Steven Davis on Job Creation

Greg Mankiw links to an interesting article by Chicago Economist Steven J Davis on policies to foster job creation in the US. The article is short and to the point, and is for the most part relevant to the Irish debate. It is mostly sceptical of employer subsidies and puts forward, among other things, reduction in the minimum wage and vigorous experiments with back-to-work programmes.

28 replies on “Steven Davis on Job Creation”

No, no, no, please — not another Chicago Boy. I couldn’t get past the first paragraph without rolling my eyes. “Unemployment Benefit extensions” are expensive and rife with moral hazard. Wow, he must have thought long and hard to come up with that. Pull out “unemployment benefits” and replace with “bank bailout” and it’s just as true.

You all probably already know this, but after unemployment runs out in the States, there’s almost nothing to help you. There’s a few things like Food Stamps and Medicaid; and other small leavings can vary from state to state, but that’s about it.

And then he goes on to attack state-level regulations that require health insurance companies to actually, you know, cover stuff. And then any state that doesn’t play ball, well, make it legal for the employer to buy insurance from a company in a state that does. Greeeaaat.

Then of course, we couldn’t be a Chicago Boy without an egregious swipe at the Minimum Wage. Dude, teen unemployment doesn’t much matter when their parents (presumably with experience and skills) can’t even get a job. You think the teens can support the family? Well, not after you get finished with the Minimum Wage. And he talks about cost-cutting methods such as automated telephone service and self-service web sites as if they would never have happened without that Gol-durn onerous minimum wage.

Then to polish off his freshwater credentials, he couldn’t leave off taking a potshot at one of the few congressional acts proposed in years to enable workers to more easily organise, the Free Choice Act. Oy vey.

So, tell me how you think gutting minimum wages, reducing regulation of health insurance, and finding ways to undermine unions is pertinent to Ireland.

Personally, I’m not sure you can convince me. Our fearless leaders are even now telling us how we have to roll back every progressive social gain we’ve made in the 20th century because of the financial crisis. Caused by rich bankers, who get €54 billion. Which we can afford, suddenly, for them, but not for Social Welfare.

This would be the same Steven J Davis who was originally against the the introduction of the minimum wage, would it?

This nonsense assumes that the synchronised steep rise in unemployment in the Western economies is a result of wages (and scocial wage benefits) being too high. But, if there was a sudden and steep rise in the cost of labour, I must have missed it. Instead, it is the precipitate fall in aggregate demand in the economy which has produced falling job rolls. Pay cuts and benefit cuts will only depress aggregate demand further (as well as being grossly unjust as it wasn’t those on low pay or benefits who got us into this mess).

Standard econometric models (eg the European Commission’s QUEST III) assume that a cut in labour taxes equal to 1% in GDP (effectively the same as cut in wages) produces an increase in GDP of about half that over both the short or long run. By contrast, short-term subsidies for investment produce an increase in GDP of 1.37%, and the best results over the long run are achieved by government investment, at 0.84% of GDP.

Investment by the private secor, and if they can’t or won’t then the government, is the way to revive activity and reduce joblessness. And, given the impact on the fiscal postion it ends up being almost cost-free.

Cutting nominal wages and benefits fails. We know that because it was tried and failed during the Great Depression.

@Mark – What are you suggesting? That we borrow more for government investment. That boat has sailed. Certainly, we could try to save more from NAMA and that is being debated on an hourly basis on other threads and if you think there is any appetite for pointless bailing out of investors then you haven’t been paying attention. Also, there should certainly be much more discussion about the actual allocation of public expenditure.

I don’t know anyone who thinks that the recent spike in unemployment was due to a sudden increase in the cost of labour in Ireland. However, unless you have figured out a way that Ireland can boost global aggregate demand in the next two years then we need to talk now seriously about what happens to 430,000 people who are currently on the live register and the flow of young people from schools and colleges who will be joining them. Nothing either you or Marisse above is saying helps these guys and the collapsing towns they are living in.

@mark when a government puts money into the system it is no surprise that it has a multiplier effect, it is basically the same thing that credit often does, i’m with liam on this one – more borrowing won’t fix this.

