Tuesday, 24 January 2012

Employer of last resort on the 1970s - two articles.

The first is by Milton Friedman. It’s stronger on rhetoric than cold impartial analysis, to put it politely. And the second concerns Denmark.

I re-produced these via optical character recognition from hard copy, so expect typos.

“Humphrey-Hawkins” by Milton Friedman, Newsweek, 2nd Aug, 1976.

A centerpiece of the Democratic fall campaign is the "Humphrey¬Hawkins Full Employment and Bal¬anced Growth Act of 1976." Support of that bill has become the litmus test of the true-blue Democratic faith of every candidate from Jimmy Carter to the aspirant for dogcatcher.

The present expanded version of the Humphrey-Hawkins bill em¬braces the earlier Humphrey-Javits bill. It proposes to establish a process of long range economic planning to achieve "a full-employment goal ... consistent with a rate of unemploy¬ment not in excess of 3 per centum of the adult Americans in the, civilian labor force, to be attained within not more than four years after the enactment" of the act, as well as a long list of other goodies.


The best critique of this bill that I have come across was published 200 years ago in that great book, "The Wealth of Nations" by Adam Smith-" the original Adam Smith, not the cur¬rent impostor who has had the effrontery to adopt that, pseudonym.

Wrote Smith: "The statesman, who should attempt to direct private peo¬ple in what manner they ought to employ their capitals, would not only load himself with a most unnecessary attention, but assume an authority which could safely be trusted, not only to no single person, but to no council or senate whatever, and which would nowhere be so danger¬ous as in the hands of a man who had folly and presumption enough to fan¬cy himself fit to exercise it."

Has any contemporary political writer described Hubert Humphrey more concisely?

Not to put too fine a point on it, the Humphrey-Hawkins bill is as close to a fraud as has ever served as a cam¬paign document. It is full of pious promises but contains no measures capable of fulfilling those promises. It would not reduce unemployment but simply add to government employ¬ment and reduce private employ¬ment, in the process making us all poorer and very likely igniting a new inflationary binge.

How can such a bill do otherwise? Easy enough to say that the govern¬- ment will be the employer of last resort. But where does the govern¬ment get the money? Ultimately, from you and me, by hook or by crook. If it spends, we don't. If it employs people, we don't.

Of course, people on welfare could be re-labeled "civil servants assigned to home duty," thereby reducing re¬corded unemployment without addi¬tional spending. But to do more - and Humphrey-Hawkins promises to do far more - requires more government' spending. The extra spending could be financed by higher explicit taxes In that case, taxpayers would have less to spend and would hire fewer people. The extra spending could be financed by higher borrowing. In that case, the lenders, or the borrowers outbid by government, would have less to spend. Government employ¬ment would replace employment in building homes or factories. Finally, the government could print the mon¬ey, which would tax us indirectly via inflation. We would have more pieces of paper to spend but could buy less. For a time, that could mean more government spending without less private spending, but surely by now we have learned that that is a fool's paradise that would not last.

Is anyone so naive as to suppose that the government jobs created will be more productive than the private jobs destroyed?


Why do democrats believe that Humphrey-Hawkins is such potent political soothing syrup? Do they have such a low opinion of the intelli- gence of the American people? I do not think so. It is for a very different reason – one that is for me a source, of so many harmful government policies: the visible vs. the invisible effects of government measures.

People hired by government know who is their benefactor. People who lose their jobs or fail to get them because of the government program do not know that that is the source of their problem. The good effects are visible. The bad effects are invisible. The good effects generate votes. The bad effects generate discontent, which is as likely to be directed at private business as at the government.

The great political challenge is to overcome this bias, which has been taking us down the slippery slope to ever bigger government and to the destruction of a free society.

“Why Hanstholm has no jobless youngsters”. Times article by Christopher Follett, 16th Dec 1980.


Reduced fishing quotas have hit the Danes, the biggest North Sea fishing nation, hard. leaving chronic unemployment, particularly among young people in the age group 18-25, in their wake.

Thanks, however, to a unique local initiative, Hanstholm, Denmark's third largest North Sea fishing port (and number one for its idustrial fisheries), situated on the remote north west coast of Jutland, has almost totally eradicated youth unemployment.

The Conservative dominated local town council of Hans tholm decided simply to forbid youth joblessness in 1979 by refusing - as it can under Danish law - to put young people on unemployment benefits or social welfare and creating employment for them instead. After its first year of operation Hanstholm's iob creation scheme is still enthusi¬astically backed by local union representatives, employers, and last but not least, by the young themselves, who would otherwise earn 90 per cent or more of their wages (in some case even more) in unemployment benefits and/ or social aid if they were on the dole.

With' a population of 6,000, Hanstholm, like most of depressed north Jutland, suffered from above average youth unemployment before the council stepped in. Unemployment in Denmark is among the worst in the European Community at present with 200,000 or nearly 8 per cent idle. Of this figure, young people make up 75,000 or nearly 40 per cent and the Danish government's latest economic forecasts foresee a further dramatic increase in coming years.

Depressingly, youth unemployment has doubled in Denmark in the past year alone. In the Hanstholm project, the jobs created for the young are mainly geared to the important local fisheries industry. Instead of buying in fish boxes and crates from outside, as many other Danish ports tend to do, the youth of Hanstholm now make them themselves.

The first year's production amounted to an impressive 80,000 crates, more than were needed locally. The excess was, profitably sold to visiting foreign fishing vessels, earning useful foreign exchange for the hard pressed fishing community. Other created jobs undertaken by the youth of Hanstholm the manufacture and repair of toys for local schools, gardening, carpentry, painting, recycling projects.

In addition the local town council absorbs many of the otherwise idle youth. Paying wages of 40 kroner (£2,90) an hour, as agreed with the unions. Hanstholm Kommune (council) estimates that the scheme is costing it a maximum 3m kroner (£215,000) a year, putting an extra 2 per cent on the local rates.

According to Mr Niels Graversen, the councillor in charge of the Hanstholm youth project, over 92 percent of the first year's "intake" of around 150 young people found work afterwards.

"The scheme has obvious advantages for all involved, the employers, the unions, the young and the town as a whole", Mr Graversen says.
"Young people who have taken part in our programmes, which vary in duration, gain a sense of fulfilment and achievement and are, in our experience, eventually more attractive prospects to potential employers than unemployed youths who have never had any work experience at all."

The only criticism to be heard from Hanstholm town council is against the Danish Social Democratic government in Copenhagen, which, it feels, does not give sufficient incentive to local authorities to carry out job creation schemes, While a Danish local authority is automatically refunded one half of its outgoings on unemployment benefits by the state, funds spent on job creation schemes are not reimbursed at all, creating an anomaly with which the Danish bureaucracy has not yet caught up.


1 comment:

  1. If the Danes can do it, then anyone can.

    What is lacking is the will, not the means.



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