It is my Friday Lay Day blog and it is going to be relatively quick. There was an article in the Wall Street Journal (December 23, 2015) – Economists Say ‘Bah! Humbug!’ to Christmas Presents – that says a lot about how my profession struggles to appreciate reality in all its dimensions. Every year, it…
Friday lay day – unemployment is a pernicious state
Its my Friday lay day blog and today I have been working on social psychology and group dynamics today. I am trying to dig into how economic ideas forms and how they are reinforced by language, media, and the educational system. Many people have researched topics like this but we are aiming to bring it all together into a coherent framework with the added aim of developing a progressive language guide to advance the conceptual ideas that I research and write about. The events in the last few days in Paris have also given me cause for thought within this overall research agenda, given the obvious link with a particularly zealous interpretation of a religious script and the role of economic disadvantage and austerity in fostering what some might call medieval, at best, behaviour. The role of language and conceptualisation is also implicated. I don’t intend to write about the events though. I am not professionally qualified to provide any meaningful input and as an individual I have mixed views on it. I certainly wouldn’t be perpetuating the ‘Je Suis Charlie’ campaign but that doesn’t mean I excuse the behaviour of the barbarians. But barbarism has many forms as does terrorism, and one could easily argue that the sort of austerity that has been inflicted on nations like Greece and France has created a responsive form of terrorism that is more random and very dangerous.
The neo-liberal Groupthink has managed to convince societies that unemployment is an individual failing when before the 1980s we clearly understood that it was the result of a systemic failure of the economy to produce enough jobs.
It has been an extraordinary exercise involving associations between ridiculous and spurious articles being published in mainstream academic journals, vehement hectoring from politicians and business leaders etc, which has contrived a new nomenclature that has been relentlessly rehearsed in the media – dole bludgers, leaners, cruisers, job snobs, etc
Surveys show how successful this three decade campaign has been. Even though the robust research shows that a miniscule fraction of those who are unemployed would prefer to live on income support and never work, the reality is ignored as this carefully crafted message is pumped out without cessation.
There is a resistance from the inner crowd (the Group), which perpetuates the myth about unemployment, to anyone who dares challenge the mainstream view. The Groupthink is very powerful.
It then leads to poorly crafted policies, which fail to achieve any desirable goals and amount to state terrorism. But these failures have unintended consequences, most of which arise from the extreme social alienation that accompanies unemployment.
I became an economist because I considered unemployment to be a shocking blight that failed systems inflicted on innocent people. That was my motivation. I was completing my professional education (post graduate etc) as the neo-liberal onslaught was getting underway.
In the past, we (researchers at the Centre of Full Employment and Equity) have done work on estimating the costs of unemployment.
The following blogs (and one academic paper) provide our more detailed treatment of this topic:
- The daily losses from unemployment
- Daily macroeconomic income losses from unemployment
- Costs of Unemployment – academic working paper
It is well documented that sustained unemployment imposes significant economic, personal and social costs that include:
- loss of current output;
- social exclusion and the loss of freedom;
- skill loss;
- psychological harm;
- ill health and reduced life expectancy;
- loss of motivation;
- the undermining of human relations and family life;
- racial and gender inequality; and
- loss of social values and responsibility.
The Groupthink that devalues these costs and imposes harsh sanctions on the unemployed individuals and families who have to bear, disproportionately, the costs, is oblivious to the further consequences that arise from the losses.
I see the sort of terrorism we are worried about these days as fitting squarely within that frame. I consider one form of deliberate and well-organised state terrorism (fiscal austerity, deregulation etc) leads to a more random form of terrorism (for example, idiots who chant religious slogans and kill coppers in cold blood as they lie on a footpath and plead for their lives).
There was an interesting article in the Fairfax press today (January 9, 2015) – Recession hurts Japan’s fight to change suicide culture – which touches on some of these ideas.
It argues that:
Japan’s recent slide into recession wasn’t just a blow to Abenomics. For some in the G-7 nation with the highest suicide rate, it may pose a question of life and death.