I think that perhaps localised investment markets could be an idea worth considering, if a company in Mayo want to expand, if there was some structure whereby they could raise funding in the form of bonds/share issuance – without having to constantly rely on banks – then it may attract local support, especially if it was done like muni’s in the US where the income is tax free, move private capital to the places where it can be utilised best. A large issue in ireland is our reliance (in all things finance) on our banks, they are the lynchpin to everything it seems. every idea has its flawed, but none as much as the idea of being saved by any political party in this country.

@ Karl
I’m with a new party getting off the ground here, Amhrán Nua, and we have a policy that outlines exactly the sort of structure you are talking about. It has been dubbed the ICIM (Irish Common Investment Market).

Set up the Irish Common Investment Market, where public limited companies can offer up shares to the public to buy and sell on the internet, without intervention from middlemen. The original idea of the stock market was to allow people to invest in companies, which has long since transformed into a system that benefits very few companies. The ICIM will be very tightly regulated, and linked with the Revenue Commissioners and Finance Departments, but will essentially allow easy direct buying and selling of shares in many more companies than are currently allowed, giving them access to capital without debt.

In general our policies agree with your viewpoint as well.


Your persistence in highlighting the need to develop and apply some credible policies to reduce the burden of suffering, waste and stunted futures caused by the current level of unemployment is laudable. You may be being a bit harsh on the previous posters. Steven Davis is maintaining his pursuit of the Freshwater agenda beneath his concern about unemployment. At the other end of the spectrum, David Blanchflower ( is keen to throw fiscal caution to the winds.

Neither approach is likely to gain traction – or have much relevance – in Ireland. We don’t seem to have the labor market participation barriers in Ireland that Davis rails against. And, as you’ve pointed out yourself, there is zero scope for additional public borrowing to finance employment-generating initiatives. In addition, as people like Edgar Morgenroth who have done the analysis point out, there are very few “shovel-ready” projects, those that exist tend to be very expensive ways of generating additional employment and the leakages are likely to be significant. Colm MacCarthy and Richard Tol, who, in my opinion, would not dismiss any potential in this area without sufficient evidence, are equally sceptical.

Despite these reasoned opinions, my instinct still is to side with Blanchflower. The problem is a slump in aggregate demand and, without addressing this, I doubt that the most innovative ALMPs in the world would put much of a dent in the current level of unemployment.

The €4 bn the Government is planning to cut will obviously be deflationary (even if it will only stabilise the deficit/GDP ratio), but there is an urgent requirement to replace this reduction in aggregate demand. I’m afraid I’m back to my old hobby horse. Without even contemplating privatisation, there is €2.5 – 3 bn that could be extracted from the ESB and BGE if the Government directed them to up their debt percentage to 60-70% from the current low levels for the network businesses – privatisation would yield another €2 – 2.5 bn. In addition, electricity and gas prices would be reduced. A recent survey of MNCs by the IMI and NIB indicated that energy prices are the top factor in relation to competitiveness and reduces the chances of MNCs securing mandates from head office to increase investment in Ireland.

I’m sure if you had that sort of money available you could come up with a range of innovative and effective ALMPs.

Edgar Morgenroth’s paper doesnt say that there are few shovel-ready projects. He talks about current infrastructure investment and argues that it rests on weak cost-benefit. There are always projects like repairs and improvements that can be carried out more labour intensively and cheaply than the current planned projects.

We need to start debating about social welfare payments, particularly to young people. You can’t have 420,000 claiming unemployment payments in such a small country. Who benefits from that? Nobody has talked about Davis’s fourth point yet in terms of getting some serious back-to-work programmes going. Many of the people posting here think these things can’t work but look at the current profile of people on the live register. These are young people to a far greater extent to before, many are highly educated with substantial recent labour market experience.

Mark says:

“Instead, it is the precipitate fall in aggregate demand in the economy which has produced falling job rolls. Pay cuts and benefit cuts will only depress aggregate demand further (as well as being grossly unjust as it wasn’t those on low pay or benefits who got us into this mess).”

