The economist Keynes theorised that if everyone spent their year’s income, each person’s spending of their salary would on average employ another for a year, by buying the products that the employee makes
Some conclusions from this are:
The next few sections are based somewhat on the Keynesian cycle. But it must be realised that although the Keynesian cycle can describe the economy at any time, there is no inherent stability in the cycle; that is there is nothing to prevent either the addition or subtraction of people from the cycle. That is, the economy may grow or contract independent of the previously mentioned factors. So the above factors are only part of the picture.
The borrower always repays more than he borrows. Therefore overseas borrowing generally leads to the net result of money leaving the country, unless there is investment in export industries. So borrowing can lead to unemployment in the long term, exactly the opposite of the short term effect. Governments should be sure that they have fully solved the countries future economic problems before plunging the economy into debt. (joke!)
Deficits during times of low inflation are more serious in the long term than deficits during times of high inflation. This is because deficits accumulate more during years of low inflation. But when inflation is high, the real value of the deficit decreases each year. What in effect happens is that the high interest rates effectively pay some of the debt.
If net flow of money out of a country generates unemployment, a solution to world unemployment presents itself: allow tariffs, export subsidies, and currency devaluation only in proportion to their debt and balance of payments problem. An international formula should be worked out.
There are two considerations, net currency flow, and separation of economies of different countries. Small trade barriers lead to little separation between economies. Although this allows countries to specialise, it also can create an unbalanced economy, vulnerable to international instabilities.
Although tariffs on imports and subsidies on exports both promote currency inflow, tariffs isolate economies, whilst subsidies unite them. According to the international formula I envisage, countries would be free to protect certain industries and determine the degree of isolation of their economy, but with the following proviso: if they help some industries they must penalise others (but allowing debtor counties more leniency). For example if France subsidises agricultural produce, it must lower tariffs on imports, and perhaps even subsidise them to compensate. Alternatively, it could tax its exports or value its currency higher.
The kind of formula envisaged would give countries far greater freedom to shape their own nation than the abolition of all trade restrictions. It would also help those countries which most need help. In particular debt ridden countries would be helped by enhancing their exports.
And because the formula would guarantee all countries against unfair treatment or excessive currency outflow, there would be no fear to buy cheap products from Africa for example. This would help such countries as Africa to sell what they need to buy food, and, if necessary or required, to pay off their debts. (But paying the debt with someone’s pound of flesh should be outlawed.) Aid could be more than replaced by TRAID.
The aforementioned formula could incorporate trading blocks. A trading block could lower barriers within it and raise barriers outside it. The only proviso is that all barriers be correctly weighted in terms of the ratio between tariffs on imports to taxes on exports etc.
Trading blocks of similarly advanced economies increase the size of production runs generating economies of scale. The more similar the economies are, the less likely a trading block will cause unbalanced economies. Trading blocks of countries of vastly different skills and development, seem to me to offer no advantages to a general reduction in tariffs, since they result in unbalanced economies, which may or may not be good. An advantage of lowering trade barriers with countries of differing advancement is that prices may fall more for goods whose production is labour intensive. A disadvantage is that during readjustment of the economy, there may be some unemployment.
It is often said that international competition forces companies to improve. In practice this means that it forces the unions to behave, but only after many companies have been sent bankrupt. It would seem more sensible to remove the impediment to change, excessive union pressure before exerting pressure, before exerting pressure to change from imports. Otherwise low profits, low investment and bankruptcies will result.
If someone’s dole is equivalent to ten hours wages, they should average ten hours work a week, doing something useful, but unpaid.
Work could include:
The work proposals regarding holidays would cause more people to holiday in Australia, reducing money outflow and increasing money inflow. Scientific development would keep ideas in the country which could later lead to employment.
If the unemployed are employed to produce products that are in undersupply, or that would not normally be bought, re-adjustments to the economy would be minimal. Surely someone could make a list of goods and services that would not otherwise be bought. Such products could be given away to those who are too poor to buy such products. Everyone could have an annual entitlement to such goods in proportion to the taxes he pays.
