Unemployment is a structural problem in capitalism

Chris Dillow of Stumbling and Mumbling pulled the curtain back on the nature of unemployment under capitalism:

capitalism requires that there be not just unemployment but that the unemployed be unhappy. I say so for three reasons:

1. Capitalism requires an excess supply of labour in order to bid down wage growth and industrial militancy. When Norman Lamont said unemployment was a “price well worth paying” to get wage inflation down, he was just blurting out the truth seen by Kalecki 50 years earlier – that “unemployment is an integral part of the ‘normal’ capitalist system.”

2. Capitalism needs the unemployed to look for work – to be an effective supply of labour. This requires that they be “incentivized” to seek jobs by meagre unemployment benefits and by being stigmatized. In other words, the unemployed must be made unhappy.

3. Blaming the unemployed for their plight serves a two-fold function in legitimating capitalism. It distracts attention from the fact that unemployment is caused by structural failings in capitalism, sometimes magnified by policy error. And in promoting the cognitive bias which says that individuals are the makers of their own fate, it invites the inference that, just as the poor deserve their poverty, so the rich deserve their wealth.

Sometimes I forget that people do not realize what unemployment in a modern capitalist economy actually is. There are of course different types of unemployment, but even in good times, around 4-6% of people actively seeking work will never be able to find it. That is because the central bank intentionally creates unemployment — usually by increasing interest rates — to keep inflation under control. When unemployment dips below those levels, the bargaining power of workers increases substantially, giving them the ability to bargain up their wages, which can generate inflation. At least, that is what mainstream macroeconomics claims.

When people blame the unemployed, they do so under a misunderstanding of the nature of the modern capitalist economy. It would not matter if everyone worked as hard as possible and became as educated as possible. At least 4-6% of people at any given time will not be able to find employment. If those 4-6% find employment, it will necessarily be at the expense of 4-6% of those currently employed. The inflation stabilization policies of central banks ensure it.

This then creates a very serious contradiction in the normative and political-administrative spheres of society. The moralizing tendencies to berate the unemployed make absolutely no sense: it is not their fault. At the same time, if we do not blame the unemployed and make them feel bad about being jobless, then the whole point of intentionally creating unemployment will fail. If unemployed people are not made to feel absolutely terrible, they may be less likely to desperately seek out work, which means they will not bargain down wages, which means inflation will not be kept under control.

So the contradiction is apparent. To keep inflation under control, we have to simultaneously force 4-6% of the population to be unemployed, and then we have to falsely make them feel like they are to blame for the unemployment. This is totally abusive. It’s like punching some random person in the face, and then making them feel terrible and self-conscious about having a black eye.