If I’m not mistaken, the effect of a fall in wages and prices is that the same amount of expenditure can buy more labour and consumers’ goods. What’s the problem?

Pay and benefit cuts do not automatically equate to price decreases. We can’t control a lot of the prices in the country as we import a great deal, especially in terms of energy. Aggregate demand will ultimately increase again and it would be a good idea to have our domestic industrial base in order for when that happens, especially export led sectors.

i think social welfare has to be revised in some respects, i have a mate who runs an industrial bakery, he posted jobs on a popular jobs website, wasn’t swamped with applications -with such high unemployment you’d think there would be a deluge – and then people turned their nose at the job because it was only 13 an hour. i didn’t work out the breakeven point on welfare with rent supplement vs 13 an hour so maybe it doesn’t make sense, but it makes less sense to see job roles go unfilled even more!

I’m reminded of those wind-up, clockwork ‘Cheeky Charlies’ beloved of the street vendors of Henry Street and Moore Street. Wind e’m up, put them on the JM+O’B breadboards and off they would go! Clackety, clack!

Do any of you accept that our Smithian (Permagrowth) model is likely in a permanent vegetative state? That we might be in an economic paradigm transition phase? I would be more interested in discussing this issue with you rather than watching you behaving like Cheeky Charlies.

I read Davis. Academic gibberish. Does he actually get paid for this?

There are no more un-discovered, unploughed lands to emigrate to. Our fossil-fueled technology is awesome. We can (almost) produce anything we want, in copious quantities, and of excellent quality. So, how are we to ‘dispose’ of this great surplus?

Oh! Wind up the clockwork Credit Charlie … … Are you guys really for real? Or have I read the wrong economics texts. Or what?

Stop trying to refurbish a building riddled with dry-rot. Demolish it and rebuild from the foundations. Better still, move off to a green-field site.

Nothing personal you understand, its just that our society is in a parlous state of debt and the future income stream is – well, speculative.

B Peter

That’s some terrible rubbish. He can’t even say which active labour market policies he prefers! Just “we should do more research on which ones work best”! What wonderful insight!

Can’t believe anyone bothered posting that, and am even more regretful that I wasted 7 (incredulous) minutes reading it.

Jc – honestly, will you try commenting with some basic manners. “can’t believe why anyone bothered posting that”. I posted that and my name is clearly visible on the top. Why dont you make some suggestions as to how policy should react to unemployment and actually contribute something to the thread instead of spreading bad feeling.

In terms of why we would want to discuss his article, Davis is one of the world’s most published labour economists

He gives his four main suggestions for reducing unemployment in clear and accessible language and so I felt it was worth putting into the discussion. I have also posted several times on Bell and Blanchflower who have a very different view and one that is probably more aligned to the earlier commenters on this post.

Meanwhile, there are still 420,000 people signing on in Ireland and I don’t apologise for using the forum to try to disseminate some viewpoints from senior academics on what to do about this. In general, this habit of going for the man rather than the ball is killing a lot of the discussion on this blog.

I dont agree with Paul at all that Davis’s views have little hope of gaining traction in Ireland. The majority of economists here disagree with employer wage subsidies particularly ones that target specific industries. His points about back-to-work programmes are absolutely correct in my view. We simply cannot dust off things that did not work in the 80s. We need to experiment.

The issue of the minimum wage is an elephant in the room also and one which attracts a lot more private debate than public debate. Davis is emphatic that he disagrees with federal minimum wage legislation and argues that is both pricing a lot of young people out of jobs and making it optimal for employers to simply automate processes that previously required people to do them. In each town in Ireland now a large percentage of people (particularly young men between the age of 18 to 25) are signing on the live register. The overall rate for young men is 30 per cent. In places like Donegal alone, there are 20,000 people on the live register, over 3,000 of them men under the age of 25. Louth has 16,600 people on the live register. Some of the commenters here would prefer if we just repeated a mantra of spend and invest more rather than actually put all the arguments on the table and try to sort through them. These issues are too urgent for that type of ignorance. Thinking of ways of pricing some people back into the labour market is an absolutely legitimate discussion to have. A straight reduction in the minimum wage is one way to do this but it is clearly not the only way.

