We think of unemployment as a phenomenon that happens to people, but in economics the labor that people can provide is an capital asset just like a machine or a vehicle. Unemployment means that there is more capital than is needed to create the goods and services being demanded by the market. Therefor some of that capital doesn’t get employed. It is “unemployed.”. We see it in people, but also in shuttered factories, estuaries lined with mothballed container ships… and excess savings sloshing around the global markets looking for a place that needs it just as desperately as the people looking for jobs.
Inflation is the opposite phenomenon, when the demand for goods and services outstrips their supply.
If there is more supply than there is demand, we have two choices. The ugly one is to reduce supply. That is exactly what unemployment is. The other is to increase demand. Keynesian economics tells us that we can use short term government investment in our economic infrastructure and other government spending to increase demand. But there is another option.
The other option is that we can do things like increasing the minimum wage, strengthen unions and other collective bargaining forces, and make other moves that increase demand and reduce supply at the same time. Money doesn’t HAVE to flow through government to become demand.
Once government is fully funding our infrastructure needs (which admittedly, it isn’t) then any more that it spends on infrastructure will end up exasperating future problems by, actually, making the supply process even more efficient, requiring even less resources, etc.
Given this, it is extraordinary that as unemployment gets worse and worse, so many people start to fear inflation… which at this point we should only be so lucky as to have! Inflation would mean that money and labor are both being so much utilized that they can’t keep up with demand. That would be a welcome problem to have right now.
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