Scottish-born economist - Angus Deaton - recently published his new book - An Immigrant Economist…
Our national broadcaster, the ABC, has a regular panel program called Q&A as part of its TV offerings where a panel of so-called experts are assembled each Monday night to wax lyrical about some particular and contentious topic. The ABC claims it provides a balanced coverage, which is required as part of its legal charter as the public broadcaster, yet on economic issues it clearly fails in this regard. Even the so-called progressive voices it ever puts on have broadly neo-liberal economic views regarding government fiscal capacities etc. Last Monday, the ABC breached its responsibilities even further by giving centre stage on economic matters to a person who clearly has no understanding of the issues she was holding out expertise in. I didn’t watch the program but the transcript reveals that the conversation was a violation of any intellectual standards. The ABC has descended into the gutter of tabloid journalism. What a shame!
The ABC report on the program (October 18, 2016) – Q&A panellist Grace Collier says people without jobs should start businesses – gives you some flavour of what went down.
The topic of conversation was industrial relations as the newly (but barely) elected conservative federal government launches a fresh assault of workers via its contentious building commission legislation and watches over (silent) as our car manufacturing industry closes down for good with thousands of jobs being lost.
Ford ceased production of cars in Australia two weeks ago and the last manufacturers Holden (GM) and Toyota will cease production in 2017, ending more than a century of car manufacturing in Australia.
The issue the Q&A panel was considering was “whether governments should subsidise certain industries to keep them afloat and save jobs”.
We should note that in the early days of the global financial crisis, the Australian government used its fiscal capacity to guarantee wholesale funding for the big four commercial banks in Australia, which not only saved them from insolvency but also allowed them to continue making record rates of return and paying massively obscene executive salaries.
The conservative voices in the media didn’t blink at that time.
You can access the full transcript of the program if you want to check all the nonsense out.
But on the topic of government support for the unemployed, one of the Q&A panel members, a rabid, right-wing journalist for the News Corp rag, The Australian (our only national daily newspaper), who the ABC characterises as an “industrial relations expert” decided to reveal her ignorance with the following comments:
Oh, look, I mean, I’m going to offend everybody in the room. The Government does not owe… You know, nobody has an entitlement to a job. Society doesn’t owe you a job. The Government can’t get you a job. The Government shouldn’t have to get you a job. There’s no such thing as Government money. There’s your money and my money. And that’s where the money comes from – it comes out of our pockets. So in reality there’s one person in this world that can guarantee a happy future for you and that person stares at you in the mirror every morning. And I’ve been sacked from jobs, I’ve started my own businesses, I’ve had flops, I’ve had successes. And the thing is I believe that it is every single one of us just has to work out, there is something I’m good at. Everybody has something that they’re good at. And everyone does. And then you work out what you’re good at and then you try and make a career out of that. And you don’t have to worry about the Government and will the Government make it easy for you to have a job. Just worry about yourself. Find out what you’re good at and try the best you can to get there.
Another panel member, the federal leader of The Greens political party, then pointed out that there were more people unemployed than there were jobs and Ms Collier, the right-wing journalist replied:
People can start their own businesses … [at that point there was “Live Audience Groans”] … Oh it’s terrible, isn’t it? Wouldn’t it be awful to have to start your own business because someone else has to give you a job?
As an aside, before we examine the logic of this often-stated claim that unemployed persons can just create their own employment out of thin air, The Greens leader let the debate down and revealed how far that political party has to come before it is remotely electable, by saying:
No-one is asking for a job to be guaranteed. What we need is a plan.
Well Richard, the following day, I was interviewed on ABC radio and asked for just that – a Job Guarantee – for all Australians, paid for by our currency-issuing government and administered at local government level.
That is a plan!
The Greens continue to be – Neo-liberals on bikes … – when it comes to economic matters. Sad to say.
So there were several claims in Ms Collier’s diatribe:
1. “nobody has an entitlement to a job”.
2. “The Government can’t get you a job”.
3. “There’s no such thing as Government money. There’s your money and my money. And that’s where the money comes from”.
4. “in reality there’s one person in this world that can guarantee a happy future for you and that person stares at you in the mirror every morning”.
5. The solution to mass labour underutilisation is that “People can start their own businesses”.
1. There are 713,300 unemployed workers in Australia (September 2016) – 5.6 per cent of the available labour force.
2. In August 2016, there were 1081.4 thousand underemployed persons or 9.1 per cent of the labour force. Total underutilisation (unemployment and underemployment) stood at 14.6 per cent.
3. The participation rate in September 2016 remained well below its November 2010 peak (recent) of 65.8 per cent. The unemployment rate would now be 7.2 per cent if the participation had not fallen below its November 2010 peak of 65.8 per cent. The official unemployment in August 2016 was 5.6 per cent.
