What simple measures might we use to see whether a system is working or not? Well that depends on the objective of the system. For me, one of the worst things that can happen in a social context is a capitalist system is involuntary unemployment because work is intrinsic to our beings. From the time we crawled out of the slime we have had to transform nature in order to survive. That reality goes to the heart of human existence and gives us purpose and builds our sense of network and cooperation and giving. I know all the arguments – this is a filthy capitalist system and why would we want people to be wage slaves – I am older now. I have been a left-winger all my life. I heard these arguments decades ago. And until those revolutionary armies that are apparently hiding out in the suburbs arms themselves and appear in the streets, I am thinking of the actual societies we live in and have to make the best of. We would spend our whole life times talking about revolution while workers around the world are being made to bear the costs of the failing neoliberal system.
The most recent Eurostat data illustrates the point.
The first graph shows the evolution of unemployment rates since January 2000 in the Eurozone, Japan, Norway, the UK and the US. All the nations that are represented, either explicitly or the 19 within the Eurozone are what we consider to be advanced nations.
So we broadly track the period of the common currency, even though the austerity that drove the poor outcomes began before the currency became official as the European Commission drove nations during the convergence stage in the second half of the 1990s to cut fiscal deficits and impose austerity.
In effect, austerity has been the norm since the convergence process began. 25 years of it. Brussels-sanctioned hardship of European workers.
Ignoring the extraordinary Trump unemployment blip, the Eurozone nations together have systematically sustained much higher unemployment rates for 20 years or more than these other nations, two of which have been closely intertwined with the European economy but have had their own fiscal latitude.
The GFC saw the US and UK approach the situation that the Eurozone faced but their responses were quite different (and different between each other). The US stimulus was stronger and more immediate than the UK approach which under George Osborne maintained the myth that they could grow out of the crisis by inflicting austerity.
The UK just didn’t inflict as much austerity as the austerity machine that the Eurozone endured.
We should also be clear, that I am not holding out these non-Eurozone nations as exemplars in dealing with unemployment. Far from it, which makes the comparison with the Eurozone much starker.
Japan is the only nation here that shows a collective desire to really keep unemployment low – and that is because they understand that the social fabric is damaged if there is a high proportion of joblessness.
The obvious point is that the Eurozone has never really worked in terms of this indicator. For 20 years it has sustained unacceptably high levels of unemployment.
During the 1980s, economists talked relentless about – Eurosclerosis – which was a term that a German economist introduced to summarise the “economic stagnation in Europe”.
The Right used the term to justify deregulation, privatisation and the acceleration of neoliberalism.
They also claimed that unless Europe integrated more and took legislative power away from the Member States, nothing would change.
Jacques Delors, in particular, made a big thing of this after he turned away from Socialism (as economic minister in the Mitterand government) and pushed the austerity turn, and then, once assuming role as European Commission boss, pushing the – Single European Act 1986 – which was an early neoliberal statement about how Europe should operate.
The irony, of course, was the way Delors cajoled the Committee that produced the – Delors Report – in 1989, which paved the way to the Maastricht Treaty, into accepting his fake notion of subsidiarity.
So while the Eurosclerosis set were claiming that the problem of European stagnation was excessive economic capacity held by the Member States, which required transferring powers to Brussels and then deregulating and privatising and all of that, they pushed their integration model by leaving the key fiscal capacities with the States, because they knew Germany would never agree to a proper federal system running the common currency and that France would never cede that power.
But then they had a problem – the North didn’t trust the South (or something like that) and so they had to, largely, take the fiscal power away from the Member States via the imposition of fiscal rules under the Stability and Growth Pact, which provided for neither stability or growth. It was a total sham.
Neoliberalism did not start in Europe with the introduction of the euro.
The Barre Plan in the 1970s, the austerity turn by Mitterrand in 1983, Delors in the Commission in the 1980s, the Single European Act were all building blocks in the take over of neoliberals in Europe.
The sclerosis was not the result of too much government but government that had been taken over by the corporate cabals and wanted legislative and regulative attacks on workers to accelerate.
And if all their arguments about way so-called excessive regulation and too much Member State discretion were producing the Eurosclerosis were true then why hasn’t the situation improved with the monetary union and the increased transfer of powers to Brussels.
