Structures of unemployment in the United States
from David Ruccio
Jeffrey Sachs wants desperately to position himself outside the mainstream of the current unemployment debate, arguing that there’s no “quick fix” to the current level of joblessness. But there are no structures in Sachs’s structural analysis.
Let me explain.
Sachs is appropriately critical of the three existing “miracle cures”:
Keynesians propose to solve the unemployment problem by another dose of temporary deficit-financed stimulus. The approach doesn’t work. A stimulus might at best create another temporary construction bubble. Yet the effect would be at best temporary and the hangover would again be serious. In practice, the outcomes of stimulus packages are even more meager. The temporary tax cuts and transfer payments in the recent Obama packages have been more saved than spent, adding to public debt rather than to aggregate demand even in the short term.
Quantitative easing by the Fed is a similarly weak salve. Monetary easing can potentially stoke more asset bubbles large and small, but cannot solve structural problems. Arguably the monetary hangovers are as bad as the fiscal hangovers. We are, after all, still digging out from the Hayek-type crisis of misplaced investment in real estate caused by excessive liquidity expansion during the past decade.
Tax cuts combined with budget cuts are the third miracle cure: the idea of getting government “out of the way” to let the private sector lift the economy out of its doldrums. The absurdity is that this policy is that it’s the opposite of what’s needed to overcome a structural crisis of insufficient education and job skills. Poor kids need society’s help, not its neglect.
What’s Sachs’s alternative cure? It’s the by-now-familiar “public investments — in education, skills, and infrastructure.” That’s because Sachs is concerned only with the higher levels of unemployment of workers with high-school degrees over college graduates, and making sure currently unemployed and poorly paid workers “deserve” more jobs and higher wages by acquiring more skills and working with better technology.
Out [sic] kids should be in school and training, rather than in unemployment or low-skilled work. The Eurozone needs debt relief, cleaned-up banks, and social inclusion in the south that matches the more successful north. The entire rich world needs to understand that it faces a new era, in which its growth will be earned the hard way, by having sufficient skills and technology to warrant a significant wage premium over the emerging economies.
In other words, there are no structures in Sachs’s “structural” view of unemployment. As I argued two years ago (in response to Mark Thoma):
What Thoma and other mainstream economists don’t want to admit is that all unemployment within a capitalist economy is structural. One can no more imagine contemporary capitalism without a relative surplus population than slavery without a Middle Passage. Each mode of production, in this sense, has its own law of population. In the case of capitalism, a share of the population is redundant—it is either wholly or partly unemployed, and therefore an industrial reserve army—based on the accumulation of capital. . .
It is not that wages regulate the level of unemployment. Wages are the result of unemployment, in the sense that the existence of the industrial reserve army forces employed laborers (who, we are told, should be grateful for the opportunity accorded to them by capital) to perform more labor than they receive in the form of remuneration. Their participation in the valorization process, in turn, makes possible the accumulation of additional capital, which operates on both sides of the labor market. On one hand, the pace and nature of the accumulation of capital affect the level of demand for labor, by determining both the overall rate of increase of capital and its division into means of production and living labor. On the other hand, the accumulation of capital increases the supply of workers by periodically “setting them free” and by compelling those who remain employed to furnish more labor to their employers.
It is this despotism of capital that serves as the basic structure of all forms of capitalist unemployment—and no government policy (whether to stimulate aggregate demand or to make it easier for businesses and individuals to relocate) can solve it without abolishing capitalist production itself.
Unless and until the Sachs’s and other mainstream economists of the world are willing to recognize the capitalist structure of unemployment, they will continue to offer a choice between miracle cures and the “hard way” and—in both cases—fail to solve the problem of capitalist unemployment.
Leave a comment
—– look inside —– $5.94 / $20.00
—– look inside —– $4.90 / $8.00
—– look inside —– $15.99
—– look inside —– $5.99 / 12.99
—– look inside —– $5.93 / $12.99
—– look inside —– $4.97 / $9.90
—— Ugarteche, Puyana and Madi ——
Gerson Lima / Maria Alejandra Madi
Edward Fullbrook and Jamie Morgan
————— Michael Hudson ————–
Maria Alejandra Madi / Jack Reardon
————- Edward Fullbrook ————-
—————— Steve Keen —————–
————— Richard Smith —————
————– Gustavo Marques————
– Victor Beker and Beniamino Moro –
————– Lars Pålsson Syll ————-
—————– Stuart Birks —————-
Edward Fullbrook and Jamie Morgan
———— Armando Ochangco ———-
Shimshon Bichler / Jonathan Nitzan
————— Mauro Gallegati ————–
————— Herman Daly —————-
————— Asad Zaman —————
—————– C. T. Kurien —————
————— Robert Locke —————-
Real-World Economics Review Blog 
What if the Feds were to purchase all residential mortgages (assets,therefore not deficit spending) modify them at 2% for 36 years with an assumable notes.
