Thursday, June 30, 2016

Why is there unemployment?

There were 100 dogs on an island, and an airplane dropped 90 bones, and the dogs went out to search for them.  10 dogs came back with no bones.  The leaders created a training program to teach the dogs how to become better at finding the bones, and next time the 10 dogs that were trained got their bones, but 10 other dogs were boneless.

The number of jobs in the economy depends on spending.  Business hires people when it runs out of products and needs to make more of them.  If it can't sell the products it is making today, it won't hire any more workers.

When people save some of their money, don't spend all their incomes, they don't spend enough to buy all the stuff they produced.  Unless someone spends more than his income, some production will be unsold, and that leads to production cuts and layoffs.  This is known as the Paradox of Thrift.

You and I can't spend more than our incomes for very long.  It's unsustainable.  You can borrow some, but eventually you will owe too much, lenders will no longer lend to you, you will have to stop spending in order to pay off your loans.  The government, which creates money, can spend more than its income forever.  In the US, it has been doing it since 1837.  It is only the government deficit that allows us to save and not have continuous recession.

Still, the government cannot spend (or cut taxes) enough, by the usual means, so that everyone will be employed.  Well, it could, but we wouldn't like it.  Some resources will be exhausted before others, and continued attempts to buy more of those resources will result only in price increases, not more hiring and not more production.  Even if you never studied economics, you may have heard of the Phillips Curve.

There are still 100 dogs and only 90 bones.

But there is a way for everyone to be employed - that means everyone who wants a job, 0% unemployment not 4.7% "full" employment - and not have inflation.  We just need 10 more bones.

Please read and sign the petition.

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