October 15, 2013

So what does one of the latest Nobel Prize winners, Robert Shiller, think causes unemployment? Capitalism.

I am not making this up.

In a paper titled,  Austerity and Demoralization, he wrote:

Unemployment is a product of capitalism: people who are no longer needed are simply made redundant. On the traditional family farm, there was no unemployment.

The man doesn’t understand simple supply and demand economics, which teaches that any unemployment is transitory (unless government regulations somehow distort the market, e.g. minimum wage laws, unemployment payments). Shiller, further, has no clue as to the phases of the business cycle and why there is a sudden cluster of unemployment in the liquidation phase of the business cycle.

One solution he promotes, though he ultimately dismisses it, is this, which reinforces the idea that he just doesn’t get supply and demand economics:

Work-sharing might keep more people marginally attached to their jobs in an economic slump, thereby preserving their self-esteem. Instead of laying off 25% of its workforce in a recession, a company could temporarily reduce workers’ hours from, say, eight per day to six.

Unless, we are in paradise, there is always demand for workers. The central bank caused business cycle downturns are simply a period when work opportunities shift—no need to force employers into misallocating labor via work-share programs.

Shiller ultimately turns to a  Keynesian 101 solution. More government spending:

[W]e need fiscal stimulus – ideally, the debt-friendly stimulus that raises taxes and expenditures equally. The increased tax burden for all who are employed is analogous to the reduced hours in work-sharing.

But, if tax increases are not politically expedient, policymakers should proceed with old-fashioned deficit spending. The important thing is to achieve any fiscal stimulus that boosts job creation and puts the unemployed back to work.

Yes, anything involving government spending—just don’t allow the free market to resolve central bank induced episodes of high, but transitory unemployment.

That’s the new Nobel prize winner.

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