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Mutualist Blog: Free Market Anti-Capitalism

To dissolve, submerge, and cause to disappear the political or governmental system in the economic system by reducing, simplifying, decentralizing and suppressing, one after another, all the wheels of this great machine, which is called the Government or the State. --Proudhon, General Idea of the Revolution

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Monday, February 01, 2010

P. M. Lawrence Comments re Lew Rockwell on the Jobs Problem

Lew Rockwell recently posted an article at the Mises site, How to Fix the Jobs Problem (also on his own blog here), with a blog entry at the Mises blog. It missed a great many things that should have affected its conclusions, and even got some stuff downright wrong (e.g., "Read any account of economic history from the late Middle Ages through the 19th century and try to find any evidence of the existence of unemployment. You won't find it.")

So I tried to make a rather long post in rebuttal and correction at the Mises blog. Strangely, it is still being held for moderation and shows no signs of appearing (I also haven't had a reply to the email it mentions). I thought it might be of interest to other readers, so here it is with a little more material and links.



This article appears to be drawing on some remarks in a recent article of Louis James and Doug Casey's at Lew Rockwell's site, or something very similar. As it happens, I emailed Doug Casey about it. The following is the body of that email, slightly reformatted:-

You are quoted as agreeing with "...leftists complain that globalization is unfair to poor countries – but in fact, modern production is becoming increasingly independent of geography, so pay rates worldwide are trending towards more equality than the world has ever seen. Wages are rising in the third world and dropping in the first. Like it or hate it, it's capitalism that has been helping the poor around the world, with real, productive work..."

And then as saying '...properly speaking, the "correct" level of unemployment is zero. Theoretically, the demand for goods and services is infinite. My own desire for goods and services has no limit, and neither does anyone else's. So even if everyone worked 24/7, they could never satisfy all the potential demand. It's just a matter of allowing people to work at wages that others are willing and able to pay.'
In actual fact, although total cash wages are rising in the third world, wage levels/rates there are not rising, because the tendencies the other way are stronger (the "iron law of wages" is prevailing, on the whole). The main overall effect is simply to lower wages and wage rates in places where they are higher, while the cash economies in the third world grow at the expense of non-cash resources without improving living standards for most people there. It is quite possible that there is a tipping point, one that high wage countries once passed and that low wage countries are still below. The final effect may well be to drag all wages below that - if things are allowed to run that far.

Also, it is not the case that 'the "correct" level of unemployment is zero', because wage levels that would produce that effect are not sufficient for everybody involved to survive on. In developed countries there is a floor set by the price of staples, since those countries have full cash economies; in developing countries this is much less significant, as people there still have some access to subsistence resources and only need top up wages rather than living wages, much as you describe having existed in the Great Depression only on a proportionally larger scale - and it is these countries that will set wage levels (in other times and places, e.g. in newly created colonies, people generally had enough resources of their own to live off and they could afford to be self-sufficiently "unemployed"; while that lasted wage levels had to be high to get anybody to work for wages - which is why the colonialists introduced taxes that created a demand for cash). In developed countries not all people will be able to take the jobs on offer without dying so, unless welfare or wage subsidies etc. are available to mop them up, at the margins they will either do that or turn to predatory behaviour - crimes of necessity. So your zero unemployment approach would contain disguised unemployment even without welfare etc. - it would omit the dead, the dying, and the criminal.

With that as background, I can add some more relating to Lew Rockwell's new material:-

  • "The high minimum wage... high payroll tax... laws that threaten firms with lawsuits should the employee be fired... laws that established myriad conditions for hiring... mandated benefits that employers are forced to cough up for every new employee under certain conditions", and possibly "[t]he age restrictions that treat everyone under the age of 16 as useless... labor-union laws that... keep out workers who would love a chance to offer their wares for less", are indeed barriers to reducing unemployment (although, in the case of the minimum wage, that is only because of the particular way it is implemented, by mandating it - see below), apart from some rare oligopsonistic special cases in which they actually help (or maybe not so rare).

