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Saturday, January 24, 2009

On Unemployment and Tomatoes

This may wind some people up.

The spectre of mass unemployment is stalking the world. All sorts of solutions are being proposed, except the obvious one.

Human labour is subject to the law of supply and demand, just like oil or tomatoes.

There is no getting away from this basic truth.

Increase the price of labour beyond what the market will bear and demand will drop-hence unemployment.

What happens to tomatoes when demand fluctuates?

If there is a good growing season and tomatoes are plentiful, prices will drop and people buy more tomatoes relative to other foods. All tomatoes are still sold, none are wasted or left to rot, none are "unemployed".

What happens if the government sets a minimum tomato price-to "protect" tomato producers. Simple-all tomatoes worth less than the arbitrary price are dumped-they become "unemployed".

In a free economy there can be no involuntary unemployment because there is no state interference in the price of labour.

When demand for labour is high, employers bid up the price of labour-they pay more in cash or benefits to attract staff from their competitors.

When demand for labour is low, employers simply re-nogotiate their contracts down to find the right equilibrium. Some workers may get temporarily less, but everyone still has a job. Everyone is still utilised and continues to pay some tax.

Unfortunately, in the western world at least, it is very difficult to lower remuneration packages once established. Regardless of the demand for labour employers have no opportunity to negotiate pay rates downwards.

Therefore, in order to avoid bankruptcy employers have no alternative but to sack staff.

A few workers maintain their pay and perks-the rest are on the scrapheap.

This means companies lose some of their investment in training workers making any recovery slower. The government loses tax revenues and must either cut services, print money (inflation)or raise taxes on those still employing and working, further retarding recovery.

Worst of all thousands of people rot on welfare, just like so many sub-standard tomatoes.

The cure for unemployment is glaringly obvious.

Get the government out of the labour market.

Let people buy and sell their labour like we buy and sell any other commodity.

People are worth more than tomatoes, surely they deserve at least as much freedom?


Blogger MZL said...

tomatoes don't have families to feed on a meeger salary...people do. most working(-class) families didn't paid a living wage (or even one that managed to keep up with inflatation) when times were supposedly good, its the fat cats and bankers who got paid too much and sucked us into this mess by giving loans to people who couldn't afford them (because they were paid badly...), lieing/"securitising" them and selling them off to unsuspecting victims, just to pump up their pay even more. you are right trev, inflated saleries (those ones that free-marketeers claimed were based on "merit", haha) caused this crisis and unemployment; just that you have the who, what, why and how wrong. as a result, there is no good solution to this other than, perhaps govt. spending, where you can employ people at fair wages and don't have to worry about bankruptcy or layoffs; admittedly debt is a problem but all the more reason for higher taxes on the rich during good times so they can't throw it all into ponzi schemes and when you don't have to worry about the possiblity of "further retarding recovery". however, i can tell you that weakening workers' protections when they're needed most to fix a problem caused by the same market fundamentalism that you hope will also solve it (?) certainly won't help.

1:56 PM  
Blogger Trevor Loudon said...

Didn't read much of what i wrote, did you MZL?

6:32 AM  
Blogger MZL said...

i did read the whole post but i simply don't agree with your logic, as you completely ignore the massive class of working-poor. i simply think that wages, especially for the poor, shouldn't subject to radical ups and downs of the market. families need stability and its the state's role in ensure this. unemployment is best solved by state intervention and should be paid for by taxing unproductive wealth held by the rich that would either be thrown into get-rich-quick schemes (such as the Madoff ponzi affair), collect dust in a vault or spent on a mega-yaughts. on a personal note, i also think that referring to fellow citizens on welfare as rotting or "sub-standard tomatoes" is a cheap shot

10:07 AM  
Anonymous Anonymous said...

Trev thinks workers are vegetables.

"People are worth more than tomatoes, surely they deserve at least as much freedom?"

'Freedom' as in free to be picked, packaged, squashed, canned, pureed and thrown in the dumpster after their use-by date.


Sam Buchanan

2:02 PM  

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