Classical economic theory and employment

At the very core of the classical arguments against public spending as a means to raise employment is John Stuart Mill’s 1848 Fourth Proposition on Capital: “Demand for commodities is not demand for labour”. There is no relationship between the level of employment and the level of aggregate demand. Everything that matters happens on the supply side, with the only role of demand being what gets produced, but not how much or how many people are employed. It’s always been difficult to understand, but with macro now specifically stating that demand for commodities does raise the demand for labour, there is virtually no one who any longer even knows what Mill and the classics had said, never mind actually being able to explain why that might be. So with this in mind, there is a quite interesting story that just appeared the other day at Zero Hedge: Finland Abandons ‘Helicopter Money’ Experiment: No New Jobs Created. He’s the whole thing:

With socialists rising to the calls of the ‘free shit army’ and the ever-more-left-leaning liberal intelligentsia imagining ever-more-creative ways to pretend to fund their massive government interventions (Modern Monetary Theory), the topic of “QE for the people” or “helicopter money” or the more academic-sounding “Universal Basic Income” is becoming ever-more-prevalent.

Well, we have some more results in on the impact of Universal Basic Income (UBI) experiments – handing out free money to citizens with no strings attached.

As part of its experiment, in Finland 2,000 unemployed people aged 25-58 were paid a tax-free €560 (£490) monthly income. This was independent of any other income they had and not conditional on looking for work.

As Valuewalk reports, UBI-expert from the Institute for Policy Research at the University of Bath (UK), Dr Luke Martinellicomments:

“Universal basic income has ascended policy debates in recent years, motivated by the shortcomings of existing welfare systems, and our rapidly changing – and increasingly dysfunctional – labour markets.

“Yet despite the idea’s widespread appeal, there remain substantial and unanswered questions about its economic viability and political feasibility. This is why all eyes will be on Finland this Friday and why the results of its UBI experiment will be so revealing.

“We expect these results will provide us with the first really robust evidence on how UBI could affect changes in employment and people’s overall finances, as well as wider measures of wellbeing.”

So what were the results?

Simple (and Dr Martinelli – and the left – won’t like it):

1) People were happier, and

2) No new jobs were created.

As Yahoo reports, this was the widest such study to be conducted in recent years in Europe

“The recipients of a basic income had less stress symptoms as well as less difficulties to concentrate and less health problems than the control group,” Minna Ylikanno, lead researcher at Finland’s welfare authority Kela, said in a statement.

“They were also more confident in their future and in their ability to influence societal issues,” she added.

Results at this stage are preliminary and relate only to the first year of the study, meaning Friday’s findings are far from conclusive. But a hoped-for stimulus to levels of employment has not yet materialized, the project’s researchers said.

“The recipients of a basic income were no better or worse than the control group at finding employment in the open labour market”, Ohto Kanninen, research coordinator at the Labour Institute for Economic Research, said in a statement.

Shocker!!  Who could have seen that coming?

Give people free money for doing nothing, with no conditions, and they will be happier to sit around all day in non-productive utopia.

Finally, we note that, based on these results, Finland’s social affairs minister, Pirkko Mattila, conceded on Friday that the government has no plans to roll out the scheme across the whole country.

And let there be no doubt that whoever might have received this helicopter money would have spent it, to the last Euro.

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12 Responses to Classical economic theory and employment

  1. max

    The Market Creates Jobs and The government destroys them

    jobs in and of themselves do not guarantee wellbeing. Suppose that the employment is to dig huge holes and fill them up again? What if the workers manufacture goods and services that no one wants to purchase? In the Soviet Union, which boasts of giving every worker a job, many jobs are just this unproductive.

    Instead of praising jobs for their own sake, we should ask why employment is so important. The answer is because we exist amidst economic scarcity and must work to live and prosper. That’s why we should be of good cheer only when we learn that this employment will produce things people actually value, i.e., are willing to buy with their own hard, earned money. And this is something that can only be done in the free market, not by bureaucrats and politicians.

    But what about unemployment? What if people want to work, but can’t get a job? In almost every case, government programs are the cause of joblessness.

  2. Genghis

    Great no new jobs BUT that is not what the report said. ‘After one year there were no new jobs’ BUT the study was for two years! If that fails what about doubling the amount sent out and see if that works!

  3. BoyfromTottenham

    Or to simplify your argument, Max, only productive work creates wealth, which raises living standards, but government can easily destroy that wealth by taxation and spending on unproductive employment. A pity few governments these days seem to understand this simple fact. Now I will go back to being productive.

  4. RobK

    I have always liked the term “gainfully employed”. It may sound a bit trite sometimes but aside from pay and conditions, I see it as essential for both employee and employer and captures some essence of usefulness and value other than monetary remuneration. The concept sometimes gets a bit shaky when applied to CEOs, government or other layers of bureaucrats.

  5. BoyfromTottenham

    But my point was, RobK, that only productive work, i.e. that which produces sellable goods and services, creates national wealth. We cannot tax ourselves in wealth, all taxation does is to redistribute the wealth by taking from the wealth producers and giving it to non-producers. If this results in a better outcome overall, say by defending the country against an invader or providing necessary services such as sanitation and hospitals then it is to applauded. If not, we end up with once wealthy counties, like Venezuela, being impoverished by their government. One more thought to consider – governments can only come into existence after a country has achieved a certain level of wealth, otherwise there is insufficient wealth to support the level of non-productive people needed to form and maintain a government. Dictatorships on the other hand can ignore this concept, for a while at least….

  6. Whalehunt fun

    When the cretin Rudd and the dribbling loon Swan handed 800 bucks to the better half it went immediately to the Liore valley to compensate socialist voting french winemakers for the stuff she ordered from them. Admittedly some few pence would have gone to some courier van driver here who moved it from the port to the WhaleHunting residence but basically no stimulus to the Australian economy occurred and tr hat was true for all the other recipients who ordered larger plasma tvs online from communist China. That Swan is stull in possession of an unflayed and untanned hide is a disgrace.

  7. John Bayley

    UBI + MMT = Government-created Nirvana
    ‘The end of scarcity!’
    You know it makes sense.

  8. “I contend that for a nation to try to tax itself into prosperity is like a man standing in a bucket and trying to lift himself up by the handle.”

    ~ Winston Churchill

  9. Isn’t the $900 ‘Swannie’ an experiment in MMT?

    convert private debt to public debt?

  10. thefrollickingmole

    I do have a little sympathy for the idea of a bog standard “one size fits all” payment in place of the current old age/unemployment/single parent/rent subsidy/Austudy/Abstudy quagmire in place now.

    But I seriously doubt reducing the complexity/cost or size of the department involved in administering this would be part of the outcome.

  11. iain russell

    And ‘spent to the last euro’ would mean a serious belt at the hard liquor, dem Finns being synonymous with hard boozing in those northern latitudes.

  12. “Give people free money for doing nothing, with no conditions, and they will be happier to sit around all day in non-productive utopia.”

    They were no more or less non-productive than those on traditional unemployment benefits. It did not make them any lazier than the current system (but also did not increase jobs more than the current system).

    If it increased laziness, sure, that would be a problem, but it kept the same level of laziness while increasing happiness, which is a net win.

    Maybe it is a placebo effect: people thinking they are getting free money, when really they are getting the same as before; and unconsciously they are actually having the same behaviour (i.e. not actually more lazy) but they just feel more lazy, so happier.

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