As Japan has gone back into recession the suicide rate has risen again in Japan. The data shows a tight “between economic developments and suicide”.
The “optimism generated” by the early days of Abenomics “helped bring the number down” after the troubles of the 1990s had seen it rise sharply.
The article notes that Japan has a particularly cultural inclination to use suicide as a solution to personal issues.
However, the long-standing tradition of “harikari” aside, the link between suicide and economic performance (particularly unemployment) is a global phenomenon.
This article from the British Medical Journal (Published September 17, 2013) – Impact of 2008 global economic crisis on suicide: time trend study in 54 countries – is representative.
The Authors concluded that:
After the 2008 economic crisis, rates of suicide increased in the European and American countries studied, particularly in men and in countries with higher levels of job loss.
Last year, a comprehensive paper was published (April 2014) – The Impact of Fiscal Austerity on Suicide: On the Empirics of a Modern Greek Tragedy – which concentrated on the role of fiscal austerity and suicide in Greece.
It found that “Greece has historically had one of the lowest suicide rates in the world” but “in the aftermath of the 2008 financial crisis it has increased markedly”.
They also found that “Suicide rates in Greece and other European countries have been on a remarkable upward trend following the global recession of 2008”.
Their overall finding was that:
… fiscal austerity, higher unemployment rates, negative economic growth and reduced fertility rates lead to significant increases on overall suicide rates in Greece, while increased alcohol consumption and divorce rates do no exert any significant influence on overall suicide rates.
So the Groupthink that leads to governments around the world deliberately creating and perpetuating unemployment kills people even if indirectly. There are no ‘national manhunts’ for the policy makers and technocrats who are responsible for this form of terrorism. Instead, they all seem to be rewarded with high salaries and generous superannuation pensions.
Here is some evidence from Japan. The data is from the World Health Organisation (suicide rates) and the Japanese Cabinet Office (Real GDP growth). The suicide rate per 100,000 is available at 5-yearly intervals and goes back to 1950.
The first graph shows the suicide rate from 1950 to 2010 (blue) and the black straight line is a simple linear regression which excludes the first three observations (1950, 1955, and 1960) and shows the trend since 1060.
The first three observations were in a period of Post-War chaos and shame and appear to be outliers.
The point of the graph is that there has been a rising trend in the period after reconstruction and during the transition from strong growth to crisis (early 1990s) and then slower growth.
I constructed 5-year annual average real GDP growth rates in the previous five years of each suicide rate observation. The idea is that the last five years of economic outcomes conditions the mood of the day. It is just a rough measure.
The next graph has these real GDP growth rates on the horizontal axis and the suicide rates on the vertical axis. The black line is the linear regression trend between the two variables.
The red markers exclude the three observations for suicide rates (1950, 1955 and 1960) and the two trend lines correspond with the two samples.
Irrespective of whether I include or exclude the earlier suicide outliers, the relationship between economic activity (horizontal axis) and the suicide rates (vertical axis) is significantly inverse – higher real GDP growth rates are associated with lower suicide rates.
If I had more finely grained data (the constraint being the suicide rates) and used more sophisticated statistical techniques I would still find a strong inverse relationship between economic activity and the suicide rates.
Now, cross plots do not necessarily mean anything. To understand data we have to be able to relate the observations to conjectures about behaviour. It could be that these two variables are driven with a third causal variable and there is not actual causality between suicide and economic activity.
But more detailed research provides fairly solid evidence that in some nations, suicide rates are driven, among other things, by economic opportunity, unemployment rates, poverty etc. So it is highly likely that the inverse relationships shown are explanatory rather than spurious.
Conclusion
Back to my research on Groupthink.
No music post today – but have been listening to Jamaican singer Delroy Washington. Very smooth.
Saturday Quiz
The Saturday Quiz will be back again tomorrow. It will be of an appropriate order of difficulty (-:
That is enough for today!
(c) Copyright 2015 Bill Mitchell. All Rights Reserved.
