From Newtonian Economics to Full Employment: Need for new theory

In a report to the Club of Rome entitled the The Employment Dilemma: The Future of Work, Orio Gianini and Patrick Liedtke present a strong case for the need for new economic theory on employment in order to fulfill Adam Smith’s dream of the Wealth of Nations. Instead of looking at employment through the eyes of existing theories, “we have to understand why the old theories were created, where and why they fail now and then propose a feasible, more efficient alternative…”[1]

In formulating a new theory of employment, it is both common sense and good ethics to start with the premise that any system which purports to represent sound economics must provide a viable means for all members of society to acquire at least the minimum (why not the optimum?) level of purchasing power needed for survival, development and full enjoyment of their human potential. If economic systems based on current economic theory are unable to provide sufficient employment opportunities, it means either the prevailing theory or its application are deficient. Since the problem of unemployment is widespread, we may safely assume the fault lies in the theory itself.

There are only two possible solutions to the problem of human welfare. Either all members of society must have ample opportunity to acquire the good things of life by their own enterprise. Or in the absence of such opportunities, society must provide adequate support for all its members in the form of social welfare benefits. Anything less than this can only be considered a first rough approximation, a crude clumsy attempt at social development in need of radical reform. Thus, the need for new theory is self-evident when we recognize that neither classical nor contemporary theory provides an adequate solution to the most central issue of economics – human welfare.

Newtonian Economics

The failure of theory is self-evident, but most social thinkers – Marx is an obvious exception – have been constrained from evolving alternative theories by the misconception that economics is governed by immutable, universal laws similar to those governing physics and chemistry and that we must necessarily accept what Nature offers and do the best we can in the given circumstances.

This Newtonian conception of economics is challenged by Orio Gianani and Patrick Liedike in their report describe the classical view of economics:  a “system of models in the deterministic tradition of Newton’s world as autonomous, closed, self-regulating universe, running according to predetermined laws, culminating in a static equilibrium... p.60-61) 

If the economic life of humanity is not determined by immutable laws of Nature, then what is it determined by? It is determined by the past evolution of human civilization. It is a product of the social organizations and institutions we have fashioned in the course of social evolution, which in turn have been determined by our limited understanding (ignorance), egoistic attitudes and inadequate will to arrive at a more adequate solution. It is the result of human choices made in the past, choices than can be altered at any time.

Unmet needs & full employment

Common sense tells us that there is no inherent reason why we cannot devise an economic system in which everyone that is willing to work and capable of productive activity is assured of an opportunity and means to do so. It is not as if all possible human wants are already being met and there is no further work to be done in the world. Far from it. According to an article in the Economist (Feb 2009) over half the world's population now belongs to the middle class, as a result of rapid growth in emerging countries. By middle class, it means those having a reasonable amount of discretionary income, so that they do not live from hand to mouth as the poor do.[2] This estimate still leaves more than 3 billion people in need of the minimum requirements for a comfortable living.

Obviously, there is a great deal of work that is not getting done in the world, work that would raise the other half of humanity to middle class status. Apart from this, humanity has an insatiable appetite for more education at all levels, improved health care, more and better attention to the needs of our children and the aged, better community development, more research, new forms of entertainment, infrastructure improvements, etc. So we have a vastly underutilized resource – human beings – estimated by Randall Wray as 25% of the work force in the USA alone, and we have a plethora of unmet social needs.

In his articles and GEC webcast, Wray offers a solution to this dilemma, one with the capacity to dramatically improve the employment situation of the unemployment in both developing and developing countries in the short term by introduction of government sponsored and financed job programs. He presents both the theoretical rationale and practical means to justify this approach. We can and should adopt programs such as this, as India has already done over the last four years through its massive rural employment guarantee scheme which offers a minimum 100 days of employment annually to more than 50 million families.

Human Rights, Ethics & Social Theory

But long term, there should be and is a better way. It requires formulation of new theory, not just modification of prevailing concepts. As Giarini and Liedtke argue, classical and neo-classical economic theory focus on the central importance of supply and demand, not on the central importance of human welfare. In an effort to imitate the impartiality and objectivity of the physical sciences, social scientists have generally chosen to study existing social systems as they are, rather than formulate theories describing what they should be. There may be no place for ethics in physical nature, but a sense of right, truth and justice is the very essence of what makes us human. Therefore, there is no reason why we should not formulate a theory of economics based on the premise that all members of society have a right to employment, a theory that not only affirms the right but also presents the structures and processes by which this can be achieved. That makes Winston Nagan’s essay on Human Rights and Employment an appropriate starting point for the formulation of new economic theory.

