Uncle Sam is a serious douchebag.
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Defining Employment
Over at the Mises Institute’s forums, I am debating on the possibility of involuntary unemployment in a free-market (due to disequilibrium in the labor market and imperfect information). The debate has come down to defining away involuntary unemployment altogether.
I argue that involuntary unemployment is possible due to two reasons,
- Knowing that markets are in constant disequilibrium, due to shifting supply and demand, it is fair to assume that at certain points wage-rates will be higher than the market-clearing price. This creates a surplus of labor, or a shortage of wage-offerings. Of course, there will be times when it may be the exact opposite; there can be a surplus of wage-offerings, and a shortage of labor. In a growing economy, the latter may be more likely than the former, but they are both technically possible (I say it’s more likely because the demand for labor is more likely to shift to the right than to the left, and the supply of labor is not likely to be very volatile).
- There may be imperfect information. An individual, recently fired from a job, may not find employment in his direct geographical location (such as the city of Chula Vista, for me). There may be, technically speaking, someone willing to employ him, but he may have to look for a longer amount of time to find this employer. The amount of time spent looking represents him involuntarily unemployed, traditionally speaking (even if the amount of time he is unemployed is irrelevantly small). This is actually suggested by Austrian economist Jesús Huerta de Soto.
The debate has really broken down to what really defines unemployment. If we agree that self-employment is a form of employment, then all individuals can technically become employed. Indeed, I could just as easily plant tomatoes in my backyard, whether they sell or not (I, effectively, become an entrepreneur). Every individual has some labor and some capital to pit towards some end (I bring up, in the thread, the example of a homeless man cleaning automobile windows).
To what degree is it practical to talk about self-employment as a form of employment? How broad is the word employment, in terms of the global population as a whole? My point is, while it may be technically true that an autarkic individual is employed within his own economy, practically speaking when economists are talking about employment they are talking about employment within a certain economy.
What I mean is that an autarkic individual no longer forms part of the division of labor of the greater economy, and so technically speaking does not form part of the labor force in general (so, for all intents and purposes, he is not unemployed nor employed; he is simply not part of the labor force). So, when talking about employment (whether it is as a wage-earner or as an entrepreneur), we are talking about individuals employed within a certain division of labor (a certain economy). If an individual becomes autarkic, he is no longer a part of that division of labor (an individual participating in a division of labor is one who specializes on very few things, and allows the greater portion of his desires to be fulfilled by others).
So, a debate on employment versus unemployment concentrates on a division of labor economy, where the unemployed are assumed to be individuals who are not earning a wage or gross profits while still looking to be part of that division of labor.
Unfortunately, the discussion has focused on this, rather than my two points (there is some discussion on those two points, but the claim mostly is that my conclusion does not follow my premise). I am actually surprised that Austrians are hostile to this idea of market disequilibrium, and the possibility of involuntary unemployment. I am a little let down by the fact that most people in the thread have preferred to call things “praxeologically unsound”(something with very little meaning, unless substantiated), or even dogmatically stick by the words of Ludwig von Mises (who, in Human Action, argues involuntary unemployment to be impossible in a free market). I don’t mean to suggest that people should simply assume Mises was wrong, but it would be nice if they could apply his argument in their own words and expand it to cover Jesús Huerta de Soto’s case (something which Mises’s words may cover, but don’t directly address [since Mises is dead]).
Thoughts on American Slavery
Whether it is economical to enslave another human being depends on the marginal productivity difference between a free (politically speaking) worker and a slave worker. That is, at some point it becomes more economical to pay the worker, because that will provide an incentive to increase production. In this fashion, Brazilian slavery mostly disappeared only a few decades after the American Civil War, and this explains why mostly poorer, less productive nations still maintain institutions of slavery (such as Sudan).
I am certain that slavery in the United States would have been phased out naturally. Slavery was beneficial in the south because of low marginal productivity. The south was predominately an agricultural society, and it had not benefited from the mechanization it would benefit from in the decades directly after the American Civil War.
An important question to ask is whether or not the emancipation of the slaves during the civil war accelerated the post-war industrialization of the south. No longer benefiting from cheap labor, southern farmers had to radically increase production in order to remain profitable. This directly leads to another question: how long would it have taken to naturally rid the country of slavery?