The Guardian goes MMT:
http://www.theguardian.com/commentisfree/2015/jan/09/repeat-after-me-the-australian-economy-is-not-like-a-household-budget
It is unfortuante that The Greens in the UK have not put in thier 2015 manifesto the policies on their website that would end anyone caring less about those on benefit and bring money into the economy, instead of wasted on admin. It would also forestall the coming revolution in the UK, when yet a further 5 years of austerity makes it too obvious that austerity kills. History will just repeat itself because we do not learn from history. The rich in the UK can see the warning signs, being ignored by the political class.
The over half of over 60s within abject poverty will be left with NIL STATE PENSION FOR LIFE that is for huge numbers of women born from 1953 and men born from 1951 their sole money in old age.
See detail on:
https://you.38degrees.org.uk/petitions/state-pension-at-60-now
The over 60s are equally liable to the slavery of workfare and benefit sanctions causing starvation as all other ages from babies to grannies.
The Greens will not commit and therefore will languish on their single figure voting percentage, because The Greens will not guarantee by manifesto that they will replace the cruel benefits regime, causing starvation and death in the UK with The Greens’ unique and new policies of:
– universal and automatic Citizen Income, in or out of work just the same.
– Full State Pension to all citizens, irregardless of National Insurance contribution / credit history.
– Give a 12 per cent rise a year in take-home pay to the working poor by the end of the National Insurance Fund, which is taken but not shared out to help to stave off starvation in the UK.
Bill,
The link “Costs of Unemployment – academic working paper” doesn’t work.
Don’t forget to add WW2 to your list of hidden costs! Close to 30% unemployment in Germany , in the 1930’s, had a devastating effect on the cohesion of German society.
Bill, I wanted to ask about this point:
I can imagine your opponents arguing that the preferences of the unemployed have been shaped by the campaign of which you speak; without this ideological campaign, there would be broader preference for idleness. (Whether this would be a bad thing or not is another issue; obviously your opponents thing it is bad, I am less convinced). What evidence is available to suggest that, even in an environment with a less moralised attitude towards work, that unemployed people would prefer employment?
I agree that unemployment is a pernicious state. It is also clear that the oligarchs of late stage capitalism along with their managers, advisers and supporters have not the least interest in solving unemployment. Unemployment is very useful for disciplining labour demands. There is also, still, a worldwide over-supply not only of labour in the capitalist system but also labour (about 1.5 to 2.0 billion peasants) yet to be even drawn into the capitalist production system. Global capitalism can now exploit labor arbitrage by moving production and assembly to developing countries like those in S.E. Asia (e.g. electronics component production) and China (e.g. electronics product assembly). In these places wages and conditions for workers are extremely poor. Concomittantly, the developed world is de-industrialising slowly but surely; it is stagnating and developed world wages are being depressed.
MMT is quite right, in my opinion, in arguing that deficit spending in developed countries (let us restrict the argument to there now) could restimulate our economies and reduce unemployment by reviving unutilised capacity. A job guarantee could abolish unemployment entirely. There is also good evidence that this need not cause inflation or accelerating inflation. The latter would particularly be the case if credit creation, financialisation, speculation, perverse subsidies (e.g. negative gearing and mining diesel fuel rebate) and asset inflation were concomittantly removed from the mix.
However, under the current conditions of capitalism, revived industry in developed countries could not always compete with low wage industry in developing countries. Opportunities might remain in existing niche, specialist production (e.g. Swiss precision instruments), heavy equipment production where fixed capital asset (industrial plant) costs are high and a country is already in the business (Germany, USA) or in product design and development (USA, Japan). However, these niches and sectors and new niches and sectors which might be created could not halt the general movement, under capitalism, of industry to the developing world while wage differentials remain high, capital is fully mobile and labour is much less mobile than capital.
This illustrates that new directions also must be taken in the developed world. Labour-intensive jobs and professions must be expanded. There is some scope for physical labour to be expanded but not a great deal due to mechanisation and automation. (And we should never create or re-create over-onerous and health damaging physical jobs), However, human services and “intellectual services” could be greatly expanded and the benefits would be great. The main examples are in Health, Welfare, Human Services and Education.