 


[1] Gianini, Orio and Patrick Liedtke, The Employment Dilemma: The Future of Work, Club of Rome, 1997, p. 15.

[2] ^ Parker, John (2009-02-12), "Special report: Burgeoning bourgeoisie", The Economist, 2009-02-13, http://www.economist.com/specialreports/displayStory.cfm?story_id=13063298&source=hptextfeature, retrieved 2009-12-13

Causes and Effects of Unemployment - Comment by Roy Posner

One way to devise a new theory of economics is to look at all of the causes and effects of unemployment (see attached), and in the theory reverse them at a somewhat more abstract level. It can thereby include all social, cultural, financial, etc. factors.

CAUSES OF UNEMPLOYMENT

  1. Man does not reside at the center of life
  2. Values of society not aligned fully to employment
  3. Lacking organization in society to prevent it
  4. Lack of social cohesion that allows for it
  5. Lower values of company to lay off people to reduce costs before other means
  6. Incapacities of individuals – lack of skill, knowledge
  7. No jobs available for person’s skills levels (match)
  8. Rapid technological change; automation
  9. Business cycles, recessions
  10. Season factors (e.g. in some industries)
  11. Climatic changes (e.g. drought)
  12. Individual’s perception of value of work (e.g. laziness to work, to look for it)
  13. Ignorance of work, job positions available
  14. Society not producing people who can meet new technological requirements
  15. Attitudes and values towards certain types of work
  16. Negative attitudes toward certain employers, companies, industries, etc
  17. Non-access to training
  18. No jobs available for what one has been educated and trained in
  19. Job discrimination due to race, class, caste, ethnicity, age, gender, etc.
  20. Poor state of the economy
  21. Lack of experience
  22. Voluntary unemployment
  23. Automation
  24. Offshoring
  25. Immigrants taking jobs
  26. Lack of education
  27. Lack of skill
  28. Lack of awareness of possibilities’
  29. Low self esteem
  30. Low ambition, aspiration, motivation
  31. No jobs available
  32. Lack of prosperity, poverty of collective (e.g. town, nation)
  33. Jobs not interesting
  34. Jobs of a low level, poor paying, leading to attitudes of why bother
  35. Can make more money through illegal means
  36. Boom and bust cycles
  37. Jobs not available locally; only at a distance
  38. Non (or limited) systematic way to move people from one’s skills to right jobs in society
  39. Government not involved in matching jobs to opportunities
  40. Private sector oblivious to the unemployed (e.g. profits, controlling costs comes first)
  41. Separation of classes; or inability to see beyond one’s class
  42. Inability to see one’s real potential
  43. Culture of poverty (poverty consciousness)
  44. Too many people for too few jobs
  45. Plenty of work for some; not enough for others (a work imbalance)
  46. Poor job performance (in execution, disciplinary problems, etc.)
  47. Lack of personal network of contacts that can help secure work
  48. Living in rural communities where there is little work, absence of knowledge, low horizons, etc.
  49. Overpopulation; or lack of population control
  50. Environmental degradation destroying jobs
  51. Certain types of work becoming obsolete
  52. Monopolization stifles competition, and therefore job creation
  53. lack of information about untapped opportunities
  54. lack of individuality
  55. Company’s exports manufactured overseas, hurting domestic market 
  56. This reduces local jobs from surrounding businesses that would support that company  
  57. People like to complain rather than do something  
  58. Little or no access to technology 
  59. Little or no investment capital
  60. Poor infrastructure
  61. War and violence in community 
  62. Trade protection 
  63. Demands of global finance institution to cut off gov’t spending to pay off or secure loans 
  64. Lack of cooperation between governments
  65. Lack of global coordination and collaboration
  66. Fear of the unknown  
  67. Unwillingness to move up to, be trained in existing new, emerging better jobs  

