Getting to Zero Employment: The only real bargain working people will get from capitalism

by Jehu

A week ago I spent some time on Mike Beggs worthless article for Jacobin Magazine, Jobs For All. In that article, Beggs referenced a 2013 book by Dean Baker and Jared Bernstein, “Getting Back to Full Employment: A Better Bargain for Working People“. Since Beggs tract was so horrid, I decided to look at this book to see if it offered any improvement over Beggs.

If anything, the book is worse than Beggs article. Nevertheless I soldiered on because Baker and Bernstein seem to have a far better grasp of the limits of fascist state employment policy that one should expect from actual participants in the formulation of that policy. (Bernstein was an economic adviser to Vice-President Joe Biden in the darkest days of the 2008 financial crisis.)

I am going to devote several posts to Baker and Bernstein’s book because it contains rather significant admissions of the limits of bourgeois economic policy — limits with which many may not be familiar, but which demonstrate how little it can affect the massive social ills of 21st century capitalism that many on the Left think can be influenced by political action.

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Introduction

In their book, Getting back to full employment, Baker and Bernstein have a really hard time defining unemployment.  This is surprising because how do you write a book on a subject if you cannot even define the terms.

It will probably surprise you that full employment is defined in their book (and in state policy) not as the absence of unemployment, but the absence of what they call an output gap. For most of us unemployment means not having a job, but this very simple definition will not do for these two authors nor for the policy-makers in Washington. You are only unemployed for purposes of state policy if by employing you additional output can be gained for the economy. If no additional output can be gained for capital by employing you, you are not really unemployed so far as state economic policy is concerned.

This brutal conclusion is couched in lovely phrases about shared prosperity and served up to dumb progressives and radicals — a true shit sandwich. It is essentially the core argument of Jacobin’s boy genius, Mike Beggs, who I discussed here.

Wages are not optional in a society founded on wage labor

So what happens to all of the people who cannot find jobs because no additional surplus value can be created for capital?

In Baker and Bernstein’s book, these people don’t exist and cannot exist. Why? Because, according to Baker and Bernstein, there are only two causes of unemployment: an output gap, where the economy is performing below its potential, and automation, where capital has permanently rendered a mass of persons superfluous to production. Moreover, according to the authors, automation is not really a problem because workers set free by automation simply find new jobs in other industries or firms.

All the writers who have predicted jobs will go away due to automation are wrong. If they are wrong, the only real problem for fascist state economic policy is increasing aggregate output, i.e., GDP.

The problem with this approach is that we live in a society where unless you are a capitalist or some other parasite living off the labor of others you need a job to live. Most people in our society gain income solely by selling their labor power. If people can’t sell their labor power, they don’t get income to live and must depend on charity or state social welfare subsidies to live. Or they remain at home with their parents, in their basements, unable to establish their own lives.

We have a name for these losers: millennials.

What is an output gap anyway?

Baker and Bernstein offer no reason why anyone in a society founded on wage labor should be without a job if they need one. They simply insert the assumption that this cannot happen in their book. The authors  address the problem of unemployment as if the only thing that matters to society is how to maximize output. They forget — or choose to ignore the fact — that (capitalists aside) no one in our society has any means to eat if they do not have a job. To leave millions dependent on highly controversial government handouts, while focusing all your attention on maximizing output is both silly and counterproductive.

The problem is further compounded when the writers define aggregate output solely in units of currency. Employment policy thus effectively aims to maximize aggregate prices not real goods. In this way, the output gap that triggers state intervention is not the production of real goods and services, but the money prices of goods.

Here is how this works:

If 10,000 widgets are produced in year 1 and 11,000 widgets are produced in year 2, real output has increased. If the 10,000 widgets sell for $10,000 in year 1, but the 11,000 widgets also sell for  $10,000 in year 2, money GDP has not increased.

In the second example real output has increased but GDP,  i.e., aggregate production  prices has not increased. Thus, according to Baker and Bernstein there is now an output gap. The output gap arises in terms of GDP because output is defined in terms of aggregate prices,  not units of real commodities. However, there is no law that states an increase in real output is matched by an increase in aggregate prices. Thus, contrary to Baker and Bernstein, there can be an output gap in terms of real goods and no gap in terms of aggregate prices; and there can be an output gap in terms of prices, but no gap in real goods.

Since Baker and Bernstein only focus on aggregate prices, their only concern is that no gap occurs between potential and actual production prices. They are only interested in reducing unemployment if this reduction adds to aggregate prices (GDP).

The structure of unemployment for purposes of policy

The category of economic policy, non-accelerating inflation rate of unemployment (NAIRU), the benchmark trigger for fascist state economic policy, is a fraud that, for some strange reason, Baker and Bernstein appear to buy into. Mainstream policy-makers argue that pushing unemployment below the NAIRU produces inflation, but this is not necessarily true.

Nevertheless, in chapter 3 of their book Baker and Bernstein waste a lot of time trying to break out the problem of so-called structural employment to reduce NAIRU to as small a quantity of unemployment as possible and so expand the portion of unemployment that can be influenced by fascist state policy.

The reason for this is not surprising, since they accept the idea that policy can do nothing about structural unemployment, i.e., by the NAIRU, policy is concerned only with unemployment above the NAIRU. Not surprisingly, the portion of unemployment that can be affected by state policy is that portion that, if reduced, can increase aggregate production prices (GDP). Essentially, their argument is that there is no objective measure of the extent to which any level of unemployment is structural.

