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Friday, 4 January 2013

Getting-Rid of Unemployed Scroungers

Labour proposed today to guarantee a job or a training scheme for anyone that has been unemployed for two years or more. This seems reasonable until you consider that people will lose benefits if they turn down what is offered. To many this is still not unreasonable, however it is dangerously similar to the failing and widely discredited “Workfare” programme of the Conservatives which has been likened to slavery.

Whatever you choose to call it there is an awful lot of stick and very little carrot here, and once more we can only assume that any resulting jobs will have been heavily subsidised by the state (expected costs are £1.5bn) meaning that private companies can recruit extremely cheap employees and will therefore offer fewer jobs at ordinary wage rates. This means that once more real wages will fall and all employees will suffer in the long term.

The issue here is one of emphasis. Politicians are still placing the emphasis of their policies on beating the poor into poorly paid low skilled jobs with a large stick to make the employment market work. Perhaps Labour do not go as far as the Conservatives who by capping increases in unemployment benefit to make work look more attractive, might as well be saying they will make food look more attractive by starving people. But by not offering a genuinely different approach they strengthen the misguided and simplistic argument that the unemployed don’t have jobs because they are lazy.
In the 1980’s the Conservative government of the time wanted wages to be determined by the market. This means that wages are determined at the wage level where the number of people willing to work (S) equals the number of people that employers needed (D), and so anyone who is not attracted to the labour market at the current wage levels remains unemployed.




Thatcher and her party knew this when they championed the policy, they wanted to reduce wage rates by ending the focus on full employment as a political priority, and they were successful. It is however somewhat hypocritical to then complain about those who have looked at the market and chosen not to sell their efforts at the current rate, since this was exactly the point of the policy that they implemented.

I am not suggesting that unemployment is not a problem, quite the reverse. Not only does it lead to higher costs for the state and worse outcomes for the unemployed themselves, but it also causes a myriad of social problems for both the long term unemployed and society at large. However, the market alone will always leave some people unemployed. The government is trying to correct this by reducing everyone’s real wage rates (although they don't put it like this in interviews, they say "increase labour market flexibility") to encourage businesses to employ more people. Unfortunately with lower wages we can't buy as much and so the amount a business can sell falls and so the amount of profit a businesses can make falls. As a consequence of falling sales, employers have to cut costs to try to maintain profits and they usually do this by sacrificing employees (which incidentally the government would like to make easier), and so the policy actually results in higher unemployement.

The argument for using this approach is that if we can achieve full employment through it (we can’t), employers would be forced to compete on wage rates and so in the long term wages would be higher. Make no mistake, anyone on the right of the political spectrum not only expects some unemployment but they desire it since this keeps costs lower for the businesses that sponsor their political campaigns. If we really want to solve the problem of unemployment and the other issues that this causes then we need a different approach.
The market cannot solve the problem of unemployment on its own. All the market does is moderate the price of wages. More specifically, if there is some unemployment in the economy, the market keeps wages low. The Conservative workfare programme and Labour’s new proposals seek to solve this problem by subsidising the cost of employees and forcing people into work but this will not work since it does not encourage employers to demand more employees, they will just employ the same number but at a lower cost and make more profit as a result. The only way to solve this problem is to increase the demand for employees so that wage rates increase and therefore attract more people into the jobs market.

Since time immemorial this is the way that civilisations have solved this problem. Egypt built the Pyramids, Rome built the Colosseum and Britain built the NHS. The current approach to solving our problems in contrast, is to strip down and sell off everything we have achieved as a nation and pretend that our previous projects failed, and it will not work. What we need to do is engage in more ambitious programmes like the NHS which employ people, both to construct them and to run them.


 
By doing this more people are required to work which pushes up wage levels and makes us all better off immediately since employers now have to compete for our services by offerring higher wages. It also creates more jobs so that people can contribute to the economy. Once people are employed they spend the money they earn in the local community, in shops, bars and restaurants boosting our economy even further. This activity even creates an increase in the tax that government receives and a reduction in unemployment costs, and therefore allows us to pay for the projects by simply starting them.

