Legal Writing for Legal Reading!

Why Unemployment is a Pseudoproblem

This article is part of my posts on the economic system of distributism.  This is from practicaldistributism.blogspot.com which you can find here:


Unemployment a pseudoproblem? By calling it that, I do not mean that unemployment does not exist, or that it is not a very serious concern for the unemployed, their families and for society as a whole. What I mean and will argue here is that unemployment is not something natural to economic life, but is a problem created almost entirely by the capitalist arrangement of our economy, one that would largely disappear under a distributist economy, and that is taken for granted by the academic discipline of economics only because that discipline has long been captive to the ideology of capitalism.

The study of economics, especially in its neoclassical and Austrian forms, developed as a theoretical elaboration of capitalism and industrialism as they came to maturity in Europe in the 18th century and afterwards. Most often economic thought has not only assumed capitalism, but has been a mouthpiece for capitalism, in fact, a sophisticated attempt to provide a justification for the disparity in incomes and for the social dislocations that are such notable characteristics of the capitalist world. In face of this complex structure of thought, it can be helpful to return to the basics of human behavior upon which economic life is based in order to discover a different and more accurate way of conceptualizing mankind’s economic activity.

Let us first look at the three different types of economic unemployment as these are enumerated and acknowledged by economists.[1] First, and of little importance for our discussion, there is voluntary or otherwise short-term unemployment of people between jobs, between school and a job, and so on. This is sometimes referred to by economists as frictional unemployment. If the other two types of unemployment are eliminated or reduced, this type will be of little concern.

Then there is what economists call structural unemployment, which Paul Samuelson describes as

a mismatch between the supply of and the demand for workers. Mismatches can occur because the demand for one kind of labor is rising while the demand for another kind is falling, and supplies do not quickly adjust…. [For example], the demand for coal miners has been depressed for decades because of the lack of geographical mobility of labor and capital: unemployment rates in coal-mining communities remain high today.

Thirdly, there is cyclical unemployment, which Samuelson explains as occurring “when the overall demand for labor is low. As total spending and output fall, unemployment rises virtually everywhere.”[2]

These latter two types of unemployment require separate discussion. First let us look at the question of structural unemployment. It arises chiefly because of new technology or on account of some external cause, such as, in the case of coal miners, heightened concern about air pollution. The former cause, new technology, is the more common occurrence. In an economy dominated by capitalists, people who own the means of production, new technology presents an opportunity for higher profits achieved via lower costs. A new or improved device makes a certain number of workers unnecessary. Since labor is a cost item in a capitalist’s balance sheet, there is rarely any conflict in the capitalist’s mind about what to do: if he can save money by eliminating workers and buying machines he will do so. But in a distributist economy this would not be such an open and shut decision. When workers themselves control the enterprises in which they work, either individually or cooperatively, there are other considerations besides merely increased profits. New technology can and will be adopted, but its adoption will be balanced against other equally important economic and social needs, job and family security, social stability, and the like.

Moreover, we should recognize that technology can develop in many ways, and that replacing men by machines is not the only way to secure improved production. In any case, if we remember that the economy is an important but subordinate part of human social life, we will not regard technological improvements as the summum bonum. Right now, with capitalists mostly calling the shots in the economy, their view usually prevails, and what we like to call economic efficiency wins against any of the human concerns and needs that an economy is supposedly subservient to. If an economy could do without workers altogether and produce more cheaply and quickly solely by means of robots, would this really be a benefit to mankind? Would not the fact that the now unemployed workers could no longer afford to buy any of the robot-produced goods signify that such an economy had entirely inverted means and ends?

What if technological advances across the board make it possible for our consumption needs to be supplied by merely a portion of the labor force? The obvious answer to that is, if it is no longer necessary for everyone to work eight hours to supply mankind’s needs, let everyone work a little or a lot less, enough so that mankind’s needs are taken care of. If this can be done with everyone working six hours instead of eight, well and good. Here, though, we run into one of the shibboleths of neoclassical economics, the so-called “lump of labor fallacy.” Samuelson explains this notion as follows:

Whenever unemployment is high, people often think that the solution lies in spreading existing work more evenly among the labor force. For example, Europe in the 1990s suffered extremely high unemployment, and many labor leaders and politicians suggested that the solution was to reduce the workweek so that the same number of hours would be worked by all the workers. This view – that the amount of work to be done is fixed – is called the lump of labor fallacy.

What is wrong with this idea, according to Samuelson?

