Unemployment in Europe. Where will it stop?
Today, Eurostat published new data on unemployment. Unemployment in the Eurozone as well as in the entire EU is about 1% higher than one year ago – and continues to increase. See the press release for a graph. Some cherry picking (see graph):
A. Unemployment in Germany is not going down anymore. After 2008, unemployment in West-Germany declined with 0,4 %-point, unemployment in East-Germany with 1,8%-point. Despite this, the unemployment rate in East Germany is still very high (11%, German definition, which lead to slightly higher unemployment than the Eurostat definition). Still amazed that Angela Merkel, who grew up in the East, does not prioritize Greece?
B. The unemployment rate in Italy has been revised upwards with about 0,3%, due to new data, which means that the March rate is quite a bit higher than the February rate.
C. Famous ‘flexicurity’ in Denmark did not prevent unemployment from rising to a whopping 8,1%. Macro trumps micro, at this historical point in time.
D. Portugal, Spain, Greece: Greece has joined Spain with youth unemployment of over 50%. Bizarre: after years of increasing unemployment, the increases accelerated during the last 18 months.
At the same time, in Straatsburg Brussels, Mario Draghi stated that money growth has to increase while he (very implicitly) also voiced that the possibility exists that inflation might become to low… In the Netherlands, to the contrary, economists like Sylvester Eijffinger still state that we have to be afraid of the big bad inflation wolf. Despite very subdued wage increases in the EU. And below target money growth. And higher household savings. And lower investments. And a rapidly declining consolidated Euro area government deficit. And declining headline inflation. Again: bizarre.
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Real-World Economics Review Blog 
Looking at it both from a smithian, a marxian or a keynesian perspective, the logic of the system points to the fact that if the economy if left to its own devices, because of the falling tendency of the rate of profit, UNEMPLOYMENT WILL CONTINUE TO RISE until humans gain some consciousness of the systemic causes of this epiphenomenon (the rising unemployment) and start demanding (for a start) a subtantial reduction the daily (weekly, monthy or «what have you») number of working hours.
Oh, dear, the Lump of Labour Theory pops up again. Have a look at Progress and Poverty for a more plausible explanation of persistent unemployment.
Oh, dear, here comes ever again the labelling of ideas… So the standard conventional view of mainstream «neoclassical syntheizers (those who gladly «married» Walras/Marshall and Keynes…) the same theory (or world view») that could not explain (and, specially anticipate…) the current crisis, still comes to the fore with «sound established ideas» about the «lump of labour fallacy»… As a Labour Sociologist (by academic training) and a business manager (by professional practice – in fact I spent some 30 years selling computer systems..), I had to look long and hard at the issues of «Progress and Poverty»… And explain (in order to sell and earn my salary plus commissions) the advantages of progress and te side effects on emplymen…
Incidentally, my comment had nothing to do with «progress and poverty»… It had to do with the «diminishing incentive to invest»… and in modern jargon: «to create jobs». They say that without investment there is no creation of new jobs… They also say that without incentive (th perception or anticipation of profit…) there is no investment… and on… and on… Krugman and the fallacy of lump of labour notwithstanding.
I am referring to “Progress and Poverty” by Henry George. He has nothing whatsoever to do with neo-liberalist economic theory. He does, however, refute the lump of labour theory, and he also explains the persistence of unemployment and boom/slump cycles. Recent followers of George’s theories produced remarkably accurate predictions of the current boom-bust, and are now predicting that the foundations are being made for the next one, with a crash around the later 2020s.
As I remember we got out of an economy that reached equbrium with high unemployment rates in the 1930s by reducing the pool off unemployed by drafting men into the military and then expanding the demand curve by calling for massive spending on war materiel — with deficit spending. So do the same sort of thing (without war) now. The second long-term step necessary for prosperity is to create Europe. It is not immigrants in each country that pose a threat to European union; they can assimilate a European outlook, but the nationalist in each country that reject these immigrants are the problem for Europe because they don’t accept the idea of becoming Europeans. That is the difference between Europe and America; in the latter immigrants become Americans, in the former, the nationalists do not. The problem is political and ideological not economic.