4. Employment growth has been week – since February 2008, employment has grown by a miserly 12.4 per cent, which is a very slow pace in historical terms for such a long period.
5. In seasonally-adjusted terms, 82.3 per cent of the net jobs created in Australia in the last 12 months have been part-time.
6. In the financial year 2014-15 (latest data) there were only 21,000 net new businesses created in Australia.
Employment is a fundamental human right
There are two broad ways to establish a right to employment:
- To assert a natural right along the lines of the doctrine of natural rights which dominated the thinkers of previous eras.
- To use factual experience and analysis of outcomes derived from these experiences. This is a pragmatic, instrumentalist approach.
The natural right approach relies on faith to motivate the conclusions – that is, some prior religious belief or precept. The calls for full employment based on various Papal Encyclicals (for example, Rerum Novarum , 1891; Laborem Exercens, 1981) and other Catholic writings fit into this approach. The content depends on the prior faith.
While the Christian Democratic ideals embodied in the All Souls concept in Catholicism provide a firm basis for solidarity or collective will in society and thus a justification for government intervention to drive unemployment to its irreducible minimum, they still require one to accept the prior belief system.
However, the conclusions can be separated from the prior beliefs and be based in the empirical, causal level of perception.
One does not have to resort to these non-empirical and extra-causal concepts to make the claim that employment should be considered a human right.
Citizenship and membership are relevant concepts. Discussion of human rights tends to concentrate on civil and political rights.
However, the Universal Declaration of Human Rights does include the right to work, the right to food and the right to social security.
Both the United Nations and the International Labour Office have ratified the right to work with the 1946 ILO Declaration of Philadelphia asserting full employment as a national and international goal.
While the right to employment has been often replicated in international legal instruments, this is as far as it has gone. Countries have been reluctant or unable to mandate such a right, often within the context of their reluctance to codify and enforce any human rights for citizens.
Given these issues it has been acceptable to regard the right to work as a non core right that should be left to individual countries to enforce or to be interpreted in the context of rights of work, including EEO, non discrimination and freedom of association.
Article 6 of the ILO incorporates the right to work, but is more precisely about the right of those in employment. In most industrialised nations there is extensive legislation and common law governing employment and employment rights, including bargaining, EEO, non-discrimination, unfair dismissal, yet there is zero legislation on the right to work.
It seems that employment rights have been narrowly interpreted as encompassing the rights of those in employment and excluding any rights to those who are unemployed.
Why should work be regarded as a right?
As a starting point, labour income constitutes the major income source for the majority of individuals and households. Without income, ability to participate in a market economy is curtailed.
This exclusion has long been recognised through the provision of safety net protection for those who are unable to participate in the labour market by virtue of age, infirmity and caring responsibilities.
It was also the case for those who were without labour income by virtue of unemployment. Access to income also governs access to other rights, including minimum requirements of clothing, food and housing. Paid employment shares a direct relationship with food and water as a requisite for subsistence in many societies.
Unemployment and underemployment, together with a lack of access to fertile agricultural land, means inadequate income, misery and early death for millions across the globe.
Paid work provides the employed with choice in the market economy and the opportunity for advancement. The unemployed have limited access to credit and limited access over the range of goods and services they can purchase. They are not in a position to save for education, holidays and housing improvements. Their choices are constrained by their lack of income.
Without social transfers they have to depend upon savings, family transfers or black economy activities in order to sustain minimum living standards. Their exclusion goes beyond this. They are not accorded the status attached to employment and they make no contribution to market activity; the barometer of worth in a market economy.
What do we mean by the right to work? Those who wish to do so should be able to obtain paid full-time (or fractional) employment. This guarantee should be made by the State and it should be legally enforceable in much the same way as other rights.
Should it be any work as designated by the State? No, those exercising their right to work should be given options as to the type of employment they wish to take up.
What wage rates should they be paid? They should be paid minimum adult rates of pay and be accorded to same rights and conditions associated with full-time market employment (or pro rata) – holiday and sickness benefits, a safe workplace, protection against unfair dismissal.
For how long should they be employed? For as long as they wish while satisfying the standard conditions of employment. Those exercising this right could regard guaranteed jobs as a temporary step towards higher paid employment in the market sector.
The neglect of either national or international consideration of the right to work enables unemployment to flourish across the globe.
A right to work is the precondition for eliminating unemployment and its enormous costs and consequences. This is an imperative that is country specific. It is clear that such a right will not (beyond platitudes) be accorded the status of an internationally enforceable obligation.
However, if the right is enshrined in Australian law it will mean that governments will be legislatively forced to pay more than lip service to unemployment. It will also mean that the Federal government would be responsible for developing and implementing an effective full employment policy.
It clearly signalled in the past that it accepted this responsibility.