@ Liam

Excellent. It is accepted that the cost of labour is not the cause of the crisis. Therefore reducing the cost of labour will not solve the crisis. But it will, I repeat, reduce asggregate demand in the economy still further and therefore not produce any net gain in GNP. As a result, it will have the effect reducing taxation revenues still further.

Nearly every other country in the EU has, yes, increased borrowing in order to provide a fiscal stimulus (the main exception is Berlusconi’s Italy). As have everyone else from the US, Indians, Chinese and UK. Why has everyone else done this irrespective of their political outlook? Because it works. By contrast, cutting off the fiscal stimulus was a decisive factor in creating the Great Depression.

Ireland is already facing deflation. The policy of cuts in wages only exacerabtes that trend, when what is required is reflation.

@ karl

You accept that a fiscal multiplier effect exists. I wish everyone here acknowleged its existence; it would make this debate better informed. But, since it exists as an economic tendency it inescapable. That is, it works in reverse too. We can choose either to have it work in our favour or work against us, but it will work. Cuts in pay depress activity and reduce taxation income. You can’t cut your way out of a recession. There is no alternative but an increase in government investment.

@ Matt

You are mistaken. Wage cuts make labour cheaper, but they also lessen demand for it. Why? Because those wages buy the consumer goods. Lower wages = lower demand.

Even in countries with much lower pay rates than Ireland unemployment has risen. This indicates that pay levels are not the primary reasons for unemployment, as does our punching above its weight FDI sector, gaining 1.9% of mobile FDI in 2008 versus Ireland’s global GDP share of 0.5%. An overdependency on construction and dependent sectors would be the most extant reason for climbing unemployment at the moment.

Removing the minimum wage here would be an extremely bad idea given our exposure to Eastern European labour markets. This ignores the there is only a small percentage of the workforce on minimum wage in the first place.

@ Liam Delaney,

I think we have to ‘hang’ this discussion on something to begin with.

I think it is about finding a suitable fit between what stage you are in your life, and what it is, is most important for you to learn and tackle at that point.

At an older stage in one’s life, it might be rewarding enough simply to drive a taxi car. At earlier stages in one’s life, to be somewhere with access to bungi jumping or deep sea diving might be more important. You would think to live in Ireland over the last few years, all that was important to everyone at every age, was to surrender themselves to home mortgages many multiples the size of their income. Which attempted to deny the wide spectrum of things that people may wish to accomplish in their lifes.

Lets face it, a stupid family home, 2 up 2 down is only useful for about 20-30 years of one’s entire life on the planet, depending on how many kids you wish to have and how long they stick around.

I have watched 2 no. major employers in Ireland that I worked for go under this year. Both were past employers of mine, Dell computers and Zoe developments.

In fairness, part of Dell, the better part most likely is still with us. Ironically, housed in a building built by my colleagues at Zoe developments.

I could see a lot of things problematic about both companies but would have wanted to work anywhere else, in terms of what I was trying to learn at those respective stages of my life.

I worked with them basically, because it thrilled me to work for companies such as that. There has to be some sense of romance or inspiration that goes with young people working for a living. You take that out of it and you have nothing really left.

To be honest with you, I didn’t read Steven Davis’s article yet. Instead I clicked on the Forbes video link beside the article about ‘three styles of leadership’. Actually, Daniel Goleman chose to run with ‘six styles’ in his book The New Leader, which is very good. But in the Forbes video link it talked about:

(1) The vision, BMW, a Mr. Panke.

(2) Empathy, Bill Packard.

(3) The Customer, Rob Walton, son of Sam Walton.

What is important about all these companies, is they drew people in to work for them. It is like a kind of pyramid, a couple join initially and then another layer arrives a generation layer. That has the effect of pushing the original founders up in their position. That process continues until you have a company hierarchy.

The important point to note, is that people do not simply move off dole queues for the sake of doing that. They are drawn upwards and onwards, to work very hard because of some driving belief or goal in what they are doing.

