"Economically illiterate"

In the Times (£) Simon Danczuk says lefties such as Owen Jones are "economically illiterate." He misses the point that, in many respects now, it is not the left that's economically illiterate but rather centrists like him.

 - It is economically illiterate to ignore the massive evidence that unemployment is a huge source of misery, and to talk instead of the minority of scroungers.

 - It is economically illiterate to complain about crony capitalism, as Danczuk does, without recognizing that basic economics tells us that crony capitalism is the only likely form of capitalism.

 - It is economically illiterate to think the unemployed can be incentivized into work when there are 4.9 officially unemployed people for every vacancy, and 12.1 unemployed if we use a wider definition of joblessness.

- It's economically illiterate to believe that the macroeconomic cost of scrounging is anything other than very small.

 - It is economically illiterate to speak of the "benefits of getting people into work" as Danczuk does, but then accept the Tories' tight fiscal plans for after 2015 - especially if you don't raise the inflation target.

 - It is economically illiterate to think the government is in control of its finances, and that fiscal policy alone is sufficient to reduce the deficit, without recognizing that deficit reduction requires a decline in the private sector's net financial surplus.

 - It is economically illiterate to think a jobs guarantee for those who have been out of work for more than two years is anything close to an acceptable employment policy, when these account for less than one-fifth of unemployment, and when helping them into work might well displace the shorter-term unemployed.

 - It is economically illiterate to ignore the evidence that there's very little that governments can do to much improve the economy's medium-term growth rate.

 - It is economically illiterate to ignore the fact that, throughout the west, there has been a long-term collapse in demand for unskilled work.

 - It is economically illiterate to ignore the possibility that preferences are endogenous. Insofar as some unemployed are lazy, their laziness might not (just) be a cause but rather an effect of their unemployment: why make yourself unhappy wanting something you can't have?

I don't say all this to attack Mr Danczuk, but rather to make a broader point. The phrase "economically illiterate" has long been used to smear leftists as unrealistic utopian dreamers. And I'll concede that the description fits many of the soft left. But this tactic ignores a nastier fact. At the current juncture of capitalism, what is  really economically illiterate is the belief that capitalism is compatible with decent employment prospects and living standards for all workers - especially if you limit your policy options to those that are acceptable to Paul Dacre.

Comments

[Nick]

You know I am always sympathetic to your outlook but I query this notion that this a good indicator:

"- It is economically illiterate to think the unemployed can be incentivized into work when there are 4.9 officially unemployed people for every vacancy, and 12.1 unemployed if we use a wider definition of joblessness."

On the two occasions I was offered a full time job, no vacancy was advertised. On the two occasions I was offered a part-time job, the number of true vacancies was not advertised.

Looking for jobs is a bit like being an entrepreneur. Sometimes, you have to be alert and spot opportunities to generate work. If more people are actively seeking jobs, then more job opportunities are created.

And we know that the overall number of jobs in an economy is DOMINATED by the supply-side. That's why immigration barely effects employment rates (new people arriving generates more jobs and vacancies almost instantaneously) and why the single biggest predictor of the number of jobs in any economy is the working age population.

This is not to say that the presently unemployed are to blame for being unemployed. Lots of institutions function to prevent them finding and keeping jobs, not least the fact that benefits are withdrawn so quickly once they find a job. As you are, I would be in favour of paying the equivalent of job-seekers allowance out to people regardless of their employment status, and treat it as a road to a basic income or a negative income tax.

[Neilwilson]

"On the two occasions I was offered a full time job, no vacancy was advertised."

The point is that at full employment there would *always* be more work offered than there are people to fill them. So there would be adverts because businesses would be competing for labour at all levels.

At a ratio level of 12:1 you need a better excuse than 'vacancies aren't advertised'.

"And we know that the overall number of jobs in an economy is DOMINATED by the supply-side."

No we don't. You believe it. If it was dominated by the supply side the quit rate would be counter-cyclical. The evidence shows quits rise in a boom and drop off in a bust.

As Bill Mitchell puts it today "The [supply side] view is entirely false and is illogical in theory and has no empirical support in practice."

[FromArseToElbow]

When the central metaphor of popular economic debate is the equivalence of the national economy with a household, bandying around the adjective "illiterate" seems somewhat redundant.

[Ben Nader]

You're doing way too much with an accounting identity with your point about government and private sector net borrowing. The government really could increase taxes, cut spending and borrow less. It only doesn't because of its preferences and the prices and options available to it.

If it did change its mind and decide to borrow less, the options/prices open to the private sector would change (e.g. interest rates would probably fall further) and the private sector would up its net borrowing.

On the general point a lot of what you said is reasonably valid.

[Nick]

"No we don't. You believe it. If it was dominated by the supply side the quit rate would be counter-cyclical. The evidence shows quits rise in a boom and drop off in a bust."

I am not talking about short-run changes. I am talking about overall numbers. If you look at the big background picture, the number of jobs is basically defined by the working population and oscillates around a natural rate of unemployment.

