There is extraordinary muddle-headedness among politicians and commentators alike on what to do about the appalling scandal of youth unemployment. With next Wednesday’s jobless figures likely to reveal up to 1 in 4 in the 18-25 age-group are now without a job, the angst over unemployment is reaching a new pitch, though not the common-sense.
Jobs in the current climate are a demand side issue in the economic equation – are there employers who will take on new employees when the demand for the goods or service they will provide has gone through the floor? Yet all the ‘solutions’ proposed are supply side measures.
The Bank of England has just issued a further £75bn of quantitative easing, on top of £200bn over the previous year or more, but printing money is a supply side measure, particularly when the banks use it to consolidate their own balance sheets, not to lend. Osborne is now preparing to announce in his 29 November autumn statement that he’s going to provide a slug of ‘credit easing’, i.e. direct lending to businesses, though why that should increase the number of new jobs provided isn’t explained if the goods or services they produce can’t be sold. It’s another supply side measure.
The LibDems have helpfully suggested that Osborne set up an infrastructure bank to help distribute the new easing of credit to the private sector. But that won’t get round the problem of employers being unwilling to take on new young employees unless they know they can make a profit out of it, and that depends on the state of demand.
Ed Balls has promulgated his 5-point agenda for economic recovery. But none of them directly addresses the lack of aggregate demand except the reversal of the 2.5% increase in VAT, which of course to save his face Osborne will be adamantly opposed to doing.
So what should be done? The only way to increase demand when the private sector is contracting and the economy is flat on its back is by the state initiating its own works programme, for housebuilding and infrastructure projects in transport and energy, etc., which is guaranteed to produce jobs. And if done on a sufficient scale it will slowly but steadily turn around the drop in demand through the multipler effect of the level of new economic activity created.
So why isn’t it being done? Because all political parties, to their shame, have succumbed to the neo-liberal culture that the State has no direct role in generating economic activity. It is purely a regulator or facilitator, but must never directly intervene. The price of this dogma is a million young people being kept on the dole.