I listened to Frances Ruane speak at a Dublin Innovation week event about gathering information about our workforce. She noted there might be reasons why we don’t gather information and don’t learn anything about the workforce that is employed. I have said things about that before, in relation to Dell computers.

But realistically, we need to understand our workforce in Ireland. What motivates them, what drives them to work hard and suceed at something. We need to use those trigger switches to unlock what potential might exist in the numbers on the live register. It is not about simply getting them off the register and moving the problem somewhere else.

Because lets face it, when we move people into employment in Ireland we don’t collect any information about how they like their jobs, what are the positive things about working, what things may not be so positive and so on. We simply ignore our workforce and what information it might provide us with, so that we could aim to build the right kinds of companies for Ireland.

It is not so much about ‘regions’ but it is about ideas. Stimulating the right ideas, rather than regions. I don’t think for instance that build billions worth of wind farms up and down the coast etc, might be the right fit for Ireland. It seems more like a project that would fit Britain who is looking to make use of the offshore engineering tradition that developed during the North Sea oil and gas industry. Britain could quite easily harness that, combined with universities and research to build a whole new offshore wind industry.

But it may not be the right road for Ireland to go down. We might be better off sinking a cable under the sea and getting power from Britain or France. The British market for energy is about £100.0 bn p.a. The Irish market for same is only around £6.0 bn p.a. We have a small workforce, staffed with Irish people – people who are traditionally quite indpendent in their views and motivations.

What would suit Britain in terms of large, complex, high output industries with volume, may not be suited to the Irish workforce. I think we need to find out what is going on with the 450k people you mention. What are their inspired by, what makes them tick and how can we gain best use from them. It shouldn’t be about trying to fit some big, massive green tech idea onto those 450k people, but the other way around.

@Brian. Agree that back-to-work programmes should try to integrate insights from areas like work psychology, behavioural economics and so on. Also agree that getting people back to work needs to be thought of carefully. Otherwise, we could simply force people to break stones in fields and “solve” the unemployment problem immediately.

Back-to-work programmes should try to solve some of the following problems associated with being unemployed. We really do not have a strong literature that guides on this. While getting people back into a job doing something for which there is currently not a lot of market demand may seem contrary to all economic sense, this ignores the fact that many of the below factors can lead to disproportionate costs from unemployment.

– psychological distress associated with unemployment
– inability to signal productivity
– loss of social networks
– habit formation arising from prolonged spells of unemployment
– intergenerational effects caused by lack of working role models
– loss of tacit learning associated with working in a firm
– peer effects associated with groups of friends becoming unemployed at the same time
– loss of confidence associated with being a labour market outsider

Mark – the paper below by Nickell and Nunziata (cited by 421 others in GScholar, worth looking at these) goes through the issue that you raise – namely, if unemployment is caused by institutions then how can we explain the fact that such institutions were still there when unemployment was low. In terms of whether it is insitutions or whether aggregate demand shocks, they more or less say 50-50!

@ Liam Delaney,

Would you agree Liam, that some of the employment Ireland did create, even at the best of times for its graduates and non-graduates, amounted to not much more than breaking stones in the fields. We have to embrace the opportunity we have at the present, for what it is, an opportunity. When I and others were busy packing boxes at Dell, or building shoeboxes at Zoe, I would have said, lets not rock the boat and keep going the way we are. At least people are earning something. Okay too, if that had continued a while longer.

But now it is really time to admit to ourselves, just how good we were, or were not even at the height of our economic success. I spoke to one highly trained commerce graduate who worked for a very successful multi-national company based in Ireland. He told me, he only did about 2 days productive work each week. Enough so that the head of human resources in the company was not forced to take action against him. I got the impression he was not alone in that respect. Rather he represented a consistent strand that runs right through the corporate world here in Ireland. Especially with young people, who have the privelege of good education.

I wanted to mention this to Tom Boland of the HEA, Peter Clinch, advisor to Brian Cowen and Frances Ruane recently, but decided instead not to dampen the affair too much organised by Dublin Innovation.

