Why Full Employment and High Wages for Men are Important

From Catherine Hakim’s Feminist Myths and Magic Medicine: The Flawed Thinking behind Calls for Further Equality (Centre for Policy Studies, London, UK, (2011):

“One indicator of women’s lifestyle preferences is found in patterns of educational homogamy: whether women choose husbands with equal levels of education, or prefer a better-educated and higher-earning spouse.

Women’s aspiration to marry up, if they can, to a man who is better-educated and higher-earning, persists in most European countries. The Nordic countries share this pattern with all other parts of Europe. Women thereby continue to use marriage as an alternative or supplement to their employment careers. Financial dependence on a man has lost none of its attractions after the equal opportunities revolution. Symmetrical family roles are not the ideal sought by most couples, even though they are popular among the minority of highly educated professionals. It is thus not surprising that wives generally earn less than their husbands, and that most couples rationally decide that it makes sense for her to take on the larger share of childcare, and use most or all the parental leave allowance. This is just as true of the Nordic countries as elsewhere.”
Hakim, Catherine. 2011. Feminist Myths and Magic Medicine: The Flawed Thinking behind Calls for Further Equality, Centre for Policy Studies, London, p. 24.
http://eprints.lse.ac.uk/36488/

In other words, many women prefer better educated and higher-earning husbands, and this is how many men can attract wives so they can start families. If true, this is a natural fact of female psychology.

In essence, good education, full employment and high wages for men are not just good for men, but good for society in general, since this is how many men can attract wives.

But under neoliberalism many men have been subjected to mass unemployment and their real wages savagely attacked.

What about some sympathy for the men?

On the Value of Work in a Social Democracy

A career and a job where one does economically and socially useful work is an important part of any successful, healthy and wealthy society. But more than this, it gives people an identity through the job that they have and a social dignity lacking in long-term unemployment.

There are of course a lot of difficult, boring, dirty and sometimes dangerous jobs that have to be done, but a technologically advanced society like ours can use its inventive genius to create more and better machines and automation to do these jobs, so that human beings aren’t forced to do them.

But not all jobs are like the ones described above. For many people, their jobs – while often challenging or requiring hard work – are nevertheless safe, interesting, rewarding, and sometimes enjoyable. Some people are lucky enough to have jobs they absolutely love.

A really decent society run on social democratic principles would provide full employment and not leave people on welfare to become a deskilled, demoralised, dependent and depressed class of people, some of whom descend into irresponsible hedonism and drug abuse.

And there is certainly something to be said for the principle that people should not be allowed to simply live off welfare for years on end as long-term unemployed, but not as in the vicious and victim-blaming right-wing hysteria of libertarians or neoliberals – the latter having increasingly imposed a vicious, disgusting and punitive welfare system over the past 30 years.

The whole point of a society run on social democratic and Keynesian principles of full employment is precisely: we shouldn’t even need a big welfare bill for people of working age, because by means of (1) macroeconomic management of the private sector and (2) government employment programs at decent wages, there would only be a small body of unemployed anyway (essentially people in seasonal and frictional unemployment).

To achieve this today would require not just fiscal policy to create jobs in the private sector but government employment programs to find and create economically and socially useful work, e.g., in public infrastructure development, housing, social services, etc. That of course requires much more government planning than we currently have and perhaps ditching parts of the current welfare system (except for people who cannot work) for a system where people not employed in the private sector are provided with work at better and decent wage rates in public sector jobs. Private sector jobs probably do need to pay more, as in MMT-style job guarantee programs, but even in recruitment and distribution of people between the sectors more planning probably has its virtues too.

One could have a universal basic income under such a system, but everybody who is fit for work should be provided with a job appropriate for them and their skills to obtain income above the universal basic income. Such a system in, say, the United States would, I strongly suspect, start to do something substantive to fix the social problems of the African American community and white working classes too.

In that respect, a social democratic and, for that matter, old-fashioned socialist system is certainly not about shoving the human race onto welfare or the dole, but it is about bettering the human condition through a system that really does value work and employment and provides it for its citizens, as compared with a dysfunctional laissez faire capitalism that repeatedly fails to provide full employment.

