Sunday, May 6, 2012
Unemployment is a misallocation of resources
Unemployment is wasted production, and it mounts into the trillions of dollars. Our economy is about production not money. The US government can afford to buy anything for sale in US dollars, because it is the source of US dollars. That is to say, it can buy anything that the country can produce.
If private industry can’t or won’t use our nation’s full productive capacity, it costs nothing for the government to make use of those resources, especially the unemployed to produce goods and services of value to the nation. Utilization of unemployed resources pays for itself.
Back in 1933, three years before I was born, Mariner Eccles, a successful capitalist of that time, had the vision that we lack today. It was the vision that led the country out of the Great Depression despite the cries of the ultra-conservatives, who counseled austerity. Here is a quote from his testimony before the US Senate in 1933.
“Before effective action can be taken to stop the devastating effects of the depression, it must be recognised that the breakdown of our present economic system is due to the failure of our political and financial leadership to intelligently deal with the money problem. In the real world there is no cause nor reason for the unemployment with its resultant destitution and suffering of fully one-third of our entire population. We have all and more of the material wealth which we had at the peak of our prosperity in the year 1929. Our people need and want everything which our abundant facilities and resources are able to provide for them. The problem of production has been solved, and we need no further capital accumulation for the present, which could only be utilised in further increasing our productive facilities or extending further foreign credits. We have a complete economic plant able to supply a superabundance of not only all the necessities of our people, but the comforts and luxuries as well. Our problem, then, becomes one purely of distribution. This can only be brought about by providing purchasing power sufficiently adequate to enable the people to obtain the consumption goods which we, as a nation, are able to produce. The economic system can serve no other purpose and expect to survive.”
Present-day politicians seem to have lost faith in our country. The deficit hawks are either idiots or liars. We have put the unemployed to work before, incurred large deficits and debt, and we prospered. Those who say it is not possible now have lost faith in our country’s ability to innovate and produce.
From Krugman, we have the following graphic revealing that at a time when the government should have been hiring, it was increasing unemployment by laying off government workers. My take is that Obama was too compliant in the face of the Tea Party, which knows nothing of economics but a lot about emotional manipulation of the uneducated, which is politics.
The blip at 16 months in the Obama curve is census hiring. Government hiring includes federal, state, and local. While the Obama administration tried to support state and local government, he was effectively outsmarted by the Tea Party.
This is not to give Obama a pass on this horrendous result. It was he, who appointed a Deficit Reduction Commission co-chaired by two notorious deficit hawks. Ultimately, the Commission failed to produce a report. However, some people often refer to the Commission Report, which is merely the opinion of the co-chairs, Simpson and Bowles.
Where Obama has acceded somewhat slowly to the demands for austerity, we can expect Romney to go full speed ahead, because Paul Ryan will be whispering shouting in his ear.
It is frustrating to see our leaders cower before the future instead of striding boldly towards a well-educated, highly productive nation.