Three Facts & Two Problems:
1. Growth, as defined by the capacity to produce goods and services is greater than ever before, and continues to increase. This is what we expect of the economy. Often this is all that seems important in economics. So look, it’s going great; capitalism works!
Why do so many of us feel not so good?
2. Even as more and more gets made, the production process requires fewer and fewer people. To work, this requires: a very few people with extreme technical skills, social skills, stamina and discipline; a few more with a lesser degree or number of these skills/qualities; and, a moderate number of people with few skills but reasonable work habits. This number is way less than the total population; never mind children, the elderly, or people with disabilities. In fact, one half or more of the world’s potential labor force could disappear overnight, and production would likely not drop at all.
This is a big problem. It doesn’t matter how much is produced, people left out of the necessary labor force aren’t going to earn anything. If they are to survive at all, it will be through family ties, public welfare, private charity, or crime. As production grows, this problem worsens. That’s why “growth” doesn’t help get rid of poverty. The more we pursue efficiency—reducing labor and improving productivity—the worse things get. We keep needing fewer people and meanwhile require ever more from those few we keep on. What’s more, those who are left out are still expected to contribute to the societal infrastructures that support this system; we need your contribution—thank you so much; your tax dollars—or your money or your life!
This problem isn’t new; a previous iteration took the form of the Great Depression of the 1930s. That time it was “cured” by World War II. A funny thing about big all-out desperate wars for world domination with huge armies and a lot hanging in the balance: suddenly everyone can be useful! War economies are not consumer economies and not about maximizing profit. They are about maximizing production and firepower and available fighting personnel. In short, they are about maximizing participation. Wars kill, maim, and traumatize vast numbers of people; and result in all kinds of other harm, no doubt about it. However, they solve the problem of people being left out of the economy in a way peacetime capitalist production doesn’t. At least they used to do that. It is not clear that a modern “high-tech” war would do as well; but at least the military is recruiting now, which is more than can be said for anyone else. It would be nice to find a better solution.
3. Most people save too little to provide for their future; yet overall, way too much money is saved! That’s right, we keep facing savings gluts. That’s when savers put more money into banks, mutual funds, brokerage accounts—you name it—than anyone knows what to do with.
Think about it. Every time you save, you are giving an assignment to somebody else: go make my money perform! Those bankers and brokers need to find something. Wouldn’t they look stupid if they apologized and returned your money because they didn’t know what to do? If they cannot find productive profit-making enterprises that also happen to want to borrow enough, they put the money into some asset– stocks, housing, maybe gold. For a while things look good; as more people turn to assets, prices will be bid up. This is a classic bubble. Eventually the price reaches a top and then, ‘I’m falling!’ The price drop is very fast; oh sorry, how could we have known? And sure, there is incompetence and dishonesty behind every bubble, but as is explained above, the root problem is too much saving.
In search of solutions to the two big problems of unemployment and the savings glut:
So those are three basic facts of our modern capitalist world economy. The first fact seems encouraging. The other two facts are problematic. What are we to do?
Well, we’ve tried providing easier credit. This hasn’t helped. Productive borrowers already have access to more than enough credit, and such a move increases vulnerability to defaults and ever-growing debt for those loosing out in the labor market. (This is not to dismiss some of the good work recently done by central banks—especially by the US Federal Reserve Bank—but those efforts were directed at stabilizing the credit system in the face of the collapse of the housing bubble, and not at solving either of the two basic problems we are discussing here).
What about lending to the government? That doesn’t help either. How can the government service its debts? There are only two ways. One is for the government to collect more taxes. There is no way government spending could increase income enough for the extra tax collections to cover the cost of borrowing, without also raising tax rates. So raising tax rates is one way.
The other mode of lending, open only to our Federal Government and other national governments, is to “print” more money. So what about printing more money (and its partner) inflation? This does reduce everyone’s debt load. Some people feel doing this is dishonest, paying back old debts with cheaper currency, but it works wonders for crises caused by savings gluts. Also, once people realize this, they won’t expect their savings to perform and so they may choose to spend more. This might even lead to one or two more jobs!
But ultimately we reach a fatal limit. Inflation can solve one of our big problems—the savings glut—but it doesn’t do much for most of those unemployed folks. We do hear of workers being called back from layoffs when production booms. But the callback is not a very large part of the total number of unemployed and underemployed people. So what is to be done about the rest—short of going to war?
The solution stares us in the face: hire the “useless” people to do “useless” things (remember, this is useless in the eyes of capitalism)! This is the essence of left-wing Keynesianism: rather than increasing government spending in any old way, direct the increased spending so it will pay people who will never be hired and never be paid by anyone seeking a capitalist profit. The purpose of this public spending is not to compete with the private sector, but to address the aspects of societal survival that capitalism cannot and doesn’t want to do. Only by removing the requirement that everyone contribute to profit in order to be able to earn an income will the massive worldwide unemployment problem be solved.