This Blog Has Moved!

My blog has moved. Check out my new blog at

Your Ad Here

Friday, July 31, 2009

Why is the Unemployment Rate so High?

In a true free market, a skilled worker should have no trouble finding employment if he's willing to accept the fair free market rate.

In the present, the "official" unemployment rate is around 10%. The true unemployment rate is probably higher, because underemployment is not counted. For example, suppose a software engineer is forced to accept a job at Wal-Mart. He counts as employed, but he's really underemployed.

The State imposes many artificial restrictions on people who want to start new businesses. This causes the unemployment rate to be artificially high. If you lose your wage slave job, you can't easily start a new business. For example, someone working in an auto factory is forced to seek another job in a factory, rather than starting his own car manufacturing business. The reason there are no small car manufacturing businesses is not that it's technically hard. The problem is that the auto industry is heavily regulated.

Another problem is laws such as age/sex discrimination and unemployment insurance. These laws add extra costs for any employer who wants to fire workers. Unemployment insurance is paid via a tax on employers. Employers who have laid off workers pay a higher tax. Anti-discrimination laws make employers reluctant to hire people that fall into a protected category. By adding extra costs when firing someone, the State artificially increases the unemployment rate.

The Federal Reserve, via its interest rate policy, indirectly affects the unemployment rate. Recall that Federal Reserve Notes are really slave work permission receipts. According to IRS bureaucrats, all economic activity is subject to the income tax. Whenever someone works, they must get permission from the IRS and financial industry and Federal Reserve, as they pay income taxes. Income taxes can only be paid in the form of Federal Reserve Notes. The Federal Reserve can lower or raise the unemployment rate by increasing or decreasing the money supply.

During an economic boom, financial industry insiders print and spend a lot of new money. They use this money to hire workers. These workers are employed in whichever sector of the economy is currently in a bubble. Superficially, there's economic growth. Due to the bubble, most of this work is actually malinvestment. For example, during the housing bubble, this sent a false economic signal that building houses was desirable. As a result, too many houses were built. Productive workers lose their savings to inflation. Someone who wanted to buy a TV or car could not do so, because his savings were stolen via inflation. You see a lot of houses being built. You don't see the people who couldn't afford to buy other things.

During an economic bust, there's a temporary shortage of money. Workers lose their jobs, because there's a shortage of work permission slips. The bubble bursts, and prices may become artificially low. During the recession/depression, financial industry insiders then print new money and buy up assets at a cheap price. For example, a lot of hedge funds bought oil recently when the price was low. This purchase was funded via borrowed money.

A pro-State troll says "Inflation is caused by greedy workers demanding higher wages. The Federal Reserve must keep the unemployment rate high, so that workers cannot bargain for higher wages, causing inflation." This argument is ridiculous. Workers don't have the power to print new money. Unless you work in a bank, you don't create money when you work. Actually, productive work is deflationary, as there are more goods and services but the same amount of money.

This is a very important common misconception. When you do productive work, you do not create new money. If I accept a job writing software for you, I am creating wealth, but neither of us is creating money. If you pay me with Federal Reserve Notes, that is only possible because you or someone else borrowed money from a bank.

Inflation is almost always caused by an increase in the money supply. During times of hyperinflation, an increase in the velocity of money can also lead to an increase in inflation. That effect only becomes noticeable just before the collapse of a fiat monetary system. The comedians on the Communism Channel always place the blame for inflation on sources other than money supply inflation.

Inflation is correlated with low unemployment, but there isn't a cause-and-effect relationship. During times of inflation, the people who print new money hire workers. This causes the unemployment rate to temporarily drop. There ultimately must be a correction, because the inflationary boom caused malinvestment. As inflation occurs, workers naturally start to get higher wages. That isn't because the workers have more bargaining power; it's merely compensation for inflation. Increasing wages and low unemployment are a symptom of inflation, but not the cause.

Most workers' salaries do not keep pace with true inflation. Members of the parasite class value power and control. They want to keep unemployment high, so that the slaves have no bargaining power. Parasites promote false economic theories, so that their looting and pillaging is justified.

The economic stimulus plan has made the problem even worse. The deficit spending and bailouts caused inflation. This is further theft from the productive sector of the economy, with the profits going to the parasite sector. Every time government hires a worker, one or more private sector jobs are necessarily destroyed. Most people don't notice this, due to the usual "seen vs. unseen" fallacy.

Superficially, the government is hiring idle workers. Via inflation and taxes, government insiders steal from productive workers. By printing new money to hire politically connected workers, people who actually do productive work have their labor stolen via inflation.

In the USA, it is much more profitable to lobby the State for favors, than to actually do something useful. The worse the economy gets, the more power politicians claim. Increasing the size of government only exacerbates the problem. The parasites demand an ever-increasing slice of a shrinking pie. This is the virtuous positive feedback cycle of complete economic collapse.

Members of the parasite class say "Government has a responsibility to control the unemployment rate!" In reality, they are making up excuses to justify their looting and pillaging. In a true free market, the unemployment rate would necessarily be very low. Any skilled worker would rapidly find work, if he was willing to accept the fair free market price. In the present, the State imposes a lot of extra costs in the labor market. The Federal Reserve's interest rate manipulations further increase the unemployment rate.

1 comment:

Anonymous said...

Your blog is full of nonsense. You haven't a clue about how TIPs work despite the VERY CLEAR explanation on FYI, workers' real (i.e. after inflation was taken into account) pay increases were on average 2.5% annually until about 1980 when the so-called free marketers were elected. Lol. The fact that so many blue collar idiots vote for Republicans, who hurt all Americans with their no-growth except for the 1% strategies, make me laugh all the way to the bank. While I am affected very slightly, being one of the 1%, I see that idiots like you are completely taken in. Or do you just blog-for-pay from the Crotch (aka Koch) bros?

This Blog Has Moved!

My blog has moved. Check out my new blog at