by Roger Bourke White Jr., copyright October 2015
"I want to work, but I can't."
This sentiment can be felt for many reasons, and those reasons shift depending on the lifestyle the user is living. In Neolithic Age circumstances this is most often due to some kind of physical disability, or because the nearby fields and forests have been picked over completely and there is nothing left to gather -- a sign that "moving on time" is imminent. In Agricultural Age circumstances this is often disability or a crop failure.
In Industrial Age environment things get a lot more complex. Work is something offered mostly by companies or governments. And how much they can offer depends on their success and the success of the economies they are part of.
That said, in Industrial Age environments a condition called "full employment" by economists of the community is something that both communities and their government aspire to have in place.
This is such a powerful aspiration that it is often equated with equilibrium -- the condition the economy is always striving to settle into. Full employment: The economists love it, governments love it, and communities love it.
But aspiration and equilibrium are not the same things, and that is the topic of this section.
Note two things about this section:
First, I presume that the communities being talked about are Industrial Age unless otherwise stated.
Second, there is a lot of editorial "Roger opinion" in it.
One of the consistent goals of governments when they regulate finance and business is to dampen the volatility of business cycles. They want business growth to proceed in a more orderly and predictable fashion, as in, lots of steady growth. Government officials, and the communities they represent, cringe whenever a business cycle goes through a contracting phase because this leads to some mix of less money being spread around, lower wages, lower tax revenues, fewer jobs, less manufacturing and service business being done by the community, and less goods and services being bought by the community. This last element also leads to a lot of people in the community worrying about how they are going to make their personal ends meet. And this often makes them unhappy with the politicians they have chosen, or have been chosen for them by an autocratic government.
For these reasons a growing economy and full employment are highly desirable. But being highly desirable and being an equilibrium point are not the same thing.
In hard sciences, such as physics, an equilibrium point is something that is oscillated around. If there is a disturbance of the equilibrium, restoring forces are activated and the state moves back towards equilibrium. An example being a pendulum. When the pendulum is in equilibrium it is at rest -- just hanging there and still. If it is pushed, it goes out of equilibrium, its total energy goes up, and it starts swinging back and forth. Over time, friction will sap the energy that has been added and the pendulum will stop swinging -- when it does it is back in full equilibrium.
It is an easy concept to grasp, but with employment things are different. My observation is: There may be an equilibrium point, but there is no necessity that that point is full employment. From what I have observed, in reading news articles over the decades about real-world employment, in most cases it is not. Equilibrium varies with the culture, and the culture's financial and business states, and is often something quite different than full employment.
A chronic example of this is the employment of black teenagers in US inner-city neighborhoods. I can't recall ever reading about teenage employment in these neighborhoods getting anywhere close to full. In these neighborhoods equilibrium is at some different setting.
But... no politician gets voted in for acknowledging this reality. And no economist gets high-profile support from politicians or fellow academics for pointing out this reality. (An example of getting high-profile support is Keynes getting acclaimed by the Roosevelt Administration in the mid-1930's.)
The economists who get the support, and continue in their jobs, are those who argue that anything but full employment is a temporary aberration, and that the government should be spending money to wipe out the aberration.
What I observe instead is that full employment is a brick wall, not an equilibrium point. It is a brick wall because no more people can be employed. If the market wants to hire more people when all the people are employed, "demand" forces something else to "give" in its place -- inflation, immigration, interest rates, or a downturn in the business cycle are some examples of something else giving.
So, in my view of the world, full employment is not an equilibrium point, it is a goal -- something quite different. But because of political and academic realities it is not convenient for economists to recognize this difference.
I have watched a fair number of videos in which various professors talk about economic issues. As I have watched I have come to realize that these professors were expressing opinions, and then cherry-picking their data to support their opinions. This is not the scientific method as practiced by scientists in the hard sciences, such as physics.
This surprised me. Professors in fields such as sociology and anthropology can justifiably argue, "What I am talking about is complex and we don't have enough data to sort through the complexity. So here is my opinion." Economics, on the other hand, has a whole lot of data available to it. Businesses and government agencies by the tens of thousands routinely collect lots of data. Why has the field remained in the domain of so much softness... so much editorializing? Why do economics professors sound more like religious leaders or politicians than physics professors?
The answer is: Economics is swept up with The Curse of Being Important. (my term) Many people in the community are very interested in economics because they are very interested in the economic well-being of their community. The problem is: Because of The Curse this interest is dominated by instinctive thinking, not analytical thinking. This means many people in the community know what answers they want to hear even as the questions are being asked -- and the data they will pay attention to is that which supports the answers they want to hear.
These soft data-inspired answers are comforting, but because they aren't based on harsh reality, they will not reveal effective solutions to the problems they are describing. The solutions that make sense to instincts will be irrelevant to the harsh reality of modern times, which means much time, money and effort will be wasted.
This 17 Oct 15 Economist article, Reality cheque Angus Deaton wins the Nobel prize for bringing economics back to the real world, talks about Angus Deaton getting his Nobel Prize for adding some more "hardness" to economics.
From the article, "The Nobel committee had awarded him the Sveriges Riksbank Prize in Economic Sciences, “for his analysis of consumption, poverty, and welfare”. The prize celebrated a whole career, in which he has used data to overturn sloppy assumptions, reimagined how we measure the world, and intertwined microeconomics and macroeconomics. He even has a paradox named after him."
Economics is an interesting field of study. But sadly, because it is both complex and considered so important by so many people, it is a soft science these days.
This is sad because it means that economics research is not coming up with effective solutions to economic problems. Instead, it is offering comforting solutions -- solutions that help people sleep better at night, but don't solve the problem. In sum, these are wasteful solutions, not effective ones.
All this waste is why economics needs to harden up. Thanks to new tools such as Big Data it can, but the decision-makers of the field need to be willing to recognize the influence of The Curse of Being Important, and take deliberate steps to avoid it.
--The End--