Friday, August 05, 2011


Much has been trumpeted recently about jobs. The dingbats constantly yell that we must do something to stimulate (that’s a dirty word) job creation. The problem is that I don’t think they really understand what they say. So, let’s have a short lesson in Economics 101.

There are only two classes of jobs. Private industry, which we will call P, and Government, we call G. There is a third group, the unemployed, we call U. These three then make up the total work force, or WF. So we have a simple formula: P+G+U=WF.

This simple formula applies whether we are talking about a city, county, state or nation. It will always be in equilibrium.

WF will constantly change. It will increase as people reach employable age, or graduate from college, etc., and will decrease as people die or retire. No matter, P, G and U must change to stay in balance. Ideally we would like our formula to look like this:

P + G + U = WF. Private industry is hiring; government employment is shrinking, and unemployment is low. But we’re not there.

Private industry is not hiring. Why? There are several reasons. One, we become more efficient and automated so that fewer workers are required; Two, many of our jobs have been outsourced to other countries; and Three, we run into a paradox. Industry will not expand (and hire) until there is a demand for its products. With so many unemployed, there is little demand simply because people do not have the money to spend.

Now the dingbats want to cut government programs. So, if we suddenly decrease G, by canceling programs or departments, then P must expand hiring or U will increase to maintain the balance. The same holds true if industry, P, lays off workers. Either G or U must expand.

Another erroneous assumption is that we can realize immediate savings by an immediate reduction in the size of government. This doesn’t wash. Suppose we decide to do away with the EPA (the dingbats really hate this entity) and lay off 30,000 workers. Surely this will generate immediate savings. No! First, these are probably all covered under Civil Service. This would be a RIF (Reduction in Force) so they would be entitled to severance pay. Then, they are eligible for unemployment benefits. They will pay less income tax. They will generate less sales tax, since they cannot afford to buy much. In the short run, where are the savings? Yes, there are great savings to be realized by reformation of government, but they must be the result of a slow, gradual and planned reduction so not to overload the ranks of the unemployed.

To be truthful, since we are in a recession, our formula probably looks more like this:

P + G + U = WF. Industry is not hiring, so unemployment is rising. Government employment has stayed relatively stable, but will soon decrease. When that happens, we will see: P + G + U = WF. And that is the formula for a depression.

Our last full depression was greatly alleviated by government stimulus programs, but only fully corrected by WWII. Is that the dingbats’ final solution?

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