Intergenerational inequity10th June 2013

shutterstock_97851920Lets cure unemployment in one go. I know that the issue is wrestled with by so many great minds, but in Britain, at least in the month of May, it should be entirely possible. May  is the month that our gardens spring into growth, and I for one, despite manfully battling root, branch and tree, with long hours cutting, sawing, slashing and trimming, have been fighting a losing battle that has stretched into June.

The perfect opportunity to grab a few willing people to earn a little cash should present itself, even if it is to do the jobs I really don’t want to do myself. I well recall helping out in my own youth, for which payment came in the form of home-made lemonade as much as cash. And my Mum always found something for the Bob-a-Job Scouts to do. What a supportive society we enjoyed.

Imagine doing that now. Borrow a couple of school kids and child exploitation rears it’s head. The local County Council recently issued a reminder of such illegal practices prior to the bank holiday, and further investigation suggests the potential need for a work permit, which presumably follows a CRB check. Seek to employ an adult and one faces minimum wage legislation, and politicians love to remind us that we shouldn’t just pay cash, because that is tantamount to tax avoidance. And perhaps we should feel guilty trying to pay the minimum wage now that the “living wage” is the more publicly desirable level? But that would have to be paid out of my own already fully taxed income. No thanks, I’d rather leave those pesky roots in the ground.

Literally at grassroots level, everything is in place to encourage less economic activity rather than more. This is not of my making, nor of those who are looking for a bit of pocket-money, nor of those who seek the dignity and rewards of work or additional earnings. The fact that I have toiled long and hard in the garden over recent weeks has reduced my productivity on other matters, and most visibly denied the world my blog for the last three weeks (which may be a blessing in disguise, but reading it is a voluntary activity!). Even at this low level, the diminution in societal and economic activity is the result of the enlargement of the state.

Many will be quick to point out that the potentially vulnerable need protection, but we really should be careful not to draw the line at a level which discourages constructive activity. Many will point out that regulations and licences and taxes all create employment for decent public servants – a view of which I despair, as we would all be better off spending our own earnings to create really productive employment for those same decent people, on activities that satisfy real need in society rather than all of us being coerced into satisfying the burdens placed upon us. Communities, left to their own devices, have every opportunity to flourish, provided their life-blood isn’t sucked up by the state.

This got me thinking; what has allowed our state to grow to monster proportions? And if state activity dampens economic activity, what are the prospects for social justice and future generations? As ever, economics has the answer!

Now listen to the politicians, media, and even most economists, and we are spun the line that government spending stimulates growth, that publicly-originated infrastructure spending is desirable, that deficits must be sustained, that a little inflation does us good … NONE of which stands up to scrutiny. Yet these beliefs have become an accepted norm, a norm of total nonsense.

The nobel-winning economist Paul Krugman suggests that public investment creates jobs, and by failing to do so we are harming future generations. In an article for the New York Times (here) he states that fiscal policy is a moral issue currently requiring more debt. To a casual reader his arguments appear agreeable enough, and in the short-term borrowing more to fund state spending might indeed encourage private spending and investment, and hence employment. But it does nothing to address the issue that our monetary systems are like a drug, a drug that requires ever stronger dosage to keep the patient alive, whether that be ever more credit to sustain asset prices, deficits to sustain the public sector, the production of ever more regulations to benefit the crony end of the business spectrum, or handouts to keep the masses voting, all funded by Central Banks and the Treasury printing-press, in an apparently virtuous world of no consequences.

Surely future generations are entitled to rather more that this, like a proper cure.

A little research takes one back to the Chartalist School, founded by one Georg Friedrich Knapp (1842-1926). His proposition was that money should consist of government legal tender and have no intrinsic value, and in this way could create a base wage and full employment, with demand for the legal tender sustained by taxation. Think about it … if you can only pay your taxes in that currency, your need that currency, however worthless it may be. Well despite the theory, we live in a world where our currency, controlled by the growing state, has no intrinsic value, but full employment seems far out of reach.

It seems to me that this Chartalist experiment has created victims for long enough. Chartalism fails to control damage to society caused by price inflation, putting asset bubbles ahead of real production, fails to sustain competitiveness in an international economy where we need to seek out the best producers, fails to control unwieldy bank credit expansion, fails to motivate individuals towards betterment, fails to prevent the state from “investing” in unproductive activity, fails to cap unfunded promises  … indeed it did so much to distort economic decision-making and create the statist economic conditions that created the rise in extremism leading to WW2, to the impoverishment and ruin of far too many.

The latest economic data is presented, from the UK, US and Japan, as one where government has carefully restored order to our broken economies, nourishing property and share prices. Perhaps we are now in “recovery” mode, money having been centrally managed in such a clever manner that the statistics of the state measure positive progress, and capture great headlines. But the big debate over inflation versus deflation is not yet concluded, and the powers that be may simply have done a great job of sustaining the unsustainable for a little longer.

Lets not delude ourselves that Chartalist central money management makes current or future generations any better off, nor that the state can protect us from inflation and depression; their actions may keep the patient going for now, but every day he is counting down, a little closer to death.

The cure? Austrian Economics. Coming to a blog here soon …