Why we should close the ‘unemployment industry’

This morning I gave a Keynote presentation to the Jobs Australia conference in Melbourne, which is a gathering of people who work in what I call the extra industry – the ‘unemployment industry’ – which has sprung up in the neo-liberal period to manage the unemployment that the government has deliberately created as a result of its obsession with fiscal austerity (trying to run surpluses when increased and on-going deficits are required). I take no umbrage with individuals who work in the ‘industry’ but its productivity is close to zero (you cannot search for jobs that are not there) and they have become co-opted servants of the pernicious government policy regime. The facts are clear – we have erected a massive corporate sector funded by government to manage the fiscal failure. The problem is that all these job service providers are not just shunting inanimate widgets around into so-called training schemes etc but are dealing with very disadvantaged people, which the capitalist system is excluding from the opportunity to engage in paid and productive work. The ‘unemployment sector’ is the Government’s front-line attack dog on the victims of the policy failure.

I was walking back to my office in Melbourne (where I work regularly) after the talk and thought about the great Arthur Altmeyer, who was the founding father of the US social security system, which while minimalist relative to the Welfare States that emerged in other advanced nations in the Post World War 2 period, was still founded on the fundamental principles that should guide all societies – hope and opportunity.

Arthur Altmeyer wrote in 1968 that:

What motivates people and leads them to high endeavor is not fear but hope.

His contribution to the book – Social Security Anniversary 1968 – A Third of a Century – was entitled ‘Social Security and the Human Touch’.

At a ceremony, held in Washington on August 14, 10968 which was celebrating the 33rd anniversary of the signing of the Social Security Act, various key players gathered to witness the “Department of Health, Education, and Welfare’s Award for Distinguished Public Service” being presented to Arthur J. Altmeyer, who carried the nickname “Mr. Social Security”.

One of the Keynote speakers was the US Secretary of Health, Education and Welfare, Wilbur J. Cohen who was representing the President at the time, Lyndon B. Johnson.

Cohen commented on Altmeyer’s contributions to the welfare of disadvantaged Americans in this way:

To those who declared that if men were no longer afraid to lose their jobs America would become a nation of loafers, Arthur Altmeyer replied that there was a motivating force in the lives of men that was even stronger than fear–that force, he said, was hope. A democratic society, he said, must rely on hope and incentive rather than fear and compulsion to influence the conduct and aspirations of its citizens. And I think that is a worthy note for us to remember in the issues that face us today. Social security, he taught us, replaces fear with hope. As he put it, liberty means more than freedom to starve. It means a real opportunity to make the fullest use of one’s capacity. Far from destroying individual initiative and thrift, social security, by providing a degree of protection to families against the major vicissitudes that beset them in this modern and complicated and hazardous world, releases energies because it substitutes hope for fear as the mainspring of human endeavor.

In short, Arthur Altmeyer preached and practiced the idea that liberty and security are interrelated and that we cannot have one without the other. With this kind of faith that he demonstrated in man’s perfectability, with this kind of vision of democratic government …

Contrast that with the sort of narratives that come from Governments obsessed with fiscal austerity these days. Contrast that with the pernicious policy regimes that seek to punish the most disadvantaged in our societies and isolate them via nomenclature that casts them as lazy, corrupt, dishonest, and unmotivated.

In accepting the award, Altmeyer said, among other things:


Before I get off of the early days I want to say another thing–an important thing many people forget. Important as the Social Security Act was, it was only part of the New Deal. We recognized it as largely an income maintenance program. But we had all kinds of work and education programs going. For example, the National Youth Administration. It financed not only vocational schools, but made grants to the colleges, secondary schools, and primary schools. People have forgotten that that was a part of the picture. We had the work programs–PWA, WPA and CCC.

Today I run across people who went to those CCC camps. They are proud of what they did in those days. They go and visit–when they have their vacations– the places where they planted trees, or what not, to show their children, their grandchildren, what they did for their country.

This is a highly significant point. The priority was to create jobs as the primary income source for workers and if the private sector could not create sufficient work for all, then there was only one sector left that could do the job – the government sector.

Income support for the unemployed was never meant to be a permanent state. It was just a safety net for those between work. The primary responsibility of government was clearly recognised by the Americans and other advanced Western nations to use fiscal and monetary policies in such a way there there was sufficient jobs available at all times.

How far have we moved from that ideal?

Altmeyer continued in this way (leaving out bits):

In conclusion let me say that I think we mustn’t forget that in trying to develop a more perfect income maintenance system, we should not forget we have to tackle the root causes of poverty in the sense of dependency. If we merely introduce another income maintenance system, we are just replacing one type of dependency for another type. The most important cause of dependency is a lack of jobs at adequate wages. So we must work toward full employment. We must have a permanent, long-range, nationwide public works program. We must abolish discrimination on account of race or creed, in our hearts as well as in the law. And we must provide adequate education and training to hold a job.

