Sunday, June 14, 2015

Pushing to unemployment theory?

By my own admission ideas I have around curbs in monetary flow leading to unemployment are speculative, as I don't see a sufficient framework as of yet to consider these ideas to be a science. But it is fun to consider them more and see if the outlines of one can emerge.

First off, the concept is incredibly simple: money represents an abstraction for a favor and monetary flows are required for people to employ each other, where unrealized abstracted favors lead to unemployment.

That is, if someone just sits on cash, for instance, rather than spend or invest it, then they drive up unemployment, is the speculation which I'd like to see lead to scientific theory.

And I noted in a prior post that you can look at agriculture, where if necessary the bulk of a human population can be employed by it, but the rise of modern agriculture and agricultural machinery means that few people in the US, around 2% of the workforce, are needed for it! So clearly people simply shift, which is good news as it means robots will not drive up unemployment, if these speculations are correct.

So let's push this speculation and imagine a person in the US makes $100 million US in some way, and imagine avoids mostly paying taxes, and proceeds to sit on $50 million US in cash.

Only a very wealthy person could do such a thing, as consider someone making $100 thousand US, which would be middle-class, though upper levels. That person would pay a certain amount in taxes, and spend or invest the rest, possibly in a 401 k, so that the entire amount goes to the US economy, and helps support it.

If we speculate a direct relation to the lost $50 million US that is stagnated by the wealthy person, on a one-to-one basis, roughly five hundred people are blocked from employment at the $100 thousand dollar level by this person's behavior. Or one thousand lose employment at half that level, where $50 thousand US is still middle-class.

But where do you draw that wage line then? My guess is that in a full theory it will follow a mathematical curve. So a mix of people at various levels will be unemployed as a result of the stagnated wealth. Usually one starts with the gaussian distribution, which most know as the bell curve. But I'm not going to play with any math here.

That this concept can be mathematized though could mean that economists could.

Interesting, then you could potentially look at a spike in unemployment to get numbers with which you could actually calculate how much money is being stagnated.

Of course there may not be a one-to-one but that's easier to consider for admitted speculations. If this line of questioning is correct, then the actual correlation would be of extreme interest.

So there is an easy to discuss practical use then for an economic theory of this type as if these ideas are correct, they could tell you how many people become unemployed when a wealthy entity stagnates wealth by sitting on it. Governments might penalize such behavior.

And I'm all for a person keeping what they made, and getting a benefit from it, so I'm not someone who looks to higher taxes as a solution! But the tax argument may be far less relevant anyway.

Another way that curbs in monetary flow can lead to higher unemployment is when a worker is underpaid, like say someone makes 80% of what they should make on a job, based say on what others generally make doing the same work, assuming no drop in quality simply that the person is unable or unwilling to get proper pay for his or her work. From this concept that 20% that should have flowed into the monetary supply for the community is simply destroyed money. So it's not even locked up like in the prior example, it's simply destroyed. Which is weird.

But imagine a small village where a wealthy powerful man, has armed some as he begins to slowly stop paying other villagers until he pays them nothing, but his armed ones force them to work, so that they are now his slaves. And not surprisingly the village store goes out of business! Because none of them have any money.

So that thought experiment to the extreme helps to understand at the 80% level.

So underpaid workers actually directly destroy money, under this speculation on the basis of that thought experiment. So they lead to unemployment whether they wish to do so, or not, and governments should work to ensure they don't do that whether they wish to work for less or not.

It could also mean that criminalizing deliberate underpay of workers is an option for governments as underpay directly destroys money, and in so doing leads to higher unemployment, by shrinking the money supply.

So that was fun. It may take a while to firm this up into a consistent framework. But also need some real world information. Theory is worthless without supporting data.

James Harris
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