I take a finance perspective on the output gap. If you are at what others call “full employment,” you can indeed do better, or at least try to do better. Start 300 companies that aim to be the next Stripe, Facebook, SpaceX — whatever. In the short run, you will create jobs, people at jobs will work harder, and so on. Employment, output, and also tax revenue will rise. You can pat yourself on the back and say you were not at full employment.
The thing is, you have accepted a higher level of risk. Many of those companies are likely to fail. And since they were started by humans consuming a broadly common set of cultural and media inputs, those risks will to some extent be correlated as well. Of course it might pay off big time as well.
Schumpeter’s phrase “creative destruction” makes it sound as though those processes are synchronous. A new business is created and destroys an old one.
But the creation cycle and the destruction cycle are out of phase. A new business created today will not destroy an old business for several years. And an old business dying today will release resources that may not be redeployed in new businesses for several years.
We can be in a phase in which new businesses are being created, old businesses are hanging around, and lots of resources are being used Think of the Internet boom of the late 1990s. And Tyler is right that there was a lot of risk-taking going on at that time. Or we can be in a phase, like 2008-2014, where old businesses have died but not enough new businesses are being created. And there was plenty of risk aversion, some of it dictated by financial regulators.
Some resources can be released from the economy permanently. Nobody hunts whales for their oil any more; horses became a liability about a century ago. The deeper parts of the underclass are composed of people whose labor has not been required by the market for generations.
The condo I used to have was in a converted closed factory. There was lots of old architecture and the new yuppie condos had pictures of all the old factory workers in the lobbies. You could do historic walks to learn what it was like.
One thing that hits you right away is how many Methodist churches there were. Methodists were big into using a certain method to turn the working class into effective workers and normie families. I think part of the reason the underclass got feral is that turning them into useful laborers is just a lot of work. When the output of all that work was valuable laborers, people bothered. Clergymen, foreman, etc. When it stopped being valuable, why bother with all that work.
Certainly part of it is that we used to have a labor shortage, and those days are long gone. Part of it is probably that we’ve enshrined education as the answer to economic problems, but it just can’t fully deliver on the promises and the failure makes resentment build up. But I suspect the bottom 5% or so never really took to civilization.
People who show up on time, not high not drunk (nor hungover), willing to follow instructions – always have some value.
The “social safety net” always has some moral hazard – the more safety, the less disincentive to avoid irresponsibility.
When one knows, by visibly seeing, able bodied men wasting their lives hungry & homeless & uncomfortable because of booze/ drugs, it’s an incentive to be more responsible.
Incentives work socially and generally, not on each person, not every time. The less stick used, the less incentive for those who were “being good/ showing up / being sober” to avoid the stick.
Normal married families remain hugely underrated – for kids and society. We need more carrots for the irresponsible to be more responsible.
According to a number of writers on the old auto industry, plenty of workers did show up drunk or high at times, or in a few cases all the time.
The UAW protected them by and large.
This comment is no solution to any of the dilemma facing today’s unemployed, but it is of general interest.
All OECD countries should be actively pushing “Full Employment” policies – with the explicit goal of having all able bodied people able to work to be offered jobs. Only those unwilling to work should be unemployed – and be treated as lazy by society.
Our society should have a more honest discussion of how to treat a lazy person. Typically, whenever “lazy” is used on the unemployed, it is claimed that not all of them are lazy. Which is true, but then avoids any answer about what to do with those who are lazy. All should be offered jobs, so the ones who are not lazy will be working in some Volunteer National Service, non-military – no 100k low IQ folk off to fight in Vietnam. But maybe 100k or 900k to go clean up dirty parks, dig sewers, assist around hospitals and schools, and replace illegal immigrant gardeners with citizens.
States, cities, maybe school districts should be offering different “National Service” programs, with the Feds paying for it but the locals administrating it.
The work done by such a Service will vary with the businesses closing and opening according to entrepreneurs.