[T]he lump of labor argument implies that there is only so much remunerative work to be done…. A careful examination of economic history…shows that an increase in labor supply can be accommodated by higher employment, although that increase may require lower real wages.[3]

What is one to make of this argument? If we examine it, Samuelson appears to mean that if workers are willing to work for lower wages, some capitalist will employ them to produce something that he thinks he can sell, and thus absorb the unemployed workers. This is no doubt often true, but this says nothing about the relationship between the total amount of goods being produced at a certain point in time, the total number of workers existing at that time, and how that work is to be apportioned among them. At the point when the unemployment in question arose, why was it not a reasonable policy to distribute the work more evenly? If the economy hitherto has been producing a sufficient amount of goods to supply consumption needs, and then unemployment increases due to technological changes and a reduced need for human labor, clearly the total quantity of potential workforce effort is now greater than is needed. Thus reducing everyone’s hours seems like an entirely reasonable response. Society possesses the productive capacity to satisfy consumer needs but no longer requires the same amount of labor. Thus both the amount of work, as well as the product of work, can be distributed among the total labor force, taking into account the new technology.

The fact that Samuelson thinks that only by employing workers at lowered wages can this problem be addressed, shows that he is assuming as a fact of nature the position of dominance by capitalists and the corresponding subordinate position of workers. Of course, capitalists are not likely to pay workers the same wage they previously received if they now work fewer hours. But both the productive capacities of the workers remain the same, society’s need for goods and services remains the same (in the short run), and the economy’s capacity to produce has increased. Any mismatch is in the connection between the worker and the means of production. A response that has regard both for the purpose of an economy and its connection with the social fabric as a whole would see reduced work hours as a logical response to the situation.

Next let us look at the question of cyclical unemployment, that type which comes about “when the overall demand for labor is low” because of a business cycle downturn. I am afraid my argument will seem hopelessly naive to most economists. But that does not mean that it is wrong, only that the elaborate superstructure that economists have erected over the past couple centuries tends to obscure some obvious economic facts.
God created human beings with both the capacity for work and the need to consume. In fact, these two characteristics balance one another in that anywhere there are people, there are both producers and consumers. Thus it would seem that everywhere people can do the work which supplies them with the goods they need. The human capacity for work corresponds roughly with our need for the products of that work. The more people, the more workers, the fewer people, the fewer workers. What does this have to do with the question of unemployment? If in general each person is able to perform productive work sufficient to supply at least his own needs, then why should anyone be idled, unable to work? Does not each person create his own demand and at the same time provide the means for supplying that demand?
The reason that any particular person’s capacity for work cannot be the means of his supplying his needs is usually because he is denied access to the means for production, to land or tools, for example. On occasion a harsh environment makes it difficult to take advantage of mankind’s capacity to produce, but in general this is rare. This is not a problem, then, that arises from the nature of human economic activity, it is an organizational problem, one ultimately occasioned by the question of who owns or controls land or tools. The more complicated the relationship between individuals and the means of production, the more likely is some sort of organizational or structural difficulty which impedes people’s ability to work and produce. Capitalism heightens this tendency not only by the complexity of its structure, but by creating a class of owners whose primary and direct interest is not in producing for the needs of mankind, but in convincing people to buy their product, whether needed or not, whether well-made or not.
Hence in capitalism there exist business cycles, those alternating periods of boom and bust which are the causes for the cyclical decrease in the demand for labor, and which come about because of capitalism’s propensity toward overproduction and speculation. Since the tendency in capitalism is simply production for the sake of sales, not production for the sake of reasonable use, the tendency to overproduce is always present because the capitalist class, people one step or more removed from actual production, have little or no interest in production as such. But under a well-functioning distributism, with a healthy structure of intermediate occupational groups (guilds), part of whose aim is to match economic activity with society’s needs, business cycles would either not exist or would be milder and less disruptive.
We can see how the complexity of a capitalist structuring of the economy contributes to the imbalances that create cyclical unemployment if we contrast that with a very simple distributist economy. In such an economy, one in which all workers owned their land and tools and produced whatever was needed for themselves and their families, the immediate connection between work and consumption would be obvious, since each person would be the primary producer of most or all of what he and his family needed, and the one-to-one correspondence between a worker’s need to consume and his ability to produce would be obvious. Of course such an economy is hardly possible outside of a primitive level of culture, and in any case is not desirable. The division of labor, though it can be extended too far, has obvious benefits to humanity, and I know of no distributist who opposes it. Indeed, the medieval urban distributist economy assumed and fostered the division of labor up to a point. But what we should note here is that the more complex the connection or relationship between workers and the means of production, the more possibility that a worker will be hindered in the exercise of his ability to produce. Distributism tries to keep that connection as simple as the division of labor and other necessary factors will allow, while capitalism needlessly elaborates that by shifting emphasis from production for fulfillment of human needs, to production oriented toward sales, toward new products that often have little utility, together with a constant preoccupation with higher profit margins, so that capital seeks not merely a sufficient return, but an ever higher one.
Any society and economy that is structured toward man’s genuine welfare ought to seek to make use of the obvious connection between the human need to consume and the human ability to work and produce.
This must be kept front and center in our economic thinking, and any needless elaborations and complexities which are introduced into the economy must be eliminated or at least watched carefully lest they create conditions, such as unemployment, which are socially or economically harmful. In a distributist economy the natural relationship between production and consumption would be one of the fundamental principles of its economic organization.
But in addition to the three types of economic unemployment that economists note, there is another type which they are reluctant to acknowledge, or at least to regard as a significant problem. This is unemployment caused by trade agreements. Although the trade facilitated by agreements such as NAFTA can be called free only with numerous qualifications, still it is usually in the direction of freer trade that such agreements lead. Such trade pacts are based on the neoclassical doctrine of comparative advantage, which Paul Samuelson calls “one of the deepest truths in all of economics.”[4]
Comparative advantage is based upon a fact, to be sure, that countries excel better at some products than others, and from this it is argued that it is in the interests of all countries to specialize in the products that they can produce most efficiently in order to increase the overall living standard of all countries. While superficially plausible, in fact there are major objections against the theory. In the first place, it treats each country as if it were merely a site for production, ignoring cultural or legal factors. For example, the unique cultural and legal situation of Mexico included Indian villages which held land in common and which in consequence were able to be self-supporting in food. Trade agreements which require land to be freely bought and sold destroy such communities, despite any elegant graphs that economists concoct purporting to prove that everyone will be better off under these agreements. More fundamentally, the theory of comparative advantage assumes that more and more stuff, what is called economic growth, is the summum bonum of human life. Consider Samuelson’s discussion of objections to international trade agreements.

