Monday, February 2, 2009

Real Unemployment and Our Current Real Depression

The concept of “unemployment” is a fairly important statistic since the number of people that are working is a significant indicator of the overall health of a free economy. Economists often argue over the minutia related to the definition and statistical measurement of “unemployment”, however this “miss the forest for the trees” approach fails to recognize an important conceptual problem with the current way people view unemployment. For example, at the height of Soviet Communism, the communists claimed that there was 0% unemployment. In other words, under communism, by definition everyone “works” for the state so in this sense everyone is employed. In a concentration camp or gulag, one could also make the case that there is 100% employment since every prisoner as well as the guards and the torturers are technically “working”. In a free market economy, this is less of a problem since the state would not own the means of production nor would individuals be de facto prisoners of the state. However, as America drifts more leftward the “prisoner” analogy becomes more significant and necessitates a revised way of measuring unemployment.

My definition of “real” unemployment is someone either not working by the conventional definition as well as anyone employed in an occupation that would not otherwise exist in a free market economy.

For example, according to the government’s current definition of employment, someone employed by the federal government as an environmental or financial regulator would be fully employed. I would argue that this person is unemployed because they are performing a job that would not exist in a free market. Additionally, not only are they unemployed but they should count as perhaps more than 1 unit of unemployment because they are restricting productive activities by virtue of their work as government regulators. This would be similar to counting a guard at a gulag or concentration camp as being unemployed plus counting him as 2 or more units of unemployment by virtue of his criminal abridgment of the rights of law abiding individuals. In this way, anyone working for the federal government that is not engaged in some way in the protection of individual rights such as a criminal law enforcement officer, military personnel, or as part of the judicial system would count as unemployed. This would go for state and municipal “workers” as well. And to the extent that they are directly engaged in the restriction or outright violation of the rights of the productive they should count as more than 1 unit of unemployed.

How would you classify occupations such as teaching which would exist in the free market but are currently monopolized by the state? I would count them as ½ unemployed as a starting point since they are performing a function that would exist in the free market, but since it is run by the government it is inefficient and likely the work force would be at least ½ of what it is now. This is very conservative. They probably should count as ¾ or more unemployed.

It gets more difficult when you consider private business occupations that are related to government intervention in the economy. For example, consider the profession of tax accountant or tax attorney. There are millions of people who devote time to compliance with the government tax code. This includes not only tax accountants and tax attorneys who work for individuals and corporations but also those who write software like Turbotax that is designed to comply with the tax code. These are all unproductive jobs in the sense that they do nothing except comply with arbitrary regulations that should not and would not exist in a free market. In fact, if the government wants to decrease unemployment, couldn’t it just create millions more pages of tax regulations in such a way that nearly the entire country could be “employed” in trying to figure it out? Then it could hire more agents to catch violators and hire more prison guards to watch them in jail thus bringing the unemployment rate to near 0%.

This same principle applies to attorneys engaged in either prosecuting or defending businesses and individuals from regulations or laws that would not exist in a free market. It would also extend directly to the lawmakers themselves who can be likened to the unproductive members of a 17th century European court who do nothing but pass and enforce self-serving or arbitrary laws in order to rob productive citizens of their wealth.

There are also those who are “employed” by lobbyist firms who pay bribes in order to facilitate favorable legislation for their clients, non-profit groups such as Earth First and Greenpeace which promote anti-productive policies, and even university professors who teach classes or write papers that promote the destruction of civilization.

There are literally millions of people and hundreds of millions of man-hours devoted to promoting or complying with arbitrary and counterproductive government rules, regulations, and taxes. This is time spent by often brilliant persons who could be productive in real jobs. For example, this is time that could be spent by these people researching life saving drugs, identifying cheaper energy sources, building faster computers, developing more efficient transportation systems, inventing more efficient methods of producing food, colonizing space, etc. In what sense can we consider people engaged in non-productive occupations to be employed?

Since I don’t get paid to write this stuff, I won’t attempt to calculate it, but I guesstimate that perhaps as much as 50% of the so-called workforce is actually unemployed and it might be as high as 80 to 90%. Consider that people considered the Great Depression to be a depression due to the length of the economic decline as well as statistics such as massive unemployment. Given that our current unemployment rate may be as high as 50% to 90% by my definition, I consider us to be in a massive Depression. In absolute terms, this may seem unreasonable but when compared to what could be and the type of economic progress and standard of living we would experience in a free market we are certainly in a real Depression.


Beth said...

This is very insightful. It tosses the current concept of unemployment on its head. If to "be employed" is to have any meaning, it must signify productive employment. All the jobs which involve hampering or preventing the efficient use of resources which would occur in a free market are not just unemployment (idle) but destructively employed. Perhaps a new concept would capture the negative effects of such work: disemployment.
In economics there is a similar type of term, "dissave." This distinguishes spending out of one's current income from spending (dissaving) through the withdrawal of one's savings (seed corn.)
Then, you could use "employed" to mean only productive, free market employment (wealth producing work,)"unemployed" as those who are looking for productive work but unable to find it(neutral in regards to wealth production,) and disemployment, for those working in jobs which have a negative impact on the production of wealth.
Sure would change the statistics!!