In that respect, there is also something to be said for this Marxist take on this subject, even though I would shun the doctrinaire aspects of Marxism and reject a command economy. But, as the author says, it is true that there are some people who do not wish to work, and:

“Socialism is not about putting everyone on the dole, but putting everyone to work, doing work with dignity, respect, honor, satisfaction, and human fulfillment. Not everyone wants to work. Not everyone wants to be a civilized human being. Those who don't want to work, those who want to be predators, they will feel the hammer of the state, hard enough to satisfy any authoritarian.”
http://barefootbum.blogspot.com/2016/03/a-rant-on-socialism-authoritarianism.html

I wouldn’t go that far, however. The “hammer of the state” is a bit too much for me, unless the people in question are criminals. But a sensible punitive demand that people – especially young men – should not be lazy and irresponsible work-shy hedonists is not objectionable by any means.

Now today, while there is plenty of manual labour and unskilled labour that could be done under such a system even in the first world nations, there is also a very great deal of economically and socially useful work that can be done by intellectuals trained at universities, e.g., in the natural sciences, engineering, medical science, neuroscience, computer science, and the more useful social sciences.

Above all, governments in the Western world could also begin to employ people in much larger programs to start really helping with Third World development, e.g., health care, public infrastructure, disease control, education, etc. Promoting Third World development by allowing a space for independent economic development, import substitution industrialisation, utterly reformed international institutions and direct assistance by Western labour would be far better than the current system of neoliberalism.

It is undoubtedly true that as technological development soars, automation, robots and artificial intelligence will make it more and more difficult to find work for people of value, but nevertheless economically and socially useful work will still be of great value, even if the working day and working week will probably shrink as compared with today.

Keynes rejected Wage and Price Flexibility as the Path to Full Employment even in Theory

This is a major error of neoclassical theory, and the mistaken view some people still attribute to Keynes: that wage and price flexibility in theory is still a reliable and effective mechanism for reaching full employment, even if the real world has wage and price rigidities. In fact, Keynes rejected that view.

Curiously, even some Institutionalist economists have failed to understand it. For example, even Gardiner C. Means – the American Institutionalist who developed administered price theory – was unclear about what Keynes’ fundamental arguments were in the General Theory, and whether the theory depended on inflexible wages and prices.

This is illustrated by a fascinating piece of forgotten history told by Means himself: his visit to John Maynard Keynes in July 1939:

“In the summer of 1939, on my way to a holiday in Norway, I made it a point to visit Keynes with the specific purpose of asking him to what extent his explanation of persistent unemployment rested on an assumption of wage-rate or price inflexibility. His answer was a categorical: ‘Not at all.’ I asked the question in several different ways in order to make sure there was no failure of minds to meet and the answer was always the same. I said, ‘Suppose that prices and wage-rates met the classical assumption of perfect flexibility so that, if there were excessive unemployment, the price-wage level would fall frictionlessly. Then with the nominal money stock remaining constant, wouldn’t the rise in the real value of the money stock create added demand which would tend to absorb unemployed workers?’ But still the answer was no. Once interest rates had fallen to their limit there would be no further corrective. We were in complete agreement that, in practice, neither prices nor wage-rates were as flexible as classical theory assumed, but he insisted that his theory of unemployment did not depend at all on this fact.” (Means 1976: 61–62).

You couldn’t have a clearer statement by Keynes himself about what the essence of his theory was. But, despite these emphatic statements by Keynes, Means was dissatisfied with Keynes’ replies.

Later, Means (1976) defended the neoclassical synthesis interpretation of the General Theory contrary to the explicit answers Keynes had given to him in 1939, because Means continued to believe in the efficacy of the real balances effect (Means 1976: 63), which only goes to show how even some Institutionalists – as well as neoclassical Keynesians – failed to understand the fundamental message of the General Theory.

