Monday, 31 March 2014

Full employment is when everybody has a job

Today we have had another day of 'truth by repeated assertion' where everybody trots out their favourite belief about jobs and states it as fact.

On the one hand you have the Tories stating that "spending billions of pounds creating jobs in the public sector doesn't work either". Well if you don't then even fewer people in the private sector would have jobs, because of course the key issue we face is that we no longer have to hire everybody to produce enough output for them  (Which I call the Paradox of Productivity)

On the other hands you have the Bastard Keynesians moaning about productivity and exports again and the crazy idea that businesses just invest if you can only offer them money cheaply enough.

It might be a good idea for these people to get out there and spend some time at the sharp end in real businesses. Then a lot of these crazy notions will get dispelled by a heavy dose of reality.

Productivity fell in the UK largely because British businesses didn't sack people during the recession. Instead they left them fallow - essentially privatising unemployment benefit by continuing to pay wages. What that does is to reduce the output per hour - because all those fallow people still end up being counted as part of the denominator in the productivity calculation .

Of course by paying those wages, effective demand stayed up validating the businesses decision not to get rid of the people, and so the UK recovered faster than other nations. Quite why the UK did this will keep graduates in PhDs for years to come.

The problem, of course, is a belief in marginal theories. The people who dreamt up these statistics cannot seem to comprehend a business that holds onto more staff than it needs. But that's exactly what real businesses do. They always maintain a buffer. They are not going to let Fred go unless they absolutely have to, because Fred is not easily replaced - again something that economic theory seems to struggle with. So they limp on using Fred at 10% of his full capacity hoping that business will pick up in the future.

Now as we move into the recovery phase, what is happening is that lots of low productivity jobs are being created. There is a lot of false self-employment for example, which gets around the minimum wage rules.

Once again the beliefs get in the way of reality. To get more productive we need more mechanisation and automation, but that destroys jobs in the private sector. I know this all too well, because it is part of what I do for a living. But of course that triggers the Paradox of Productivity, because we now have more output capacity, but less effective demand overall.

So we need something to restore effective demand, namely new job creation often by the public sector. Those are likely to be more socially useful than the non-jobs the private sector comes up with to maintain the velocity of money (do we really need more marketing, advertisers, estate agents and derivative traders? Is national life enhanced by more self-employed individuals knocking at doors begging for the industrial sized national 'charities'?).

What Osborne is proposing is a Luddite Manifesto, effectively allowing capital to avoid investing in new machinery, methods and automation. Instead cheap labour is deployed. Travel around Lincolnshire this spring season and you will see eight individuals strapped to the back of planting machines like some sort of Matrix style cybernetic add-on. They sit there all day sticking plants into the ground in a back-breaking manner. And after dark you will see them drinking cheap liquor by the drainage canals - because they are far from their homeland and there is nothing else to do. It's borderline Victorian.

And if you want evidence of the proliferation of PR, marketing, spin, and style over substance jobs in the private sector, then you need look no further than the British Labour Party. It's a pity all the Labour greats from the past were cremated, because by now they'd be spinning so fast in their graves we could hook them up to the National Grid and solve the impending energy crisis.

What Balls is proposing is first to achieve an accounting impossibility and then he might also force some people to work for somebody else somewhere and might pay them, but we don't know how that will operate in practice because there is no detail anywhere.

As usual in British Politics, Hobson's Choice is the only choice on offer.

If we want Britain to move forward we need business and government to invest. Government can invest whenever it can get around to presenting a coherent vision of the future worth investing in, but business will only invest when it is swamped with demand. For there to be demand people with a high propensity to spend need to have money to spend. That generally means they need a job and a decent income.

So to square the circle you need a full blown Job Alternative Guarantee - a job offer open to all, paid at the living wage working for the public good. That makes sure that everybody who wants a job can get one. The wage then creates the demand, which means that businesses now swamped with demand will either hire the staff away, or preferably invest capital and eliminate the need for a job - increasing our productivity.

And away we go - a bubble up economy where you get wealthy by servicing the needs of the many, not the few.

It ain't difficult.