Extract from ABC News
If economists want more unemployment, will they volunteer to join the dole queue?
Let's be honest about what's happening.
According to some economists, thousands of Australians will have to be pushed into unemployment in coming years, for the good of the country.
They say we need more unemployed people, as an inflation-management tool.
With fewer people working there'll be fewer people with money to spend, and if there's more competition for jobs workers will lose some bargaining power, which will help to bring inflation under control.
The economists don't say it like that, in plain English.
In a profession full of people who pride themselves on speaking frankly about the facts of life, they hide behind jargon in this instance.
But that's what they're calling for.
And from their way of thinking it's the only option we have. This is just how the system works, and it's the best system we've devised.
But will any of them be volunteering to be unemployed first? Will they volunteer their children?
It's unlikely. Unemployment is for other people.
Unemployment and inflation-management
Not all economists, of course.
There are plenty of economists who take real issue with the way modern policymakers manage our economy.
Some say genuine full employment should be a priority for our national economic policy, and we ought to protect it with a firewall of anti-inflation policies that dampen inflation in other ways.
They say jobs are vitally important for people, for families and communities, and they should be the central pillar of the entire system.
But the economists who would like more unemployment right now have a counter-argument.
They say low and steady inflation is necessary to create the conditions that support sustainable employment growth in the long-run.
They say that's why you shouldn't have too much employment to begin with, and if high inflation does emerge it has to be stamped out quickly.
That's why the Reserve Bank is right to lift interest rates aggressively now, they argue. It needs to dampen demand so the upward pressure on prices goes away.
And the RBA's rate hikes will weaken demand for heaps of things: for goods, for workers, and for housing.
But note that euphemism, "to weaken demand."
It can obscure a lot of misery in the community.
Drop the euphemisms, let's talk plainly
Take the impact on employment.
In March, the unemployment rate was 3.5 per cent, and it rose to 3.7 per cent in April.
The RBA is forecasting that, given its rate hikes, the unemployment rate will rise to 4 per cent by the end of this year and 4.5 per cent by June next year.
You can see that forecast in the graph below. It's represented by the black line.
RBA Governor Philip Lowe says an unemployment rate of 4.5 per cent would still be a positive outcome, because it would still be below pre-pandemic levels.
And that's true. It would still be lower than the unemployment rate in 2019.
But it still shows the way in which unemployment is used as an inflation-management tool.
Interest rates are being lifted to kill inflation, and an increase in unemployment is part of the overall strategy.
But since it's part of the official strategy, don't we need to recognise that fact in our mainstream conversation about Australia's politics and economy?
Since unemployment is used to control inflation, shouldn't our treatment of the unemployed, and the woefully-inadequate level of their unemployment payments (which are well below the poverty line), be far more respectful of the role unemployed people actually play in our system?
Peter Tulip, the chief economist of the Centre for Independent Studies (a neoliberal think-tank), is one of the few economists who is happy to talk frankly about the need for more unemployment.
His discussions on Twitter about the topic are always enlightening.
Mr Tulip, an ex-RBA economist, is a firm believer in the economic benefits of having the right amount of unemployment to keep wages and inflation under control.
The technical term of the concept he defends is the "NAIRU" — the non-accelerating inflation rate of unemployment.
The NAIRU is the theoretical level of unemployment that's supposedly "natural" for prevailing conditions.
It can change over time, as the structure of the economy changes, but if unemployment ever falls too far below it, it will see wages and inflation begin to grow too quickly.
Mr Tulip says our current unemployment rate — at 3.7 per cent — is too far below the current NAIRU.
He says the NAIRU for Australia is probably well above 4 per cent and that's why we're seeing nominal wages growing at the fastest pace in 12 years.
He says we need the unemployment rate to rise to dampen these wage increases and get inflation back down onto a more sustainable footing.
And as I said earlier, the reason why his Tweets on the topic are so enlightening is because he doesn't sugar-coat his arguments.
Have a look at the interaction below, which occurred on Friday.
Warwick Smith is an economist who works for the Centre for Policy Development (a progressive think-tank).
He's speaking frankly about the NAIRU concept, but in a critical way. He's saying the NAIRU helps to control inflation by disempowering workers.
How so? Because it pacifies labour in a number of ways.
By keeping jobs scarce it makes unemployed jobseekers abundant, and that puts downward pressure on wages.
And by keeping jobs scarce it also keeps the threat of the sack present, so workers are less willing to ask for unreasonable pay increases or improvements in working conditions.
Those types of issues are well known.
And Mr Tulip agreed with him.
"I agree. The NAIRU is just the reserve army of the unemployed. Marx and Friedman's concepts are very similar," he said.
Mr Tulip was talking about Karl Marx's concept of the reserve army of the unemployed and Milton Friedman's natural rate of unemployment.
Both concepts refer to the role that a surplus of workers can play in a capitalist system.
Now, one always has to be mindful of the possibility that Mr Tulip was being sarcastic in his Tweets, but I took his interaction with Mr Smith to be in good faith.
He frequently tells people it's not worth trying to maintain a level of unemployment below the theoretical NAIRU because the economic consequences won't be pretty, and that was the thrust of his argument with Mr Smith on Friday.
He's repeatedly said our currently-low level of unemployment in Australia needs to increase and the RBA should be lifting interest rates right now.
But it does beg the question.
What sort of labour market will we be throwing more unemployed people into?
How do you survive without an income?
At the moment, rental vacancies are hitting record-lows in large parts of the country, almost on a monthly basis, because we're in the middle of a severe rental crisis.
The economy's also trying to absorb a huge number of migrants who are discovering, upon getting here, that they're being dropped into the middle of a cost-of-living crisis, and a major rental crisis.
We have elements of the conservative media trying to bring back "dole bludger" as a term of abuse to denigrate people who are receiving unemployment support.
And we have social policy experts calling on the Albanese government to listen to the cries of the already-unemployed who are struggling to survive on below-poverty payments while also living in severe housing stress.
And we want to deliberately increase unemployment in this situation?
How will the extra unemployed people be able to rent a place to live in if they don't have an income?
Well, believe it or not, but the RBA's model also suggests that by lifting interest rates it will bring rents down over time because it will dampen aggregate demand, making renting more affordable.
That is, as more people become jobless (which reduces incomes) and as rents increase in the short-term (because interest costs increase as rates go up), it will make it physically impossible for more people to "demand" housing, so demand for housing will fall (among other things), reducing upward pressure on rents over time.
But where will those extra people end up in the meantime, who still need housing but who won't be able to afford it now?
That deserves its own article.
For today's purposes, let's just say it would be a sign of progress if more economists (especially at the RBA) spoke as frankly as Mr Tulip.
That way, mainstream Australia would have a better understanding of the logic driving our major policy decisions.
Would you be willing to become unemployed right now, for the good of the country?
Would you take one for the team if unemployment benefits were at least lifted to poverty levels? Or would they still be too low for you?
Let's drop the euphemisms and talk about it.
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