BRYAN CAPLAN: The Grave Evil of Unemployment.
Free-market economists rarely declare, “We have to do X about unemployment.” Why not? Free-market economists’ standard reply is just, “We expect X to fail.” Their critics, however, have a less favorable explanation: Free-market economists oppose X because free-market economists are cavalier and callous. They cavalierly deny the reality of involuntary unemployment, and callously belittle the suffering of the unemployed.
I know hundreds of free-market economists. They’re friends of mine. Indeed, I’m a free-market economist myself. It saddens me to say, then, that our critics are often right. While some free-market economists merely doubt the efficacy of policies intended to alleviate unemployment, the average free-market economist doesn’t take the unemployment problem seriously.
Why not? At the level of high theory, free-market economists love market-clearing models. If there’s surplus wheat, the price of wheat will fall to clear the market. If there’s surplus labor, similarly, the wage will fall to eliminate unemployment. What about nominal wage rigidity? Most free-market economists concede that nominal wage rigidity exists to some degree, but think the problem is mild and short-lived: “It’s been three years. The labor market must have fully adjusted by now.”
High theory aside, though, free-market economists have a toolbox of quips they use to belittle the problem of unemployment.
There’s the argument from the safety net: “Why would anyone want to go back to work when he can collect 99 weeks of unemployment insurance?”
There’s the argument from relocation: “There are plenty of jobs in North Dakota. Anyone who refuses to move there is therefore voluntarily unemployed.”
There’s the argument from worker hubris: “If he’s an ‘unemployed carpenter,’ then I’m an ‘unemployed astronaut.’”
There’s the argument from Zero Marginal Product: “If the guy can’t find a job, his labor must be worthless.”
I’d be delighted if my fellow free-market economists’ high theory and belittling quips were entirely correct. But they aren’t. The high theory’s wrong: Nominal wage rigidity is both strong and durable. And the quips are far less insightful than they sound.
Reminds me of the joke about two economists walking down the road. Economist 1: “Look, on the sidewalk, a twenty dollar bill!” Economist 2: “Impossible, someone would have picked it up!”