Monday, 3 January 2011

Unemployment. Not caused by what you think it is.

In another post inspired by the chaps at Hagley Road to Ladywood, I take issue with Claude's characterisation of the Tories as heartlessly stoking unemployment for political gain. This annoys me for several reasons, not least the idea that Tories enjoy causing misery, but also because it demonstrates so many levels of misunderstanding about the economy in such a short post that I could barely contain myself.

What the keynsian head-banging left is trying to achieve is to "stimulate" the economy by deficit spending. This can take the form of tax cuts or spending. They both have the effect of increasing the deficit. The aim is to borrow demand from the future to boost the economy now. I don't believe it works: look at Japan 30 years of "stimulus" and all they have to show for it is 40% of Tax receipts going in debt service and debt at 200% of GDP. This punk keynsian approach hasn't worked anywhere. Ever.

So. The first premise against the cuts is wrong. It won't tip the economy into recession any more than spending will stimulate it.

The next premise is that the Tories are going to increase unemployment by firing hundreds of thousands of local government workers. Unemployment is the last economic indicator to turn. It usually turns about 18 months after the economy starts to recover from it's bottom, and polices to influence it are noticed, if at all after a similar delay. It is therefore to blame the Tories for the direction Unemployment is travelling about Summer-Autumn 2011. Unemployment is rising: That's still the Labour party's fault.

It may seem foolish to increase the rate of job losses. This looks stronger than the rather stupid idea that cuts will tip the country into recession, but it too is wrong, because as I've argued many times, cutting the deficit is vital to prevent a catastrophic collapse in the economy, and that can't be done without a smaller public sector payroll. And it's wrong mainly because this level of job-losses can be absorbed by a recpovering private sector even without boom-level growth. Don't believe me? The UK workforce of 30,000,000 from 1988-2008 lost around 2.2m jobs a year, so an extra 300,000 is neither here nor there. Except that it isn't 300,000 as there are nearly a million jobs CREATED in the public sector each year. This 300,000 is just those jobs lost which will not be refilled. In fact, the rate of job destruction is remarkably constant during the economic cycle. The most important thing influencing unemployment is the rate of job creation. In the context of an economy which creates around 150-200,000 jobs a month, even now during what is regarded as a pretty horrible economic time, the idea that the private sector will take up the slack, although derided by leftists, is easily believable, if you're prepared to look at the facts.

Some people on the left don't think anyone should be fired, ever. That's just naive. If you want to have a grown-up debate, it is important to accept that jobs have to go from time to time. If you accept that, you need to ensure that there are jobs to go to, and of course for all the reasons mentioned, it is important to look at what increases the rate of job creation.

The government, insofar as it is able must make it less risky for employers to hire. If you cannot fire a worker once hired, this increases the risk of hiring him in the first place. This means that if you make it easier to fire, there will be MORE jobs created, and unemployment will fall. This single piece of counter-intuitive logic effectively negates everything the left believes about employment.

So attempts to stimulate the economy by spending fail, because they destroy the economy. Attempts to mitigate by preventing people getting fired fail because they cause MORE companies in trouble to go bust, and they make it riskier to hire, reducing job creation and resulting in HIGHER unemployment.

In attempting to reduce a small evil - being fired in a dynamic economy, the left condemns millions to a life on benefits without the hope of work. Leftist policy is to the benefit of insiders - those with full-time public sector jobs (especially unionised insiders) but that is the detriment of everyone else, tax-payers, the crowded out private-sector. But most catastrophically the unemployed.

The Tories want the same as Labour. Low unemployment. The fact is the Tories have a MUCH better track record in delivering it. Every labour government since the war has left more people languishing on the dole than when they took office. They also usually left a weaker pound, currency and fiscal crises.

The state is the wrong tool for the job of reducing unemployment, and state spending or fiscal stimulus vies with job protection polices for the most catastrophically counterproductive policy to reduce unemployment. In fact the best thing the state can do to create jobs is build infrastructure (that basically means roads) and bugger off, leaving the people to use it as they see fit without interference by Government. People's natural desire to solve problems and get rich will see to it that anyone who wants a job can have one. Once you sort out the over-generous welfare state to see to it that everyone actually wants one, then you have full employment.

The less the state does, the better. Every solution the Labour party regards as axiomatic PREVENTS full employment. You might even think that they WANT an enormous client state of servile benefits recipients to reliably vote for the (Labour) hand that feeds. But even I'm not that cynical. Never attribute to malice what could be attributed to mere incompetence.


Mr Ecks said...

Tax cuts, when in company with equal or greater cuts in public spending, may cause a short-term rise in unemployment but ultimately will end with more people in employment and doing something useful instead of govt beetle-tracking. However, your Tosspot buddies don't have the balls for major tax cuts so they are increasing taxes.I suppose their plans to snoop on and control the Internet(some of continued from ZaNu:some of the their own design) might prove expensive.

Jackart said...

I think I've always been clear that I would prefer Massive spending cuts to any tax rises. We do, however live in a democracy, and the electorate is less certain than us.

The Big Dollop said...


Does the ability for an employer to fire someone before they complete 2 years service really have any sort of credence when the country is being over run by tens of thousands economic migrants from Eastern Europe - Won't prospective employers just employ them at a cheaper rate than the minimum wage in order to increase profit margins.

As long as there is legislation allowing people from Europe to come here and effectively take jobs - this country and its people are going down the tubes.


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