Re: Fix unemployment (was: Re: Hollywood Economics)

Hal Finney (
Wed, 2 Sep 1998 22:42:39 -0700

> Solve the problem of bringing the structurally-unemployed people of the
> *first* world up to the standards of their wealthier, currently-employed
> fellows.

During boom times, banks are under pressure to make loans which are marginally bad. The loans are OK as long as growth continues, but if there is a slowdown the loans will fail. The banks know that there is a risk of a turnaround, but they feel compelled to make the loans because other banks are doing so as well. If a bank is "prudent" and doesn't take risks by making such loans, it can't match the returns of riskier banks. Funds will flow out and the bank won't be competitive.

The same effect happens in people's life plans. Committing to a career in an industry which faces eventual obsolescence can be seen as an unwise strategy. But until the failures start, it is a very rewarding approach. Someone who tries to be a "jack of all trades" who can switch from career to career pays the price of not being specialized. He doesn't do as well as his competitors who are concentrating on a single industry. So people are pressured to specialize and leave themselves vulnerable to structural unemployment.

Once this has happened, once the lifelong buggy-whip maker finds himself unemployed, it's a little late to fix things for him. The horse is out of the barn, he's not pulling buggies any more, and closing the barn door won't help. Yes, you can give the poor fellow money, or you can force others at gunpoint to give him money, but that does not go to the crux of the problem.

I think in the long run people will adjust to these circumstances. As obsolescence becomes a more widespread phenomenon, people will adapt to it. We've adjusted to death after all, which is really a lot worse when you think of it. We have life insurance to mitigate some of the harmful effects. Some form of unemployment insurance combined with a greater emphasis on flexibility can go a long way towards improving the effects of structural unemployment.

Young people are frequently advised that they need to be prepared to deal with changes in employment, that they may have to change careers in midlife. Hopefully this kind of advice will prove to be helpful as they move through life.