The point is that on even the most basic indicator – aggregate unemployment – the Eurozone doesn’t work.
And the problem in political terms is that the progressive side of politics have become, seemingly, trapped into proposing solutions that centre on making the lives of the unemployed a bit better through the introduction of a European unemployment insurance scheme.
A lot of effort attending meetings, talking a lot, writing papers and Op Ed pieces has been expended on this proposal. There are many versions and designs.
But what is staring us in the face is that the system doesn’t work and patching it up with a scheme to help the unemployed – stay unemployed – will not fix it.
The progressive political onslaught should be about eliminating the dysfunction that creates the unemployment not managing the unemployment better.
And my considered view is that that requires an abandonment of the current Treaty structure and the restoration of individual currencies and international agreements through inter-governmental accords rather than forcing nations into the straitjacket of Treaties that can rarely be changed.
But if we dig a little deeper we see that not only is Europe killing its present, but in doing so, it is also undermining its future prosperity.
I say that because of the way youth are losing out in Europe.
It is one thing to force a mature adult into unemployment. But another to prevent a young person from gaining the vital transitions for school to work.
That dislocation undermines their adult trajectories and creates the conditions for a permanent underclass, in addition, to poor future productivity performances.
With societies ageing, it is imperative that the next generation of workers be more productive by far than the last. By maintaining very high and persistent levels of youth unemployment, nations are guaranteeing that the productivity challenge will not be met.
The present folly ensures a bleaker future for all of us.
The following graph shows the youth unemployment situation for the countries in the first graph above.
The economic cycles are more pronounced in the Eurozone and the asymmetry across the cycle more obvious – they take much longer to reover than the other nations.
But it is also the levels that matter and the Eurozone has never go its youth unemployment rate below 15 per cent.
And if we look at the data for – Young people neither in employment nor in education and training (NEET) – we find that:
1. 13.5 per cent are in this category for the European Union.
2. 2.6 per cent Norway.
3. 9.5 per cent UK
4. Australia 6.8 per cent
5. Japan 3.93 per cent
6. US 7.1 per cent.
7. OECD average 6.7 per cent
This is going to be the ‘lost’ generation.
This Bruegel.org article – The scarring effect of COVID-19: youth unemployment in Europe (November 28, 2020) – talks about the long-term effects of maintaining persistently high levels of youth unemployment.
It notes that:
… youth unemployment has been shown to have longer-term effects. The literature on the ‘scarring effect’, the effect of being young and unemployed, shows there are irreversible consequences … unemployment early in an individual’s career increases the probability of subsequent unemployment …
And what are the Tsars in Brussels doing about?
Not a lot:
European Commission President Ursula von der Leyen did not identify youth unemployment as a key policy concern in her state of the union address on 16 September 2020.
Neoliberalism is a myopic ideology.
It promises big and then loots and burns but leave total chaos behind while the top-end-of-town steal away in the shadows.
We will all regret this compliance to this ideology.
Meanwhile, the best the progressives can come up with is an unemployment insurance scheme.
Modern Monetary Theory: Economics for the 21st Century – starting tomorrow March 3, 2021
Don’t forget to enrol in the upcoming edX MOOC – Modern Monetary Theory: Economics for the 21st Century.
The free course begins March 3, 2021 and over 4 weeks will provide an introduction to MMT.
The course is introductory and covers a wide range of issues.
It is self-paced which means the learning materials will be available 24/7 in each week. The discussion forums are where you will be able to work things out on a peer-to-peer basis, but I will appear daily to see how things are going and to provide assistance if I can.
The forums are intended to serve educational rather than political purposes. The moderators are well trained in sorting out ‘trolls’.
We begin by improving the students’ economic literacy with terminology, concepts and language.
In Week 2 we get into history and the first steps in understanding MMT.
More detailed material emerges in Week 3, which helps us deal with policy questions in Week 4.
You will be required to spend around 3 hours per week on the material – videos, articles, discussions, quizzes, polls etc – to really gain from the course.
Skimming the material will likely lead to a less-than satisfactory outcome.
If all goes well, we will start building MMT201x which will offer a more complex, technical study course.
This marks the first venture for – MMTed – in partnership with the University of Newcastle.
From – University of Newcastle.
From – edX.
That is enough for today!
(c) Copyright 2021 William Mitchell. All Rights Reserved.