the disparity has widened. While total unemployment peaked at 8.4pc, for those aged 16 to 24 it hit 22.3pc – reaching a record 1.04m.
The reality of unemployment is fairly simple. It has to do with overt money creation that foments first tremendous booms and then horrible busts.
But what is less appreciated, even among those who comprehend the distortive effects of monopoly central banking, is how deep the distortion runs. Over-printing of money creates great and apparently lasting economic changes.
The constant over-printing of money creates great industrial changes, undermining agrarian culture and swelling urban environments. From the point of view of a power elite, this trend is a positive one, as people in cities are less self-sufficient and easier to sway.
Urban living is modern living. The actuality of people's existence in an urban environment is one divorced from the underlying reality of existence and even of community. People involved in this sort of culture don't realize the risk they are running until the consequences make themselves uneasily apparent.
Modern economists do not recognize this, however, even as they do not recognize, or admit, that central bank money printing is a kind of price-fixing and therefore unsustainable. Rather than analyze the reality of overabundant money flows, they have spent time and energy giving this process a name.
Economists call the loss of skills that accompanies such a prolonged slump "hysteresis" – or permanently higher unemployment as the lost generation forever fails to make it onto the jobs ladder. NIESR and ACEVO estimated in their report in February that such "hysteresis" could cost the Government £2.9bn a year from 2013 in welfare and associated costs, and rob the economy of £6.3bn in lost output.
The article tells us that the government is "alert to the dangers" of hysteresis and has responded by introducing "the Youth Contract that incentivises employers to hire officially unemployed people aged between 18-24 for at least six months." The government is actually paying companies to hire young workers. "Under the scheme, for each job created companies can claim up to £2,275."
Once more, then, we are led to believe that government is responding to a "problem," even though the roots of the problem may be tracked back to the government itself and to central banking money printing with which it can be affiliated.
In an environment less subject to monetary stimulation there would no doubt be less "unemployment." One wonders how much "unemployment" there was among Native Americans or even the US agrarian South (leaving aside slaveholders, which is another issue entirely).
It is reasonable, though, to ask how societies can create themselves in such dysfunctional ways. A system that at times throws up 25 or even 50 percent unemployment is one that provides little long-term stability and even less security. Within this context, the old, sustainable, agrarian ways may be seen as – if not preferable – at least providing a sane alternative.
Once more, as always, it comes down fundamentally to money and the phenomenal power of its manipulation. If one controls the printing press, one surely has the power to reshape society itself, and often not for the good.
Conclusion: In this case, overt, extensive money printing unbalances the larger employment situation. It turns decentralized societies into centralized and more controllable ones. This benefits elite agendas but not the larger social sustainability.
Posted by Danny B on 11/06/12 09:03 PM
"confiscating wealth from the productive class, which, had it not been stolen, would have employed it according to the wants of the market, that is, the wants of the consumers. "
Technically, not true. This would be more accurate;
"confiscating wealth from the productive class, which, had it not been stolen, would have employed it according to the wants of the" ""productive class.""
The non-productive class wants you to try a little harder and do your fair share.
Posted by Siegfried on 11/06/12 12:49 PM
It's funny (actually sad) to see how govermnents attribute themselves the ability to create jobs. Obama said he has been creating jobs, and as you mentioned in the other article, says he will be creating jobs. Governments do no create jobs, only private enterprise can properly do.
Goverment so called jobs are created by confiscating wealth from the productive class, which, had it not been stolen, would have employed it according to the wants of the market, that is, the wants of the consumers.
I wonder if Obama is aware that granting the privilege of monopoly fiat money creation to a single institution while using the military muscle to force international oil trade in dollars is an absolutely ruinous policy. It sets the stage for a huge bust (we are beginning to experience it) and by artificially keeping the value of the dollar high, it promotes delocalization of production facilities abroad. So much for "creating" jobs.
Posted by dave jr on 11/06/12 07:15 AM
It used to be that if there were few jobs (people needing help with their enterprise), it wasn't too difficult to create your own. If one out of five upstart businesses fail, well maybe it took five tries. If successful, before you know it, you're an employer.
Not enough employment opportunity means there are not enough employers. Excessive government regulation for starting and operating a business in a climate of global monopolistic tendency supported by excessive government regulation is crushing small business…the employers and would be employers.
Hmm, I wonder what government can do to help?
Posted by mava on 11/06/12 07:08 AM
A friend of mine just got laid off. She got laid off before, because she only has a high school in her pocket. The interesting thing is that she stayed out of work one day last time, and one day this time. She said this time there were at least 5 offers to consider.