EFFECTS OF UNEMPLOYMENT

  1. Instability of society
  2. Instability of youth
  3. Increased crime
  4. Fundamentalism and terrorism
  5. Lower tax base for government
  6. Conflict amongst races, immigrant population, etc.
  7. Increased cost to government in unemployment benefits
  8. Anxiety, fear, and depression of person
  9. Anxiety, fear, and depression in society (lower consciousness)
  10. Lower self-esteem of individual
  11. Loneliness, lack of social contact
  12. Increased suicides
  13. Lower GDP of nation, world
  14. Slows economic growth and recovery
  15. Acute financial stress (in paying bills, defaults, repossessions)
  16. Reduces access to credit, finance, loans
  17. Reduces productive power of society
  18. Limits access to health care
  19. Limited health care causes more illness
  20. Adds to stress of health care system
  21. More likely to settle for unsatisfying, wrong, limiting jobs thereafter
  22. Reemployment can be at lower rate of pay
  23. Standards of living go down; even when new job is attained
  24. Drug and alcohol abuse
  25. Reduced purchasing power for self
  26. Reduced purchasing power of society
  27. Increased divorce
  28. Increased loneliness and alienation
  29. Stress on family
  30. Harms local economy (because of fewer purchasers)
  31. Lowers tax base of governments at various levels
  32. Makes country less competitive
  33. Decreases morale in organizations, the country
  34. Leads to late bill payments, increased fees, higher interest rates on credit cards, etc.
  35. Reduces credit rating
  36. May lower mortality rate
  37. Increase in prison population
  38. Increased government spending for unemployment benefits
  39. Can add to government deficits
  40. Can lead to inflation
  41. Can lead to higher national interest rates, slowing economy
  42. Damages relationships
  43. Increased insurance payments due to physical and mental illness and care
  44. Loss of insurance
  45. Inability to see doctor (due to loss of insurance) puts stress on people’s health & on system
  46. Exacerbates inequalities in society
  47. Increased income disparity increases resentment
  48. Increased taxation on public to accommodate increased deficits
  49. Harms reputations of business (as being cold and callous)
  50. Reduced belief in free market society
  51. Causes political conflict at top, diverting collectives, nations from other important matters
  52. Feeling of helplessness; not knowing where to turn
  53. Reduced belief in government, and our contract with it
  54. Fosters belief that society is heartless, cruel; creates a negative view of the world
  55. Destroys families
  56. Causes mass migrations
  57. Causes nations at borders to be in conflict do to migration; reduces harmony
  58. Creates instability in society
  59. Taxes the good will of others, who are asked to help, put out
  60. Destroys romance
  61. Destroys confidence, turns attitudes negative
  62. Since it is not resolved on society in a given round or as it builds up, it can become systemic
  63. Opens the door to crime and all forms of unsocial behavior
  64. Increases rate of crime, divorce, alcoholism, drug use, etc.;  which all create stresses on society
  65. Non-belief in free markets, the government, institutions;
  66. Some of the best minds are not being utilized
  67. Moves the middle class into the lower class
  68. Dislocation of population
  69. People forced to move, e.g. to undesired location
  70. Creates a sense of dependence on others, whether individuals, the system, government, etc.
  71. Reduces energy
  72. Increases negative attitudes and values
  73. Hits youth especially hardest (e.g. recently 52% of Americans 18-24 are out of work)
  74. Youth as tomorrow’s would-be star employees are on the sidelines, deprived of experience and losing motivation  New
  75. Freshness and vitality of lacking youth in workplace in society suppresses energies of firms, nation  New
  76. Youth seen by potential or existing employers as damaged goods  New
  77. Youth’s  lifetime income  significantly depress  New
  78. Youth not working reduces tax base of gov’t for older generation’s retirement benefits (e.g. social security and medicare)  New
  79. Job seekers who lack college education are especially hard hit, as they have fewer options  New
  80. Youth cannot then easily pay back student loans and credit card debt  New
  81. Youth unemployment has long lasting effect on their morale  New
  82. Lack of work by parents of youth can prevent them from getting the best education  New
  83. Can devastate the newly arrived immigrant population seeking a better way  New
  84. Immigrants disrupted as they have to reverse and emigrate back to home country or go elsewhere  New
  85. Increase in infant and maternal illness or mortality