The wages offered in these jobs (Health, Welfare, Human Services and Education) will be almost naturally limited by a “tie” of some kind to the wages of the industrial sector, mining sector and perhaps agricultural sector (primary and secondary production). These areas, primary and secondary production, will be in global competition with developing countries still paying very low wages in these sectors. Thus “MMT in one country” or even MMT in the developed world will still suffer from limitations. Full employment could be re-generated but it might well be low wage full employment. This admittedly should be seen as a glass half full result.
The above does not even approach the issue of whether oligarchic capital will permit MMT to take root as political economy praxis in any jurisdiction on the planet bar a few special cases perhaps outside US hegemony. I firmly predict the US oligarchic capital hegemonists will not permit MMT to so take root. They will go to economic sanctions or maybe even war in some cases to stop it if they have to. One ought to have no doubts about this. MMT will be called “socialism”, in-house if not publicly, and public excuses and rationalisations would be found to implement anything from economic sanctions to regime change.
The primary problem remains the power of oligarchic capital itself. This power is extending to the entire globe as even Russia and China (once last bastions) now exhibit many of the characteristics of oligarchic and corporate capitalism. At its approaching apogee and apotheosis, capitalism will appear and likely be in many senses invincible. The combination of oligarchic power along with the suborned military and secret security state does not indicate to me that worker revolution has any chance of success without important and extensive preconditions being met. This is not least because with modern technology 20% of the population (oligarchs plus technocratic and security elites) could very easily keep 80% of the population in complete subjagation for a very long time though perhaps not indefinitely.
The gaps or the achilles heels (plural) of the system of oligarchic corporate capitalism are likely to be Limits to Growth (as in limits to physical, quantitative growth) and Great Power rivalries as Realpolitik geostrategic competition. This competition is and will be on the model of imperial and strategic overreach (unrealistically seeking world hegeomon status as is the USA currently) or the somewhat more realistic John Mearsheimer advocated regional hegemon model based on the doctrine of offensive realism. Though heavily contained and in a defensive geostrategic posture, China is essentially following a strategy of offensive realism seeking regional hegemon status and sufficient defensive and offensive capability to deter all-out offence by an opponent. Russia seems to be in the same boat.
Limits to Growth will render the overhead costs of even offensive realism quite ruinous. The oligarchic secret state, be it the USA or China, will find the dilemma of the costs of offensive realism and domestic repression extremely difficult to bear. More fully, it will be this distracting focus on and burden of two external dangers (Limits to growth and geostrategic competitors) and an internal danger (impoverished and rebellious worker-citizens) which may weaken the oligarchic and technological state enough in order to permit its citizens to radically change the state.
I guess I am saying MMT is only a partial way out of our dilemmas at best and that MMT stands little hope of gaining traction while oligarchic capitalism hold sway. This is not to say that MMT might not come into its own (as a set of macroeconomic techniques not a full political economy) at a later historical stage in political economy development.
2 words
Operation Gladio
Bill is either extremely naive as he slowly swims up the Nile or is part of the deep state conspiracy.
Bill is not extremely naive. I can judge this from his overall writings. Any adult theoretically could be part of the deep state conspiracy. How would we ever know? However, the chances that Bill is part of the deep state conspiracy are vanishingly small. To give such a proposition any credence without a shred of evidence would indicate conspiracy theorist levels of paranoia and a careless and thoughtless indifference to the person and reputation of one who tolerates your opinions on his blog.
Martyrdom for a cause is just a variation on suicide, with possibly the same root pathologies.
I can’t help feeling that if we’d had a Job Guarantee up and running in this country (Australia) many of those disaffected and alienated young Islamic blokes who gone O/S would’ve been immune to the bidding of the zealots.
Ikonoclast
He favours a central bank at the heart of the state.
At the very least he is not a distributionist.
A nice man perhaps but you are talking to a Dork that now is beginning to fully realise the disaster that was and is the post Tudor corporate state. ( never said I was not a bit slow on the uptake given the history of my island but better late then never)
Dork, central bank and distribution are not contradictory to one another. Take a course in symbolic logic.