Sunday, January 8, 2012

Growth Won't Create Jobs

even if it were still possible...

What if We Focus on Boosting Employment Rather Than Growth? (Naked Capitalism)

Although it is remarkably difficult to come up with decent data, from what I can tell, the Japanese bubble was considerably bigger relative to the size of its economy than the US debt binge was. Yet even though the Japanese aftermath has been remarkably protracted, and arguably worsened by a slow and cautious initial response, visitors to Japan find the country wearing its malaise remarkably well.

One of the reasons may be the Japanese preoccupation with employment. Entrepreneurs are revered not for making money but for creating jobs. Japanese companies went to great lengths to keep workers, cutting senior pay to preserve manning. That was done largely for cultural reasons, since companies are seen as being like families.

But was this preoccupation also good economic policy, and might it have played a more direct role in buffering the worse effects of the bubble aftermath? In this interview, Pavlina Tcherneva argues that the way policymakers think about growth, that demand drives employment, may be backwards.

Government funded job creation works (Los Angles Times)
International experience shows that direct job creation by governments is one of the very few options that has succeeded at raising employment levels more than just marginally during a crisis. Nonetheless, unfounded optimism about the power of privately fueled growth underlies the latest round of interventions in Europe. The assumption that the business sector has the ability to absorb enough labor to end the unemployment crisis remains almost unquestioned.

And it is a crisis, despite the recent employment upsurge in much of the world. In Portugal, Ireland, Greece and Spain, high unemployment has continued, with anemic confidence indicators and planned-purchases data in Greece, for example, showing clear evidence that businesses and consumers are bracing for a protracted recession. In economies that are improving, outrageously high unemployment rates among important groups, particularly youths, signal the start of both a threat and a tragedy. Grave labor issues are scattered around the globe.

It's unreasonable to expect private enterprises to solve these problems. Full employment isn't an objective of businesses. Companies usually strive to keep staffing at a minimum — we've all heard the virtues of "lean and mean." There simply isn't any known automatic mechanism, in the markets or elsewhere, that creates jobs in numbers that match the pool of people willing and able to work.

In contrast, direct public-service job creation programs by governments have a history of long-term positive results. Throughout the last century, the United States, Sweden, India, South Africa, Argentina, Ethiopia, South Korea, Peru, Bangladesh, Ghana, Cambodia and Chile, among others, have intermittently adopted policies that made them "employers of last resort" — a term coined by economist Hyman Minsky in the 1960s — when private sector demand wasn't sufficient.

South Korea, for example, during the meltdown of 1997-'98, implemented a Master Plan for Tackling Unemployment that accounted for 10% of government expenditure. It employed workers on public projects that included cultivating forests, building small public facilities, repairing public utilities, environmental cleanup work, staffing community and welfare centers, and information/technology-related projects targeted at the young and computer-literate. The overall economy expanded and thrived in the aftermath.

In 2005, France outlined a program in which the government paid laid-off workers their former salaries. It showed that this model could ultimately cost the nation a lower percentage of GDP than unemployment compensation or other traditional remedies.

Of course, these ideas came long after America's Depression-era initiatives had already proved that government could successfully fulfill the role of employer without competing with the private sector. Programs such as the Public Works Administration and the Civilian Conservation Corps were followed by a "golden" era in American capitalism, and now, decades later, those policies are still providing rewards. The vogue to dismiss the 1940s recovery as entirely the result of World War II reflects political positioning, not economic data.

At the theoretical heart of job-creation programs is this fact: Only government, because it is not seeking profitability when it is hiring, can create a demand for labor that is elastic enough to keep a nation near full employment. During a downturn, when a government offers a demand for unemployed workers, it takes on a role analogous to the one that the Federal Reserve plays when it provides liquidity to banks. As in banking, setting an appropriate rate — in this case, a wage — is one key component for success, with the goal of employing those willing and able to work at or marginally below prevailing informal wages.
Some comments from the naked Capitalism article:

We don’t need jobs, we need MONEY, and there’s plenty of that. If the productivity gains of the last 30 years had been distributed like they were in the previous 30, we’d all be working 20 hour weeks!
Japan is a dying society with extremely low birth rates. Why? Because there is no hope or future when people are blindly robbed by government policies that enrich the one percent and deprivation for the rest of us. The economy in the US is also stagnating due to the generations born after 1978 who have been yoked with outrageous student debt. The burden is overwhelming with stagnated wages or worse a worthless piece of paper that cost $120,000, for a job at Payless. The US birth rate has dropped too, but is disguised with legal and illegal immigrant populations.

The life cycle of marriage,family, house buying, and all its accessories has been brought to a standstill. The younger generation refuses to participate in anymore extraneous debt or produce children into a rapacious debt life cycle.
The validity of currency has been separated from its’ primary function; labor compensation utilized as a universal bartering tool for trade, goods, and services. The religion of economics has subverted it into a measurement independent of its original blueprint. The interdependency of compensation and exchange has been dragged into the alley, beaten, robbed, and stabbed. Currently economists argue, theorize, and postulate on how to get the staggering, under-compensated laborers back into a homeless shelter living on debt.
Unemployment is useful for the capitalists: it causes competition among the workers for jobs and keeps down wages. High unemployment, as in the present economic crisis, intensifies this competition and helps the capitalists increase the exploitation of the workers, who face a greater threat of firing. The capitalists have no intention of doing away with this tool for exploiting the workers.

And from the LA Times article:

The posts stating that government doesn't create jobs are blatantly false. Even accepting the ridiculous premise that a government job isn't a job - forget about the armed forces, public school employees, and every politician or government staff member who goes to work (i.e., to a "job") and draws a paycheck - you then have all of the members of private firms who work under government contracts. You know, the entire military-industrial complex. While those people are not directly employed by the government, they are directly employed becasuse the government has needs that must be met.

I can only conclude that the typical right-winger who thinks that a government project - let's use the Interstate Highway System as an example, as it was built under Eisenhower, a Republican - is built by people who don't have jobs, is simply living in a fantasy world. Such a person might think that the United States was specifically founded as a Christian nation, that slavery was not a major cause of the Civil Waror that Republican presidents never raised taxes, or that the real reason we went to war in Iraq was because Saddam was about to attack the U.S.A. with his WMDs. None of those things is true, but you wouldn't know that if you have Republican relatives or friends.


  1. Great blog you have here. I don't understand why you do not have several hundred followers. The year-end review where you categorized all of 2011's articles was great too. I know the amount of time and effort it takes to do what you're doing and I appreciate all your hard work and the insight it brings.


  2. Thanks, I appreciate it. Although I write as a labor of love, it's nice to have an audience.


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