Let’s build more schools, more hospitals, more housing. Let’s expand our science and space programmes and fund university research into projects like developing clean energy that both serve us as a community but just as importantly provide jobs and prospects. Let’s stop vilifying the unemployed as we sell the jobs that they could have done to cheaper countries and then criticise people for not working. Yes there are other issues, inflation for one and the cost of the projects for another. However, the nation's debt situation was far worse when we built the NHS than it is today, and although inflation can be a huge problem, as long as we ensure wages keep up with prices then we will find that the real cost of living falls as our mortgages and other daily costs become more affordable.
Our problems are not insurmountable, they aren’t even new and nor are the answers. Keynes suggested this approach in the 1930’s and we used it to build the welfare state. The answers are older than that even, they have been used by great civilisations for thousands of years by building better states for the benefit of everyone. China is following this model as we speak and they will soon become the largest economy in the world due to the continued economic growth that they have experienced as a result.

Let’s stop playing this hypocritical and self-defeating blame game and start doing the things that will benefit our economy by benefitting us all. That's how we get rid of the "Unemployed Scroungers"!

10 comments:

  1. Mmmm strange twtter handle for someone who is obviously not a donkey. Please get rid of the current government install yourself as the PM and instigate the above plan at once. It is so blindingly obvious there must be something wrong with it or is there?

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  2. Having just looked up benjamin the farm donkey I now understand the twitter handle - wise indeed!

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  3. Although I dont agree with all your thoughts and recommendations we are essentially driving down the same road. I have written many times regarding this very subject and the possible solutions that are available to us.

    During the dark days following the second world war this nation was in a terrible state compounded by a reduced male workforce. massive war debts, shortage of skilled labour. a burden on the nations housing stock as soldiers returned from the war finding their houses reduced to ruins and importantly very little in the health care for the injured,sick and mentally scarred (post traumatic stress disorder was unheard of and so untreatable.) It was during these dark and dismal days that the nation, inspired by the Labour Government formulated the NHS (Bevan has never received the accolade he deserved), implemented a massive building program creating thousands of jobs and apprenticeships in all disciplines and because of the increase in jobs monies paid in the form of Income Tax and National Insurance Contributions helped pay off the National Debt.

    Workers spent their money in shops, pubs and in the community in general thereby creating a "feel good factor" that spread throughout the country. We became the envy of the world , the NHS module was admired by every democracy. In a comparatively short period in our recent history we became a solvent nation, proud and respected by all.

    We have all the desire to repeat this process but not the leadership to inspire this brave and diverse nation of ours. Only a brave Labour Government with firm leadership and a return to positive principles will succeed.

    The lesson is there for all to see: invest in people and provide the funds for the long term prosperity and the rewards will be reaped!

    People cannot be penalised for not working if there are no jobs and if there are no jobs we cannot in all honesty stop or reduce their benefits, it is therefore incumbent upon the government of the day whether Tory or Labour to provide an alternative to long term unemployment. Yes there is, and unfortunately always will be, an element of "don't want to work so wont work" and measures must be there to encourage this element to become useful members of society. There is a certain amount of logic that agrees with the principle that unless you have paid into a club you cannot benefit from the assets.

    Regards

    Roger D Tew

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  4. Hmmm....

    Egypt built the pyramids with slave labour I think, and for sure the Romans did not use their working classes to build the Colosseum? China has also basically used slave labour to reduce the price of it's goods on the international market (and has experienced an industrial revolution over the past 50 years where many millions have suddenly landed into modern times from a previous subsistence level existence).

    Are you suggesting that these are patterns for the way we should go? Slave labour, wars of conquest designed purely to bring wealth back to the central state, a destruction of the health and safety apparatus and freedom from minimum wage constraints so we can compete with China again?

    I say again. Hmmmm....

