Grasping for an Understanding of Unemployment

Every month we hear a new report on the nation's unemployment rate.  It has now been between 8.5 and 10 percent for two years now.  It evokes the Battle of Verdun in 1916, where over 300,000 men died in battles that only shifted the trench-lines mere meters at a time -- in both directions.  So the situation is essentially stagnant, with a sizable population now permanently unemployed.  Many are older, and few have retirements to look forward to.

This is the news we hear, in the language that we hear it.  However, when trying to understand a problem, it's sometimes better to think about it in more general terms than how we've been conditioned to interpret it.  So this begs the question, what is unemployment?

It may seem ridiculous, even taboo to ask this question when the answer seems obvious, and there is palpable emotional tension in discussing its effects.  But suppose you were trying to explain unemployment to an alien.  How would you describe such a concept?

You'd first have to explain what an economy is, how it works, and why the system is set up such that people are liable to starve when it suddenly becomes unprofitable to feed them -- despite the fact that many other fundamentals have remained the same.  The same people are still alive, with or without the same skills, with the same materials in the world, etc.  When people must work in order to eat, what is to be done when you have a substantial population that cannot find the work necessary to feed themselves?

Unemployment is first and foremost defined as a relative value, not an absolute one.  Suppose that 30 percent of a given population has no arms or legs and are just torsos.  Also, they are deaf, mute, and blind.  They are people, and their disabilities preclude them producing much of anything that can be commoditized.  Therefore, to simplify things, we can expect that unemployment in such a community will never be less than 30 percent.  Suppose that this rate remains constant over centuries.  Such a community would likely not even count the torsos as being unemployed because that could be taken for granted.  Therefore the unemployment rate in such an economy (assuming that all non-torsos work) would be zero, even though not every person is working.  So unemployment does not exactly represent who is working versus who is not working.

In the above example, a fundamental constant (the non-working torsos) became a new normal, leading to an assumption of 100 percent employment.  All those able to work were working.  But what were those hard-working people working towards? Assuming that the above society values every human life, it is logical to assume that some able-bodied people are diverting their efforts toward tending to the torsos in their midst.  Let's assume that 15% of the working population is engaged in such services.  This means that a substantial amount of capital produced is being committed to a class of consumers that produce nothing.  In a sense, there is a wealth distribution taking place in order to meet the social imperative of caring for the torsos.  

The state typically sets a goal of having as many people working and receiving income as possible -- just not necessarily productively.  Much hullabaloo is made about nonproductive workers in the public sector, but somehow the army is almost always overlooked, even though profligate weapons spending tends to attract the ire of some groups.  Just how productive is the army? Soldiers receive paychecks doing things that usually have little if any productive value to their parent nation.  This is all the more fascinating today, as hundreds of thousands of public employees returning from Iraq find themselves suddenly without income, and having to re-enter the civilian workforce.  You can bet that that will add to the unemployment figure.

How might those soldiers have been employed if not for being deployed overseas, if at all? Without setting a goal of near-full employment (that is, employing workers just for the sake of it), how many people would be working? Would they even be working consistently? Well, that would ultimately depend on the market, and whether or not hiring labor was more profitable than doing without it.

In the colonizing and imperializing days of yore, states saw idleness as a serious threat to public order. Many European kingdoms made a policy of literally shipping their idle populations overseas, just to keep them from lingering in their domain.  After all, it got expensive having to cut off their ears and keep them in prisons.  Nowadays, it can be argued that the state just tosses bags of money to the idle to keep them participating in the economy.

Today, the state's role in regulating the economy towards this end manifests itself in the mandates of the Federal Reserve, which are:

1) Be the lender of last resort in order to prevent bank runs.

2) Keep inflation low.

3) Sustain maximum employment.

The problem with unemployment is that it simply does not describe capital relationships and distribution.  It is easily manipulated and our tendency to continually monitor it has probably not helped our understanding and stewardship of the economy.  As a result, every major policy decision is being weighed through the lens of whether it will ultimately add jobs or subtract them.  Since unemployment ignores value in favor of sheer quantity, perhaps it really is just a number.