  • "The unemployment subsidy in the form of phony insurance that pays people not to work" is incorrect; it does not pay people not to work, because it is lower than the other barriers Lew Rockwell lists and the ones he doesn't, like the ones I covered in the email I quoted above. However, funding it does throw a general burden on the economy; among many other adverse consequences, part of the effect of that is to increase unemployment - but not in that way.

  • "The high cost of business start-ups in the form of taxes and mandates... withholding tax that prevents employers and employees from making their own deals... social-security and income taxes that together devour nearly half of contract income... labor-union laws that permit thugs to loot a firm" are not barriers of that sort. That is, they increase the cost of doing business, but depending on the business that can range anywhere between having a serious effect reducing its hiring to having none at all (or even actually increasing it, in the rare special cases I mentioned). There is also a general burden on the economy, but as before that doesn't produce that sort of barrier.

For the reasons given in the email, "if they were eliminated today... the unemployment rate would collapse very quickly. Everyone who wanted a job would get one" is incorrect - although it would definitely help.

"In a market-based labor contract, there is no exploitation" is wrong, because it doesn't allow for the effect of the deck being rigged previously, so to speak; it just describes playing fair with the cards as they are.

"Read any account of economic history from the late Middle Ages through to the 19th century and try to find any evidence of the existence of unemployment. You won't find it. Why is that? Because long-term unemployment is a fixture of the modern world, created by the interventionist state."

Bluntly, here Lew Rockwell doesn't know what he is talking about. Until a relief system was introduced it was an endemic feature of the Tudor period in England, for instance, and many contemporary sources and later historians describe it, e.g. Thomas More in his Utopia. Google for "Elizabethan Poor Laws" to find out more. There was similar distress in England that first gradually and then sharply increased over the eighteenth century, which was why the Speenhamland System was brought in to relieve it late in the century. (Of course, the term "long term unemployment" wasn't used in those days.)

"There is no [in]voluntary unemployment in a free market, because there is always work to be done in this world. It is all a matter of making the deal."

That is also addressed in the email.

"So it is hard for me to take seriously all the political plans for ramping up intervention in the name of curing unemployment".

Now we come to it. Actually, there are quite a few related ways, none of which have been tried or even seriously considered. They vary in how directly and quickly they would work and in how much funding they would need (none, in some cases), but they all have the feature of being Pigovian, i.e. being distortions applied to counter the other distortions (so it wouldn't actually be necessary to eliminate them, although it would still be helpful as that would minimise waste), or Coasian (these are political in the larger sense, and might not involve governments taking steps rather than allowing others to implement them). I described one of them in a submission to the Henry Tax Review, which is specifically for the Australian situation but will serve for wider illustration. That would actually deliver a minimum wage, but in a different way and not by mandating it. I consider it a valuable transitional stage towards a completely non-governmental approach, partly because it is fast acting and has no costs, and partly because of where we are coming from, i.e. a status quo distorted by the state - and that includes the effects of past distortions that would keep working for a long while under their own momentum even if the state stopped current distortions.

All this should clarify some of the other commenters' musings for them, too.

--P. M. Lawrence

5 Comments:

Anonymous Anonymous said...

"For the reasons given in the email, "if they were eliminated today... the unemployment rate would collapse very quickly. Everyone who wanted a job would get one" is incorrect - although it would definitely help."

There is nothing like demanding that the poor become poorer (abolition of the minimum wage) or that workers should not organise (as unions cause unemployment) to ensure that working class people listen to you! Particularly in the face of a crisis which was created by the elite -- why should we pay the price?

The fundamental flaws in the argument is that it assumes that the labour market is identical to any other market. It is not (backward bending supply curves, anyone?). See Steve Keen's Debunking Economics for a good summary.