BIBLIOGRAPHY
Means, Gardiner C. 1976. “Which was the True Keynesian Theory of Employment?,” Challenge 19.3 (July/August): 61–63.

Robert Pollin on Full Employment

Robert Pollin (professor at University of Massachusetts Amherst) is interviewed here just over a year ago on US unemployment and economic policy. His new book is Back to Full Employment (MIT Press, Cambridge, Mass., 2012). Still a good interview.

Bill Mitchell on the Need for Full Employment

A nice video here of Professor Bill Mitchell (an Australian Modern Monetary Theory economist) of Billyblog discussing the arguments for full employment focusing on the issue of discrimination, part of a University of Western Sydney Open Forum, held on January 16, 2012.

Also, there is a good post over at his blog on the anti-democratic nature of neoliberalism.

Bill Mitchell on Full Employment

There are quite a few good videos about at the moment.

This is a wonderful but short lecture by Professor Bill Mitchell giving a keynote address at the National Skills Conference in Melbourne (Australia) on June 29, 2011, on full employment from the perspective of Modern Monetary Theory (MMT). What is notable is that the attack on full employment in Australia began in 1975, under the Liberal Prime Minister Malcolm Fraser (1975-1983), and this continued with reduction of public sector employment in the late 1970s.

A better measure of unemployment measures broad labour underemployment, which at the moment in Australia is about 12.2%.

ABCT and Full Employment

In Money, Bank Credit and Economic Cycles (Auburn, Ala., 2006), Jesus Huerta de Soto attempts to defend the Austrian business cycle theory (ABCT) against the charge that it fails to consider what happens when idle resources are available:

“Critics of the Austrian theory of the business cycle often argue that the theory is based on the assumption of the full employment of resources, and that therefore the existence of idle resources means credit expansion would not necessarily give rise to their widespread malinvestment. However this criticism is completely unfounded. As Ludwig M. Lachmann has insightfully revealed, the Austrian theory of the business cycle does not start from the assumption of full employment. On the contrary, almost from the time Mises began formulating the theory of the cycle, in 1929, he started from the premise that at any time a very significant volume of resources could be idle. In fact Mises demonstrated from the beginning that the unemployment of resources was not only compatible with the theory he had developed, but was actually one of its essential elements.” (Huerta de Soto 2006: 265–508).

But Huerta de Soto has done nothing here but engage in a sleight of hand: the charge against ABCT is that its cycle effects do not occur if the factor inputs and consumer goods required by expanded demand are not scarce. That an economy might not be at full employment and may have idle resources when the money supply is expanded does answer the question of how the cycle effects happen, if the relevant factor inputs continue to remain abundant, either through domestic production through increasing capacity utilization, idle stocks or even by international trade.

Moreover, the claim that “unemployment of resources was not only compatible with … [the trade cycle theory Mises] had developed, but was actually one of its essential elements” is not supported by a reading of Mises. All that Mises does is admit the fact that capitalist economies do have idle resources, but then says that his cycle effects require that this abundance declines and the relevant factor inputs become scarce. In “Monetary Stabilization and Cyclical Policy” (1928) Mises has the following to say:

“Since it always requires some time for the market to reach full ‘equilibrium,’ the ‘static’ or ‘natural’ prices, wage rates and interest rates never actually appear. The process leading to their establishment is never completed before changes occur which once again indicate a new ‘equilibrium.’ At times, even on the unhampered market, there are some unemployed workers, unsold consumers’ goods and quantities of unused factors of production, which would not exist under ‘static equilibrium.’ With the revival of business and productive activity, these reserves are in demand right away. However, once they are gone, the increase in the supply of fiduciary media necessarily leads to disturbances of a special kind. In a given economic situation, the opportunities for production, which may actually be carried out, are limited by the supply of capital goods available. Roundabout methods of production can be adopted only so far as the means for subsistence exist to maintain the workers during the entire period of the expanded process. All those projects, for the completion of which means are not available, must be left uncompleted, even though they may appear technically feasible—that is, if one disregards the supply of capital. However, such businesses, because of the lower loan rate offered by the banks, appear for the moment to be profitable and are, therefore, initiated. However, the existing resources are insufficient. Sooner or later this must become evident. Then it will become apparent that production has gone astray, that plans were drawn up in excess of the economic means available, that speculation, i.e., activity aimed at the provision of future goods, was misdirected.” (Mises 2006 [1978]: 110).

