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.

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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