07 September 2005

About Unemployment.

My former blog partner Blogicus Maximus over at a Political State Report has given Wash Park Prophet a welcome shout out and also noted some bleak economic numbers for Colorado, which being a GOP fellow, he is naturally inclined to attribute to the Democrats. The most politically sensitive economic number, of course, is unemployment. His post got me thinking about the issue of unemployment, which had already been buzzing in my head in the wake of the biggest one week job loss since the Great Depression in the form of Hurricane Katrina, something that National Public Radio also discussed this morning.

What is unemployment? Fundamentally, it is a failure of entraprenuership. Unemployment happens went our society lacks the creativity necessary to put everyone who is available to work to work. Of course, sometimes this creativity fails for good reason, and Hurricane Katrina, which I'll discuss in a moment, is a dramatic example of the problem.

Economists speaking to the public often talk about a supply of employees, and a supply of jobs, but that isn't a very helpful way to think about it. Jobs are not wigets. They can be created at a moment's notice and disappear just as fast. The Commerce Department, for example, goes from having fewer than 30,000 employees to more than 500,000 employees every decade to conduct the census. Some entire industries, like the film industry and the construction industry, have virtually no permanent jobs at all -- almost everyone in each industry flits from project to project on an ad hoc basis, with at most a fragile small employer looking for work for them. Raw materials don't create their own wigets, but people can create their own jobs, through self-employment, and a significant proportion of our working population does just that. Indeed, many professions, accounting, law and medicine among them, have ethical rules that prohibit people outside the profession from owning enterprises within the profession.

Also, the creation of one job does not necessarily prevent others from creating the same job. In 1990, there were virtually no shops serving the Vietnamese soup "pho" outside of immigrant communities which they served in a handful of major metropolitian destination cities, and in 1980, there were virtually no Thai restaurants in the United States. Now, every city that is worth mentioning has several Vietnamese Pho shops and Thai restaurants. To my knowledge there is only one significant franchise, Swing Thai, among them. Traditional thinking about the supply and demand for jobs would lead you to think that the people who created the first Vietnamese Pho shops and Thai restaurants would have been jealous of their business methods so that their jobs in an economy with limited demand would be safe. But, that isn't what they did. They taught fellow immigrants the business model they were using, and it was widely replicated, creating thousands of jobs across the nation. Thai and Vietnamese immigrants created a niche where typical immigrants could do something useful in the economy and rapidly filled it. This isn't atypical. Los Angeles is full of Korean grocers serving communities too poor to have supermarkets. The nation is full of Korean wig shop owners. Centuries ago, in Europe's Jewish ghettos, a diamond industry was created. Once someone comes up with a way to take people whose skills are abundant and finds something worthwhile for them to do, this can typically be replacated and dramatically enhance economic growth. Detailed recent research on economic growth has shown that it comes in spurts based on specific technological or cultural innovations, rather than through the gradual accumulation of savings and capital, as previous economic theories of growth had assumed.

This isn't just a matter of immigrant communities either. Who would have guessed in the days when United, TWA, Delta and PanAm dominated the airports of the country, that someone would invent a new kind of airline called a discount carrier (exemplified by Southwest Air now)? Schumpeter aptly noted that the firms that triumph from revolutionary new ways of producing are rarely the firms that led the economy before the revolution. It is a lesson my own family knows from personal experience. My children are distant heirs of one of the great general trading companies that dominated the Korean economy before the Korean War. That company is now an economic nothing, if it exists at all in modern South Korea. But, some of their Korean cousins have now made themselves leaders in the new Korean industrial conglomerates, founded by others, which now dominant the Korean economy, while other members of their extended family have joined the American professional class, in each case jumping ship to ride new economic waves. Korean unemployment shrunk, and its economy grew, despite the loss of vast numbers of jobs at Korean general trading companies, because a better educated population was able to create new opportunities for themselves that didn't exist before.

Hurricane Katrina has left our society will all sorts of work to do. We have an entire city to rebuild, hundreds of thousands, if not millions of people, who need new housing (at least temporarily), and services that must be provided to all those people which were previously provided by enterprises which are no longer functioning.

The problem is that the work that needs to be done is not necessarily the work that all the people displaced by the Hurricane are accustomed to doing. To take just one example, we have hundreds of displaced jazz musicians who are useless in restoring the devistated electrical system. Similarly, while it is a relatively easy matter to squeeze tens of thousands of displaced university students into classrooms at other institutions across the country, it is more cumbersome to find work for the thousands of displaced professors and administrators who planned to teach classes at New Orleans universities this semester.

The same issue comes up when a factory shuts down. Even when our economy does create replacement jobs in other sectors, they are rarely jobs that the factory workers would be qualified to do. A production line worker may be ill suited to managing an office computer network.

Sometimes, unemployment can be a good thing in the long term. A chemical engineer may be able to find a job quickly as a barrista at Starbucks, but we'd prefer that she took her time and found a position that made better use of her skills. At other times it is tragic. Our nation has lost tens of millions of low skilled factory jobs in the past three decades, and has created jobs that those individuals can't fill. Even worse, our efforts to retrain those workers, or at least, to redesign our education system so that it isn't sending millions of new unskilled workers into the work force every year, which worked when factory jobs were abundant, have been negligable.

The Arabic empire swept across North Africa, Spain, the Balkans, the Middle East, Central Asia and Indonesia about 1300 years ago to a great extent on the strength of their ability to handle unemployment problems. The societies they displaced had been stagnant and disorganized, relying on tradition to carry them through from generation to generation. The Muslim conquerers put a single individual in charge of villages or communities. This individual was in a position to see what could to be done to improve the community and dispatch people to address it as needed, bringing new flexibility and vitality to previously rigid responses to the basic questions what the community would produce and how it would do it. It supplanted traditional elites who had subsisted on inherited wealth with a society based on current ability to meet community needs. Anglo-Saxon barbarians did much the same thing in the Norman invasion of England a thousand years ago, where military officers with proven leadership abilities were given rulership over whole communities and displaced an older aristrocracy.

In the last great wave of American immigration, the role of the community organizer who took idle people and found them something worthwhile to do, was filled by Tammany Hall and other political machines. In the Great Depression, massive public works programs filled the same role. In the 1950s and 1960s, union halls often filled this role.

One of the gaps in our current economy is the lack of people at a sub-elected official, community level to match resources to needs in a non-bureacratic way, informed by common sense and immediate exposure to local economic conditions. We've managed to keep unemployment at modest levels in an economy marked by peace and gradual change, but unless our economy develops new institutions and institutional roles to connect people and societal needs, future economic upheavals could lead to great unemployment. Let's hope that Katrina serves as a dry run that helps develop those kinds of institutions.

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