Troubling Reaction

[Pointedstick]

I think it goes with theme of a mismatch between people's job expectations and the job availability. We all want gadgets and robots and incredible computer software, but only tiny tiny fraction of people ever become engineers. Meanwhile, people with easy degrees in journalism and psychology and English and east Asian history are shocked to discover that they can't find work in their field. Taking care of the elderly is neither high-paying nor easy, but it's definitely important.

Our unemployment ratios spiked during the great recession. I don't think the recession coincided with an abnormal burst of liberal arts students. We had a collapse in aggregate demand. I think that can explain the unemployment situation in aggregate.

We have to be careful not to blame the unemployed for their problems and become too rampant with our individualism.

If you have 10 dogs and 9 bones buried in a field, you can tell each dog individually to work there hardest to beat the other dogs at bone digging. But to to tell all of them in aggregate to simply train harder is a fallacy of composition. There aren't enough bones.

But work isn't like bones. There's always work to be done, even if there aren't enough "jobs" at the moment. Even if all the employers are sitting on their thumbs our of fear or irrationality, if you walk around and ask people what they need in their lives, you'll find that somehow your friend, neighbors, and their families still have lots of problems they are willing to pay to see solved for them. People need their lawns mowed, their dogs walked, their kids babysat, their car's oil changed, their leaky faucet repaired, their clothes washed, their computer problems fixed, their furniture assembled, their photo albums digitized, fresh fruits and vegetables delivered to their house every few days, you name it.

I don't think we'll ever reach the point where all the work that's possible to do is exceeded by the number of people willing to do it (though if we do, we've probably been teleported into the universe of Star Trek where people fly around in spaceships in search of work to occupy their time).

In the world we inhabit, anyone currently unemployed could probably do at least half of these things for any of their neighbors, or learn with minimal effort. In my experience knowing many unemployed young people, the reason why most of them don't is because they're holding out hope for a high-paying career doing what they love in the field they majored in. Rather than solving the problems all around them, they wonder why the problems they've been trained to solve aren't the ones people are paying for. This isn't a problem that only emerged in the last few years, it's one that has been building up for more than a decade in response to the children of the baby boomers enrolling in college en masse.

I think the great recession exacerbated it because employers have gotten more picky about who they hire, leaving many of the naive, inexperienced liberal arts generalists out in the cold. If you look at job ads, most of the high-paying jobs want you to already have experience in the field itself, and often with the specific tasks of the position. For whatever reason, companies aren't as willing to hire a sharp-minded generalist and train them to perform the tasks that need doing. They mostly hire people who can hit the ground running.

[melveyr]

There's always work to be done, even if there aren't enough "jobs" at the moment. Even if all the employers are sitting on their thumbs our of fear or irrationality, if you walk around and ask people what they need in their lives, you'll find that somehow your friend, neighbors, and their families still have lots of problems they are willing to pay to see solved for them. People need their lawns mowed, their dogs walked, their kids babysat, their car's oil changed, their leaky faucet repaired, their clothes washed, their computer problems fixed, their furniture assembled, their photo albums digitized, fresh fruits and vegetables delivered to their house every few days, you name it.

I totally agree with all of this, if we lived in a barter economy.

However, we live in a world where people interface with each other through the monetary system. When this interface is disrupted, transactions cease.

Imagine a dentist and a lawyer. The dentist needs legal advice, and the lawyer needs a root canal. If they both have no money, they will assume that their needs cannot be met because they are ingrained with the idea that they must acquire the medium of exchange. If they have no money, no business will be done. However, if they decide to barter, they can trade the root canal for the legal advice. They will create an economic profit.

We don't barter anymore, so people will almost always try to acquire the medium of exchange before business is done. We have to remember that we just suffered from a financial crisis, not a real goods and services crisis. The solution is going to lie in the banking/monetary system.

[Pointedstick]

You're right about all of that, Melvyr, but I think you mischaracterize the severity of the problem. If nobody has a job or any money, then you're right, and people are stuck because there's no liquidity and there may be mismatches between supply and demand for the bartered goods.