Since we are still recovering from the recession, we still probably have a demand-side problem and thats making the labour market tougher for job seekers. But we might not be that far off the new natural rate of unemployment even now. If that is the case, we need policies that lower that natural rate in the longterm.

[Nick]

Ben, you are right and thats a point I have tried to make to Chris before. I think its useful to suppose that the state, by borrowing excessively, is actually delivering a subsidy to (well-off and rich) savers by defending their (vaguely positive) interest rates. It even fits Chris's Marxian conception of the state.

The "zero-bound" is an ideological construct designed to legitimise a state-backed positive interest rate savings scheme for the wealthy.

[chris]

@ Ben, Nick - for present purposes, we don't need to read much into that accounting identity, but simply regard it as a check upon policy. Politicians should ask of any policy: will this reduce the private sector's surplus? If the answer's plausibly yes, then it is a viable government deficit reduction strategy. The problem is that the identity isn't being used even in this weak sense, with the result that politicians exaggerate their control of the public finances.
@ Nick - yes, some/many vacancies aren't advertised and are created for the applicant. But how many? I suspect it is skilled people who are known to employers who can get work this way, not so much unskilled workers.

[John Galt]

"At the current juncture of capitalism, what is really economically illiterate is the belief that capitalism is compatible with decent employment prospects and living standards for all workers..."

Indeed, let's increase the tractor production.

[Luis Enrique]

yes one or two people enjoy castigating lefties for economic ignorance, but themselves take a position that's hard to square with the foundation of mainstream economics: welfare maximization. For example they are often incensed by government inefficiency, but relaxed about the sorts of things you highlight here, like unemployment.

[Jackart]

I've never seen a serious right-wing commentator talk about "scroungers". Left-wing commentators accuse righties of this all the time. I think it's a meme you hear from the echo-chamber, but the source is inside your own cave.

[paulc]

@Ben Nader "If it did change its mind and decide to borrow less, the options/prices open to the private sector would change (e.g. interest rates would probably fall further) and the private sector would up its net borrowing."

More sensible [practical] would be an increase in inflationary expectations which would at once decrease real rates of interest provided monetary authorities could credibly undertake to keep interest rates low for an extended period.

[FDUK]

I don't think talk of scroungers is in my head, I think its all over the papers. And while right wing commentators may avoid using the word scroungers that is what they often talk about

[Andrew]

Of course in practice you can't incentivise everyone into work.

Of course theoretically you can, even if there were no vacancies currently advertised. All the motivated job-seeker has to do is offer up a service worth far more than the minimum wage. Most companies can always use at least one more extraordinarily motivated person who only costs minimum wage. The jobs would be immediately created since the value exceeds the price. In my limited experience many small companies would love to employ an additional motivated reliable minimum wage worker, but can't find one.

Good luck with that in practice.

[Andrew]

If vacancies are a good guide to total job capacity, and there are many more usable candidates than vacancies, why are there any vacancies at all?

Chris is confusing flow with stock here.

[Andrew]

"@ Ben, Nick - for present purposes, we don't need to read much into that accounting identity, but simply regard it as a check upon policy. Politicians should ask of any policy: will this reduce the private sector's surplus? If the answer's plausibly yes, then it is a viable government deficit reduction strategy."

Since it is an identity, then it would be functionally equivalent to simply asking "will this reduce the governments deficit"? Which they are doing in the first place. You have to explain why considering one side of the identity would provide greater insight than the other.

"Oh but if we cut gov. spending there will be less cash for the private sector, which will attempt to save and increase its surplus..so gov deficit will increase...blah blah blah."

The above line of reasoning tells you nothing. The private sector may attempt to save and grow a surplus, it may attempt to save and fail. It may not attempt to save, for that matter.

If A=B then you still don't know which one's in the driving seat. Almost certainly neither one.

[中心供氧系统]

天津普辉科技发展有限公司是一家年轻富有活力的科技发展型企业。公司集技术研发、产品设计、制造、销售、服务于一体，主要生产销售变压吸附制氮、制氧设备及空分行业配套产品.制氮机_制氧机_中心供氧系统_高原富氧_医用制氧机 -天津普辉科技发展有限公司

[Phil Sealey]

Sorry, but I'm finding the discussion about jobs and vacancies naive. Just because there are say 1,000 unemployed and 1,000 jobs does not mean that all those vacancies can be filled. There are at least three factors to take into account - training, geography and incentive. Try telling, say, an ex-miner in Wales that there is a job in marketing in Hertfordshire and see what the response is. Who is going to pay to retrain him? How is he going to afford to move? Why should he move, if his family are all in Wales?

[Andrew]

@Phil - I'm sure that is true, but it would merely support the point Chris is making - that the existing unemployed cannot be easily absorbed into the current stock of (too few and as you say mismatched) vacancies.

[hgh]

gen f 20 reviews