Austrian Insights on 'Full' Employment
A commentator on my recent daily article, “Not Enough Inflation,” asked,
“John (and I really hope you answer this question),
Why is no one dismissing the “concept” of full-employment as utter nonsense? Doesn’t that give Krugman and his ilk a route to deceive people while sounding economically profound? I see the use of full employment as a goal to justify Keynesian prescriptions all over the place and yet no Austrian seems to be dismissing it from the discussion space.
Employment in free economy, like growth, is the result of voluntary choices and associations. It, as argued by Rothbard on growth, is thus not an ethic. Hayek provides a key Austrian insight on the source of unemployment, it is caused by the “existence of discrepancies between the distribution of the demand among the different goods and services and the allocation of labor and other resources among the production of those outputs” (Hayek 1979, 25); a microeconomic problem requiring adjustments in relative prices. (The work also provides a strong critique of Keynesian explanations of unemployment.) Rothbard’s Great Depression and Vedder and Galloway document how it is interventions, impediments to the necessary relative price adjustments that prolong unemployment – turn garden variety recessions into prolonged crisis. Higgs’s regime uncertainty or even regime worsening is most relevant today.
Steve Horwitz has some great insights on jobs:
“More important, though, is that both Krugman and politicians from both parties are much too concerned about job creation when they should be concerned about value creation. Creating jobs is easy; it’s creating value that’s hard. We could create millions of jobs quite easily by destroying every piece of machinery on U.S. farms. The question is whether we are actually better off by creating those jobs—and the answer is a definite no. We want labor-saving, job-destroying technology because it creates value by enabling us to produce things at lower cost and thereby free up labor for more urgent uses.”
Hayek, Friedrich A. 1979. Unemployment and Monetary Policy: Government as Generator of the “Business Cycle”. San Francisco, CA: Cato Institute. Available on request.