    But this does not mean that every individual, firm, sector, or factor of production will benefit from trade…. Recent studies indicate that unskilled workers in high-income countries have suffered reductions in real wages in the last three decades because of the increased imports of goods from low-wage developing countries….

    The theory of comparative advantage shows that other sectors will gain more than the injured sectors will lose. Moreover, over long periods of time, those displaced from low-wage sectors eventually gravitate to higher-wage jobs…. Nations that disregard comparative advantage pay a heavy price in terms of their living standards and economic growth.[5]

Unfortunately, “over long periods of time” most of those unskilled workers will be dead long before they manage to “gravitate to higher-wage jobs,” and in the meantime the towns and cities in which they live will be devastated, their families often hurt, social problems will develop, and in general the real standard of living – which is not measured in terms of how much stuff we possess – will decline. The overall amount of available commodities might increase, at least for some people, such as economics professors, but at the cost of buying goods produced by poorly-treated workers in “low-wage developing countries.” International trade can be beneficial to all parties, but only if many more factors besides the total quantity of goods produced and sold are considered. Distributism, since it is more than an economic system, would tend to create a society which did not give material goods a greater value than they deserve. As St. John Paul II wrote in his encyclical Centesimus Annus,

It is not wrong to want to live better; what is wrong is a style of life which is presumed to be better when it is directed toward “having” rather than “being,” which wants to have more, not in order to be more but in order to spend life in enjoyment as an end in itself. (no. 36)

Mainstream economic thought is based on the idea that human life is not about “being,” but about “having,” about, as Samuelson avers, producing enough stuff so that “the average American could live at the level of the average doctor or big-league baseball player.”[6] This is nothing other than the philosophy of Hell, a point of view opposed to any Christian conception of life. International trade need not create unemployment, but it will do so if it is based on the notion that any increase in the amount of commodities produced, sold or traded, is a good thing, regardless of any effect it has on human life, individual or social.
Unemployment need not exist, or at least, need not be the problem that it so often is in a capitalist economy. If we are willing to rethink economic principles in the light of fundamentals, then we will see that distributism offers a way out of the capitalist orientation of economic activity which diverts it from its natural end of providing for the genuine consumption needs of mankind.
1: Note that I am dealing with unemployment as an economic question only. It is arguable that there exists what might be called cultural unemployment, but this is outside of the scope of this article.

2: Quotations from Paul Samuelson, Macroeconomics, 16th ed., 1998, p. 259.

3: Paul Samuelson, Microeconomics, 17th ed., 2001, pp. 257-58.

4:  Paul Samuelson, Macroeconomics, 16th ed. 1998, p. 388.
5:  Paul Samuelson, Microeconomics, 17th ed. 2001, p. 306.
6:  Ibid., p. 4.
You can find the original publications here and here.

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