All politicians and economists consider full employment to be vital in a modern economy. The political importance of persuading the electorate that there is almost full employment can be seen by the way that the British Government moves those that have been unemployed for more than a few months out of the unemployment figures. They are still unemployed and consuming resources but they are dropped out of the important unemployment statistics. The total number of unemployed people in the UK now exceeds 6 million, instead of the official figure of 2 million.
There is a trade off between inflation and full employment. Inflation in the labour market from high wages during periods of full employment occurs because money inflation (itself the cause of price inflation) is the only stimulant strong enough to create work when excessively high wages do not permit a free labour market to exist. As a consequence of the Government trying to achieve full employment we now have more inflation and more unemployment than ever before. Unnaturally, high wages cause stagnation accompanied by unemployment and inflation. High wages mean that workers price themselves out of a job. As a nation grows ever richer one by one even useful and worthwhile activities can no longer be carried out within the country. The paralysis of affluence then sets in. The nation cannot get work done and finds that it is so rich that it cannot allow itself to work. As a result the nation sits back in order to maintain its affluence. This is why workers from developing nations are allowed to flock into the UK to do jobs that could be filled by British people who are paid by the State not to work. Wages cannot be allowed to fall in case some people cannot share in the increasing wealth of society. This is why the introduction of minimum wage legislation always costs jobs.
During period of inflation many things are turned on their head. For example the less skilled workers are often better rewarded than the skilled workers. There will always be a stream of people to undertake useless jobs as they are not particularly demanding. Many of the jobs created by the British Government in the last few years would fall into this category. At the same time basic economic activities that were once well regarded get discarded in an age when the currency is heavily inflated. Unions do not help matters as they suppress competition between one worker and another by equalising wages. They prevent better workers from working better than others and restrains the amount of work done. They often frighten off more vigorous workers. They also prevent the introduction of new more efficient working practices. In the long term they cause stagnation and finally unemployment. The decline and the collapse of the traditional motor industry in the UK was a classic example of trade unions destroying an industry. The collapse of the docks and the coal mines are two more good examples. Even during this recession the unions are, and will, make restructuring businesses more difficult than it needs to be.
Full employment is what all governments try to achieve and to do this they equate investment with growth in GDP. They seem to be unaware that increasing GDP does not equate to growth meaning increasing wealth. Today increasing GDP usually means destroying wealth. Holding the Olympics in London in 2012 will consume a vast amount of the nations limited resources and will have very little long term benefit for the economy as a whole. If there was a logical reason to develop an area in North London it would have happened by now. The reason that this has not happened is because it never made any sense to do so.
All the frenzied economic activity of the last ten years has been largely pointless. In an inflationary period the first faculty that is suppressed is the ability to compare cost with real gain. Pointless activities become the purpose of those who are engaged in them. The definition of a spurious job is one that the system could well eliminate all together and still pay the holder the same amount of money to do nothing and no one would notice the difference. Spurious jobs are something that the British Government has been investing heavily in over the last ten years. This is not to say that the holders of useless jobs are useless, quite often the reverse. Some of the best men and women in the UK are engaged in jobs that serve no purpose but they are doing entirely what is asked of them because they are going where the rewards are. The consequence is that millions of able people are, and have, been engaged in jobs that either should not have existed or which were always going to disappear as soon as the inflationary trend came to an end i.e. as soon as there was a recession. Many pointless jobs have been created in the UK by the State in its desire to increase GDP and to boost the employment statistics. Even as the recession bites the British Government is talking about starting new projects purely as a way of artificially stimulating employment.
A major problem for the British economy is the cost of the Public Sector workers, their pensions and their lack of productivity. This is and will increasingly become a massive liability for the UK economy but no British Government will ever dare to change the current arrangements, as it would lead to widespread industrial action. As the bulk of the electorate depend on public sector workers for their income and/or wellbeing there is no political benefit that any politician can obtain from interfering with the current arrangements whatever the adverse effects of not taking action in the long term.
The Government will never shed jobs because the unions will not allow it and because it would drive up the unemployment figures. Rather businesses will shed labour and relocate abroad or go into liquidation. Over the last thirty years, the numbers of workers who have been doing productive work for the country have been going down. Those workers who are engaged in farming, mining, construction, communication and utilities are those that create society's wealth. Relative to the total population in 'employment' they are almost an endangered species yet it is their output that society lives off. However, in a period of inflation they do not benefit very much for their effort. Even the most affluent and profitable sections of the British economy will suffer in the next few years. The City of London will never hold the same position that it did in 2006 and this will knock a large hole in the British Government's income stream.
Education is a very good example of what should always be avoided. Education works like surplus capacity. The logic is that if education is good then the more that there is the better things will be. Tony Blair and Gordon Brown, as well as the European Commission, have always extolled the virtue of having an ever more educated population. The theory is that educating those engaged in producing wealth will result in there being greater capacity to do useful work so that the wealth of society will increase. It is true that the improved productivity that flows from additional education does lead to improvement but only up to a point. Beyond that point it actually leads to a reduction in benefit. Over-education often results in an unwillingness on the part of many people to do useful work. In other words, many newly 'educated' people are worth less than they were before. Further education is now a massive 'employer' and keeps millions of young people occupied. The education system is now absorbing millions of man-years of effort that society has no use for. Every young person who will listen is repeatedly told that education is for him or her. The result is that the education system is now flooded with uninterested, unqualified, and disaffected young people who demand relevance from institutions that never had any interest in being relevant. The expansion of further education over the last twenty years has had an entirely predictable outcome. An overpriced, overpaid, and over expanded education system which soon found itself in financial trouble even though the State was pumping in large quantities of money.
The conviction that more legislation and laws will overcome all the problems of the World is another good way to tie up the countries resources. It is interesting to note that when all civilisations start to collapse the need for additional controls is seen to be of paramount importance. Additional laws and security are always regarded as being the only way to prevent decline. Of course what it means is that there are even more layers of people undertaking futile activities policing other people as they try to go about their work. This only serves to further damage productivity. Such additional regulation does not produce anything useful but it does create jobs. There are many such examples in the modern World. Today there are millions of people policing and controlling others and whole areas of the legal profession are now engaged in nit picking their way through complex unnecessary legislation. Twenty years ago Health and Safety was seen to be vital for the continuation of a civilised society. Thousands of jobs were created although it is questionable if this actually had any great beneficial effect. For example the number of men who were killed on building sites has remained fairly constant as a percentage of the total number employed over 20 years although the paperwork has ballooned out of all proportion. In the end Health and Safety became a goal in itself rather than an adjunct to any given project. Now there are environmental issues. Hundreds of thousands of people will eventually be employed making sure that the environment is protected when probably the best thing would be for them to just stay at home and to leave things alone because the very activities that they are engaged in will cause more environmental harm than good. Of course, to any politician having thousands of people working to protect the environment is a good way to stimulate employment even if their effort is futile.
Published: January 2009