Although some of these goods might be resold, reducing legitimate sales of such goods, by choosing production runs vastly in excess of the usual far more good would be done than harm.
As for government service, anything the government would like to do but cannot afford, could be done by unemployed labour. This could also reduce the debt problem and the interest on that debt which leads to capital outflow and associated unemployment.
Generally speaking unions are more worried about dole workers taking their jobs than they should be. Even if a dole worker replaces an employed person, the fact that the unemployed are being less subsidised will cause more money to be spent elsewhere, generating other jobs. If people are employed in industries where there is potential growth, advantages would surely outweigh disadvantages.
I have argued how inflation tends to cause unemployment. If more money is minted, then in order not to cause inflation, the GDP must be increased in proportion to the money supply. But this can be done effectively by minting money to pay people to work. The net effect of this would be that those thus employed would spend their money buying products produced by other mint employed people and such sales would pay their wages.
It is important that wages in such a scheme do not exceed the labour value, even if this means low wages. Otherwise people will opt out of the main economy to take cushy jobs, generating unemployment elsewhere in the economy. If the theory works, the same number of sellers as buyers would be added to the economy and the Keynesian cycle would tend to maintain stable increased employment.
The difficulty is to ensure that buyers and sellers are added to the economy and do not merely replace existing participants. By carefully selecting jobs created, there would almost surely be more jobs created than lost. It could not do more harm than good.
There could be a socialist pocket in the economy with people paid in a different currency. A significant loss should be incurred when converting money to the main currency to encourage people to buy goods produced by others in such a socialist pocket. Such a scheme would help the economy to be added to rather than replaced.
This is a grander scheme than the barter economies which are beginning to spring up. Such a scheme would not significantly replace the main economy unless a weak government drains the main economy to prop up wages in the socialist pocket. Wages in the socialist pocket of the economy must be the same or less than labour value, lest people opt out of the main economy. As the socialist pocket of the economy increasingly produces the goods it needs, taxes previously used for the dole, could be reduced in the main economy, reviving it.
Creating jobs for the unemployed could be minimised by using the labour of the unemployed themselves to create the jobs. For example, in a decentralised system, an unemployed businessman could only draw the dole if he spent time setting up industries for other unemployed people. Taxes on industry could be reduced if they cooperate in employment generation schemes, perhaps making their factories available for the unemployed on Saturdays to produce goods necessary for job creation.
Redundancy packages and dole payments create unemployment by reducing the money available to employ people. More imaginative solutions must be sought. Why not, instead of a redundancy package equal to four years salary, give four years notice of dismissal. Surely, with a little imagination, workers could do something better than nothing.
Perhaps the government could help by establishment of a company called ‘Redundancy Industries’. This public or private companies could use the money from redundancy packages to employ the workers, perhaps repaying the company about fifty cents in the dollar. If this involved retraining, how perfect. Expansion into new industries, perhaps even sunrise industries, with effectively venture capital should be encouraged by the government and facilitated by such schemes.
Ideally new industries should be started. But even if not, to help the economy to grow, rather than replace one section of the workforce with another, jobs should be created in a balanced way, and some government regulation and incentives may be involved to ensure this. If so, hopefully job losses will be minimal, because although there is more labour to do the work, there will be more money to buy the produce of that work. (In the same way that people don’t rejoice when companies close with job losses, thinking that this will create other employment, people should not panic when a new business starts, thinking that this will create unemployment
The other benefit of such schemes is that they will make industries in difficult circumstances more profitable by reducing the financial burden of retrenchment packages.
Ideally restructuring of industry should happen gradually during good economic times when there are other jobs available outside the company. If workers resist such change, it tends to happen that companies across the economy all restructure suddenly when they are forced to by bad economic conditions. In such circumstances there are then no other jobs to go to because the economy may be contracting.
