The Federal Reserve decided on December 16 to raise interest rates, ostensibly to curb inflationary pressures that are presumed to result from "dangerously" low unemployment. The upshot is that the punch bowl is being taken away before the least privileged -- the unemployed -- have even had a sip. They must remain unemployed to keep the inflation monster at bay.
The logic: If unemployment were to go below a certain level, workers might be emboldened to demand higher wages. So by keeping a portion of the work force in insecurity of unemployment, those with jobs will also feel insecure and think twice before becoming too demanding of higher paychecks or better work conditions. Some of those less fortunate unemployed souls outside the gate would love to have their jobs at current pay. Unemployment thus serves to discipline workers and hold down wages and thereby help keep inflation from rising. The unemployed must be sacrificed for the greater good.
This economic logic that condemns some to unemployment has a parallel in Shirley Jackson's classic and macabre short story, "The Lottery." It's the story of an annual ceremony at which a town's citizens draw lots, and then the "winner" is stoned to death. This is understood to be natural and good, in the interest of the broader community. As the story's old man Warner puts it, "Lottery in June, corn be heavy soon." The difference is that in Shirley Jackson's town lottery, all citizens have equal chances of "winning," whereas in the job lottery the chances are highly unequal, determined by social background, varying greatly according to class, education, race and sex. Although those who draw unemployment are not literally stoned to death, they suffer immensely.
The unemployed suffer in so many ways, including lost income, poverty, reduced quality of life in terms of insecurity, mental distress, abandoned families, divorce, suicide, and poorer health. Their children fare poorly in school and suffer more psychological problems. Unemployment also exacts a high cost to society in terms of lost output, foregone tax revenue, depreciating human capital, and increased costs of welfare, crime, and health care. Although the welfare of the unemployed is sacrificed principally for the sake of price stability and to avoid the costs of a full remedy, much popular ideology, supported by many economists, blames generous welfare programs and the "lazy" unemployed themselves for their unemployment. The sacrificial victims of the war on inflationary pressures get the blame for their sad plight. Little wonder that professor of psychiatry James Gilligan finds the inability to have a job the foremost driver of shame and worthlessness.
The unemployment rate below which inflationary pressures are alleged to be unleashed is labeled the "natural rate of unemployment" by economists -- what economist William Vickrey calls "one of the most vicious euphemisms ever coined." It is economics at its worst, economics as ideology. It acts to sanitize the social practice of letting the unemployed pick up the tab for keeping the lid on inflation. It suggests that this is the way the natural world must be, what nature mandates, as opposed to a social choice made by government.
Is there a more humane alternative? Yes. It was proposed by FDR during the Great Depression. Guarantee jobs to all capable of working. His proposal was in early drafts of both the Social Security Act of 1935 and the Full-Employment Act of 1946. It was also the de facto policy when the U.S. government massively drafted young men during World War Two, not only eliminating the high unemployment lingering from the Great Depression, but expanding the workforce as women (think Rosie the Riveter) and others traditionally outside the workforce were given jobs.
More recently, guaranteed jobs for all was advocated by Senator Hubert Humphrey and Representative Augustus Hawkins, but the resulting Humphrey-Hawkins Bill of 1978 fell far short of their goals. Since then guaranteed employment has disappeared from public discourse. Why? Ideology shifted radically to the right during the 1970s, in favor of the wealthy elite who own practically all productive wealth (in 2007, the latest date for which data are available, the wealthiest one percent of Americans owned 49.3 percent of stocks and mutual funds, the richest 10 percent, 89.4 percent). Because unemployment puts downward pressure on wages and disciplines workers to be docile, it boosts corporate profits and dividends. Also, stock prices tend to fall when unemployment dips to low levels.
Wouldn't guaranteed employment be inflationary? Perhaps when first introduced. But subsequently, it would be anti-inflationary. Growth would no longer need to be pursued simply to generate employment. Further, once workers no longer suffered loss of skills due to unemployment, productivity would increase, permitting lower-cost production. Guaranteed employment would act as an "automatic stabilizer," reducing the intensity of downturns as fully-employed workers would not need to cut back on consumption.
Wouldn't it be expensive? It has been estimated that a guaranteed employment program for the U.S. at a living wage would cost less than 4 percent of GDP (less than $600 billion annually), while increasing GDP by about one trillion dollars per year. Welfare for all but the disabled would cease to exist. All of the collateral costs generated by unemployment would disappear. Guaranteed employment would be a money-earner for society, although not necessarily for the wealthy. It would also be an important first step toward reducing the extreme inequality that has evolved over the past four decades.
The American work ethic has always insisted that everyone should work. No one should get a free ride. Yet our public policy -- raising interest rates when unemployment reaches its "natural rate" -- condemns some to be without jobs. This is morally wrong. And it's very costly in terms of ruined lives, welfare, crime, and other consequent social dysfunction. It's time to end once and for all this horribly unfair and socially irrational unemployment. Let's give jobs and the social and self-respect that accompanies them to all!