Jeffrey Sachs wants desperately to position himself outside the mainstream of the current unemployment debate, arguing that there’s no “quick fix” to the current level of joblessness. But there are no structures in Sachs’s structural analysis.
Let me explain.
Sachs is appropriately critical of the three existing “miracle cures”:
Keynesians propose to solve the unemployment problem by another dose of temporary deficit-financed stimulus. The approach doesn’t work. A stimulus might at best create another temporary construction bubble. Yet the effect would be at best temporary and the hangover would again be serious. In practice, the outcomes of stimulus packages are even more meager. The temporary tax cuts and transfer payments in the recent Obama packages have been more saved than spent, adding to public debt rather than to aggregate demand even in the short term.
Quantitative easing by the Fed is a similarly weak salve. Monetary easing can potentially stoke more asset bubbles large and small, but cannot solve structural problems. Arguably the monetary hangovers are as bad as the fiscal hangovers. We are, after all, still digging out from the Hayek-type crisis of misplaced investment in real estate caused by excessive liquidity expansion during the past decade.
Tax cuts combined with budget cuts are the third miracle cure: the idea of getting government “out of the way” to let the private sector lift the economy out of its doldrums. The absurdity is that this policy is that it’s the opposite of what’s needed to overcome a structural crisis of insufficient education and job skills. Poor kids need society’s help, not its neglect.
What’s Sachs’s alternative cure? It’s the by-now-familiar “public investments — in education, skills, and infrastructure.” That’s because Sachs is concerned only with the higher levels of unemployment of workers with high-school degrees over college graduates, and making sure currently unemployed and poorly paid workers “deserve” more jobs and higher wages by acquiring more skills and working with better technology.
Out [sic] kids should be in school and training, rather than in unemployment or low-skilled work. The Eurozone needs debt relief, cleaned-up banks, and social inclusion in the south that matches the more successful north. The entire rich world needs to understand that it faces a new era, in which its growth will be earned the hard way, by having sufficient skills and technology to warrant a significant wage premium over the emerging economies.
In other words, there are no structures in Sachs’s “structural” view of unemployment. As I argued two years ago (in response to Mark Thoma):
What Thoma and other mainstream economists don’t want to admit is that all unemployment within a capitalist economy is structural. One can no more imagine contemporary capitalism without a relative surplus population than slavery without a Middle Passage. Each mode of production, in this sense, has its own law of population. In the case of capitalism, a share of the population is redundant—it is either wholly or partly unemployed, and therefore an industrial reserve army—based on the accumulation of capital. . .
It is not that wages regulate the level of unemployment. Wages are the result of unemployment, in the sense that the existence of the industrial reserve army forces employed laborers (who, we are told, should be grateful for the opportunity accorded to them by capital) to perform more labor than they receive in the form of remuneration. Their participation in the valorization process, in turn, makes possible the accumulation of additional capital, which operates on both sides of the labor market. On one hand, the pace and nature of the accumulation of capital affect the level of demand for labor, by determining both the overall rate of increase of capital and its division into means of production and living labor. On the other hand, the accumulation of capital increases the supply of workers by periodically “setting them free” and by compelling those who remain employed to furnish more labor to their employers.
It is this despotism of capital that serves as the basic structure of all forms of capitalist unemployment—and no government policy (whether to stimulate aggregate demand or to make it easier for businesses and individuals to relocate) can solve it without abolishing capitalist production itself.
Unless and until the Sachs’s and other mainstream economists of the world are willing to recognize the capitalist structure of unemployment, they will continue to offer a choice between miracle cures and the “hard way” and—in both cases—fail to solve the problem of capitalist unemployment.