There’s been a spate of articles of the last few weeks worrying about the phenomenon of increasing GDP growth with no change in unemployment. Basically, they argue we might be moving to what I’ve called a ‘Judge Dredd’ economy:
For those who haven’t read the Judge Dredd stories (I’m not referring to the movie), they take place in a dystopian future (other than Star Trek, do sci-fi stories occur in any other kind of future…) where the predominant theme is that, due to technological advances, very few people have jobs, creating huge urban megalopolises (megalopolae?) where crime is rampant.
These authors all speculate or conclude that high unemployment is here to stay. This is fucking stupid–we should view this as an opportunity instead. What do I mean?
In 1900, about half of the U.S. population was engaged in agriculture. While some of this was ‘non-essential’ in that the U.S. exported these products, that’s still a huge fraction. Today, less than two percent are engaged in agriculture. Yet somehow we keep most people employed. There were dislocations during the shift, such as the migration northward of African-Americans as sharecropping fell by the wayside (not that sharecropping was a wonderful living).
We can find plenty of worthwhile things for people to do, even if they are not ‘essential’: arts, education, research, improving our infrastructure. If we still lived in a world where we needed half of our workers on the farm or else we couldn’t eat, funding these things would be wasteful. But with idle workers, idle industrial capacity, and real needs, the only limiting ‘resource’ is currency. The federal government can create that at a drop of a hat–money should never be limiting. As long as we don’t have shortages of resources, including workers, there’s no need to worry about inflation or resource misallocation.
Federal spending is our friend.
An aside: Without getting into a discussion of the balance of accounts, this does not necessarily entail massive deficit spending. In fact, as we approach maximum employment (U3 or ‘strict’ unemployment of ~2%), we should ‘remove the punch bowl from the party’* on the fiscal side and raise taxes (and with lower unemployment we will also need less government job creation).
*‘Remove the punch bowl from the party’ was a phrase coined by a Federal Reserve chairman who viewed his job as preventing inflation, but there’s no reason we can’t do that on the fiscal side too.