Wednesday, February 13, 2013

How to End the Depression Now — Part 1

US umemployment. Image source.
To an economist, a recession or depression is something measured by the depth and duration of a decline in GDP.

To those who live by means of a real job, recessions and depressions are marked by a decline in the availability of work at a decent wage.

The difference between definitions is important. It is possible for an economy to grow through increases in productivity, while jobs are lost and real wages decline, as has happened in the US during recent years.

It is possible for an economy to shrink through declining labor productivity, while jobs are gained, as has happened during the last four years in the UK.

So whatever the economists and politicians have to say about green shoots, and economic recovery, the economy for tens of millions of unemployed, under-employed or discouraged workers in the the US, Canada, and Europe is lousy, stinking, and depressed.

The reason for the massive shortage of jobs is simple: tens of millions of workers in the West are not worth hiring.


Two reasons.

First, globalization, which puts workers in the West in direct competition for most manufacturing and many service jobs with workers of the Rest, many of whom work for only pennies an hour.

How do you compete with that when there's a US Federal minimum wage of $7.25 an hour and a European minimum wage twice as high?

Second, automation.

There was a time when robots cost a fortune and were used mainly to eliminate production-line workers in high-value manufacturing, such as car plants.  But no more. A general purpose readily trained robot can be had for a mere $22,000. With a rated life of 6000 hours, it provides precise, reliable service, 24/7, at a cost equivalent to half the US minimum wage.

And it's not just dumb jobs that will soon be eliminated by computerization and robotization. Watson, a pizza-sized computer diagnostic system from IBM is more accurate than the average physician.

How long before your physician is made redundant by a Web site or a computer-aided graduate in medical diagnosis earning about a tenth of what a physician expects to earn?

Many teachers and university professors are also likely to experience redundancy as online courses, examination systems and accreditation methods replace traditional institutions of learning.

Which means that millions of people, most people, in fact, are unnecessary in the modern economy.

Which no doubt explains the enthusiasm of some rich bastards  for wiping out most of the human race.

But for those disinclined to genocide, the question must be: how can wages of marginal workers in the West be made less than the value that such labor is able to generate, while insuring that workers nevertheless receive a living income?

This is not a hard problem.

The US Federal reserve is currently printing $89 billion a month to purchase treasure bonds, thereby increasing the money supply in an operation that appears destined to create not jobs but hyperinflation.

So what else could they do?

Take the $89 billion, double it and send every full-time worker a monthly check  for $1000.00. At the same time, all state and federal minimum wage laws would be abandoned.

The result?

The United States or any country adopting such a policy would have the cheapest labor resource in the World, i.e., wages could fall as low as a penny an hour (though competition would prevent significant quantities of labor being available at that price), which would provide a huge stimulus to entrepreneurial activity.

It would result in the rapid re-patriation by the West of jobs off-shored to Asia, the Middle East and Africa as workers in the West again manufactured shoes and shirts, car parts and computers that are now imported from sweatshops and slave plantations of China and elsewhere.

The economic resurgence would swell government revenues, slash welfare costs, including the costs of crime and mental illness that are accompaniments of mass unemployment.

These effects alone, would largely offset the cost of the job subsidy payments.

As necessary, the remaining cost could be recovered through a job subsidy claw-back  at the rate of, say, 10% on incomes between $12,000 and $132,000.


How to End the Depression Now — Part 2

See also:

The Euro: A Weapon of Economic Mass Disruption

The Cause and Cure of the Second Great Depression

Why Economics Is Bunk and What That Means for the Economy


  1. Heh! Well, that makes no more sense here than your post at Carpe Diem.

    Apparently you don't understand that money is merely a medium of exchange, and must represent something of value to others - productive work, maybe, or a commodity such as corn or oil.

    Why do you think the current Fed policy of increasing the money supply by monetizing debt is inflationary, but wouldn't be if those same counterfeit dollars from thin air were sent to individual workers instead?

    In crude and inexact terms, if you double the money supply you haven't created any value, but have only doubled the price of everything by making each dollar worth 1/2 as much as before.

    1. I thought, initially, that you might have identified an irremediable flaw in the argument, but in fact you merely make a number of unjustified assumptions.

      First, I did not advocate counterfeit money, although since the Fed is currently counterfeiting, as you would say, $89 billion a month to buy treasuries, ostensibly to stimulate the economy and restore full employment, I suggested using that money to better effect.

      In fact, what I proposed is a version of Milton Friedman's negative income tax, a scheme that he abandoned chiefly because it seemed to require a high marginal tax rate on those earning just above the minimum wage.

      The modification I have proposed is to claw-back the benefit rather gently, which makes the scheme costlier, but if you are pissing away $89 billion a month anyway, why not do something useful with it.

      And if, by means of such a scheme, one were to get some tens of millions of part-time American and European workers into full-time work and one were to get several tens of millions of unemployed and discouraged American and European workers back into the work force much of the cost would be recovered through savings in many other programs, while significantly growing the economy.

      A comment on a blog post is no place to do the numbers, but they are not as outlandish as you might suppose and would not necessitate money printing.

      Canada, has a rather similar program for the elderly, a payment of around $500 a month to which everyone is eligible, but which is clawed back 100% from those with incomes in excess of I think it is $95,000.

      Canada does this without the necessity of printing, and thereby reduces the number of the elderly who are in dire poverty. It seems reasonable to do the same for those of working age, on condition that those who are able bodied, actually work.

      But I know it is futile arguing with economists. They have a few received ideas about equilibrium systems and anything beyond that hopelessly inadequate textbook view of the world leaves them angry and baffled.

  2. Hmm. I guess you didn't like my comment so you removed it. Nice work. You have condemned your blog to obscurity, as an echo chamber where only "correct" comments are allowed. Assuming you are interested in comments at all.

    1. LOL

      Your contributions here are hardly likely to make a huge difference to anyone or anything.

      Nevertheless, I published your comment and responded to it. If you want to say something else that addresses the issues raised, feel free, although if you resume the "Apparently you don't understand ..." line of attack where what I supposedly don't understand is some mundane triviality that no one could not understand, or if you deploy straw-man arguments such as "Why do you think ... " where whatever it is you ask why I think you have no reason to suppose that I do think and which I certainly did not say that I think, then that also will be deleted.

      I guess that leaves you rather little scope to pursue the discussion.