I mean, did we really think we could continue to fool the rest of the world, while continuing to operate our businesses here in Ireland in that kind of a half-assed manner? ? ? Foreigners because they aren’t Irish aren’t fools, on the contrary, the land off a plane from somewhere else in the world and can size us up in double quick time. I believe that much of the ‘workforce’ we managed to attract to Ireland during the boom years, had the same lazy attitude as we Irish often exhibited ourselves. In other words, we attracted people who were like us and therefore had no way in which to gain a direct comparison.

The great thing about people who emigrated from Ireland in past decades was they did gain a direct comparison. Because they found themselves immersed in a different working ethos than our own. I forget who I listened to recently doing an interview, who described Ireland in the 1960s, where people working in Dublin city centre would return to their dwelling houses for their lunch break! That was normally habit of respectable working people. The trouble with having net emigration in Ireland during the Celtic Tiger was that we didn’t get an outside, objective perspective of ourselves. We only had self-reinforcing views of ourselves, backed up by others with vested interests.

In addition, we had benchmarking which was like one group of sometimes lazy and un-competitive Irish people, comparing themselves to another. I use exaggeration there to make a point. I couldn’t include the junior doctor working on 70-100 hour shifts in that statement of course.

I can tell you Liam, I made a conscious decision during the Celtic Tiger in Ireland to forgo buying myself a big expensive house. I purposefully sought out challenging work environments to work in, where I could not sit on my behind. That involved me working for less money, instead of more money in most cases to be perfectly honest. I must have been one of the only smucks in Ireland at the time. Even the ‘new arrivals’, fellow professional friends of mine, who came from Germany, Scandanvia, France, Italy and Spain used to laugh at me working for the employers that I did. Because they were getting paid multiples of my salary working for other employers and going on multiple expensive foreign excusion holidays per year.

Yet I stuck to my guns, because what I wanted was a real experience at the cutting edge of business, like many previous generations of immigrants from Ireland got when they left in the 60s, 70s and 80s. Because I chose to work in Ireland I wasn’t looking for the comfort zone, I didn’t want my experience to be any less intense or challenging than it had been anywhere else in the world. I still am looking for that in employment, whatever it is. There are many like me. But to find it in Ireland, often means taking less obvious choices, taking less pay and for-going some luxuries such as fine homes and foreign excursious holidays. It made the sacrifices because I wanted to go to the right schools of experience. But sometimes, on a bad day, I sometimes wonder was I just being a busy fool.

@ Liam Delaney,

BTW, I should point out to you one important point. Peoples’ perceptions vary an awful lot. What I perceived in my employment circumstances to be priceless experiences and opportunities to challenge myself in the right way, others perceived the exact opposite.

I was often accused of doing jobs, that others compared to slavery conditions, like breaking stones on the road. But to my mind, I didn’t see it that way at all. So don’t take my word on anything. One has to make a wider survey I guess to find trends across the work force. I didn’t find many people who agreed with my career choices in architecture and construction. But sometimes that can attract people who are looking for inward, professional, small community ways to do things.

When I talked to guys who work in the software industry or in business, or in science and technology, I often enjoy my conversations about working a lot more.

@ Liam Delaney,

You could look at university education and there is no shortage of community and a sense of being together. But I guess, what sustains that at university level, is the hope that something better exists down the tracks for everyone. I still vividly remember the day when it dawned on me, Holy Cow, I thought my future was going to be wonderful when I got past third level stage. But when I did, it suddenly dawned on me, the stage beyound third level was not going to be any bed of roses.

That is the point at which education ceases to matter exclusively, and the other elements I alluded to above, like personal goals and self motivation are a much better resource to draw upon. Sometimes the daftest ideas you have, that none of your friends might agree with, are the best things to follow. My point is that, despite there being no jobs available for young people, young people do not change. I will bet my last five euro note, that every young person out there has some daft, unique idea they would like to pursue.