No the problem is one of economics. There is a huge difference between take-home (net pay) and gross labour costs to employers. Though there is more to be said, look no further for a start.
Robert you do have a point on the issue of a certain lack of flexibility/mobility in a European-wide labour market. However, the real (underlying) problem really is economic.
JK Galbraith (who was well placed, in the Roosevelt administration, for the purpose of issuing an opinion on the subject matter of employment), clearly stated that the USA only really got out of the depression/unemployment situation with World War II.
Unfortunately, as Galbraith also explains (quite extensively) in the eyes of the economic powers that be, «military expenses» and military drafting» seem to be the only «legitimate» or acceptable State expenses.
As I live in Europe and have not being following the details of the Obama administration, I wonder what is the status of the promises on the recovery of physical infrastructure and/or the struggle to control (or rein in) the scourge of taxl havens…
On the assumption that there is a consensus on the assertion that «there is no new job creation without some form of investment», let me quote Keynes – The General Theory – on the issue of the incentive to invest: ««But worse still. Not only is the marginal propensity to consume weaker in a wealthy community, but, owing to its accumulation of capital being already larger, the opportunities for further investment are less attractive unless the rate of interest falls at a sufficiently rapid rate;» and further on in chapter 11:
«Now it is obvious that the actual rate of current investment will be pushed to the point where there is no longer any class of capital-asset of which the marginal efficiency exceeds the current rate of interest. In other words, the rate of investment will be pushed to the point on the investment demand-schedule where the marginal efficiency of capital in general is equal to the market rate of interest.». Does one need to remind that Keynes was definitely pro-Industry and against the «rentier» financier ?… In other words, by investment h meant «invesment in productive activities»… Not in the buying of shares and public debt bonds…
Step back and look at yourselves you bloggers. You jjoiined this blog because you thought the orthodox economics as taught in mainstream does not deal with our problems, then you spend all your time quoting those economists — as if they mattered, and your contradict each other with these appeals to “authority.” You got it right the first time, economiics is a shamble. So don’t turn to economics for a solution to unemployment. Econonomists don’t solve unemployment, doers do and often without any idea about the economic explanations for their actions. I can cite so many historical examples (not economists) to buttress my point but what is the use if you ignore the history lesson and quote economic principles and authorities in response. Or as one economist once said: “Economic history is fun, but can it be taken seriously.”
“economists don’t solve unemployment”
Agreed. Most of them lack what is necessary to solve unemployment. First, they have a view of the world dominated by accounting in monetary terms. Second, they project the future on the basis of econometric models. Third, they ignore the real problems behind their econometric models. With such limitations, how can they come up with ideas to solve unemployment? They can help with monetary concepts, but not with real ideas.
It is naive to think that economists (or whatever) can save the world by themselves. It is not to say that they are useless, They can be useful indeed. But economists by themselves will never be the heroes that come to the rescue.
You are quite right on your comment about «quoting authority»… I was merely trying to make a point, regarding the fact that many observers (from Adam Smith to Keynes) have over the last 250 years noticed (and recorded) a regular up and downswing in the rate of profit.
Their explanations for that phenomenon are what we should be capable of challenging… Because without the prospect of a profit there is no investment….Just my thinking. – 8-)
You are also quite right about «Economic history being fun». As a sociologist I tend to look at historically recorded (and undisputed) facts, as a «source of empirical data». The issue is directly related to unemployment because the creation of new jobs (in excess of those that aremade redundant by new tecnologies…) can only come from new «productive investments».
For a start try this
http://0d6e78f5a092496b9cabc1977dfee7.appspot.com
for a sample of an algorithm that helps explain why those upswings in the rate of profit are followed by downswings. Historically, over the last tw centuries, these have been followed by «wars of destruction», followed by perods of reconstruction…. It also helps explains the dislocation of many industries and related activities from USA/EU to China, India and elsewhere…
I promise to have an English version of my blogue with more detailed explanations, soon enough.