Michael Labeit said...

You mention the fact that the existence of tax services and tax attorneys is the direct result of immoral government interventionism. Notice however that this is a stellar example of how the market remains resilient in the face of coercion. Even when force is used to steal private property, the market can be depended upon to provide the services necessary to streamline the taxation process in order to ensure that taxpayers don't screw up on their income taxes and face audits and jail time. The market in this situation is like a broker who can guarantee that your servile relationship with the village marauder is a little more pleasant.

Doug Reich said...

Thanks for comments.

Beth, excellent comment - I think "disemployment" is a great word to distinguish from "unemployment".

Michael, yes I agree that the market is amazingly efficient even when dealing with government inefficiency. (Another way to look at this is to consider Lenin's quote (I think Lenin) who said something to the effect of "when it's time to hang the capitalists, they will sell us the rope.") The regulators are like the ones planting the bomb, and the tax accountants are like the ones who pick up the pieces and tend to the wounded. You could define "category 1" disemployment and "category 2" disemployment, etc.

This would make an interesting study to actually quantify this effect. You could never fully quantify the effect however since the amount of destruction and what would have resulted is totally unknown. I think it is obvious that we would be exponentially ahead of where we are now without disemployment - probably something similar to the Jetson's world where people fly around in jet cars and other cool stuff...

Michael Labeit said...

I wonder occasionally about the unknown innovations obstructed by government. Bryan Caplan in his book "The Myth of the Rational Voter" quotes someone I believe who asserts that if it was up to democracy, we would not have had the spinning jenny when we did. That suggests that perhaps we today are being "shielded" from many market developments.

seine said...

Doug, very interesting take.
I've never considered it as dis-employment but viewed it from this somewhat different direction; how many hours would we be working if all human effort was directed productively?
If the human energy expended in the dealing with those compliances, tax avoidance schemes, monitoring and the resulting legal-penal system etc.were added to the productivly employed we have that 10 or 15 hr work week so long talked about.
Further, our current system actually does support all of us, the goods and services are here but we pay people to do goofy thing to acquire those goods. To me, that is proof there is enough wealth in the system but it is misdirected and that someone with a good deal of money smarts would be able to work out how to rearrange it so we could easily survive modifying the system we've got.
And thirdly the cost of our goods carry every tax, every royalty, every permit paid along the production line, including all the costs on the way to the production line. How much less expensive would every thing be if that dead-weight disappeared?
I've often speculated but I'm no number crunching economist. I would be delighted if someone took the idea further.
gary seinen

Doug Reich said...


Thanks for your comment.

I don't agree with one of your ideas. It is true that as productivity increases, it takes less labor to earn anything. One hundred years ago, it might have taken 20 hours of work to feed yourself and now maybe it takes 1 hour. However, generally speaking people don't work less in absolute terms in the sense that people would work 10 or 15 hours a week. Human desires are unlimited so that as productivity increases, you can buy more with your labor but people still work. So, if we were flying around in jet cars and colonizing space and you could push a button to get food for the day, people would be working but they might be working on designing a new spaceship engine or working on mining equipment that can be used on Jupiter, etc. Being poor might mean that you only have one vacation house on Mars and only 3 homes on earth, etc. But, people will never get to a point where they say "ok, that's enough - let's kick back".

I don't understand your point about the goods "being here" etc.

I agree with your point about prices reflecting the costs of government. This is another way in which productivity and real wages are reduced. Every price reflects not only direct taxes but the taxes on labor and goods all through the process not to mention the effects of inflation of the money supply caused by the government. In a free market, prices would actually tend to go down in nominal and real terms.

seine said...

With my first point, I am in agreement with what you are saying, that any number of people either contribute nothing to the productive system or in many case decrease the efficiency of the productive system. My concern has been how to counter the argument against change. As I see it, many people, have no understanding of what makes an economy, what really supports their lives, hence, in my mind I formulated a static economy, a moment in time if you will. I consider we all work to acquire the gods and services rather than the money and in that way the production systems that we currently have keeps all people alive and well, the contributors, the ballast and even the destructive, are all supported by our phenomenally productive system.
If the above is clearly understood, the honest people in our society would be aware they would lose nothing by changing the way we do things. Those who feel entitled to manipulate the productive into carrying them might then be outnumber and could be disregarded, reality would set in, and for survival they'd need to look for productive employment.
As you say, the release of some of the best minds, from tax compliance and avoidance to productive thinking would serve to 'raise the bar' and create an entirely unthought of amount of wealth.
What I am thinking about in respect to the cost of goods, all of us work for net pay. The difference from our gross pay is absorbed by the bureaucracies. To calculate the how much the tax system destroys the efficiency of production, to find just what percentage of the cost of some good is legitimate and how much must be added to pay the bureaucracy.
I know I not stating the case nearly as clearly as I'd like to but the idea is a germ in my head that I've never committed to the written word before but something that all of us must understand if we ever expect to see change for the better, rather than what is currently happening.
Cheers, gary seinen