A Brief History of Unemployment

(Re-)Defining "Full Employment"

"Jobless Filings at Highest Point Since November"

--headline, The New York Times (8/19/10)

One year ago, 90% of you were in the top 10% of your class. Today, 90% of you are in the bottom 90% of the your class.

--Stanford Dean of Admissions Fred Hargadon, to the incoming class of '82 (which I was in), at freshmen orientation in Fall, 1978

What makes me think of Fred Hargadon's quote is today's especially charged debate about high unemployment -- for official purposes, just under 10% nationally* -- and what to do about it.

Ten Millennia of Progress -- in a Nutshell

A good starting point would seem to be to note that cavemen didn't have unemployment (though they had many, many other problems, such as predators, disease, and lives that generally were "nasty, brutish, and short").

That's because, ten thousand years ago, it took the collective efforts of 100 people to feed 100 people (through primitive hunting and gathering).

Thanks to advances in agriculture and technology, by the 18th century (1700's), only 75 people were needed to grow enough food to feed 100 people.

As productivity and science advanced apace, that ratio gradually fell from 25 : 100, to 10 : 100, to as little as 3 : 100 in "advanced," western countries today.

With luck, in a century (or three), that ratio will fall to 1 : 1,000.

As Martha Stewart would say, "that's a good thing."

Productivity Gains

Such productivity gains are hardly limited to agriculture.

They also characterize computers, construction, manufacturing, communications, and dozens of other fields.

Thanks(?) to technology, even modern warfare requires less (wo)manpower: witness the rise of "drone" technology, fighter jets with ever-higher (more lethal) payloads, etc.

Over time, then, it would certainly seem that the natural order of things is for advanced economies to need progressively less labor -- at least to produce society's basic necessities.

So, economic convulsions like today's aside, one would anticipate what economists call "structural unemployment" to incrementally rise.

Policy Responses

To go back to agriculture, when one person can feed 99, what are the other 99 supposed to do?

Unless the foregoing analysis is wrong, it would seem that society has four possible responses:

One. We can all dramatically increase our consumption ("demand").

God knows, when it comes to food, plenty of people seem to be trying to do just that.

But over-consumption isn't good for you; and collectively, it isn't good for the planet (amongst other things, it leads to depletion of key resources, pollution, etc.).

So, no, adding a couple billion more (overweight), SUV-driving people isn't going to solve anything.

Two. Society can keep otherwise unemployed people busy through any number of economically dubious diversions.

That includes ever-bigger "make-work" projects designed to soak up surplus labor; creating low-wage service jobs ("McJob's") with little value-added (what economists derisively call "taking in each other's laundry"); or that most destructive activity of all, war.

For all its horrific consequences, World War II effectively ended the Great Depression (and no, I don't think that that was its purpose -- but it was certainly a side effect of global economic collapse, and equally clearly, an antidote to it).

Such diversions aren't just limited to society's less educated or capable: one of the ultimate causes of today's financial mess is that, roughly 25 years ago, Wall Street found its traditional business model -- helping clients raise and invest capital, otherwise known as investment banking -- under assault from increasing competition and advancing technology.

Its response?

It created a dysfunctional, highly leveraged shadow economy of incredibly complex financial instruments.

We all know how that turned out (and, amongst other things, what it did to the housing market).

Three. Society can decide to retard or even scrap labor-saving technology.

Want everyone working?

Easy.

Just idle our heavy, mechanized ditch-diggers and go back to shovels (or spoons, if we really want full employment).

Four. We can honestly acknowledge the foregoing, and devise a social safety net that takes into account economic reality, while at the same time balancing it with people's inherent need for growth and fulfillment.

How to do that in a fair, just way is what we should be talking about.

*"The Furlough Factor": count me amongst the "officially dubious" regarding government-reported unemployment statistics.

That's because, amongst other reasons, the official statistics don't account for all the companies "asking" their employees to take furlough -- otherwise known as unpaid time off -- to forestall outright layoffs.

If you assume that that furlough averages two weeks per employee per year, that translates to an unemployment rate of 13.5%.