You really need look no further than here.
http://www.henrygeorge.org/bust.htm and here http://www.henrygeorge.org/pchp22.htm
What is really being described is the “real estate cycle”. Every other explanation is an overlay on top of this which generally adds to confusion and obscures what is going on.
Robert, do you count Henry George as one of those economists whom we should ignore?
James Robertson, in his new book “Future Money: Breakdown or Breakthrough?”[Green Books], has just taught me something didn’t know about Henry George.
“Georgism is relevant to us today not just for the positive merits of the tax shift it proposes. It is notable for the hostility of the economists who, funded by US banks and financial institutions and big business lan-holders like the railroad companies, campaigned to have its ideas excluded from the academic economics agenda. [These campaigns are well documented by Mason Gaffney and Fred Harrison in “The Corruption of Economics”, Shepheard-Walwyn. http/tinyurl.com/7746vot.]
“At the national level in Britain, Henry George’s ideas made better political progress. The Liberal Government’s People’s Budget of 1909 proposed the introduction of a land tax based on Henry George’s thinking. But, having been hotly opposed by the aristocratic landlords in the House of Lords, the Liberals dropped itin the course of the subsequent political and parliamentary shakeup; the outbreak of the Great War in 1914 then distracted attention from the land issue; after the war, the socialism of Labour replaced the Liberal agenda with a basically different agenda … [This] has a lesson for us today: … until it is finally implemented as a long term fixture, [critically important reform] can suffer a bad setback and be kept off the mainstream political agenda for a hundred years.”
I’m fed up with correcting the history of LVT in Britain. The Labour Party from its inception in 1906 had LVT as its core economic policy. A Labour government enacted LVT in 1931 but it was quickly repealed by a subsequent Tory led govt. In 1939 Herbert Morrison (Peter Mandelson’s grandfather) introduced the Site Value Rating for London Bill, which was defeated by the Tory govt. Sadly by the time Labour took power in 1945 they appear to have lost the plot on the land issue.
How Labour lost the plot is an interesting story. Beveridge was part of it – the welfare state imposed compulsory state charity and failed to address the underlying problem. The Uthwatt Committe set the shape of the 1947 Town and Country Planning Act, including the compensation and betterment provisions. The damage was done during the war when politicians had their attention elsewhere.
Not an economist, at least an academic one, was Henry George. We might call him a journalists who wrote about fiscal matters in a time when economics was called political economy. George seemed to distinguish, like Saint-Simon, between the doers and the takers (rentier). Is a landlord class parasitical? In 18rh xwnuey Britain no, in 19th century Russia, yes. Is investor capitalism, in the form of private equity firms parasiical, yes if it simply transfers the wealth others have crfeated into the private equity firm’s coffers (Bain Capital), no, if private equity is involved in start=up fundings of new technoloogies (IT in Silicon Valley).
The receipt of the rent of land is always parasitical. By definition, one can say. The same applies to all monopolies.
If you look carefully at the graph you will see that unemployment started or resumed steep climbing in Spain, Portugal and Italy when austerity woes became forceful in mid 2011. Greece unemployment and austerity started to climb before. At the end of 2009.
Remember that IMF predictions on Greece since 2009 have always been overoptimistic, and revised down at every new outlook. Think the same about current predictions on Spain, Portugal or Italy.
Robert, at #9 I am with you on there being no point in this blog if all we are going to do is follow the academic tradition: not accepting responsibility for and giving reasons for what we think, but getting others to say it for us. That is style, not humility.