And what happens if the minimum wage is got rid of? Assuming that all the bosses are rigourously obeying the law (big assumption), then people's wages will be cut. Ignoring any effect this will have in the price of the goods being produced (big assumption!), these people will still need to pay bills, buy food, etc. Which, presumably, will increase the supply of labour as people try to work more hours, get two jobs, etc., in order to make ends meet. Or perhaps the working poor are so well off they can easily take a pay-cut?

Ah, but prices will fall objects one... in which case real wages will remain pretty much unchanged and we are back at stage one...

Not that I'm defending the minimum wage as I think strong unions are better (and more libertarian) at that. But I have better things to recommend in terms of solving this crisis (such as occupations, strikes, etc). Rather, the arguments against minimum wages also apply to unions as well so, to be consistent, the so-called "libertarian" must oppose workers organising and striking as being bad for the economy...

And so, all in all, we pay for our economic masters crisis... So I would suggest rejecting the whole logic of the argument rather than quibbling over details. That would mean looking at (say) post-Keynesian economics rather than the reactionary outpourings of the "Austrians"...

Perhaps if that were done, the disciplining element of unemployment would be recognised and the awkward fact that mass unemployment (and crisis) were a regularly occuring feature of laissez-faire capitalism would come as no surprise -- nor denied...

I guess that this kind of thing ensures self-marginalisation... but, really, it is associating the good name libertarian with dubious capitalist ideology!

Iain
An Anarchist FAQ

February 02, 2010 8:50 AM  
Anonymous P.M.Lawrence said...

Guess what, there's yet another Mises post along the lines of "there's no such thing as involuntary unemployment", this one backed up by selective quotation. And guess what, again a reply of mine is being held for moderation - even though it was fairly short and only had one link. So here it is, with one more link (to a comment within that thread):-

As soon as I saw that the quotation had been edited - which was obvious from the Americanisms in it (see? it's worth looking out for such things) - I checked the original. Sure enough, a huge chunk had been omitted without indicating the cut, including what Gil pasted into his first comment above. It's a material distortion.

The thing is, this article is "trying to prove too much", selecting from Defoe's reasonably accurate description of English circumstances in 1704 to try to assert that that is true in general. But it just isn't; Defoe himself implies as much about the period before Queen Elizabeth's reforms (which were mercantilist, by the way), which Gil's excerpt shows even though this article edited it out. Also, though Defoe was not to know it and was too optimistic about it, things got ever worse during the rest of the eighteenth century. I recently brought these issues out in a post on the same general area elsewhere, which ends with a mention of constructive suggestions and some links to the area.

In Defoe's own words, "...Queen Elizabeth... knew 'twould be hard to force people to work when there was nothing for them to turn their hands to...", which is just precisely how things were in England throughout much of the Tudor period; guess what the usual situation is in the world today, at the margins?

Oh, and the pamphleteer's name was not "Dafoe", as some commenters have written (at various times he was "Foe", "De Foe", and then "Defoe").

February 02, 2010 5:57 PM  
Anonymous James said...

"The fundamental flaws in the argument is that it assumes that the labour market is identical to any other market. It is not (backward bending supply curves, anyone?). See Steve Keen's Debunking Economics for a good summary."

That's a fair point but I think your overstating your argument a bit. The labour supply curve can bend backwards but all the argument shows is that there is opportunity cost, diminishing marginal utility and reservation demand involved when working for a wage but this is true of any exchange. Even if the labour market isn't identical to any other market (i'd imagine no markets are identical to each other) it does still function in a broadly similar way. Essentially it's whether people happen to value more leisure or higher wages at the time, to ignore either of these factors would lead to the absurdity of people working constantly or never increasing their total income. The very fact that this involves so much uncertainty makes fixing the price by law seem questionable at best.

Also it admits the validity of the argument it's trying to disprove. It doesn't show that fixing prices above the market clearing level won't result in unemplyment it shows that the market clearing level might move. Presumably it's moving pretty much constantly so again fixing the price by law seems a bad idea.

