The Global Labor Glut
Ryan Avent’s excellent post at The Economist finally provides me the impetus to respond to Josh Mason’s comments on my recent post.
What we have instead of a Global Savings Glut is:
1. A Global Labor Glut: more human effort and ability available than is needed to provide goods that provide high aggregate marginal utility, and,
2. A global financial and political system that — despite the reality of #1 — fails to transform that abundance into maximum aggregate human utility via reasonable distribution of that abundance.
I think your conclusion that unemployment must be a glut of labor is both wrong and politically destructive. By turning this into a labor-market problem, you are implicitly accepting Say’s law and rejecting the principle of aggregate demand. And you are wrong factually. All factors of production are in excess supply in a recession, not just labor.
What you are saying here is that changes in (realized or desired) balance sheet positions never affect the real economy. I’m sure you don’t think that’s what you’re saying, but it is.
Josh may be right. But I really don’t think that’s what I was saying, and my gentle readers will know that it’s very much not what I want to be saying. I think he’s framing my argument in terms that implicitly concede the exact false assumption I was dismantling in my post — that more saving causes lower rates so more borrowing so more investment.
This gets messy so I’ll just say: We have the amusing situation where Josh and I — who as far as I can tell agree on almost everything — are mutually accusing each other of sleeping with the enemy.
In any case, what Josh thinks I’m saying is certainly not what Ryan Avent is saying, when he says exactly the same thing I was saying:
…full employment is no longer compatible with full utilisation of capital. The “great savings glut” story may indeed be a tale of insufficient investment opportunity. The return on capital is low because the return on labour is low: because society is allowing the market to become glutted with labour, none of the potential high-return capital investments are economical. The global savings glut might well be thought of as a global labour glut.
This is an abundance versus scarcity argument, not a production-causes-income argument. The dominant resource — effective, efficient, productive human labor — is not scarce. As productivity steadily increases, it’s ever more abundant.
And the takeaway? I’ll leave that to Ryan:
Fiscal expansion could help, but the gain from fiscal policy is likely to be limited unless it is structured to try and reduce labour supply. That’s right, reduce labour supply.
In other words, the very anathema of the right: paying people not to work.
The ultimate goal of increased productivity is straightforward: more stuff, less work. The problem is that those who own the stuff don’t want the people who don’t own the stuff to slack off or get a larger share of the stuff. They only like that mantra when it applies to them.
And they don’t understand the inexorably destructive arithmetic of their selfish rivalry in a high-productivity economy — that their refusal to share the wealth, their frantic hoarding, results in us all having less wealth. It’s a classic coordination failure, a tragedy of the common good.
I’m pretty sure Josh agrees with me (and Ryan) on that 100%.
Cross-posted at Asymptosis.
In a competitive market, where firms rise and fall, succeed and fail, why would a firm give away “stuff,” unless it benefits the firm (e.g. lowering other production costs or raising productivity paying its workers more).
And, currently, there are massive idle resources, including capital and labor. It’s ridiculous to blame firms for those idle resources and for making rational choices.
If you want a socialist system, then everyone can make rational choices, based on incentives and disincentives. to reduce everyone’s standard of living.
Using fewer inputs to produce more output free-up limited resources to allow the economy to expand.
Raising the minimum wage to $15 an hour would correct a market failure, level the playing field, reduce other production costs, and raise productivity.
Note, raising the minimum wage to $15 an hour raises hourly wages for every worker earning $7.25 to $15, and will likely raise wages somewhat for workers up to $25 an hour.
Income inequality is reduced, because real wages will rise more for low income workers than fall for high income workers, to increase low-wage purchasing power, and provide a net real income gain.
Also, the positive income and multiplier effects may be stronger than the negative employment effect, up to $15 an hour.
So, efficiencies in production increase and demand increases, which may be strong enough, even with the excessive anti-growth policies imposed by government, to generate a self-sustaining cycle of consumption-employment.
It should be noted, it’s a U.S.-centric world. The U.S. has been the main engine of growth pulling the rest of the world’s economies.
When the U.S. sneezes the rest of the world catches a cold. The U.S. is the only country, or group of countries, strong enough to expand with huge negative net exports.