The Global Jobs Crisis, Inequality, & the ‘Ghost’ of Keynes - Jack Rasmus

While identifying the data indicating income inequality, economists have little to say so far as to its fundamental causes—and even less to say about the jobs crisis.

Three global capitalist research institutes recently released reports documenting a growing ‘global jobs crisis’. The World Bank, the OECD, and the International Labor Organization (ILO) all came to the same conclusion.  The Group of 20 nations’ employment ministers thereafter meeting in Australia issued a joint statement on the three institutes’ conclusion that “the world’s largest economies are failing to create enough jobs and too many of those that are being produced are of a low quality to generate a meaningful boost to global growth” (The Financial Times,  September 10, 2014). As the World Bank’s senior director for jobs put it, “there is little doubt there is a global jobs crisis”. All three reports identify converging trends across all the advanced economies (AEs) of Europe, North America, and Japan.  Not only is total unemployment rising long term, but the percentage of youth employment and the chronically long-term jobless are also growing. So too are part time and temp jobs rising sharply as a percent of the labor force in the AEs. 

Dimensions of the Jobs Crisis Today: The percent of long-term jobless to total unemployment has risen from around one-fifth before the 2008 crash, to about one third today.  Since the long term jobless tend to be concentrated among those older than 50 years, the AE economies’ job markets therefore appears to be deteriorating at ‘both ends’ of their labor force spectrum, the young and the older. Youth unemployment is rising to record high levels everywhere in the AEs. At the same time, those in the middle, 24 to 55 years old, are finding that jobs that are available are ’low quality’ part time, temporary, and contract ‘contingent’ jobs that provide far less pay, few benefits, broad exclusion from protective labor laws, and little security of continued employment. In the USA in particular, a still fourth major jobs problem is also taking place, a harbinger perhaps for the other AEs as well: about 8 million Americans have completely ‘dropped out’ of the US labor force since 2007. They aren’t even counted among the unemployed and underemployed in the USA, given the erroneous way the USA defines and calculates employment and unemployment. Rising youth unemployment, rising long term duration of unemployed, rising proportion of contingent labor for those even able to find employment, and millions altogether giving up on formal work means something is clearly wrong in AE labor markets and economies, is worsening, and increasingly appears structural and chronic—i.e. the ‘new normal’ as they now say, where the ‘new normal’ means, in effect, ‘we (capitalist policy makers) can’t or won’t do anything about it, so just learn to live with it’. It is important to note that the global jobs crisis now documented by the above three global reports is simultaneously a global wage crisis. 

Capitalist 21st Century Wage Strategy: When one looks at today’s deterioration of wages in the AEs from a class perspective, and not just in the limited way governments report wages, the picture is indeed dire.  Millions more jobless today mean zero wages for those millions that should be factored into the total wage decline data but isn’t reflected in government figures. Only wage trends for those still with jobs is reported, and even then only for those with full time jobs. Millions more partly employed, working in part time, temp and contract jobs receive lower pay, which further reduces total wages for the working classes. Millions more dropping out of the formal workforce, with some perhaps working in the ‘shadow economy’ at reduced and occasional pay, means still lower total wages for the class.  Reducing retirement and healthcare benefits, and/or raising the cost for those benefits for those still employed, constitutes yet another form of ‘wage reduction’. Then there’s the growing trend of outright wage theft that is a growing problem, especially in service sector jobs in the USA where employers increasingly just cheat workers out of part of their wages by payroll accounting tricks.  Then there are policies that allow inflation to undermine the purchasing power of minimum wage laws. Minimum wage law adjustments become more infrequent and less generous.  But all that is still not the entire story. Allowing workers’ pension plans to collapse altogether, into which they diverted part of their wages for years as a contribution to their pensions, means all those wage contributions are wiped out. That represents a form of ‘deferred’ wage reduction.   And it doesn’t stop there either. With less wages and income, workers are forced to turn to more credit and debt in order to finance their basic expenses.  That too leads to a wage decline, as rising debt and interest payments lay claim in the present to workers ‘future’ wages not yet paid. Banks and credit card companies thus steal wages that haven’t even been paid yet by overloading workers with debt and credit, for which workers have little alternative given their lack of other forms of wage reduction. 21st century global capital has thus evolved multiple ways to reduce wages today.  But the biggest contribution to wage-earnings reduction for working households, the biggest impact, derives from the chronic rise in the millions of unemployed, the growing percentage of ‘contingent’ (part time, temp, contract) and ‘low quality’ jobs, and the millions forced into the ‘shadow economy’ of intermittent, occasional work, still lower paid, or even worse. 

