Bryan Gould: Unemployment rate is proof economy is failing

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The unemployment figure announced last week at 6 per cent and rising is a disgrace - not only a personal tragedy for individuals and families but a senseless waste of the nation's resources that makes us all poorer.

Nothing contributes more directly to growing poverty and widening inequality. What's more, the official statistics undoubtedly understate the number of those seeking work, or who would do so if there were jobs available, so the lost output and the numbers of blighted lives are even greater than they seem.

Unemployment at this level is not just a fact of life or an act of God - it's a policy choice and is the best indicator we have that the government has other priorities and that the economy is failing. There is nothing economically efficient about denying a significant sector of our population the opportunity to make their contribution.

The unemployment total tells us that we have failed to address our many problems. It tells us that the focus on eliminating "the deficit" at the expense of other more important goals has been sadly misplaced and that sustained government spending cuts have meant not only poorer services but also a lower level of economic activity - certainly lower than the level needed to provide full employment.

The government, after all, is a customer like any other; if it cuts and lays off staff, there is a smaller market for the goods and services provided by the private sector, and therefore less incentive to employ more staff across the whole economy.

The unemployment total also tells us that nothing has been done to remedy the deficit that really matters - the country's deficit, or, in other words, our failure to pay our way in the world. It is that deficit that requires us to sell assets and to go on borrowing from overseas in order to make up the difference, and it is that deficit too that represents our continued appetite for imports that we can't afford or that we could be producing ourselves.

A sluggish economy and high unemployment tell us that we have wasted the opportunity provided by record commodity, and particularly dairy, prices, to broaden our productive base. Our dangerous dependence on the dairy industry has left us with few options when prices fall. The rest of the economy struggles to pick up the slack under the burden of interest rates that are still higher than elsewhere and of a dollar that is still overvalued and that prices Kiwis out of jobs.

The one area of the economy that is, in some senses at least, booming, is the Auckland housing market. But that is little comfort to the unemployed who do not on the whole own their own homes. While record mortgage lending may have produced record bank profits, at over $4 billion, and Auckland home-owners can take comfort from an average $1600 weekly increase in house values, the unemployed have trouble making ends meet - and gains made in housing values and asset values more generally provide few jobs.

While continuing high unemployment may be the mark of a malfunctioning economy, are we justified in holding the government to account, or is it the result of factors beyond their control? Keynes, the greatest economist of the twentieth century, provided a direct answer.

His response to the Great Depression of the 1930s was to demonstrate that unemployment was the result of an inadequate level of effective demand in the economy - and that government policy was the main determinant of effective demand.

A government that focused on a goal other than its own deficit, in other words, could act effectively to reduce unemployment. That lesson was learned last century - but seems to have been forgotten in the aftermath of the Global Financial Crisis and the consequent recession.

So, why does the government not act? The answer is that it feels no need to, since most people - though not of course the unemployed - seem unconcerned, and in truth the government is not unhappy about the current numbers of jobless.

The reason for this is not hard to find. The news bulletins, in reporting the rise in unemployment, also remarked on the fact that wage levels were barely moving. That stagnation in wage rates is an important factor in the current unduly low level of inflation that means that the Reserve Bank is in danger of missing its inflation target.

But the flatness in wage levels is of course causally linked to the high unemployment rate. A labour market where there are multiple applicants for every job that becomes available is also one where employers have the whip hand and where the bargaining power of workers is much reduced.

An economy with a permanent pool of unemployed and with no real growth in wage rates is also an economy with less purchasing power and demand than it ideally needs. We are all worse off as a consequence.

Most of us can soldier on without too much inconvenience. It is the unemployed who are the sacrificial lambs on the altar of neo-classical orthodoxy.

Bryan Gould is a former UK Labour MP and former vice-chancellor of Waikato University.

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