On the other hand, you say “Economists don’t solve unemployment, doers do”, and there as a logician I disagree with you. One doesn’t get children without mothers, but that doesn’t mean fatherhood is not also of the essence. In an economy where the concept of unemployment is defined relative to livelihoods obtained via paid employment by others, if employers can’t pay then they don’t employ. I am old enough to have seen the effects of pre-Keynesian unemployment and – largely as a result of Keynes’s efforts in temporarily making public investment respectable – was able to earn my living as a scientist in public service. (Post-Thatcher, we were both reduced and reduced to supervision of profit-seeking private contracts). So don’t make the blanket accusation that economists don’t solve unemployment. One did, if perhaps more by “doing the rounds” than by writing. “Those [economists] who can, do; those who can’t, teach”.
At #5, I disagree with you for similar reasons. “The long-term step necessary for prosperity” is NOT to create a Europe on the lines of the USA, where immigrants are assimilated but only the 1% are prosperous. Government of the 99.9% by an 0.1% drawn largely from the 1% pre-occupied with “prospering” has proved, because of the huge cost of communicating with very large Federal constituencies, so open to financial corruption and unheeding environmental destruction that we need to go back to more local government. Europe needs BOTH the ability to limit inter-European resettlement on grounds of communal and even national security, AND to regain the security offered by a self-sufficient Economic Community making resettlement unnecessary by sharing know-how and unevenly distributed resources.
Politicians, economists and historians need to learn the lessons of ecology. “Free traders” exporting rabbits and cane toads to Australia and importing timber along with grey squirrels and Dutch elm disease into Britain, are particularly well-known examples of how the blooming of vigorous alien settlers can rapidly destroy diverse and well-adapted native populations. Not that those still profiting from the different legal system of Britain and America are likely to care; which is why the EC should have kept them out.
This is too big a subject to go into now, but let us return to “Unemployment in Europe”. Where it will stop depends on how long the EU continues to allow itself to be influenced by Anglo-America’s protection – by force rather than manifest justice of law – of free war (euphemistically called ‘free trade’) financed by banks who can print their own money.
I learned long ago not to try to run history backwards — to send the immigants back where they came from. In the 1950s I sided with Enoch Powell about immigration to the UK because I knew that the Brits were creating a huge social problem for themselves, and why do it. But once it is done, then accept it and try assimilation. In Europe today lots of people are immigrant workers. I am, I live in Germany and run a hotel there, but I’m not a German and could never be one, or a Frenchman, or an Eng;lishman. etc. But it is possible for me to be a European. Europe has no future as an agglomeration of small state, with their own currencies and protected economies. They tried that and it ended up in European civl war in the 20th century. To become Europeans is their best hope. That is what I meant.
As for doers. I don’t think the anglo-saxonia econnomists and finance professors were the really crfeattive people of our times. The really creative people were two groups. 1. The Japanese bureaucfrats who carried through the rehabilitation of the country after WWII — and made it a manufacturing powerhouse. They didn’t study at Cambridge or Harvard and they didn’t assimilate neo-classical economics. 2. The second great success we are living through now — the transformation of China from a backward Stalinist state into a modern progressive economy — the doers in this case were Communist Party bureaucrats worksing in their own poliitical and ethical traditions. So much for cohorts of economic theory of Anglo-Saxonia as movers and shakers in our time.
As for the Church. I agree with you that it has very good social policies. For example, the Papacy’s acceptance of co-determination in firm governance — based on Christian humanism. Its a far greater source of progress than any of the stuff that has come out of neo-liberalismm in economics.
Thanks for this, Robert. It is mainly our governments who want to send want to send [needy] immigrants back where they came. But my own policy would be more along the lines of the Cubans, who train up doctors from poor countries for free, on condition that they go back and help their own people. But we’ve had influxes of Asians and Poles, whose diligence and cooperative economics so shame us that defence mechanisms come up and the locals opt out of the work they are prepared to do. So they are prospering, like grey squirrels in red squirrel territory. The Poles, I understand, (and good luck to them) are now beginning to go back home themselves, a little wealthier.
I don’t think Anglo-Saxon economists have been the creators of our timee, either. My point was that Keynes was the except who proved the rule, and that he succeeded by working with his Cambridge students, American bureaucrats and people like Macmillan and J K Galbraith, rather than by converting the financial elites.