The Terrible Triad: Jobs, Wages & Inequality: The global jobs crisis also leads, according to the three ILO, OECD and World Bank reports, to a corresponding decline in disposable income and consumer spending, which contributes significantly to rising income inequality trends. So the jobs crisis means not only wage reduction but the rise of inter-class income inequality as well. In the U.S. alone, median working class family incomes have fallen in real terms (adjusted for inflation) by more than 8%. That includes a 4% drop during the so-called ‘recovery’ since 2009. As corporate profits surged to historic record levels after 2009, and the wealthiest 1% saw their share of total incomes rise to 22%, more than ever before in U.S. history, working class families’ incomes continued to deteriorate it the recovery.  And that deterioration is not limited to the post 2007 recession period. It was going on since 2000, and even before that to the early 1980s. The triple problems of jobs destruction, wage decline, and income inequality have become so severe in the AEs in general, not just the U.S., that the global capitalist press, and capitalists themselves, are showing signs lately of growing concern about the trends and problem. Given that, now that it is "safe" to discuss the triple crisis, mainstream economists have jumped on the "income inequality" bandwagon and have begun writing feverishly about it as well. But while identifying the data indicating income inequality, economists have little to say so far as to its fundamental causes—and even less to say about the jobs crisis as the crux of the problem triad.  They identify the magnitude of the problem, but provide little explanation of the fundamental, originating causes—especially the fundamental ‘class basis’ of the problem in its inability to create enough decent paying jobs. Instead they limit themselves to calls for token tax reform, when the tax system is not the cause but just an enabler of the income transfers; or suggest ways to reduce senior corporate executives’ excess compensation; or ways to tweak the minimum wage which, while benefiting the lowest paid a little still leaves out the jobs and wage decline crisis for hundreds of millions of remaining workers.

The ‘Ghost’ of John Maynard Keynes: The ‘Achilles heel’ of 21st century capitalism is its inability to create good jobs on a sustained basis, and the corresponding wage stagnation and income inequality that that failure produces. This ‘systemic weakness’ of inability to achieve full employment and its tendency toward growing income inequality was recognized decades ago by the economist, John Maynard Keynes.  Almost never quoted from Keynes were his concluding remarks at the end of his General Theory work published in 1935. He put it succinctly: 

 “The outstanding faults of the economic society in which we live are its failure to provide for full employment and its arbitrary and inequitable distribution of wealth and income.”

One shouldn’t make too much of Keynes, of course. Much of what he tried to say was to propose solutions to the global depression of the 1930s, to “save Capitalism.” While he correctly saw inability to provide jobs and income inequality as the two great inherent weaknesses of modern capitalist economy, he incorrectly assumed its third great problem would correct itself.  That problem was the growth of “rentier capitalists” and their tendency to destabilize the entire system repeatedly. Today we would call them “financial speculators” and the “global finance elite” (my term).  In his 1935 defining book, The General Theory, Keynes attributed but one chapter to them (ch. 12), then dropped the analysis. And in his concluding chapter 24, Keynes then opined that “rentier capitalism” would be a “transitional phase which will disappear.” Keynes called for the “euthanasia of the rentier, of the functionless investor,” but believed the process would be gradual and “will need no revolution.”  He of course was wrong.  As recent decades show, the “functionless investor”—that is, the rentier capitalist, the financial speculator—has only grown more powerful and influential, both economically and politically.  Their preferred financial institutions, the global shadow banks, now control more than $70 trillion in investable assets—i.e. far more than the traditional global banking system itself.  And the negative impact of this increasingly dominant faction of the global capitalist class, in terms of contributing to and precipitating financial crashes globally, continues to grow and destabilize the capitalist system today. It is worth noting that most capitalists today, politicians in charge of economic policy making in the AEs, and the overwhelming majority in the economics profession, never fully accepted Keynes’ views—and especially those regarding jobs and inequality, let alone rentier capitalists’ destabilizing role.  That is abundantly clear today, as AE politicians and the corporate powers behind them continue to broadly reject Keynes-like fiscal stimulus provisions calling for government spending on social programs and infrastructure and for the government to directly hire the unemployed if necessary.  Instead, today’s policy makers in the AEs prefer a mix of austerity programs and deficit cutting, while providing tens of trillions of dollars in free money from their central banks to bankers (QE and zero rates) and additional trillions of dollars in tax cuts for big businesses.  

