Unless the author is grossly oversimplifying or skipping some steps, I’ve just read the most foolish, fatuous, wrong-headed thing I’ve read in some time. From Mark Lange in the Christian Science Monitor:
It’s a paradox, but job seekers are actually job creators. People (and the politicians that love their votes) tend to focus on how many employers happen to be hiring. But an overlooked tenet of labor economics says that what’s equally vital to creating jobs is the presence of an adequately skilled workforce capable of filling them.
In other words, when the workers are ready, the jobs appear.
Isn’t that a restatement of Say’s Law? If Say’s Law is true voluntary unemployment cannot exist as Keynes pointed out nearly a century ago.
Refuting this is tremendously easy. Every year tens of thousands of English, art history, and drama majors are graduated from our colleges and universities. These students are “learning new skills, taking risks”, to use the author’s words. If the claim were true, our economy would be creating thousands of new jobs for these English, art history, and drama majors to fill. It manifestly isn’t.
Demand is important. Without it the “risks” are simply throwing time and money down a sewer.
According to the Bureau of Labor Statistics, the United States has nearly 500,000 fewer jobs for engineers than it did ten years ago, 300,000 fewer in electrical engineering alone. Until rather recently the unemployment rate for electrical engineers in the United States was the highest it had been in history. If the author’s claim were true that simply could not be.
Nonsense. Who do you think pulls that espresso for you at Starbucks?
Which economist was it that said during the Great Depression a lot of people just decided to take a long vacation? Good for a laugh, though there is just an element of truth. If people were willing to work for $1 an hour, I would personally employ several. I know lots of people who would do the same. Can you live on $40 a week in the U.S.? Probably not up north, not for long anyway.
Steve
Say’s law (as stated by Say) allows for local gluts when production resources are misallocated. The market for English majors doesn’t clear because we’re producing more English majors than our economy is able to use profitably while paying them a salary that they’re willing to accept. Unemployed English majors don’t count as supply under Say’s law because they’re not offering their services at a price people are willing to pay; if a particular English major were willing to accept a wage in proportion to his marginal productivity, then his consumption and investment from that wage would expand the economy enough to support another wage of that size (not necessarily a job targetted at English majors, but rather a general expansion of demand for a lot of fields by a tiny bit each totalling the size of his wage), fulfilling Say’s law.
The problem is a combination of three things: we’re misallocating resources in education and producing graduates whose marginal productivity doesn’t repay the cost of their trainging; we’ve recently had large shifts in the type of work demanded by the economy which the market hasn’t adjusted to (yet); and there’s some combination of factors preventing prices from adjusting to allow the employment market to clear (either by employers hiring people in their current fields at reduced wages, or by job seekers shifting to different fields that are in more demand as the article suggests).
Anybody who knows an actor can see right away that it’s false.
” if a particular English major were willing to accept a wage in proportion to his marginal productivity”
How would one measure something like that?
I think you need to read beyond the paragraph about Keynes’ interpretation. Like the Austrian view of unemployment. They argue the unemployment we see in modern economies is due to central bank policies that result in malinvestment leading to boom and bust cycles. Doesn’t seem so crazy given the role of the Fed in our most recent mess.
In other words, we don’t have the economy where Say’s Law can hold. As such any refutation is not really a refutation, its a straw man argument. Its very much like your criticism of the Harvard professor several posts up where the author sets up the straw man of:
status quo: private health care markets
change: government controlled health care.
The status quo is not true, thus the argument is based on a false premise. Samething here. We don’t have a market that is laissez-faire as such, criticizing laissez-faire due to failures of the market we have is not really honest.
In a perfectly competitive market such a measure is called a wage (or more generally a price).