With respect to Hayek’s presentation of the Austrian trade cycle theory in Prices and Production, the evidence does not support Huerta de Soto either. Hayek explicitly conceded that he had assumed full employment in Prices and Production (1931):

“As it is sometimes alleged that the ‘Austrians’ were unaware of the fact that the effect of an expansion of credit will be different according as there are unemployed resources available or not, the following passage from Professor Mises’ Geldwertstabilisierung und Konjunkturpolitik (1928, p. 49) perhaps deserves to be quoted: ‘Even on an unimpeded market there will be at times certain quantities of unsold commodities which exceed the stocks that would be held under static conditions, of unused productive plant, and of unused workmen. The increased activity will at first bring about a mobilisation of these reserves. Once they have been absorbed the increase of the means of circulation must, however, cause disturbances of a peculiar kind.’ In Prices and Production, where I started explicitly from an assumed equilibrium position, I had, of course, no occasion to deal with these problems. (Hayek 1975 [1939]: 42, n. 1).

There is no way to deny this fact. The starting point in Prices and Production was in fact the assumption of an economy in full employment equilibrium.

In Monetary Theory and the Trade Cycle (1929) [English trans. 1933 by N. Kaldor and H.M. Croome]), Hayek had also made it perfectly clear full employment equilibrium was his starting point:

“The purpose of the foregoing chapter was to show that only the assumption of primary monetary changes can fulfill the fundamentally necessary condition of any theoretical explanation of cyclical fluctuations—a condition not fulfilled by any theory based exclusively on “real” processes. If this is true then at the outset of theoretical exposition, those monetary processes must be recognized as decisive causes. For we can gain a theoretically unexceptionable explanation of complex phenomena only by first assuming the full activity of the elementary economic interconnections as shown by the equilibrium theory, and then introducing, consciously and successively, just those elements that are capable of relaxing these rigid interrelationships.” (Hayek 2008: 47).

The assumption of “full activity of the elementary economic interconnections as shown by the equilibrium theory” is nothing but a static equilibrium assumption of full employment.

In a letter written to John Hicks in 1967, Hayek confirms that his theory required the assumption of full employment at the beginning of the process:

“Hicks to Hayek, November 27, 1967
...
We have (a) full employment, (b) static expectations, (c) ‘equilibrium’ at every stage, so that demand = supply in every market, prices being determined by current demand and supply. Add to these the Wicksell assumption, of a pure credit economy and we clearly find that if there were in lags, the market rate of interest cannot be reduced below the natural rate in an equilibrium position; ...

Friedrich August Hayek, Good money, Volume 6, p. 100.

Hayek to Hicks, December 2, 1967
... I accept assumption (a), full employment .... (Hayek 1999: 102).

BIBLIOGRAPHY

Hayek, F. A. von. 1939. Profits, Interest and Investment, Routledge and Kegan Paul, London

Hayek, F. A. von. 1975 [1939]. Profits, Interest and Investment, Augustus M. Kelley Publishers, Clifton, NJ.

Hayek, F. A. von, 2008. Prices and Production and Other Works: F. A. Hayek on Money, the Business Cycle, and the Gold Standard, Ludwig von Mises Institute, Auburn, Ala.

Hayek, F. A. von, 1999. Collected Works of F.A. Hayek, Volume 6: Good Money, Part II: The Standard, Routledge, London.

Huerta de Soto, J. 2006. Money, Bank Credit and Economic Cycles (trans. M. A. Stroup), Ludwig von Mises Institute, Auburn, Ala.

Mises, L. von. 2006 [1978]. The Causes of the Economic Crisis and Other Essays Before and After the Great Depression, Ludwig von Mises Institute, Auburn, Ala.