She is a hard worker and gets paid close to minimum though. Which makes me think that there is not really any shortage of work in US. There is a shortage of preferred, high pay work. The life has become so good in US, that most people do not ask themselves a question of "What others need me to do?" anymore. Instead, they go ahead and specialize their skills according to their own idea of what is required (usually, simply by considering the pay level, even though US does not have the free market, meaning that there is no connection between pay levels and demand for particular skill). Then they sit on their hands until the society turns around and satisfies their idea of income.
My friend says that many of her friends that were laid off are not planning to look for work, since the government makes it so easy to just stay home. They have EDD, stamps, free phones, etc.
Many of her coworkers from the last time she got laid off are still staying home, even though it took her only one day to find a new job. They say that a simple comparison between all the unemployed benefits and the income from available jobs makes it clear that only a fool will look for work.
Posted by Abu Aardvark on 11/06/12 06:54 AM
BM: "In southeast Asia, as China attempted to extend its reach further into the highlands, it used rice as the common medium - easy to find, easy to tax. As China captured populations from the hills and outlying areas, it moved these captured people into regions where rice could be grown. "
DB: "Great history lesson"
Indeed. More on this here - highly recommended:
Click to view link
Bionic Mosquito posted a very good review about the book the other day. BM's way too modest to refer to it, I guess, so I will do it - It's definitely worthwhile:
Click to view link
Posted by Joe on 11/06/12 04:57 AM
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Gold and the Wicked Magicians
This story appears in the 19 November 2012 issue of Forbes.
8 comments, 0 called-out + Comment now
+ Comment now Why is there such hostility toward a return to a gold standard? After all, the U.S. prospered mightily by tying the dollar to gold from 1791 to 1971. (The exception was during the Civil War, but the link was resumed in the 1870s.) Other factors were at work, of course, but the sound dollar was critical to our phenomenal success.
Amsterdam became a capital powerhouse in the 1600s and tiny Holland, a global empire. This was, in no small part, because its currency was firmly tied to gold. Ditto Britain in the 18th and 19th centuries with the pound. Germany and Japan quickly and miraculously rose from the rubble of World War II when they firmly fixed their currencies to the gold-backed dollar.
Reply from The Daily Bell
We are proponents of a free-market money standard. That may or may not be gold ....
Posted by Danny B on 11/05/12 09:01 PM
Bill Bonner related an incident where he met a guy asking "will work for food"
Bill told him that he had several chores around the office and that he would pay him for doing them. The guy told him to F----off.
This is an often repeated story.
Too many Westerners are like a spoiled house cat that will not eat anything out of a can.
The dole created a cadre of people who wouldn't dream of doing low paying labor.
It also created a job-niche for the Latinos. They've come in and filled those niches. As people run out their state benefits, they look for anything. They find that the low-paying job niches are locked up by latinos.
As everybody downshifts, jobs are getting scarce. The latinos are leaving.
Click to view link
Reportedly, net immigration is down to zero. I know that it costs $ 10,000 to get brought in. It used to be about $ 2500.
The jobs just aren't there. They aren't going to come back either. Everybody is SO obsessed with productivity. It's consumption that has stalled out.
It's gone forever.
Posted by bionic mosquito on 11/05/12 08:37 PM
Wow, an entire day and no comment.
Your conclusion draws out an important point: "[Extensive money printing] turns decentralized societies into centralized and more controllable ones."
In southeast Asia, as China attempted to extend its reach further into the highlands, it used rice as the common medium - easy to find, easy to tax. As China captured populations from the hills and outlying areas, it moved these captured people into regions where rice could be grown.
Prior to capture by the state, the previously decentralized people would plant root crops that could be kept hidden from the authorities (the underground economy) and cultivate other crops that were difficult for the authorities to count (berries, etc.) - thus making the product of labor virtually impossible to tax.
Rice solved this problem for the state.
It strikes me that the modern state has replaced rice with its own "money," but for the same reason. Without the centralizing ability of the state to coerce all to one common medium, monies would be varied and decentralized - difficult to find and tax, just like the root crop.
But by requiring taxpayers to earn in the government-mandated form (by eliminating competition), all product is now easy to count, therefor easy to tax. Like rice, the more common medium serves the purpose of the state, which in the end is the objective - and it is the outcome of every centrally planned money scheme.
Free market money would not only take from the state one of its best weapons for control, but it would also make difficult that task of accounting the product of the taxpayer.
Reply from The Daily Bell
Great history lesson. But in the modern era it is seemingly monetary booms and busts that serve as the primary methodology of control ...