Could you guys please point out the flaws in this article?
Welcome to the forums. A link would have been nice: http://mrzine.monthlyreview.org/2010/kalecki220510.html
In a free market economy there would be full employment. Unemployment is caused by government banning work, such as minimum wage laws. In a natural economy, wages would adjust so that work would be distributed amongst the available workers. Therefore 'creating jobs' is without value, all this does is taking future wealth to employ people in places that are a misallocation of societies resources. Government spending does never create wealth, it only transfers wealth to less efficient uses. We always pay the opportunity cost. If you want to know more, look up the broken window fallacy or 'creating jobs' on this forum.
I liked the article for two reasons.
First, it could have been written today, describing current events. I thought it was, actually, till I saw at the bottom that it is from 1943.
Second, because from the get go, it shows total ignorance of economics. Every word is wrong, basically.
It's a long article, and so not easy to tackle paragraph by paragraph. Best way is to study a bit of AE, stuff other posters have reccomended, since the very first principles of AE destroy this article's arguments.
OK, I'll deal with the first part of the first sentence. Let's do it in the form of a dialogue between K and M, standing for Kalecki and Me.
K: A solid majority of economists is now of the opinion that, even in a capitalist system, full employment may be secured by a government spending programme...
M: Where will the money come from that the govt will spend? Either through taxes or inflation, it will have to be taken away sooner or later from the people. So that a govt spending program means taking money away from A to hire B, so that B can have a job. Why do we need the middle man? Why didn't A hire B in the first place? Obviously because he did not think B would be productive enough to be worth paying, for whatever reason. So how is the govt hiring B going to make him productive?
K: You don't get it. A would love to hire B, except that C [= the consumer] has no money to pay for the new stuff B is going to make. So I hire B and let him be the consumer of the new stuff he makes. Brilliant, no?
M: No. Because why couldn't A have done that without the govt?
K: Because he is broke.
M: So the govt takes money from everyone, gives it to B, B can now buy the new stuff he makes. But how will everyone pay for the old stuff, now the govt has taken away their money?
K: You don't understand. Think of it as an investment. Everyone pinches in a bit now, many B's get hired, production increases because of the new workers working, and we are all wealthier.
M: There are people with plenty of money who spend all their time looking for investments. Why didn't they invest in A?
K: Because they are stupid. They don't know a profit making business when they see one, unlike the wise govt. Look at the govt track record. Besides, getting B a job is more important than profits.
M: So B gets a job and the company loses money because of B. And they will have to close down.
No need to go on.
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It's easy to refute an argument if you first misrepresent it. William Keizer
Smiling Dave: I liked the article for two reasons. First, it could have been written today, describing current events. I thought it was, actually, till I saw at the bottom that it is from 1943. Second, because from the get go, it shows total ignorance of economics. Every word is wrong, basically.
You make me laugh out loud dave.
enjoy
K: Because they are stupid. They don't know a profit making business when they see one, unlike the wise govt. Look at the govt track record. Besides, getting B a job is more important than profits. M: So B gets a job and the company loses money because of B. And they will have to close down.
You completely strawmanned his argument. He's not saying that they are stupid, but that it is not in their interest to maintain full employment. Periods of full employment mean that workers have more power. A business acting in its own self-interest doesn't want that. You really didn't address any of his points.
M: No. Because why couldn't A have done that without the govt? K: Because he is broke.
A doesn't hire B because A's broke, but because hiring B isn't profitable. The one point where I think Kalecki might be wrong is his assertion that businesses would merely lose their control and not their profits under sustained full employment. I suspect the greater autonomy that workers would obtain would lead to an increase in collective bargaining and the ability to take a greater percentage of the company's revenue.
In a free market economy there would be full employment. Unemployment is caused by government banning work, such as minimum wage laws.
Many countries, such as Germany, don't have minimum wage laws, and yet they still have unemployment. This is not to say that government does not contribute to unemployment, but rather they intentionally adopt policies that increase unemployment because that's what businesses want. They merely paint this as a means for combating inflation (which is caused by full employment as the Kalecki pieces indicates). Neither business nor government are stupid. They know what they're doing.
Slaveholders also maintain full employment. During WWII, most governments were maintaining close to full employment... even if that meant you were running up the beach at Normandy with an M-1 carbine playing the always exciting Can-You-Dodge-A-Thousand-Bullets? game.