But even during the height of the great recession, unemployment only ever reached 10% (the U3 rate, that is). That means that the remaining 90% of the workforce still had jobs, money, and cashflow. If you were one of those unemployed people, you would sell your services to people who still had jobs, not your fellow unemployed people.

[melveyr]

You're right about all of that, Melvyr, but I think you mischaracterize the severity of the problem. If nobody has a job or any money, then you're right, and people are stuck because there's no liquidity and there may be mismatches between supply and demand for the bartered goods.

But even during the height of the great recession, unemployment only ever reached 10% (the U3 rate, that is). That means that the remaining 90% of the workforce still had jobs, money, and cashflow. If you were one of those unemployed people, you would sell your services to people who still had jobs, not your fellow unemployed people.

You are correct. The severity of the example was done for clarification purposes, not as a gauge of severity for the last crisis. I was just trying to highlight that involuntarily unemployment as we define it today is basically impossible in a barter economy.

As you correctly state, there is always work to be done. I believe our jobs shortage has its roots in the monetary system.

[stone]

Pointed Stick, I'm not sure I do agree. I buy everything and anything that I want. It would be no less if I had somewhat less money and no more if I had more. Unemployed liberal arts graduates or whatever could vastly increase their willingness to do odd jobs for me for vastly less money and it would make zero difference. I guess some people have more expensive tastes and so they perhaps create more jobs but I don't think that that comes close to addressing the underlying issue. Basically all that matters for the economy IMO is that everyone who does want stuff (because they need a hip replacement or education or home help when elderly or home psychiatric visit when crazy or whatever) can get it. For the "market to clear" in the way you describe; unemployed poor people would have to do work for other unemployed poor people at a wage that unemployed poor people could pay for -whilst all the time having every transaction drained by transaction taxes.

[Pointedstick]

Stone, I think you underestimate most people's spending habits and relationship with money. You and I are not like the average person. We purchase what we want within the constraints of the quantity of money we have resolved to spend. Most people spend everything they have for further convenience, and will often go into debt to do it. I'm saying that unemployed liberal arts grads can leverage this by offering that convenience and causing the "most people" to either save less or go further into debt to afford it! That's the magic of leverage. The unemployed people don't have to offer services to other unemployed people because the employed people will stretch their budgets and purchase what they cannot afford, making up the difference. Sad but true.

[Tortoise]

I think the great recession exacerbated it because employers have gotten more picky about who they hire, leaving many of the naive, inexperienced liberal arts generalists out in the cold. If you look at job ads, most of the high-paying jobs want you to already have experience in the field itself, and often with the specific tasks of the position. For whatever reason, companies aren't as willing to hire a sharp-minded generalist and train them to perform the tasks that need doing. They mostly hire people who can hit the ground running.

Quite true. A couple of years ago Jeffrey Tucker of the Mises Institute wrote an article about this very problem.

He said one possible way to escape from the catch-22 you described is to do some volunteer work for a certain trial period, to demonstrate to the employer that you are hard-working and trainable. That eases the burden on the employer, who normally assumes a risk when he hires a completely new, inexperienced person into a paid position. The "volunteer trial period" shifts that risk from the employer onto the prospective employee in training.

I thought it was an interesting suggestion that just might work in a lot of cases. What employer in his right mind turns down free labor offered by a person who seems willing to learn and work hard?

[Pointedstick]

TennPaGa, I'm saying that the unemployed should offer their services for money, not for free. As for people going into debt to pay for it, I was talking macro. Micro-wise, it's quite possible for the unemployed to sell their services for money to people with savings and positive cash-flow.

I don't like debt and the parasitic financial sector any more than you do, but that's the system we have. All our money comes from some form of debt, most of it private bank-issued debt. If there isn't enough money to pay for the services that people are offering, on a macro level that money needs to be created by someone going into debt, be it people, corporations, or the government. IMHO we should change this system, but it would entail a radical, fundamental shift in the structure of the monetary system.

[Tortoise]

I tend to agree with stone, and the last two posts indicate to me that something is messed up.