According to the authors,

“structural unemployment is joblessness that results from a mismatch between the skills employers demand and the skills that workers have to offer. It cannot be eliminated through increased demand. It is crucial to understand and estimate structural unemployment, because it represents the floor in our pursuit of full employment.”

Simply stated, in neoclassical theory the level of unemployment policy cannot go below is the point where the skills of the available pool of workers no longer matches the needs of capitals.

It never occurs to these simpletons to ask, “What are the needs of capital?”

The naive person might think this means the ability of a group of workers to push a broom, run a particular sort of machine, care for a patient, wait on a table or code in a particular language. In fact, capital is concerned with none of these particular skills; it needs labor power solely for its own self-expansion as capital. The actual structural floor to the level of unemployment, therefore, is the capacity of labor power to serve as means for the capital’s self-expansion. The real meaning of the term, structural unemployment is that it is identical to the point where additional labor power employment no longer increases aggregate prices of production (GDP).

This is not just an admission that there are limits to state economic policy, it is an admission that there are limits to production based on wage labor — beyond this point, no amount of fascist state pump priming will increase employment, because it will not add to aggregate prices of production.

Boosting employment beyond the NAIRU can be inflationary or deflation

Now here is the thing: if state economic policy were to push employment beyond the NAIRU, i.e, beyond the point where additional employed labor power adds to aggregate GDP, the result could be accelerating inflation or deflation. The additional employed labor power could either add to the costs of production without adding to output (inflation), or it could add to output with no increase in aggregate prices (deflation).

Which of these two outcomes occurred would depend solely on the method the state employed to boost employment beyond the NAIRU.

How does this work?

Suppose the state were to try to boost employment by conventional means of fascist state deficit spending. The state could offer tax cuts across the board, rebuild or expand the country’s infrastructure, provide handouts like food stamps to the unemployed and the so-called working poor, and even act as employer of last resort by directly hiring workers. This method could, in theory at least, boost GDP until all non-structural unemployment was absorbed back into the active labor force.

However, at some point, this approach to reducing unemployment would run into a definite barrier where no additional deficit spending could add to GDP. In other words, economic policy measures would encounter the NAIRU and further spending to reduce unemployment would not add to aggregate prices (GDP). Where this limit will be encountered is not certain, since NAIRU is more of a theoretical construct to explain observed data than an actual number. It simply means we would begin to experience accelerating inflation.

On the other hand, suppose the state tried to boost employment by the unconventional means of reducing hours of labor. In this case, the state might mandate a reduction of hours to no more than 6 hours labor per day and no more than 30 hours per week, or it might mandate six weeks of paid vacation per year, etc. All of these measure would serve to reduce hours of labor per individual worker and would force companies to compensate for the lost output by hiring additional workers.

As with conventional deficit spending measures listed above, initially this sort of progressive reduction of hours of labor would increase aggregate prices. But again, at some point the labor hours reduction (LHR) approach would run into a definite barrier where no additional reduction of labor hours could add to GDP. Unconventional employment measures would encounter what we can think of as a “negative NAIRU”; a point where further reductions of labor hours, although producing more physical output, would actually begin to reduce aggregate prices (GDP). It would, in other words, actually begin to generate what economists refer to as deflation.

To summarize the main points of this introduction:

1. NAIRU is a theoretical construct to describe the point where no additional state spending can add to output.
2. Output in neoclassical theory is not real output of widgets, but is defined as the aggregate of widget prices in a given period.
3. NAIRU is, therefore, the point where no amount of further deficit spending can increase the aggregate sum of widgets prices of production.
4. The aggregate sum of widget prices of production are what we mean when we use the terms GDP: the production prices of all the commodities produced in a period.
5. Neoclassical theory admits there is a definite limit on the capacity of the state to increase the aggregate sum of production prices, GDP
6. Beyond this limit, further state deficit spending begins to generate an accelerating inflationary spiral where prices rise but no additional widgets are produced.

The problem with this limit on the effectiveness of state economic policy is that we live in a society where you cannot access the means of life unless you have wages to pay for those means. The limitations of policies Baker and Bernstein advocate thus leaves a very large number of working people (perhaps the majority) locked out of the labor force and with no independent means to access basic necessities. Nobody, least of all Baker and Bernstein, appear to notice that having a majority of the population unable to earn wages in a society founded on wage labor is a big problem. And this population of unemployables is, by the admission of neoclassical theory itself, beyond the reach of state economic policy.

We can quibble about how large this population is, but that discussion takes place on the margins — 51% versus just 45% or 40%. It is clearly a HUGE population and no conventional policy advocated by Baker and Bernstein has any hope of bringing those folks into productive employment.

To go beyond the limits imposed by the so-called NAIRU, (i.e., the point where additional employment of labor power produces additional output), we have to violate one of the two conditions of capitalist production: either aggregate prices can be increased or aggregate real output can be increased, but not both.

To push unemployment below the NAIRU in an open economy, we have to push employment beyond the limits of wage labor itself.

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(Of course, my argument above only applies to an open economy. The SU, which cannot be examined here, accomplished the same thing by taking physical control of production.)

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