The View From 1776
Saturday, March 06, 2010
One Reason Unemployment Remains High
Keynesian macroeconomic models suffer, as do Climategate global-warming models, from human inability to comprehend all relevant factors and to input their unimaginably complex interactions accurately into computer models.
The continuing dismal unemployment picture is captured by Investor’s Business Daily in a news analysis article.
The true unemployment rate, including people who have ceased to look for jobs, is somewhere between 16.8% and 19.8% of the full workforce.
A key element is businessmen’s fear and uncertainty induced by Obama’s business-bashing, higher taxes, continual threats of strangling new regulations, take-overs of banks, insurance companies, auto manufacturers, threatened nationalization of private health insurance, and by far the greatest government debts and deficits in history (both scheduled to climb even farther and faster).
Historian Joyce Appleby’s just-published The Relentless Revolution: A History of Capitalism explains why Keynesian macroeconomic computer models fail to live up to liberal-progressive expectations of managing the economy from on high.
Before readers of this website denounce Ms. Appleby as deficient in credentials to opine on such matters, let me note that she has taught history for many years at UCLA and is a past president of the American Historical Association. The origin and unfolding history of capitalism has been one of her focal points since 1967. Moreover, she is no conservative. She writes, “I’m a left-leaning liberal with strong, if sometimes contradictory, libertarian strains.”
Our present [Keynesian] method of analyzing economies obscures their entanglement with society and culture. Professional [Keynesian] economists [like New York Times propagandist Paul Krugman] analyze capitalism with mathematical precision. Building mathematical models to explain how markets behave, they tend to ignore the messiness that any set of social relations is bound to produce. All the economists’ precise projections assume ceteris paribus - all other things remaining equal - but they rarely do. Philosophers use the word “reify” to indicate when concept is being talked about as a real thing rather than as a way of talking about something. [Keynesian] Economists talk about their subject as though it were a unitary thing rather than a mixed bag of practices, habits, and institutions.
Keynesians, who construct the models for Obama’s stimulus programs, oversimplify the factors at work in a vast economy such as ours. To them, government deficit spending, on no matter what, will automatically raise consumer spending and create real, new jobs. Keynesians ignore consumers’ fears for job security and consumers’ resultant inclination to pay off debt and to increase savings, rather than rushing to spend short-term government handouts.
Similarly Keynesians ignore the greatly different time scales for businesses ranging from retail sales, wholesale distribution, transportation, manufacturing of consumer goods, manufacturing of intermediate producers’ goods, machinery and equipment, mining and production of basic raw materials. Recent upticks in GDP have been almost entirely the result of businesses, to a limited degree, restocking some inventory items or simply not reducing inventories as rapidly as before.
Austrian-school economists, in contrast, eschew mathematical modeling, placing heavy emphasis instead upon consumers’ and businessmen’s expectations and incentives. Austrian economists foresaw months ago the current high unemployment, when President Obama and Democrat/Socialist Party leaders began to blame the recession on businessmen and bankers. See, for example, Government Action Causes Unemployment.
Anyone who has studied Franklin Roosevelt’s record of prolonging the 1930s Depression for eight years, with unemployment in the teens throughout that period, understands that governments don’t create meaningful, productive jobs and that, while their accusatory tactics may be good short-term politics, they drown business incentives to expand full-time employment.
The proof of the pudding is that current Democrat/Socialist Party stimulus spending, at the highest levels in world history, has produced very few real jobs, but a great expansion of government employment that swells the ranks of the socialist Service Employees International Union (SEIU) members. The SEIU, of course, is a major contributor of campaign funds and free labor for electing Democrat/Socialist Party candidates.