I see that as a resource in itself, because it is something unique to every indidividual. It is something that can drive that individual much more than any stimulus package or other assistance can do. The best way to convert that funny, odd, person-centric notion of themselves, into something of real value is to introduce that person to role models. That is the only medicine that finally worked for me. I realised at more or less the same time, as I realised life outside university wasn’t wonderful – I realised I had spent the best part of a decade at university, and had not read comic books.

When I was a kid I read comic books and I had my idols, my superstars, my heros. I wanted to be like them. When I went to university I grew up and got realistic. It was the worst thing I could have ever done. Because ten years after getting realistic, I realised it had sucked every last drop of motivation I had to go and chance anything out. That is what university does to students by definition. Because in university, because there is such a real sense of community amongst students, you are forced to discard your role models and aspirations in order to fit in, and be part of the group.

When you finish university, and you no longer can rely on parental support, grant money or student loans – or the support of the student community any longer – that is when you have to start reading comic books, or the adult equivalent, biographies of famous people. In my case, the books that changed my life was reading about Steve Jobs, Bob Noyce, Howard Hughes and all sorts of other crazy characters who made me laugh. At university I didn’t laugh too loudly, because I spent most of it at the very bottom of my class. So it was a relief to read about Steve Jobs and have a good laugh again. It is important.

I want to make something clear to all those that think entitlements like ui are being abused and to the ones that are still employed that think all those on it are lazy or other wise. Those benefits that are so often demonized are a necessary part of the lives of countless millions of unemployed it is easy to forget that ui keeps food on the table and a roof over there head and with the unemployment number growing by the minute those who are in that situation can’t go and find another job or means to care for themselves are entitled to more ui benefits. (He point I am trying to make clear is simple if those millions can’t feed themselves they become desperate and for those of you who can’t picture what millions of desperate and hungary people would look like turn on the discovery channel you know the one where the pride of lions is tearing apart the gazelle. In case you can’t figure it out the gazelle would be the still employed well off and those lions would be the starving masses its something you may not want to think can happen but in the end when a humans instinct takes over its kill or be killed and take my word for the millions of unemployed will not just go and starve quietly. I urge you to wake up and pull your head out of the sand and start feeling the pain of others and realize we need to work together as a nation to solve or problems.
– hope this clears things up for you.

@ Liam.

Thanks for that. I had come across it before and I think that anything that raises the level of the debate is very welcome.

I do, though, think there is a flaw in the Nickell/Nunziata paper, which is otherwise very welcome in blowing a hole in the idea that ‘rigidities’ cause unemployment. That is they half-accept that notion before going on to empirically undermine it. So, early on, in their ‘theoretical framework’ they assert that most OECD countries have an inflation target ‘which naturally moves demand and unemployment toward an equilibrium level.

But for the primary contrary example they use which is the US, which went from high unemployment in the 60s to low unemployment until very recently, that isnt true. The Fed has a ‘symmetric’ policy stance, taking account of both inflation and growth, and, with a lot of faults, presided over a big decline in unemployment, whereas an inflation-obsessed Europe had far higher unemployment over the same period.

They are, therefore, half-right. It is true, unemployment is not caused by rigidities. But it is also possible to foster employment growth if that is done explicitly, without compromising price stablity. (Btw, did Bush II introduce a lot pro-union legislation that I missed, and big public sector pay rises too, or are the soaring US jobless rolls a function of falling aggragate demand?).

@Mark Of course I accept the multiplier effect the same as I accept that adrenaline make a heart pump faster, the question is – is it appropriate and where are we going to get the economic medicine from.

@everybody: we found a way to encourage people to set aside savings for retirement with tax breaks (pension reg’s), is there any ideas for a system similar to that which doesn’t lend itself to instant abuse? Obviously I don’t know of one!

@ Karl

To use your analogy, the patient is being wheeled into A&E and is exhibiting few signs of life, so of course a shot of adrenaline is appropriate.

But, no, wait! We have to see first if there is sufficient medical insurance first to cover the hospital chief executive’s helicopter maintenance bill. There is? Great, that’ll be 54bn then, please.

What, you want adrenaline too? No, I do’t think you can afford that as well. Sorry. Come back when you’re feeling better.

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