One of the dispiriting things about observing the US's economic problems from afar (specifically, a country that managed to avoid both the Global Financial Crisis and the Great Recession) is watching old and tired debates about unemployment getting another whirl. This piece from Salon provides examples of people blaming the unemployed for unemployment.
This all so "old" for me. My first job was in the (since abolished) Commonwealth Employment Service dealing with unemployed people in the 1982-3 recession. (I had never had a job before, so naturally the Australian Public Service thought the best use of my talents was advising folk on their job prospects.) I later worked in various labour market economics/stats areas. I am so familiar with all these arguments, and I find the “blaming unemployment on the unemployed” approach utterly tedious.
The basic three operating principles are:
(1) Unemployment shifts dramatically because of changes in economic conditions.
(2) Long-term trends in unemployment occur because of institutional (particularly regulatory) factors.
(3) There are sorting processes about who gets and stays unemployed, but this does not change (1) and (2).
Really, it is not so hard.
Unemployment in Australia is much lower than in the US or UK. (In my local suburb, most of the fast food places and cafes have "help wanted" ads in the window.) This is not because suddenly Australians are harder working than Yanks or Poms. It is because:
(1) our central bank, the Reserve Bank, handled monetary policy better than the Bank of England and (especially) the US Federal Reserve;
(2) our prudential regulation of our financial sector worked a lot better (and did not have to deal with a collapsing housing price bubble); and
(3) the Australian public debt position is much stronger [which improved both confidence generally and policy flexibility in particular].
This, added to a much more flexible economy due to almost three decades of economic liberalisation meant that we even manage to weather a dramatic drop in commodity prices.
Just as Europe needs to face the fact that its entrenched unemployment is largely due to the way it regulates its labour markets, the US needs to face the fact that bad decisions by the Federal Reserve is the most important reason for its massive levels of unemployment. Not any change in behaviour by the unemployed.
For if wage contracts are set according to certain expected trends in the value of money (e.g. around the 2% inflation the US has had for a couple of decades) and there is a sudden, unexpected increase in the value of money (i.e. the scarcity of money increases because the Fed suddenly adopts a tight monetary policy to get even lower, possibly zero, inflation) then there are suddenly a whole of labour contracts where the real cost of labour increases unexpectedly. Hiring plummets, firings surge, economic activity drops and you have a dramatic economic downturn and a massive increase in unemployment. (Now think what a sudden increase in the scarcity of money would do to highly leveraged financial institutions: Irving Fisher described this scenario back in 1933 [pdf] in his debt-deflation theory of the Great Depression of the 1930s.)
Which is not remotely the fault of the unemployed. Yes, of course interventions (such as extending unemployment insurance) affect trend levels of unemployment. Yes, of course there is a sorting process about who gets and stays unemployed. But that sorting process does not affect the level of unemployment: it occurs within a given level of unemployment. Which is a product of economic conditions (including public policy, especially monetary policy) and institutional structures (particularly labour market regulation and other interventions). Moralistic nonsense blaming the unemployed is precisely that.
Blame the Fed, they did it. Again:
Let me end my talk by abusing slightly my status as an official representative of the Federal Reserve. I would like to say to Milton and Anna: Regarding the Great Depression. You're right, we did it. We're very sorry. But thanks to you, we won't do it again.Spoke too soon. But really, really the consequence of greatly increased unemployment is not the fault of the unemployed.
ADDENDA: On the US unemployment situation, this graph is deeply depressing. It comes from this highly informative post on the diabolical state of much of the US housing and housing finance market. Though this is not a good sign regarding Australian housing finance.