I am sure that this Nation of ours will win this war on poverty because we are fortunate that we do have the economic resources. All we need, really, is the will and the determination to perfect our social organization to take full advantage of these resources.

All our modern politicians and policy makers and those who the policy makers have co-opted within the ‘unemployment industry’ they created should reflect on that and work out where they have gone wrong and why.

Governments should:

1. Use their resources – which in financial terms are unlimited. The currency-issuing government can purchase anything that is for sale in its own currency at any time it likes, including the labour services of the unemployed labour.

2. There should be no divide-and-conquer strategies employed or accepted to allow the government to vilify one segment of the population who happen to be at the back of the unemployment queue. As a collective we should stand with all citizens and demand from our governments that they cease attacking the welfare of the unemployed, who are in that state (overwhemlingly) because of failures by the government to run sufficient fiscal deficits.

3. We must “work towards full employment” which means there should be enough work and working hours for all those who desire it.

4. We must “have a permanent, long-range, nationwide public works program” that is well designed, scalable to contract and expand when non-government economic activity expands or contracts.

5. We must invest in our education and vocational training systems, recognising that the most effective vocational training is done within the paid work environment rather than being isolated from that environment. Education should not be a vehicle for divide-and-conquer and stratification of income groups as the current policy encourages. There is no better investment by government than in its people.

6. There may be 1-2 per cent or so of current income recipients who are unemployed and do not want to work and have worked out a way to eke out an existence on the below-poverty line unemployment benefits that the Federal government in Australia provides. But it is extremely poor policy design to introduce elaborate penal conditions for the 98 per cent to get at the 2 per cent. By introducing a Job Guarantee, the Government would have the perfect activity test. Turn up for work and you will be paid. Otherwise, if you are able to work and do not want to – then find another source of income!

Finally, the Australian government issues its own currency and can never run out of money. The Greek government uses a foreign currency and can run out of it if it cannot borrow to cover its deficit.

My presentation today

The following YouTube video is a capture of my slides today with the complete audio (unedited). It is just over 48 minutes in length. I didn’t include the question time which lasted for about 10 minutes.

One person asked me why Australia wouldn’t become like Greece if it endorsed my view of economics. I replied via a question along the lines of: Isn’t it true that Australia bears no relation to Greece? I encouraged him to answer the question in the affirmative!

Anyway, perhaps this is of interest to you.


Run out of time so …

That is enough for today!

(c) Copyright 2014 Bill Mitchell. All Rights Reserved.

This Post Has 19 Comments

  1. Bill, you left out the contribution of Abraham Epstein, although his efforts lay at the state level rather than the federal. In fact, he opposed aspects of Roosevelt’s program. Even so, it is generally agreed that he introduced the term “Social Security” into the debate. That said, he was the principal architect of Pennsylvania’s system of old age pensions, beginning his research in Pittsburgh.

  2. Superb presentation Bill. Possibly the best one I’ve seen of yours.
    Lots of good stuff to further the cause.

  3. dear bill,

    “6. There may be 1-2 per cent or so of current income recipients who are unemployed and do not want to work and have worked out a way to eke out an existence on the below-poverty line unemployment benefits that the Federal government in Australia provides. But it is extremely poor policy design to introduce elaborate penal conditions for the 98 per cent to get at the 2 per cent. By introducing a Job Guarantee, the Government would have the perfect activity test. Turn up for work and you will be paid. Otherwise, if you are able to work and do not want to – then find another source of income!”

    then you still needs an agency to check those people out with the inevitable bias and exclusion. there are many valid reasons somebody can or will not enter any workprogram and still do valuable things (if capable). f.i. Vincent Van Gogh was not very succesfull during his lifetime

    my guess it would be much more worthwhile to check out the 1% to advance common wellfare

  4. Bill,
    On the subject of groupthink, this is a video about how people can fool themselves.
    It’s in Dutch and there are no subtitles but i thought you had (some?) knowledge of this language.
    The speaker does a little busy but don’t let it distract you.

    “I could have told all this also about … post-goldstandard-economics” (with exclusion of mmt 😉

  5. “then you still needs an agency to check those people out with the inevitable bias and exclusion. ”

    No you don’t. People who choose not to work on the Job Guarantee and are not eligible for the state pension or receive the health/social invalidity care don’t get paid. They have to rely on charity, or change their attitude to one that is more respectful of the requirements of their fellow citizens.

    The social pressure of the rest of society is what does the checking out – which is why all ‘give people money’ ideas ultimately fail to work. Because the rest of society needs to see quid pro quo from an individual if they are to share resources with them. That need is hard wired into the human ape brain.