In essence, the posts advocate people going into debt (and thereby causing the parasitic financial sector to grow) to buy stuff, while the unemplyed should offer to work for free, which ultimately ought to drive down wages of those who aren't working for free.  How is this healthy for society?

Maybe you missed the phrase "trial period" in my previous post. The idea isn't for an unemployed person to work for free indefinitely. That would of course be ridiculous, because people have to eat. It would be temporary--say, from a couple of weeks up to a few months, depending on the type of business. It's effectively a business transaction: the prospective employee trades a certain number of weeks of free labor in exchange for serious consideration for paid employment at the end of the trial period. Many businesses already do this in the form of unpaid summer internships, etc.

If there isn't enough money to pay for the services that people are offering, on a macro level that money needs to be created by someone going into debt, be it people, corporations, or the government.

Or prices of goods and services can fall to a level commensurate with the amount of money in the system, no? Doesn't the law of supply and demand apply to money?

[Pointedstick]

If there isn't enough money to pay for the services that people are offering, on a macro level that money needs to be created by someone going into debt, be it people, corporations, or the government.

Or prices of goods and services can fall to a level commensurate with the amount of money in the system, no? Doesn't the law of supply and demand apply to money?

That's certainly true, but I would argue that the monetary system we have is systematically set up to encourage indebtedness when the supply of money is running a bit low rather than permit any kind of real deflation. Deflation is always a possibility in this situation of course, but people and governments always seem willing to go into debt to fund consumption now. As usual, Japan provides an interesting example of where we may be heading, but I agree with the smart person (can't remember who) who said in another thread that cultural factors regarding saving and the social position of the elderly may be playing a large role in Japan's situation that might not apply if the USA were to tread the same path.

[stone]

I think it was craigr who said that Japan had different cultural attitudes to saving. From what I can see ample saving is going on in "the West". When Pointed Stick says that there is "not enough money" doesn't that mean that money is being withdrawn by credit contraction/deleveraging ie saving? I guess when people owe money to a bank, then it is the bank that decides how much saving gets done by deciding whether the bank's loan book expands or contracts. I guess the cultural difference is that in "the West" the "saving" is more down to banks refusing loan applications rather than householders amassing Post Bank accounts

In France there is an established tradition of internships perhaps because the French employment law makes it such a big deal to give someone an actual job. People in France end up doing several consecutive internships and companies have a workforce of unpaid interns.

[Tortoise]

My point is that if some are working for free, regardless of how long they are doing so, it is going to drive down wages.  How could it not?

Unpaid interns would drive down the wages for whom? Experienced workers? Maybe in low-skilled professions like lettuce picking, where experience is worth far less than youthful energy. But in a more skilled profession, experience commands a premium. (Think hand-crafted furniture, auto restoration, computer programming... anything that takes a lot of time and practice to master.)

Even in professions where unpaid internships would drive down wages somewhat, the tradeoff would be that many unemployed people would be benefiting tremendously from the opportunity to add some (badly needed) on-the-job experience to their resumes and probably even get a job offer at the end of their internship if they've done a good job.

In any case, I doubt the unpaid internships I'm describing here would ever be a macroeconomic force to be reckoned with--at least not in America. Entitlement is too heavily ingrained in our culture now. It's just a neat idea for the very few who have the required work ethic and frugality.

In France there is an established tradition of internships perhaps because the French employment law makes it such a big deal to give someone an actual job. People in France end up doing several consecutive internships and companies have a workforce of unpaid interns.

I can believe that. That's exactly what happens when governments place heavy legal and regulatory burdens on employers, making it very expensive to hire and fire people. Surprise--employers become extremely reluctant to hire! Doesn't exactly do wonders for the unemployment rate when times are tough.

[AgAuMoney]

I guess the cultural difference is that in "the West" the "saving" is more down to banks refusing loan applications rather than householders amassing Post Bank accounts

I don't know.  I just read somewhere in the past week or so, that there was over $8 Trillion (8,000,000,000,000) in bank deposits as of mid-summer.  I don't remember the previous record or normal, but if I remember correctly there was less than $4 Trillion on deposit in summer 2008.