The Infuriating Truth About Unemployment

Warning - the information contained herein may make your blood boil. Keep a cold drink next to you, just in case.

When people think of the causes of unemployment, they may think it's because machines are replacing people or because businesses aren't competitive enough ("all of the jobs are going to countries where labour is cheap").

Those things may be the reason why certain types of jobs are disappearing, but they're not the reason why unemployment exists.

Economists typically believe that people are unemployed because they're either underskilled, lazy or have decided that receiving welfare is more logical than putting up with the inconvenience of doing a job they don't like. In truth, most economists are underskilled when it comes to understanding unemployment, yet they get paid to give bad advice.

The Real Root Cause - Part 1

What I'm about to say may sound daft or bizarre beyond belief, but I've already verified that's it's true in Australia by asking our central bank a few questions (I'll blog about that later).

Every time the national government spends, it creates new money. Every time it collects taxes or fines or duties or license fees, etc., it destroys money.

If the government spends money on things that it wants, such as paying for bombs, civil servants, infrastructure, etc., it can cause hyperinflation. This is why you'll hear people speaking out against money printing.

What those people don't realise is that taxation is the tool that governments use to avoid hyperinflation. They create a vacuum in the economy by sucking money with taxes, and they they fill that vacuum with newly created money.

The Real Root Cause - Part 2

What's that got to do with unemployment? Well, inflation is bad. Inflation is like a hidden tax. Economists don't like inflation, so they do something dastardly to avoid it. They tax too much/spend too little so that there's always a small vacuum in the economy.

Part of this vacuum is better known to the World as unemployment. Does that make sense? No? I'll try again...

1. The government extracts money from the economy - the place where jobs are created.
2. Now there isn't enough money for transactions to take place, so businesses make fewer sales, shrink and lay off workers.
3. Banks can try to fill the vacuum by lending out money (credit) that they create, but they usually prefer to lend to the likes of real estate speculators rather than people who create jobs.

The Solution

Unemployment is labour that hasn't been bought. The government can create new money to buy that labour and no extra tax needs to be collected because the vacuum already exists.

Has this ever been tried before? Absolutely! I'll make another post which goes into the history of it, but this was done successfully in the UK and Australia from World War II until the mid-1970's. It's being done in rural areas in India right now. It was tried out in the USA for a brief period (they called it the New Deal).

Ending involuntary unemployment is a political decision that injects money into the economy, so that everyone is better off, and comes at no extra cost to the taxpayer. It's the easiest of easy wins!

Show this video to an economist and ask them to tell you that unemployed people are lazy...

If you want to learn more about the concepts I've discussed, I recommend keeping an eye on the #mmt tag.