There were important technological developments prior to the civil war: steel plows, seed drills, threshing machines, et cetera. The dramatic burst in agricultural productivity, however, occurred in the post-war (indeed, this increase in productivity directly after the war led to the industrial revolution of 1879-1906, since it allowed otherwise occupied labor to be restructured into more productive industries).
I just think it’s an interesting question to ponder: was the post-war industrial revolution driven by the abolition of slavery, to some extent? Or, would it have occurred naturally, and perhaps even sooner than it did?
EDIT: Interesting bit of information from Wikipedia.
Britain had outlawed the slave trade with the Slave Trade Act in 1807, with penalties of £100 per slave levied on British captains found importing slaves. However, this did not stop the slave trade: if slave ships were in danger of being captured by the Royal Navy, captains were known to have ordered the slaves to be thrown into the sea to reduce the fines they had to pay.
Unintended consequence of regulation? This would make a great Mises Daily.
Literary Woes
I’ve been hoping to buy Robert Higgs’s Crisis & Leviathan for quite some time now. Not only is it quite likely Higgs’s most important literary contribution to libertarianism, but it would also make a good addition to the four Higgs books I already own. I bought a used copy on Amazon.com for less than $10, so I am pretty happy (I can deal with some hi-liting or underlining). I have one more essential book I am craving, Man, Economy, and State, but that will have to wait for some time (besides, I already have a lot of reading ahead of me!).
I’ve been also looking to shed some books to bring in some revenue (with impending expenses and whatnot). I own very nearly the entire set of twenty books of Benjamin Disraeli’s novels, published in 1904 (I actually own two copies of the first book). The books are not in pristine condition, which devalues them considerably, but I have a feeling they are still worth a high price. Unfortunately, I can’t find too many copies of this set online, so I have nothing to go by (one of the books, being sold on ebay, is going for $45, but has not gotten a buyer). I am also missing three volumes of the set.
I’ve also been thinking about selling another three sets of older books I own, although I’ve been more reserved about these (they are definitely worth keeping). One is the Constitutional Edition of The Writings of Abraham Lincoln, published in 1905. I don’t think they go for very much (maybe $20 per book). I also own the 1901 set The Story of the Greatest Nations, and incompletely own (missing only one volume) the 1936 copy of the twenty-volume set History of Nations.
All these books have very high value to me, so I am kind of skeptical about selling them (I will have to scour my garage to see if there’s anything else I can sell before these books). Ultimately, the price others may offer may not be sufficient to justify the sale (which is what I have a feeling will happen).
In any case, anybody have any idea where they’d be valued as sets (incomplete or not)? Even if I don’t sell them (the most likely scenario), I’d still like to know their value on the market.
Roderick Long Offers Some Sense
Long provides a great post comparing Al-Qaeda and “anti-mosqueteers” (those opposed to the construction of a mosque at “ground zero”),
Al-Qaeda seeks to combat the idea that people of different religions can live harmoniously together in the same society. The anti-mosqueteers are certainly doing their best to combat this idea as well.
Al-Qaeda seeks to subordinate private property rights to religious law. This is exactly what the anti-mosqueteers do when they declare other people’s property “sacred ground” and propose on this basis to interfere with their peaceful use of it.
Al-Qaeda seeks to position itself as the representative of the entire Muslim community. The whole anti-mosqueteer position makes sense only on the assumption that they support al-Qaeda’s claim on this point – since otherwise banning an Islamic cultural center because the 9/11 highjackers were Muslim would be no more salient than banning a YMCA because the highjackers were male…
Al-Qaeda employs a double standard, condemning its enemies for killing innocents but excusing its own similar actions. This approach too gets its stamp of approval from the anti-mosqueteers, who express far more concern about what might be built near the site of the 9/11 bombings than about what might be built near the sites of American bombings of Muslims.