Would this solve the housing crisis immediately since the purchase would be direct at full balance which indirectly bails out the banks. (However there is a penalty,ie., For Profit banks may no longer make residential loans since they have proven they cannot control their greed in that sector.
Would this not stabilize the housing sector and cause an immediate demand for new construction? Then the Feds can make oa pool of $2 trillion available for home and home goods production, thereby creating 4- 5 million jobs.
IF, if 40 trillion were need that would produce an INCOME stream of $80 trillion over the next 36 years.
Possible??? Read more, “Don’t End The Fed, Amend The Fed” by justaluckyfool”
Tax Money, Not People!
Instead of taxing money, not people, we should be taxing Land (capitalized here to mean ALL of nature’s resources, not just actual land) not people. The problem is, as Michael Hudson has observed, expanding upon Georgist and Classical economic (not neo-classical) understanding, is that the extractive rentier class takes such a large bite of GDP (about 1/3 to 40%) that there is too little left for the laborer, or even the middle class (which is only middle by demographics, NOT by income). If gov’t just takes over mortgages at a lower rate, or writes down the principal, you’ll punish the banks only slightly, because in addition to making them write down their loans, you’ll also be essentially having gov’t take over the mortgage industry – the Fed is already doing this to some extent with its mortgage repurchases, but that protects investors, not homeowners. You’ll make at least a generation of homeowners dependent on gov’t bailouts, and the next generation dependent on a housing sector artificially boosted by gov’t inventory clearance.
This is NOT to say Romney’s prescription to let the housing market “find a bottom” on its own is right either. His class are the rentiers, and they collect money in what Hudson calls the “tool booth” economy, where every we need to live upon involves payment to parties who do nothing, except own the vital resources and manipulate the laws or create phony wealth (read: money creation) so they can gobble up more real assets at terms favorable to them and unfavorable to the 99%.
We need to end rent-seeking behavior. THAT’S the structural reform we need. Sach’s prescription for more education will just saturate the workforce with over-educated yet still unemployable youth (as we’re already seeing in Europe, and more and more in America too). We need to reward productivity by untaxing wages, sales (regressive taxation to the poor and even middle class), and true capital (like buildings/houses – 80% of what banks loan is for mortgages; we need to remove the land portion of a “home” loan and turn it into something like a car loan, just on the actual house).
It’s not capitalism but a particular kind of rent-seeking capitalism that is at fault. We have hundreds of years of land bubbles to prove the basic flaw in this model. Henry George, and others before him, have shown us the way to return rent to society, whose efforts and demand created the rent in the first place, not the idle landowner. Do this properly and you won’t need any other taxes. You won’t have bubblenomics either.
The trouble with your argument, Scott, and the majority of Georgists, is that by stating that LVT could replace all other taxes, you are in effect calling for small government. In the European economies we like our free health care etc and some of us can see the necessity for more publicly provided goods and services not less, including for my part generous state pensions (because it makes economics sense!). Socialist-minded people then dismiss the perfectly valid argument for LVT because they disagree with the other side of the tax equation: public expenditure.
Not at all. Credible Georgist estimates place rent of various kinds, but mostly on location, at 1/3 to 40% of GDP. If we keep things like sin taxes too, that should be plenty for any reasonably efficient gov’t – especially if we stop war-mongering all over the world. The U.S. military budget is nearly as large, or larger if you count homeland security’s budget, VA benefits etc – than that of the entire world’s budget, COMBINED.
Additionally, though some Georgists do not care to admit this, Henry George was a Greenbacker, like his part contemporary, Lincoln. If we have the Federal government issue money, debt-free, instead of borrowing it, that would cut another 25% of tax expenditures, and further force the rent-seeking class into real, productive, work. These two changes alone would completely transform society into a green, sustainable, productive economy, forever.