The biblical law of gleaning was that grain missed during the first passing during harvest was left on the stalk or vine. It was left as food for the poor who would collect it in a labour intensive way. This practice did not cost the farmer much as it would have cost almost as much to collect the gleanings for sale as they were worth.
Practical application of this principle is to especially help the poor whenever the cost is minimal. Services which are under utilised at off peak times could be provided free of charge to the poor at such times. The poor could work some hours in factories after hours, receiving as payment some produce of the factory.
Participating companies could have their taxes reduced as the government would be saving on dole payments. Remember that any extra money available to government or business is effective by Keynesian economics for creating jobs.
Imbalance in the work force leads to unemployment. If there are factory workers, but not enough skilled engineers to design sufficiently high productivity factories to justify the wages paid to the factory workers, there will be unemployment, whatever the state of the economy.
If one section of the workforce demands wages in excess of their skills, unemployment may be created elsewhere. If builders are paid excessively to build tourist accommodation the price of holidays will increase and there may be less work for catering staff etc.
With increased mechanisation, if an engineer can design and build a robot to do the work of three factory workers, unless the factory workers demand less than one third the wages of the engineer, they will be bypassed.
Apprentices also should not be overpaid, unless the contractual time that an apprentice must spend with a company is increased so that the apprentice can pay back with labour, the cost of his training. Otherwise skilling of the workforce will be retarded unless government regulation is employed. Perhaps those without academic skills should receive a more general education more quickly and enter the workforce earlier, before they have significant financial needs.
Some workers are better than others, so labour value varies. If profit margins are low, profit is only made with good workers unless wages increase with productivity. It may be that if a worker is 10% slower than average, a loss is made.
Without a flexible wage system, the lower business profitability, the higher the proportion of the workers who are unemployable. There is nothing wrong with paying people according to the value of their labour, whether this is determined by output, or by a formulae taking age, sex, pregnancy, or skill into consideration. Otherwise anyone whose work output is lower than average because of age or sex will be increasingly joining the ranks of the unemployed.
For women, a formula which evens out the peaks and troughs in their productivity would be preferable. It would be undesirable, for example, to pay a woman less when pregnant when she may be assigned lighter duties. But dangerous and heavy jobs are clearly unsuitable for women. So also are jobs requiring long term tenure, if the woman is of child bearing age. Where young women take on work requiring much specific training, they should be paid less, to cover the cost of retraining should they leave to have a baby. Otherwise women are being paid more than the value of their labour, being effectively subsidised by men who have their wages docked. This also has a bad social effect, because by paying women too much and men not enough, a family has less hope of existing on one salary or one and a half salaries, and the woman is effectively forced to return to full time work, when she may prefer to spend more time with her family.
The government of Australia has an Affirmative Action policy whereby it seeks to give women equal access to employment as men. But there is no reason, with a flexible wages policy to think that a woman would be more underpaid than a man in comparison to the true value of their labour. The government would be far better off to seek to provide alternative opportunities for women, than identical opportunities as men. Part time education and work opportunities should be given to women. Those women working in the morning could, in the afternoon, look after the children of those working in the afternoon, eliminating the cost and institutionalisation of child care.
Immigration means population increase and expansion. Money must be invested on new services for transport, hospitals schools, etc. Although this may seem to create jobs, there is a problem. The money spent on expansion reduces the money available for investment in other areas of the economy, which investment would create jobs, not only initially, but also longer term.
Generally speaking, an investment is required to create jobs: machines for machinists etc. If this investment was $100,000 per worker, for every 100,000 workers brought into the country, an additional ten billion dollars must be invested in the economy, so as not to generate unemployment.
A little discussed problem with skilled immigrants, is that their departure from their homeland may impoverish their own nation. Australia should not want Eritrean eye doctors emigrating to Australia or it will offset the good work of Fred Hollows setting up an eye lens factory in that country.