There are other things it doesn't take into account. For example demand will still be lower at a higher price which may offset the reduction in supply, an individual supply curve bending backwards doesn't mean the aggregate supply curve will do the same and that everyone reducing their hours seems more like sharing unemployment than removing it and the loss of productivity is likely to lower real wages, according to the theory this means people will start supplying more labour again.

"Ah, but prices will fall objects one... in which case real wages will remain pretty much unchanged and we are back at stage one..."

Will they? Each individual will demand less but if more people are employed they will demand more as an aggregate. Also the movement of a price level is irrelevent compared to the movement of relative prices which is what people respond to. Some people's real wages may fall while others rise. Just like some prices fall while others will rise. This is always true regardless of whether prices or real wages as a whole are going up or down.

"Not that I'm defending the minimum wage as I think strong unions are better (and more libertarian) at that. But I have better things to recommend in terms of solving this crisis (such as occupations, strikes, etc)."

I agree. I think way too much emphasis is put on wages falling to met lower marginal productivity whereas a more positive solution would be looking for ways to increase marginal productivity faster so wages don't have to be lowered. Removing artificial scarcity, the opportunity costs of privilege, taxation, artificially high overhead costs etc, the mutualist/individualist scheme in general basically, seems like a much more promising program.

"Rather, the arguments against minimum wages also apply to unions as well so, to be consistent, the so-called "libertarian" must oppose workers organising and striking as being bad for the economy..."

Not neccessarily. If they don't use any force or try to set monopoly wage rates then I don't see how organised labour would be a problem. They could exist to counter bargaining power and indeterminancy, to the degree that these things exist, and everything would be fine. The only way this comment would make sense is if you were arguing, like an ancap, that unions are inherently violent monopolists and there is no such thing as bargaining power.

February 03, 2010 4:27 PM  
Anonymous James said...

"the reactionary outpourings of the "Austrians"..."

I consider myself an individualist anarchist (or at least a fellow traveller) whose heavily influenced by austrian economics. This sort of comment is just dull and quite irritating. Fair enough when applied to someone like Lew Rockwell but it's still a generalisation.

"Perhaps if that were done, the disciplining element of unemployment would be recognised and the awkward fact that mass unemployment (and crisis) were a regularly occuring feature of laissez-faire capitalism would come as no surprise -- nor denied..."

Yes but we both know that laissez-faire capitalism wasn't laissez-faire so i'm not sure what to make of this comment. Perhaps if people recognised the awkward fact that capitalism has always been, and according to some definitions logically must be, statist this would come as no surprise-nor denied.

As for my thoughts on the subject:

Really zero unemployment is an insane idea because that would mean genuinely voluntary unemployment like children and old people having to work and no one ever taking time off which is where the "all unemployment on the free market is voluntary" idea comes from because when you move from literally full employment to something more reasonable you end up including too many subjective qualifications (everyone who wants a job working, everyone who wants a job at current wage rates working etc) and even if it is technically voluntary it still doesn't mean it's not a problem. A better goal would be something like "as many people employed at a wage they find satisfactory as possible" that allows for subjectivity but doesn't leave the issue open for dismissal on the grounds that it's caused voluntarily.

February 03, 2010 4:29 PM  
Anonymous P.M.Lawrence said...

James wrote 'Really zero unemployment is an insane idea because that would mean genuinely voluntary unemployment like children and old people having to work and no one ever taking time off which is where the "all unemployment on the free market is voluntary" idea comes from... A better goal would be something like "as many people employed at a wage they find satisfactory as possible" that allows for subjectivity but doesn't leave the issue open for dismissal on the grounds that it's caused voluntarily'.

Do have a look at the submission I made to the Henry Tax Review, and see for yourself what it does in that direction - feedback would be welcome.

February 03, 2010 9:00 PM  

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