Al-Qaeda seeks to intimidate its opponents into appeasing its irrational demands. What are the anti-mosqueteers doing if not endorsing this tactic when they suggest that the Islamic Center should cave in and “compromise” out of concern for the anti-mosqueteeers’ “feelings,” regardless of the merits of those feelings?…
Rational Expectations and Austrian Theory
Over at the Mises forums, I am presently engaged in a debate with “Neoclassical” who is arguing in favor of Bryan Caplan’s rational expectations criticism of Austrian business cycle theory. This criticism was posed in Caplan’s “Why I Am Not an Austrian Economist“. Caplan’s essay goes into many other disagreements, as well, and is worth reading. This Mises thread, however, deals specifically with this portion of Caplan’s criticism of Austrian business cycle theory.
Caplan lays out his critique with,
Why does Rothbard think businessmen are so incompetent at forecasting government policy? He credits them with entrepreneurial foresight about all market-generated conditions, but curiously finds them unable to forecast government policy, or even to avoid falling prey to simple accounting illusions generated by inflation and deflation. Continue reading
Posted in Theory
Tagged Austrian, bryan, business, caplan, cycle, expectations, rational, Theory
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Austerity in Germany
The apparent revival of the Germany economy has brought into further question the validity of the New Keynesian calls for greater spending in the United States. For instance, Don Bourdreaux argues, while comparing Germany to the United States,
…government in the former nation is following a policy of (relative) fiscal austerity while government in the latter nation is following a policy of wild-spending and deficit-bloating fiscal expansion.
Looking through the archives of Think Markets, I found this very interesting interpretation of events in Germany, written by Andreas Hoffmann. While Hoffmann doesn’t really argue either way, he shows how Germany could be used both to prove Keynesian and free-market theories. For example, Hoffmann argues,
1. Private investment demand is up and does not need to be stabilized anymore. There is no ongoing balance sheet recession as most of Germany’s manufacturing companies underwent large scale restructuring in the 2000s and are competitive on world markets.
I am no expert on contemporary German economics, and nor do I claim to be an authority, but I generally agree with Hoffmann here. In fact, this seems similar to Daniel Kuehn’s argument regarding the Depression of 1920-21. When there is no liquidity trap, and therefore ample private lending and investment, there is no investment gap that the government needs to make up through stimulus spending.
A critic may respond: well, how does one decide whether or not a liquidity trap will occur? The origins of the liquidity trap may be nebulous, and it may seem that economies are categorized only after empirical evidence. But, the nature of the crash in Germany was fundamentally different than the crash in the United States. In Europe, the bubble mostly occurred in faster-growing economies: Spain, Ireland, Estonia, et cetera. It makes sense that the banks which took the hardest hits were in these countries, and so it makes sense that German banks may not suffer from the same uncertainty that Spanish or American banks do. This may explain why they are more willing to lend.
The German economy, rather, seems to be based more on currency devaluation to boost exports. The European Central Bank’s inflationary policies have, to a large degree, probably positively affected German exports. This may also cause an increase in entrepreneurial confidence. There may be no reason to believe that investment in the manufacturing sector is particularly harmful, at this point.
While some may interpret this as a bubble in the making, this is not relevant to the austerity debate per sé. The fact is that, unlike in the United States, private investment did not take as big as a hit and is now growing.
For all intents and purposes, the argument is still theoretical.
Affording the Unemployed
My criticism of Krugman’s, Thoma’s, DeLong’s and Yglesias’s prediction of high structural unemployment was published today on Mises Daily: “Affording the Unemployed“.
One commenter mentions the insider-outsider theory of unemployment. Wikipedia offers three reasons why this theory might be true,
First, legislation may keep the wage above its market-clearing level (the minimum-wage explanation). Second, firms may not accept the outsiders’ underbidding, since a fall in the wage may reduce productivity or increase the rate of labor turnover (the efficiency wage explanation). And third, it is not in the insiders’ interests to permit outsider underbidding and the insiders can impose their interests on their employers, since the insiders’ positions are protected by labor turnover costs (the insider-outsider theory explanation). Continue reading
Posted in Miscellaneous, Theory
Tagged Employment, insider, outsider, structural, Theory, Unemployment
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Eye Witness to Collateral Murder (Wikileaks)
The ultimate product of the American military-industrial complex was turning the average American into a murderer.