Many countries, such as Germany, don't have minimum wage laws
In Germany, minimum wages are set by unions and these wages are protected by government. They amount to the same thing as federal minimum wage laws. German unemployment, btw, is much lower than other European countries (but, largely because their export industry is still relatively strong).
This is not to say that government does not contribute to unemployment, but rather they intentionally adopt policies that increase unemployment because that's what businesses unions want.
This is now correct.
Fool on the Hill:
He's not saying that they are stupid, but that it is not in their interest to maintain full employment. Periods of full employment mean that workers have more power. A business acting in its own self-interest doesn't want that.
'They" is investors. Why would they not want full employment if every employee brings in more money? What do they care who has more "power"?
Investor: If I invested in Dairy Queen, they would be able to open more branches and make me more money.
His Wife: But if you did that there would be full employment and the workers would have more power. Better that you make less money than give them more power.
Investor: Power to do what exactly?
Wife: Don't straw man the argument, dear.
Investor: How does full employment give the workers more power?
Wife: Because you need them so badly to make more money you will pay them a bit more.
Investor: Ah, never thought of that. Better to pay them what they are earning now, even if it means I make less money.
Wife: Glad I convinced you dear. Now we can let the govt hire them instead.
A doesn't hire B because A's broke, but because hiring B isn't profitable.
Investor: Wait a minute. I thought you said the problem is that the workers will get more power.
K: No, I changed my mind. The reason is because hiring B isn't profitable.
Investor: Ah, OK. So how does the govt hiring him make it profitable? B isn't profitable means every day B works, the company loses money. He costs more than he produces. And hwo exactly does the govt hiring him make him productive all of a sudden?
K: I knew what I was saying was total baloney, but it fools people, right?
Note that big business has an interest in keeping people employed as wage workers to reduce potential competition in the marketplace from entrepreneurial laborers (independent contractors, etc.) I'm pretty sure the company that employs me is happy to pay me even if I did nothing that contributed to their bottom line because they'd rather have me on the payroll at my current salary than as a competitor forcing down their prices.
Clayton -
Fwiw, a business doesn't really have a say in regards to full employment. Businesses are subject to competition. Human labor is the fundamental economic scarcity, and so as long as there labor available there is room for some business to expand productivity.
Did you read the article? Kalecki talked about this when he discussed how fascism maintained full employment.
To go on strike, to negotiate pay raises, to implement profit sharing, to secure benefits, to manage the work place as they see fit, to adopt policies such as environmental protection which might not increase profits or expand the business.
Investor: Wait a minute. I thought you said the problem is that the workers will get more power. K: No, I changed my mind. The reason is because hiring B isn't profitable. Investor: Ah, OK. So how does the govt hiring him make it profitable? B isn't profitable means every day B works, the company loses money. He costs more than he produces. And hwo exactly does the govt hiring him make him productive all of a sudden? K: I knew what I was saying was total baloney, but it fools people, right?
I admitted that I might disagree with Kalecki on this point. However, this doesn't mean that Kalecki is changing his mind (or that I'm changing my mind). Kalecki's view seems to be that businesses would raise prices among increasing wages in order to maintain their profits. This would lead to inflation as well as employees having more power. The US economy did reach near-full employment in the 60's and 70's. I don't think it was a coincidence that this was also a period of social unrest where ordinary people were demanding more power. The people were able to do this in large part due to the relative security of their jobs. Obviously the business community didn't like this period, and we saw the rise of policies to combat it, such as monetarism.
Note that big business has an interest in keeping people employed as wage workers to reduce potential competition in the marketplace from entrepreneurial laborers (independent contractors, etc.) I'm pretty sure the company that employs me is happy to pay me even if I did nothing that contributed to their bottom line because they'd rather have me on the payroll at my current salary than as a competitor forcing down their prices. Clayton -
But we're talking about businesses preferring unemployment to full employment, not about them preferring to have an employee working at their company rather than at a competitor's. In Kalecki's view (as I see it), unemployment serves as a form of punishment for laborers demanding too much. It's similar to the way that a slave owner might punish a slave by putting him in solitary confinement. Obviously, the slave owner would make more profits if the slave is working, but the slave owner is going to have problems if the slaves are constantly going on strike and demanding more. Thus, some form of punishment is necessary. In a society with unemployment, the sack becomes a form of punishment. With full employment, the sack is no longer as menacing. If the economy was at full employment now, I could slack off a ton more. I could leave work at noon. What would they do, fire me? I could easily get another job. Besides, who would they hire to replace me?