On November 12, 1969, the Australian Government ratified the ILO Employment Policy Convention, 1964 (No. 122). Which meant that it intended to operate within that convention on international labour standards.
The Employment Policy Convention, 1964 was intended to make operational the Universal Declaration of Human Rights from the UN, which provides that “everyone has the right to work, to free choice of employment, to just and favourable conditions of work and to protection against unemployment”.
Article 1 of the Employment Policy Convention, 1964 says that in relation to the aim to achieve full employment, signatories will introduce policies that ensure that:
(a) There is work for all who are available for and seeking work;
(b) Such work is as productive as possible;
(c) There is freedom of choice of employment and the fullest possible opportunity for each worker to qualify for, and to use his skills and endowments in, a job for which he is well suited, irrespective of race, colour, sex, religion, political opinion, national extraction or social origin.
That Convention would appear to require governments who sign on to it to be active in creating jobs where no jobs exist and not introduce policies that deliberately create unemployment and then pay unemployment benefits that force the recipient to live below the poverty line.
The Convention would definitely not see schemes that sequester a portion of those below-poverty line unemployment benefits to be used at the discretion of the government rather than the recipient as being moral nor lawful.
But the Australian government doesn’t seem to have read its agreements recently nor understood what their responsibilities as a result of signing these international accords are.
Neo-liberalism has not only seen our governments abandon their obligations under various international treaties to maintain full employment but has seen the innovation of a pernicious management regime to administer the victims of this abandonment.
Systemic constraints and mass unemployment
In this blog – What causes mass unemployment? – I discussed how systemic constraints prevent an individual who is seeking a job from improving their own situation via their own efforts.
By way of summary, mass unemployment, of the type that we are seeing around the World now and which we also saw during the Great Depression, arises from the introduction of state money. There is no unemployment in non-monetary economies.
A sovereign government is never revenue constrained because it is the monopoly issuer of the currency. Such a government does not have to raise taxes or issue a financial asset (bond) in order to spend.
The currency we use is the government’s money. To say that there is “no such thing as government money” is a denial of the basic reality of our fiat monetary system. At that point, any further credibility of a person saying such things would be lost (if it existed in the first place).
The idea of a government that is not revenue-constrained is hard to grasp at the emotional level.
What this all means is that we have to analyse the functions of taxation in a different light. As a background to this discussion you might like to read this blog – Functional finance and modern monetary theory.
Modern Monetary Theory (MMT) shows that taxation functions to promote offers from private individuals of goods and services (including labour) to government, in return for the necessary funds to extinguish individual tax liabilities.
Taxation is a way that the government can elicit resources from the non-government sector because the latter have to get $s to pay their tax bills. Where else can they get the $s unless the government spends them on goods and services provided by the non-government sector?
The mainstream economists conceive of taxation as providing revenue to the government which it requires in order to spend. In fact, the reverse is the truth.
Government spending provides revenue to the non-government sector which then allows them to extinguish their taxation liabilities. So the funds necessary to pay the tax liabilities are provided to the non-government sector by government spending.
It follows that the imposition of the taxation liability creates a demand for the government currency in the non-government sector which allows the government to pursue its economic and social policy program.
This insight allows us to see another dimension of taxation which is lost in mainstream economic analysis. Given that the non-government sector requires fiat currency to pay its taxation liabilities, in the first instance, the imposition of taxes (without a concomitant injection of spending) by design creates unemployment (people seeking paid work) in the non-government sector.
The unemployed or idle non-government resources can then be utilised through demand injections via government spending which amounts to a transfer of real goods and services from the non-government to the government sector.
In turn, this transfer facilitates the government’s socio-economics program. While real resources are transferred from the non-government sector in the form of goods and services that are purchased by government, the motivation to supply these resources is sourced back to the need to acquire fiat currency to extinguish the tax liabilities.
Further, while real resources are transferred, the taxation provides no additional financial capacity to the government of issue.
Conceptualising the relationship between the government and non-government sectors in this way makes it clear that it is government spending that provides the paid work which eliminates the unemployment created by the taxes.
So it is now possible to see why mass unemployment arises. It is the introduction of State Money (defined as government taxing and spending) into a non-monetary economy that raises the spectre of involuntary unemployment.
As a matter of accounting, for aggregate output to be sold, total spending must equal the total income generated in production (whether actual income generated in production is fully spent or not in each period).
Involuntary unemployment is idle labour offered for sale with no buyers at current prices (wages). Unemployment occurs when the private sector, in aggregate, desires to earn the monetary unit of account through the offer of labour but doesn’t desire to spend all it earns, other things equal.
As a result, involuntary inventory accumulation among sellers of goods and services translates into decreased output and employment.
In this situation, nominal (or real) wage cuts per se do not clear the labour market, unless those cuts somehow eliminate the private sector desire to net save, and thereby increase spending.