Mainstream economists in the AEs seldom, if ever, note Keynes’ twofold fundamental indictment of capitalist economy.  And one has to look very hard to find anything in their theories and economic models that account for the changing financial structure of modern capitalism and its effects.  AE economists simply don’t understand finance (any more than finance professors understand economics, one might add). Even those AE economists who adopt the “Keynesian” label prefer to selectively appropriate only those passages from his work that suggest that capitalist business cycles are controllable. In so doing, they reach back to pre-Keynes economic theories, integrating them into what they select as “safe” in Keynes. They claim that tax cuts and lower interest rates will stimulate the economy, even when Keynes himself was clearly ambivalent on these effects. What results is a kind of bastard Keynesianism, a “hybrid Keynesianism,” that the liberal wing of the economics profession today who call themselves Keynesians adhere to.  One need only look to the past six years of near zero interest rates for banks in the AEs and the trillions in business tax cuts, both of which have failed to generate anything even closely resembling sustained economic recovery. The other wing of the AE economics profession, which might be called “Retro Classicalists,” reject even the social spending recommendations of Keynes and argue all that’s needed is more money and lower costs to businesses. Lower interest rates, lower taxes, and now the emerging consensus to reduce costs by means of labor market “reform” (i.e. a code word that means destroy unions and worker bargaining power) to produce lower wages. Lower business costs and they will then invest it.  But lowering business costs to generate jobs and growth is a myth, for which the global facts since 2000 also provide ample evidence. All that the Retro “solution” has produced is that corporations across all the AEs have redistributed the record profits generated since 2008 by the lower costs to their stockholders with trillions in stock buybacks, record dividend payouts, spending on mergers & acquisitions of other companies, and just hoarding the trillions of dollars still leftover—which they now increasingly are in process of sheltering even further by means of global “tax inversions.” Both wings of the profession provide cover for their views by saying their proposals will lead eventually to job creation in the end.  The “Hybrids” argue that just provide more income (doesn’t matter how or what form) to households and that income will generate spending that will be followed by business investment and jobs.  The “Retros” argue that the income subsidization should start directly with business, which will then create jobs. In both cases, jobs are tacked onto the explanation at the end, as an eventual “consequence” of prior income distribution proposals.  Jobs are never viewed by either wing as the start of the solution—not the consequence.  And the income injections—whether to households via subsidies and transfers or to businesses via tax cuts, zero interest, bail outs, or other costs reductions—never get down to the actual creation of jobs.  They claimed in the past that it used get down to the rest of the economy. That was called “trickle down” economics. But today there isn’t even “trickle down.” It’s hardly a “drip-drip.”  The faucet of job creation has been virtually shut off. The capitalist “job well” is running dry. 

Inequality’s Solution: Working Class Jobs vs. Rentier Capitalists: It is not surprising that mainstream AE economists of either wing have not been successful at proposing theoretical solutions to the current global economy’s inability to generate a sustained recovery on a general scale. Nor is it surprising that capitalist politicians and policy makers in governments and central banks have been unable to do so in fact. Neither economists nor politicians have addressed, or are about to address, the fundamental problem of the global jobs crisis today raised in the three reports. But without confronting that, the wage and inequality problem will only continue to worsen. In particular, inequality driven by not only job and wage stagnation, but by Keynes’ “rentier capitalists,” the “functionless speculator,” who will continue to gain still more global income share at the expense of the rest as working class jobs, wages and incomes stagnate and decline.  Contrary to Keynes’ prediction, the “euthanasia of the rentier” financial capitalist may indeed require a revolution.

Dr. Jack Rasmus, Ph.D Political Economy, teaches economics and politics at St. Mary’s College in California. He is the author and producer of the various nonfiction and fictional workers, including the books ‘Obama’s Economy: Recovery for the Few‘, Pluto Press, 2012, ‘Epic Recession: Prelude to Global Depression‘, Pluto Press, 2010, and ‘The War at Home: The Corporate Offensive from Ronald Reagan to George W. Bush‘, Kyklosproductions, 2006. The original Article can be found Here