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.