(I would like to announce that my capabilities in english are very limited!)
United states is suffering from a big unemplyment right now.
I have been thinking about this a little, and there is so many theories out there, that the demand is to low and so on. I was wondering how you austrian economists see the current situation.
Is big unemployment even a real problem, and do you think it will be a big problem in the future? What is the most effective way to reduce unemployment? Lower the wages? Cut the taxes?
Maybe it is enough to just cut the taxes for the business, because the business-men can buy more labor then, and the tax-income that the government get won’t necessarily fall: the expendutures on the unemployment will decrease, and the people that get jobs will start paying taxes.
Unemployment is the symptom not the issue. The cause is in this Depression and has been since before the stock market crash of 1929 that the boom created by artifical money and credit has produced its inevitable bust. Unemployment like other resources in the bust must be redeployeed to other uses. The problem for the unemployeed trying to redeploy themselves to areas that already have people working in them thus creating more competition. The free market handles this by reducing wages but government handles this by preventing people from getting employment through minimum wage laws, etc and to make matters worse entices people not to look for more work.
The best way to solve the problem of the busts in these business cycles is of course to not have the boom. It being too late for that, the way out of the bust is to let companies shed workers and liquidate. Then stop preventing workers from getting other jobs and stop enticing them not to work. And the most important thing to do is to instead of stimulating the economy, is to get all available resources into the hand of entrepreneurs who will build products demanded by consumers and grow the economy.
Well, of course it’s a problem, it’s a very serious problem. The only thing that most of us have to sell is our labor and if we cannot sell even that, then we have no means to provide for ourselves.
End wage controls of all sorts. Unfortunately, wages (the price of labor) is one of the most politically manipulated prices (along with the interest rate, the price of borrowed funds). Therefore, it is no surprise that we find the greatest economic distortions in these two realms, interest rates and wages.
It’s nice to say “cut taxes” but nobody can offer any compelling reason why taxes should be this much and no more. Since everybody accepts that some taxes must be paid, the State has a moral imperative to collect them. Naturally, the State will seek to collect as much tax revenue for itself as it possibly can. The State will never acquiesce to a polite request to collect less taxes. It may reduce its tax rate out of a sense of its own self-interest (to avoid killing “the goose that laid the golden egg”) but the State cannot calculate what this amount is because it is not subject to the discipline of profit-and-loss like private firms are. And, in any case, any amount of taxation is a drag on the economy, the question is whether the government has become an exceptional drag on the economy vis-a-vis all other governments with respect to their economies.
It’s not quite that simple. Taxes on doing business reduce demand for labor but it also reduces demand for all the other factors of production, as well. So, it’s a mistake to say that cutting taxes for businessmen will especially spur labor purchasing since it would lead to a general increase in demand for the factors of production across the board.
The root problem is that the revenues that the government generates need to go down. There is no magic fairy dust that will permit the government to continue consuming at its current rate (so-called “revenue neutral” tax changes) while increasing private-sector production and consumption. As the government stops collecting so much tax revenues and stops crowding out private-sector consumption with its spending, prices of everything will fall for private-sector consumers. This would, of course, stimulate private-sector consumption (and production). But good luck convincing Congress or the President or anybody else to voluntarily reduce the size of the public sector with a polite request. It’s never happened in the history of the world and I don’t expect that to change.