    ‘I spend the money I’m given’ is never sufficient quid pro quo. Which is why unemployment benefit gets rolled back and reduced – even though individuals have paid ‘contributions’ towards it. It is why the pension age continues to rise despite increasing unemployment. It is why student grants have been eliminated and the student even has to go further into debt to fund their learning – even though they are giving up prime earning years to learn new skills!

    This idea that you have the right to do exactly what you want *regardless* of the feelings of others needs to die. It demonstrably never works in a society with humans in it. You are a social animal and you always have to be mindful of what others need to see from you.

    Toddler rules don’t apply in adult society.

  6. Bill, an earlier investigation of framing can be found in Erving Goffman’s Frame Analysis of 1974. I can recommend it, along with other works of his.

  7. In a recent interview, Ambrose Evans-Pritchard claimed that the fiat money system was broken. He said it in passing with no indication of evidence supporting this assertion. He also said in this interview that Keynes’ Bancor system was being considered along with other schemes and gave the impression that he sort of approved of this initiative as it was a good way to make government honest, but in mentioning this initiative, he made it clear that he was not in favor of fiscal spending, what he called injecting money into the veins of the system, mimicking with his hands a blood transfusion.

    While you are right about how abstract conceptions are being used by the neoclassicals, abstract concepts need not be metaphorical. This is not an essential characteristic.

  8. Neil Wilson, does being an adult society justify ignoring mental health problems? Because if not, some intervention is sometimes necessary.

  9. I cannot determine how you calculated the figures in your slide “Broad summary of the dilemma”. Agreed that the seasonally adjusted unemployment rate for teenagers as at July 2014 was 20.4%, but I don’t get the same figure for you as the change in hidden unemployment. I assume you mean the increase in the number of teenagers who are not in the labour force (NILF) between February 2008 and July 2014? Based on ABS data the decrease in the number of teenagers in employment over this period is 107,000 as you indicated. The increase in the number unemployed is 61,200. This means the teenage labour force declined by a net 45,800. The increase in teenage population over the same period is 35,200. This means the increase in the those NILF is 81,000. How did you calculate the figure of 92,700? Also, it seems as if you assume that all of the increase in NILF can be considered as unemployed and are seeking employment. From the ABS publication “persons not in the labour force” (6220.0 September 2013) we can see that a large proportion of youth 15-24 not in the labour force and not in education are quite legitimately NILF for other reasons. As at September 2013, over 73% were either engaged in caring for children or undertaking home duties, or had long or short term health issues. It seems to me it is not appropriate or reasonable to therefore assume that all of the increase in NILF can be categorised as unemployed.

  10. Dear Stephen (at 2014/08/30 at 13:42)

    Thanks for your E-mail and interest in the data.

    The table is computed as the difference between the maximum participation rate and July 2014. For Teenagers, the maximum PR was in January 2008 = 61.2 per cent. The PR in July 2014 was 54.9 per cent.

    If we assume all the workers who have dropped out of the labour force are hidden unemployed, then the change in hidden unemployed is the calculated as:

    1. Compute what the labour force would have been at the maximum PR. To do that first, calculate the Working Age Population at July 2014 = 1472.1 thousand (January 2008 = 1433.5 thousand). So, if the PR was 61.2 per cent at July 2014, the official labour force would have been 900.9 thousand rather than the actual level of 808.2 thousand.

    2. The difference between the actual labour force and the potential labour force is thus 92.7 thousand, which we assume is the change in hidden unemployment.

    There is clearly a debate about how to consider the falling participation rate. For example, I have decomposed the aggregate decline by taking out the demographic shift in the ageing of the labour force. There might be issues about teenage withdrawal that do not relate to being discouraged.

    Several of those reasons may in fact be cyclical themselves. For example, engaged in caring for children – why has that risen as the labour market has deteriorated? Income constraints (unable to afford child care), parent forced to work a second job, etc

    My estimates are the upper bound if the fall in PRs is not purely cyclical.

    It doesn’t negate the fact that there is a crisis on our hands.

    best wishes

  11. Neil : The social pressure of the rest of society is what does the checking out – which is why all ‘give people money’ ideas ultimately fail to work. Because the rest of society needs to see quid pro quo from an individual if they are to share resources with them. That need is hard wired into the human ape brain.

    This point has it backwards. “Social pressure” does not prevent “give people money” ideas from working, but helps them work, somewhat. Basically, “give people money” ideas don’t work because they can’t work in a universe like ours where good things don’t immediately appear simply by idly and vaguely wishing for them. The beneficial hardwiring is there because of this sort of universe, and it helps us live in it. Monetary economics that makes sense = MMT is not magic. It just acts like magic because modern economies are run so fantastically stupidly from any speakable public purpose perspective.

