The Solution to Unemployment Is Less Monetary Stimulation Not More
By Staff News & Analysis - November 05, 2012

Young jobless 'scar' starts to heal as more begin work … "Not only is youth unemployment costing us billions now, but the damage done to the future employment and earnings prospects of those affected will cost us billions for years to come, every year, long after the economy as a whole has recovered." Being cast out of the jobs market at such a young age can cause permanent damage. When employers start hiring again, there are more people competing for each job. – UK Telegraph

Dominant Social Theme: It took some time but the system is working and employing young people once again.

Free-Market Analysis: This is a hopeful article but one that leaves significant questions in its wake. One could ask, for instance, how is it that modern economies can from time to time generate such vast unemployment? And why, most recently, has this unemployment been so difficult to cure?

The Telegraph article above is hopeful about unemployment, stating that, "Total unemployment has been remarkably low during the most recent recession, peaking at 8.4pc compared with 10.7pc in the 1990s, but the hard times have fallen disproportionately on the young."

The Telegraph article above is hopeful about unemployment, stating that, "Total unemployment has been remarkably low during the most recent recession, peaking at 8.4pc compared with 10.7pc in the 1990s, but the hard times have fallen disproportionately on the young."

This has been the case in Spain, too, where 50 percent of youth are supposedly out of work along with 25 percent of the total population. This is a disaster by any measure as government unemployment figures almost inevitably understate the reality of the working environment.

US figures have been portraying a picture of less than 10 percent unemployment when the figure is probably 20 percent or even 30 percent. UK figures are probably similarly understating employment. Here's some more from the article:

The statistics are compelling. At the peak of the 1990s slump, 17.8pc of 18-24 year-olds were unemployed, and 20pc of 16-17 year-olds. This time, the comparable figures were 20pc and 39pc. Part of the rise can be attributed to the fact that more young people are now in further education, thereby reducing the size of the pool of workers against which those unemployed are measured. But the underlying story remains one of a disenfranchised generation.

Given the high cost of going to university, the options are hardly attractive. As James Carrick, an economist at Legal & General Investment Management, put it: "You've got a choice of no work or debt."

The latest recession has been particularly hard on the young due to a strange dynamic in the UK labour market. Rather that cut jobs, companies cut hours and froze pay. John Philpott, an independent labour market economist at The Jobs Economist, speculated that redundancy costs might have been the incentive. But, for whatever reason, it led to an effective recruitment freeze.

For the legions of young people leaving education, it meant there was no work to go to. In boom times, youth unemployment tends to be double general unemployment – it was running at about 10pc before the crisis against the wider economy's 5pc, Mr Philpott said – but since the recession the disparity has widened. While total unemployment peaked at 8.4pc, for those aged 16 to 24 it hit 22.3pc – reaching a record 1.04m.

The reality of unemployment is fairly simple. It has to do with overt money creation that foments first tremendous booms and then horrible busts.

But what is less appreciated, even among those who comprehend the distortive effects of monopoly central banking, is how deep the distortion runs. Over-printing of money creates great and apparently lasting economic changes.

The constant over-printing of money creates great industrial changes, undermining agrarian culture and swelling urban environments. From the point of view of a power elite, this trend is a positive one, as people in cities are less self-sufficient and easier to sway.

Urban living is modern living. The actuality of people's existence in an urban environment is one divorced from the underlying reality of existence and even of community. People involved in this sort of culture don't realize the risk they are running until the consequences make themselves uneasily apparent.

Modern economists do not recognize this, however, even as they do not recognize, or admit, that central bank money printing is a kind of price-fixing and therefore unsustainable. Rather than analyze the reality of overabundant money flows, they have spent time and energy giving this process a name.

Economists call the loss of skills that accompanies such a prolonged slump "hysteresis" – or permanently higher unemployment as the lost generation forever fails to make it onto the jobs ladder. NIESR and ACEVO estimated in their report in February that such "hysteresis" could cost the Government £2.9bn a year from 2013 in welfare and associated costs, and rob the economy of £6.3bn in lost output.

The article tells us that the government is "alert to the dangers" of hysteresis and has responded by introducing "the Youth Contract that incentivises employers to hire officially unemployed people aged between 18-24 for at least six months." The government is actually paying companies to hire young workers. "Under the scheme, for each job created companies can claim up to £2,275."

Once more, then, we are led to believe that government is responding to a "problem," even though the roots of the problem may be tracked back to the government itself and to central banking money printing with which it can be affiliated.

In an environment less subject to monetary stimulation there would no doubt be less "unemployment." One wonders how much "unemployment" there was among Native Americans or even the US agrarian South (leaving aside slaveholders, which is another issue entirely).

It is reasonable, though, to ask how societies can create themselves in such dysfunctional ways. A system that at times throws up 25 or even 50 percent unemployment is one that provides little long-term stability and even less security. Within this context, the old, sustainable, agrarian ways may be seen as – if not preferable – at least providing a sane alternative.

Once more, as always, it comes down fundamentally to money and the phenomenal power of its manipulation. If one controls the printing press, one surely has the power to reshape society itself, and often not for the good.

After Thoughts

In this case, overt, extensive money printing unbalances the larger employment situation. It turns decentralized societies into centralized and more controllable ones. This benefits elite agendas but not the larger social sustainability.