As for taxing land, wouldn’t that be include ?
To charge interest for the betterment of the people is a means to controll the quality and quantity of the currency.That currency is afterall only a receipt of all the goods and services that sovereignty has available. “justaluckyfool”
“Credible Georgist estimates place rent of various kinds, but mostly on location, at 1/3 to 40% of GDP.” Credible to whom? I don’t see any of these georgists engaging with anyone outside their own narrow sphere of influence. This may not be their fault but until you can build on that credibility it’s better to establish the basics with the heterodox movement rather than make extravagant claims which cannot be sufficiently substantiated. No one will really know what the full potential revenue stream from LVT is until it is implemented at a high rate.
I agree with you, though, that debt-free govt-issued money could square the circle.
Well, as just one example, please check out the peer-reviewed paper of professor Mason Gaffney here: economics.ucr.edu/papers/papers08/08-12old.pdf in which he lays out dozens of places to collect LVT, to generate, as he says “enough and to spare.” Michael Hudson has come pretty close to saying the same thing. Indeed, with so much penalty for working, in taxes, and other incentives, rent-seeking is about the only game in town in what Hudson calls the “toll-booth economy.”
It’s pretty hard to work on tweaking the economy with heterodox economists, when they don’t get to the real source of the problem. Clearly, regulation and appeals to “better natures” alone, don’t work.
I would appreciate a comment from a heterodox economist here. I am not qualified to judge Mason’s paper. So far as Michael Hudson is concerned, although he advocates LVT, I have never heard him suggest that it could replace all other taxes.
“they don’t get to the real source of the problem.”
The real source of the problem-would that be “the flawed American Capitalist system”
Why do economist even mention that it is a “flawed system” As for “justaluckyfool” just a foolish question: Is the flaw that for profit private banks are allowed to issue currency which is really plain stealing goods and services from the people and to compound this flaw that are poisoning that currency by charging interest a scheme that could only produce total gain of the currency and leave the borrowers in servitude.
This is also the flaw in LVT or for that matter in any tainterest IF it is use for the gain of private for profit company instead for being returned to the people via re distribution by the government .
The correcttion would be to lend the currency to any financial institution so they must be 100% liquid As for LVT , only if the central bank is the LENDER and not as it stupidly does at present , the guarantor !
If$100 trillion is needed to be 100% margin and the Central Bank were to make a pool of $100 trillion available at 2% for 36 years, why would we need federal personal income taxes??? Surely an income of $5.5 trillion would be enought to fund “a great nation”. 10
@justaluckyfo
LVT = land value taxation. Your comment on it makes no sense.
Perhaps I need to more closely explain,I did not wish to use the space but now feel that this information is needed.
“Don’t End The Fed, Amend the Fed,by Justaluckyfool,
“Only the central bank of the sovereignty may issue currency.Currency is to be issued only by way of loans.All loans are to be interest bearing.”
This will take away the power from the banks that are doing this for their own private gain.They are to be separated from the government as called for by Keynes,Minsky,Mises, etc.,
Google “justaluckyfool””s
The real source of the problem is those whom keep pushing for tax reductions when the problem is that tax reductions rediuctions garnted to the wealthy since the 1970s under Reagan have just totally upset the applecart, along with the cries to “privatise everything”, “shrink the government” etc
The government once provided services for the poor and middle from the justifiable taxes on the wealthy. This reduced inequality of income and wealth, gave the middle and poor some money to spend, added to demand and gave the wealthy a reason to produce (to satisfy the demands of the middle and poor).
The entire balance has been disturbed. The ideas of not taxing the rich have been a mistake. The ideas of starving those who cant afford to pay is impoverishing everyone.
Any economy has to take toe majority with it so that the multiplier works the best it can.
Sectarian interests have been ruling us all and in a global world those sectarian interests can impoverish many more than they enrich.
Globalisation as a theory is dead and / or it needs to be completly decoupled from the idea of low taxes on the wealthy. Unless there is a global movement and a legally enforceable global system to raise taxes on the rich individual nations are better off puting up the tariff barriers or playing the currency vakue wars and reigning in their own tax avoiding wealthy.
The problem with globalisation was – it was an excuse by many entrepreneurs to simply avoid paying any tax anywhere.