    Thinking that “give people money” can work is magical thinking, because people will spend the money, and it will cause inflation by increasing demand and decreasing supply in a “quantity theory” way that is so simple and obvious that even neoclassicals and Austrians get it right. “Social pressure” prevents the “spend the money” (get on the dole) phase, so it prevents the inflation & helps, not hinders, welfare / BIG / “give people money” from working.

    One way to get it straight is to imagine a society (of healthy, working age people) with a BIG of $1,000,000 / year. And a JG which does all the work – that pays less, not more only $50,000/ year. And taxation etc which drains $50,000 per capita per year. Of course this is fanciful. What could make it work even fancifully? Only an enormously strong “social pressure” that says that people can only spend the $50,000 they make, and never touch the millions they accumulate. Of course in reality, big, universal BIGs & even the strongest realistic social pressure is going to set off (hyper)inflation at much lower BIG/JG ratios.

    Pensions & unemployment benefits being cut back AFTER the financial forced saving was applied to individuals concerned, after they have been saving in real terms on behalf of society by working is somewhat different. It is simply theft by con men, who use absurd “economics” / “demography” to deceive the innumerate & manipulate beneficial “social pressure” hardwiring. They can only do this by the enormity of their Big Lies.

  12. Neil Wilson seems to think we live in a democracy. Unfortunately we don’t.

    The One Percenters frame government policy and society in general will conform to whatever opinion the One percenter owned media choose to feed them.

    Would I participate in a JG program ? Not in your life – because the One Percenteres will bastardise it to the point that it is unrecognisable from the MMT proposed model.

  13. A really good presentation! Encapsulated a lot of your blogs really neatly. I also come across a lot of framing issues in my (engineering) world as well and liked your explanation. Thanks for the insights.

  14. Neil, you can be a harsh man sometimes.

    There is absolutely no need for coercion in a job guarantee, in fact it could be a disadvantage as Allan Dunn points out.

    Worrying about the vanishlingly small number people who don’t wish to work is the job of the daily mail’s duty welfare reporter. It’s the majority who do that should be the focus.

    The job guarantee needs something to compete with as well, and looking at the private sector (one high street retailer selling fancy bath salts advertised for 25 x 6 hour minimum wage posts last week), it ain’t going to come from there.

    I’mm not sure what exactly we are hardwired for, but I suspect it’s not 21st century capitalism.
    It took quite a lot of coercion to get people off the land and into the factories and mines in the first place and it took some more to get them out of them again.

  15. “There is absolutely no need for coercion in a job guarantee”

    There is no coercion. The Job Offer is there to all regardless of their position, and there is no requirement to take it up.

    You just don’t get any income from the state if you don’t. The vanishingly small number of people that won’t take up the JG offer can be dealt with by the charity sector.

    Those that *can’t* by way of age or infirmity receive a living pension as they (should) do now.

    And the design is like that because the public in general need to see it be like that. They need to see and be told what benefits they are getting from all the labour. And that means one of the Jobs of the JG is to sell the benefits of the JG constantly.

    Because otherwise you will find that the facility is removed politically – just as the implicit Job Guarantee that arose after the Second World War – that those who were ‘spare’ got hired by the public sector – disappeared. Here in the UK Remploy was closed at the end of last year – the last of the public sector work initiatives for disabled people.

  16. Thanks for sharing your fascinating presentation, and some paradigm-shifting insights! One thing I’m keen to know (not being trained in economics) is, looking at the GDP – Deficit History Chart, we see the insane drop in GDP growth in the early 90’s thanks to the recession inducing high interest rates regime …but which was widely acknowledged as a seminal move that slayed the inflation dragon and subsequently realised for us 20 (?) successive quarters of economic growth that also underpinned a basis for sustained 5-6% unemployment. What’s your take in relation to interest rates/ inflation being able to support the concept of Jobs Guarantee?

  17. The frequently-overlooked issue of UNDERemployment could be one of the factors in the statistical anomaly regarding youth unemployment figures. Remember, ANY paid work, as little as one hour, counts them out of the ‘unemployment’ figures, even though it obviously falls short of providing a living income.

    It would be really interesting to see figures on underemployment, and not just for young people.

  18. The video is not available to share, on Bills YouTube channel it just says “[…] not available”. Nothing about any regional restrictions.
    To bad, it’s a very good educational video to refer when trying to convince someone about the ongoing economical madness, especially here in EUrope.

  19. “….or change their attitude to one that is more respectful of the requirements of their fellow citizens.”
    Neil Wilson, I like this idea you mentioned.
    But forgetting about employment for a moment, i would like the same principal applied to traffic pollution caused by those so addicted to their cars that they drive for every journey , even if it’s a minutes walk away to the shop. And as a consequence show total disregard for fellow citizens.

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