So we are now seeing that at a macroeconomic level, manipulating wage levels (or rates of growth) would not seem to be an effective strategy to solve mass unemployment.
MMT then concludes that mass unemployment occurs when net government spending is too low.
This analysis also sets the limits on government spending. It is clear that government spending has to be sufficient to allow taxes to be paid. In addition, net government spending is required to meet the private desire to save (accumulate net financial assets).
It is also clear that if the Government doesn’t spend enough to cover taxes and the non-government sector’s desire to save the manifestation of this deficiency will be unemployment.
Keynesians have used the term demand-deficient unemployment. In MMT, the basis of this deficiency is at all times inadequate net government spending, given the private spending (saving) decisions in force at any particular time.
Shift in private spending certainly lead to job losses but the persistent of these job losses is all down to inadequate net government spending.
In other words to resolve mass unemployment – there has to be more spending.
Without increased aggregate spending, there will not be increased employment and output overall.
Crafty new start-ups (even if the unemployed could assemble the resources to make that possible) might take business away from other current operations.
In this case, the spending constraint just redistributes who is unemployed!
The unemployed should just start their own businesses
This is an old chestnut, wheeled out by the right-wing, whenever there is mass unemployment.
Once upon a time when I was a postgraduate student and there were around 10 unemployed for every registered vacancy in Australia a professor at the university I was studying at during this period, a rather mediocre character with very few (if any) peer reviewed publications and zero research grants (such was the day) was waxing lyrical about the lazy unemployed and what they should do to get off the welfare list.
His said well (more or less verbotim):
If they really wanted to work they could go down to the municipal tip and scratch together some scrap wood and some old pram wheels and build a cart, then follow the milkman around each morning and collect the horse dung and start a garden fertiliser business.
Ms Collier (Q&A panellist) would have agreed.
The mediocre professor wanted the unemployment benefit eliminated to get “these characters off their bums”.
I remember the session vividly. His cure for the alleged indolence of the unemployed was for them to start their own businesses.
I put my hand up in the class and said:
There are two problems you ignore. First, the local council, which administers the municipal garbage tips, does not allow people to scour them for rubbish because of health concerns.
Second, more importantly, the dairies now have trucks. The horse and cart milkmen were eliminated a few decades ago.
While the class burst into laughter, my relations with that professor soured a little more after that but the base (sourness) was already large so the percentage change was minimal.
Underlying this claim that mass unemployment here is an overbiding religious belief among mainstream economists that unemployment is largely a voluntary state and if we take away income support payments, job search activity (including starting up their own businesses) will increase and the unemployed will be employed quickly.
The other point that is ignored is that when recessions become prolonged and there is mass unemployment, those who understand how the monetary system operates know that such unemployment represents a macroeconomic failure that can be addressed by expansionary fiscal and/or monetary policy.
It has nothing to do with the provision of the miserly amounts that are given to the unemployed via income support arrangements.
I covered this topic in this blog – Macroeconomic constraints render individual action powerless
Macroeconomics teaches us that individual choice can be rendered powerless as a result of the presence of macroeconomic constraints – most usually spending constraints on the product market that ration the number of overall jobs and working hours that will be on offer at any point in time to an economy.
Once an economy is operating under such a demand constraint, the supply-side of the economy loses traction – that is, no longer influences the market outcome, which renders much of the orthodox labour market analysis irrelevant, if not false.
When there is an overall lack of aggregate demand, measured in relation to the spending that would be required to ensure firms would engage all available workers at the prevailing wage rates on offer, there is nothing an individual worker can do to improve his/her job prospects.
Within a constrained environment, an unemployed person might seek to start a business. But even in good times, the small business failure rate is very high.
In Australia, for example, about 30 per cent of new small businesses go broke within 12 months.
50 per cent are gone by the end of year 2 and 75 per cent by the end of your five.
And, note the fact above how many small businesses actually emerge each year in relation to how many people are unemployed.
Small businesses fail because of:
1. Lack of planning – no coherent feasibility studies etc – which require considerable skill to formulate including resources.
2. Poor financial management.
3. Poor marketing and sales skills.
4. Lack of working capital – no access to bank credit etc. Here the unemployed would be expected to have zero access given most are without significant assets of any type.
5. Lack of business experience.
To think that the 700 thousand odd unemployed can just defy history and become entrepreneurs is churlish nonsense.
And what of all the underemployed – who want extra hours of work – 15 hours on average?
Why are they not able to get those hours?
It is shocking really that the national broadcaster gives such ignorance a national TV stage.
There is more than one Bill Mitchell
This is not me! –
Bill Mitchell Breaks the Internet.
I am not “genuinely devoted to Donald Trump’s candidacy” even though I would hate Hillary Clinton to be the US President.
That is enough for today!
(c) Copyright 2016 William Mitchell. All Rights Reserved.