The Output Chasm

Last post I wrote about the way the euroland is ponzi, which came from Warren Mosler at the MMT Fiscal Sustainability Conference 2010 , but that also led me to Bill Mitchell's incredibly powerful statements on the massive costs of unemployment. The latter is what I want to focus more on today. I think it’s the single most important topic in macroeconomics. And second only in political economy to the issue of lasting world peace.

The Output Gap

The output gap is defined as the difference between real GDP produced in a given year and the potential maximum GDP that could have been produced had all available resources been fully employed.

Notice a problem with that definition?

It implies slavery of some description. So we’d better fix it. We do not really want to estimate the “maximum potential GDP” but rather the optimal level of GDP from full resource employment. Now what does that mean? Well, there are at least two problems with maximisation as compared to optimization (maybe more than two):

1. We do not want nominal GDP to be the measure, it has to be real GDP, and that also means we should want to count only non-bullsh*t jobs.
2. Human well-being should also be optimized, which is not factored in any way in the NIPA accounting, so we cannot just maximise output, since that will entail some sort of wage slavery at the very least. We do not want optimal GDP to include any wage slavery (coercive or brutal work conditions).

On point 1: if useless products are sold, and that gets counted as real GDP, we’re not doing the NIPA accounts justice. We do want to count all the sh*t jobs. Those are necessary jobs someone has to do, which are generally considered unpleasant.

Bullsh*t jobs (as identified by David Graeber ) may or may not be pleasant work conditions, but are typically associated with spiritual violence (“I hate my job”) and are jobs understood, usually by the worker, to be unnecessary for a decent human civilization.

On point 2: because human well-being is subjective, it is hard to quantify optimal potential GDP. We really should use some other metrics. But failing that, we can “do a Keynes” and for now take the recent past as the best guide to the present. Although that’s going to be conservative and regressive, it could also be considered a fair baseline, because the greater the well-being of workers usually the more productive and less bullsh*t the work. So a reactionary conservative posture (the recent past) will likely under-estimate the output gap.

That is ok for our purposes, because all we need to show is that the estimated conservative output gap is still an horrific waste of human lives, a veritable crime against humanity (or should be thought of as so).

TODO: this is an article stub.
To come - how a small output gap balloons 
(Big Bang theory of the output chasm).
It's a whole different universe.

Investors are not to blame

Let’s first distinguish between investors (people buying stocks or shares in productive firms) from the more finance rentier types (people speculating in purely financial assets and derivatives — as Mosler puts it, a total waste of human endeavour.)

Real investors are people with marginal savings: money they do not need, so seek to “put it to work” for some return on their investment.

Did not Keynes say that the drain on an economy were the rentiers and the savers — people not spending all their income. So true.

If everyone spent all their income it would drive up supply, i.e., output, and lead us close to full employment, if not full non-bullsh*t job employment. I realize “non-bullsh*t” is doing a lot of work here, it basically is a way of capturing the microeconomics but speaking at a macro level, so a bit dodgy.

Nevertheless, the tragedy of our times is firms do not like to hire the long term unemployed, and yet deliberate neoliberal policy generates long term unemployment, by design, due to their NAIRU myth. So we have a problem, even if everyone tried to spend all their income, it is unlikely firms will hire all workers. So we’d still have a small output gap.

However, the point to make today is that we are nowhere near full employment, and have not been near full employment in any major industrialized country since the 1960’s, when neoliberalism roughly started to take hold, the monetarists become grossly ascendant, and austerity and “belt-tightening” became the foolish order of the day, which the innocent public swallowed like bitter medicine (which is how PR firms fraudulently sold neoliberalism), or like lambs to the slaughter.

Worse than that, if you just look at the employment numbers you are failing to count all the truly bullsh*t jobs. Those are also massive opportunity costs, severe costs. What else good could these bullsh*t job workers be doing? The answer is, “a lot!”

The Social Costs of Unemployment

The better MMT’ers list these, and here I will steal a few from Wray and from Pavlina Tcherneva .

TODO: depression, skill loss, health loss, 
family breakup, rising dependency ratios, 
rising crime, suicide, ...
(Maybe no need to expand? Cite Tcherneva.)

Regardless of the massive output gap costs, never to be recovered, these social costs are truly horrific. Even a complete economic nerd can appreciate the cost to society to “treat” depression and all the other pathologies associated with long term involuntary unemployment dwarf the costs of inflation or a decent living wage non-bullsh*t job guarantee.

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