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  5. That if I may say is a very obtuse [mis-]understanding of this post. I do not advocate slavery, and indeed I have protested about the modern parlance of current employment in this very blog.
    My point is that the economic idea of the multiplier effect will mean that increased public spending on employment through ambitious social projects will benefit all of us, as capital spending projects have benefitted the economies of past civilisations. Indeed the fact that we have a (slightly) different employment model to Rome, Egypt and China is likely to mean greater benefits for employees and therefore an enhanced multiplier effect throughout the economy.
    The very fact that the economics is sound appears to be making you look for an ethical argument instead. Unfortunately the ethical argument lies with the other side here. Employees and the unemployed should have the right to employment on something other than slave terms and they should have the right to a high standard of public services. With the on-going privatisation of the public sector and the further liberalisation of the labour market, neither of these things are currently the case!

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  6. I was just observing that the examples you gave were based on the availability of exceptionally cheap labour, and without cheap labour there would have been no benefit.

    If we accept it as a zero sum situation, then taxes act as a completely negative transaction on society (the cost of collection and redistribution through state apparatus, the increased likelihood for corruption when all contracts are centralised, etc).

    If you try to argue that it is not zero sum, then inflation comes into the question and once again the impact of the state in removing cash from people's pockets to provide these services is still a negative transaction as the state is both removing spending power from the people directly, and causing the cash left in their pockets to become worth less over time.

    Whenever the state intervenes, things generally get worse.

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  7. "Whenever the state intervenes, things generally get worse." you say?
    Untrue right-wing propaganda. NHS, unemployment insurance and various other things would not have existed without the state's intervention. Second World War was won in a climate of 100% tax on earnings and central planning for a war economy. Incidentally this was done by a conservative PM (Churchill) who learned it during WW1 from a Liberal PM (Lloyd-Goerge)

    Not a zero sum game as you prevent leakages (see previous post) and use multiplier to effect economic growth which provides additional benefit (I'm repeating the post here so I'll keep it brief). However, Even if it were a zero sum game, then what was the point in privatising everything? There was a point in it because it is not, there are profits and surplusses to be made. I would prefer that these beneffitted the poorest in our economy rather than the richest.

    There is no empirical evidence anywhere to suggest that corruption is greater in public organisations than private ones. I'ver covered inflation in the post as indeed I have the cost of the projects. Your criticisms do not stand up on an economic level and it really looks like your deperate to find something to defeat the argument rather than judge it objectively. Keynes (among many) has written at length about this, and we have proved that it works both here and in various other countries! The plan would work as it has in the past and we would all be better of off as a result.

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  8. "Let’s stop vilifying the unemployed as we sell the jobs that they could have done to cheaper countries and then criticise people for not working". That's certainly a valid argument, although inflation is also a part of this, as you rightly point out.
    Lowering wages and making unemployed people think they should work for less than they feel they are 'worth' is not only psychologically soul-destroying and therefore negative in an individual sense, generally this approach could widen the gap between the rich and poor and therby make poverty much more apparent to us all. Once this gap widens to the point of no return, we have a disconnected, disempowered underclass living in an "unfair" society.

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    Replies
    1. Working was supposed to 'PAY' as Cameron put it!!
      Cutting benefits , especially in the nastiest of ways with the bedroom TAX, is just another illusion. Wages willl not get better they will just be driven down as Cameron has intended! Labour perhaps can take some blame for our current state of affairs, but the conservatives started it!.
      I will never vote conservative again. I will be voting LABOUR in protest.

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  9. There is one thing that you don't factor into your equation here, and that is how money is created.
    We have allowed a system to be created where all money is created as debt. Money is created as a debt owed back to the issuer at interest. Only the principle is ever created, meaning that more debt has to be created to meet the interest payments. These new debts are again issued on usury terms and only serve to perpetuate the problem.
    It is an astoundingly simple yet nefarious scheme.
    The expansion of currency as credit was a deliberate choice and while it exists, neither Keynsian spending nor austerity measures will benefit society as they both lead to more unpayable debt (a new form of slavery).
    Lord Acton, a historian, said over a century ago that the issue that has gone through the ages and which must be addressed eventualy, is the issue of the people versus the banks.

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