I’ve been reading about these “job guarantee” or “employer of last resort” theories, and they seem interesting. Basically the government provides employment at delta below the legal minimum wage for those who are unemployed, thereby absorbing excess labor into the public sector. The advantages are clear: it is certainly better than welfare and it doesn’t compete with the private sector.

Why is this? Let’s reason about it in a crude way.
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So I came across one of Paul Krugman’s writings (more here) berating Japan for not taking drastic actions like quantitative easing back in the 1990s. It seems the debate Krugman is having with his imagined theoretical adversaries turns on whether over-capacity should be worked off by means of a long and painful period of under-employment, or whether capital should be injected to keep employment up in those parts of the economy not subject to over-capacity.

I think this is a false argument. Surely, the first approach would mean all parts of the economy suffer together. But it is the wrong assumption to say that the second approach does not have side effects either. In fact, unless sectors of the economy “not in over-capacity” can be clearly identified and capital funneled directly to those parts of the economy or allocated to such by banks, then the injection of capital would simply flow to all parts of the economy, including the parts ostensibly in over-capacity. Look at this complaint:

What really struck me in Skidelsky’s account, however, was the extent to which conventional opinion in the 1920s viewed high unemployment as a good thing, a sign that excesses were being corrected and discipline restored–so that even a successful attempt to reflate the economy would be a mistake. And one hears exactly the same argument now. As one ordinarily sensible Japanese economist said to me, “Your proposal would just allow those guys to keep on doing the same old things, just when the recession is finally bringing about change.”

This is exactly true. As we see over and over, human nature is such that, without pain, we do not learn from mistakes (in general) — since by some definition of “mistake”, things that do not cause pain are not mistakes. Without austerity and pain, it is optimistic to assume the injected capital will not be used to go back to the old investment schemes… and delay restructuring. It is also optimistic to assume politicians beholden to populist wishes will make painful cuts to those sectors in over-capacity, at the same time as they are doling out fresh capital to those deserving capital, both of which are necessary actions for a shortened recession and sustained recovery.

On top of that, what if in the economy, whether due to its interconnections or otherwise, there is over-capacity in every sector? Imagine the world built everything that anybody would possibly want for 10 years, then what, besides unemployment for 10 years? And so what, it isn’t such a bad thing then, is it? Japanese aren’t doing badly, are they? So what if they haven’t been fully productive for 10 years, who cares? If they are happy with their standard of living, they can all work half-time for all I care.

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Title VII of the Civil Rights Act of 1964 limits discrimination in the private sector. At first glance it seems like a reasonable blanket law with no problems, but consider Hollywood. How does it get around the fact that it must discriminate in hiring actors to fit certain roles? Then consider a more subtle case of an ethnic restaurant looking for a chef or a front-desk worker.

The second issue is, if you want, you can always structure your hiring criteria to select the group you want statistically and not violate the letter of the law. In other words, you can find proxies: language ability for national origin perhaps, experience for age, so on and so forth. Unless all forms of discrimination are banned (including things like height, weight, image, etc. — and why not?), there are always correlated variables.

It seems like without genuine bottom-up cooperation, laws won’t amount to much without becoming unreasonably draconian.

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