Posted on 08/17/2010 1:15:18 AM PDT by SeekAndFind
The summer vacation season is drawing to a close, and soon, people will get back to serious, hard work in the push to finish out the year successfully. But August can be a time to be whimsical.
In that vein, let me put forth the ClearView Economics plan to get the nation quickly back to full employment.
The current unemployment rate is 9.5%. That amounts to 14.6 million persons who want to work that cannot find jobs. But there is also serious underemployment. I don't accept the U-6 unemployment calculation as being fully representative of all the truly unemployed, but let's allow another 3% to account for all the underemployment. That brings the total unemployed to 19.2 million persons.
What is "full employment"? I think the economy could sustain a 4.5% jobless rate without aggravating the inflation rate.
Why not a 0% unemployment target? First, because that would tend to be inflationary. Second, there is always some frictional unemployment: jobs available in Place A and unemployed persons in Place B. Third, there is also seasonal unemployment. And fourth, there is in the American workplace a considerable amount of "churn" -- people leaving one job for another.
So we need to get unemployment down to 4.5%, or 6.9 million persons. Hence, we need to create 12.3 million jobs -- or 8% of the civilian labor force.
(Excerpt) Read more at marketwatch.com ...
EVERYBODY -- from the president down to the chambermaid -- takes a 10% cut in compensation! This freed-up compensation expense is then used to re-employ the 8% (12.3 million) of the unemployed. Net-net, the nation's compensation bill has remained unchanged, and the unemployment rate is now 4.5%! Voila!
(Why not cut compensation 8%? I'm allowing for administrative costs of re-hirings and other frictions.) It is as simple as that.
So how realistic is the plan? The first thing to note is that many companies -- from manufacturers to law firms to municipalities -- have already done this through furloughs and pay cuts, to share the burden of unemployment. What has worked on a firm level could work on a macro level.
Second, there is an inherent fairness to this, as we all share the burdens of re-employing our fellow citizens. If he KNEW his small sacrifice would get some family person who otherwise is hopelessly unemployed back working again, what compassionate worker would not opt for this choice? I would.
Third, this plan gets at the fundamental reason for unemployment: sticky wages. In economics, as demands diminish, either prices or quantities can adjust. It is the nature of the U.S. (and other) labor markets that wages remained fixed, so quantities must adjust -- generating unemployment.
With this plan, in one fell swoop, the "economic reset button" is pushed. Prices adjust, so quantities can increase. Think about this issue: who is to say that the level to which wages have risen is the "right" level?
At first blush, this plan would seem to result in a 10% reduction in the standard of living for the 90.5% of the current workers. Again, with the knowledge that this will lift many good persons from the depths of unemployed despair, maybe this would be a reasonable sacrifice.
But wait! With the re-employment of the 8%, the productivity of the American workplace will not drop 8%. It may not drop at all! The re-employment of these workers will increase the supply of goods and services produced (maybe 8%?). Remember Say's Law? Supply creates its own demand. The net: perhaps no major decrease in the standard of living, at all.
READ THE REST OF THE ARTICLE IF YOU LIKE THE IDEA
ABOUT THE AUTHOR:
Dr. Ken Mayland is president of ClearView Economics, LLC, founded in 2000. Formerly, he was the chief economist of two major banks.
(Whether those two major banks he was chief economist of are still in existence the article doesn’t say)
Why don’t we just raise taxes 10%, and then the Government can use the money to fund “shovel ready jobs!†That is certain to reduce unemployment. Why hasn’t someone thought of that before!?! /sarc
This is so ridiculous, on so many levels, it does not deserve further comment.
Says Law? Supply creates its own demand?
I have a good supply of bridges for sale. Cheap.
I can see why it is "formerly".
The French have an unique job creating policy:
Limit the work week to 35 hrs.
Heavily tax overtime
5 weeks paid vacation, minimum
25 days paid sick leave per year
3 years paid maternity leave
Terminations virtually illegal
State owned companies
50% of jobs directly related to state expenditures
yitbos
RE: The French have an unique job creating policy
And what has their unemployment rate been averaging the past 10 years ?
Well, if 10% would be good, then 20% would be great. Better, why not 30%? Hey, let’s go all out and say 80%! Then everyone can have a pony!
WHERE’S MY PONY???
Oh, brother!
1. Unemployment welfare begins upon graduation from HS or 18 years old
2. Unemployment welfare has no time limit
yitbos
Clinton declared that 5% unemployment was the absolute lowest attainable rate because of the mobile work force. So 7% was actually 2%.
Now, we hear from The Obammunist, because of the new American Socialism, 10% is the norm. So U.S.A. actually has full employment. That's why unemployment welfare should have no termination.
yitbos
Someone needs to remove the keyboard from Ken’s hands
Hey, you've got to give them some credit. They are finally coming right out and saying that wages will have to "adjust" to drag us down to compete globally. They lied about that for years. I'm pretty sure your 80% is more on par with what they actually have in mind.
We aren’t supposed to excerpt, or even link to, the Onion.
It’s still “socialism”...no matter which way you cut it.
Sounds like socialism to me. After all, it’s “fair” and “equal”. No thanks.
Ah....Uh?
Companies downsizing is capital adjustment in the market place.
Under-employed persons are already pay cuts.
A 10% pay cut doesn’t create capital.
I took a cut in pay last year. That didn’t even slow down my company’s layoffs much less end them. If everyone took a 10% cut all that would mean is that a company’s bottom line would improve, their stock price might go up, and the CEO’s bonus would increase.
My wife took 2 pay cuts since Nov-2008, first a 5% and then 10% and unemployment still went up.
This article is BS. Many in the private sector have had pay cuts of 10% or more in addition to no raises during this time, so his science is faulty.
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