Demographics

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Empirical Evidence of Employment Stagnation

Last week, I discussed the possibility that we had reached a depressed equilibrium, resulting in long-term or even permanent employment stagnation. I also discussed the possibility that the only routes out were large-scale technology shocks, geopolitical shocks or very large scale fiscal stimulus — events that drastically change broader market expectations.

Frustratingly, there are some superficial signs of recovery. Yet digging beneath the surface it is apparent that we are dealing with a depression in employment demand. These graphs produced by a blogger under the pseudonym Eugen von Böhm-Bawerk from Bureau of Labor Statistics data illustrate this well.

Since the recession, lots of part-time jobs have been created. Yet full-time jobs remain in much shorter supply:

fulltimeparttime

This has meant that the percentage of the population with a full time-job is just where it was after the recession:

percentofpopulationwithfulltimejob

There has been significant growth in low-pay jobs, but decline in high-pay jobs, again illustrating a weakening of labour demand:

highlowpay

The extent to which this is fixable and may fix itself is unclear. In the long run, the sea may be flat and the weather may be sunny. But what this trend has already led to is strong growth for corporate incomes, and a decline in labour incomes. If in the long run this trend does not reverse we will face a bifurcation of society between the capital-owning elites still thriving on rents, automated industry and foreign wage labour, and a squeezed middle deprived of the well-paying jobs and careers that once supported and grew the middle class and increasingly dependent on part-time jobs, temporary work and welfare. Without middle class job and labour growth, demand in the economy as a whole may remain depressed.

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Permanent Employment Stagnation?

Paul Krugman says that we may have reached a “depressed equilibrium” that unemployment may remain elevated for a long, long time to come:

We had what felt like an epic intellectual debate over austerity economics, which ended, insofar as such debates ever end, with a stunning victory for the anti-austerity side — and hardly anything changed in the real world. Meanwhile, the pain caucus has found a new target, inventing dubious reasons for monetary tightening. And mass unemployment goes on.

So how does this end? Here’s a depressing thought: maybe it doesn’t.

True, something could come along — a new technology that induces lots of investment, a war, or maybe just a sufficient accumulation of “use, decay, and obsolescence”, as Keynes put it. But at this point I have real doubts about whether there will be events that force policy action.

First of all, I think many of us used to believe that sustained high unemployment would lead to substantial, perhaps accelerating deflation — and that this would push policymakers into doing something forceful. It’s now clear, however, that the relationship between inflation and unemployment flattens out at low inflation rates.

Last week, I wrote a piece arguing much the same thing:

It is also possible that we have reached what John Maynard Keynes called a “depressed equilibrium” where capital continues to be hoarded and not used to raise employment levels back to the pre-crash norm, and grow the economy out of the slump. With a private sector awash in debt and refusing to take on more to act as a source of growth, the only other agency with the ability to borrow and spend the economy back to growth is the government.

As the rate of technological growth accelerates, the chances of a technology shock that greatly increases investment seems to rise. New technologies coming onto the market in the coming years — lower-cost photovoltaic solar, 3-D printing, synthetic fossil fuels and more exotic things like asteroid mining — have a lot of potential to create a lot of demand. Yet, just as advanced manufacturing technologies have done in the past, they may end up destroying more jobs than they create. This could further accelerate the big post-2008 redistribution trend — falling wage and salary incomes and rising corporate profits as a percentage of GDP:

This general trend toward the obsolescence of labour is worrying. With less and less demand for labour in the economy due to things like robots, computerisation and job migration we could see more and more people sitting around doing nothing and collecting unemployment cheques. Perhaps this is the accidental fulfilment of the leisure society that Keynes envisaged. As humanity has gotten better at fulfilling our material needs, it takes less labour to do so. The unemployed are caught between a rock and a hard place; social and governmental expectations that able-bodied people should work, up against the economic reality that the demand for labour just doesn’t exist.

Without a technology shock or other exogenous shock, there may be another route out of the depressed equilibrium, and mass unemployment. I am not entirely convinced by Krugman’s argument that high unemployment won’t produce systemic price deflation. With core inflation at its lowest point in history in the United States and falling it does appear possible that the deflationary trend is beginning to accelerate even as headline unemployment gradually creeps down. This has after all been the norm in Japan for the last twenty years. With accelerating deflation, it seems much likelier that we will see both monetary and fiscal policy throwing money at lowering unemployment. But in the long run, if the trend toward the obsolescence of labour continues, this may only buy some temporary respite for the unemployed. In the long run, individuals, governments and society may have to adjust attitudes toward work and employment and adapt to a new normal encompassing less work, and more leisure.

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The “Unemployment Is Voluntary” Myth

Loyd S. Pettegrew and Carol A. Vance of the Ludwig von Mises Institute ask and answer a question:

Why does a large portion of the population choose not to work when there are many jobs available? The answer is simple. If you can receive 2-3 times as much money from unemployment, disability, and/or welfare benefits (subsidized housing, food stamps, free cellphones, etc.) as you can from a temporary or part-time job, and live a life of leisure, why work? In 2011, the U.S. government spent over $800 billion on this “welfare,” exceeding expenditures on Social Security or Medicare.

So, is it true? Is the reason why unemployment is elevated that millions of Americans are choosing not to work because of cushy government welfare provisions?

After all, welfare payments as a percentage of GDP and unemployment have risen in tandem:

U6vswelfare

However, in this case it is clear that correlation is not causation. Why?

Well, if labour was truly slacking off then we would expect to see a shortage of labour. But instead we see an elevated level of applicants per job openings:

dr-7-people-in-pool-job-ope

This means that there are not enough job openings in the economy even for the number of current jobseekers, let alone the discouraged workers and disabled individuals who are claiming welfare. If the Federal government were to throw them all off welfare, the number of jobseekers per opening — already elevated — would soar. This means that the issue causing unemployment is not individuals dropping out of the labour force, but an economy that isn’t creating jobs very rapidly. So welfare is not acting as a disincentive to work, in this case. It is acting as supplementary income for those who cannot otherwise find an opening in the economy due to factors like job migration and automation reducing the level of labour desired by employers.

Under other conditions, it is possible that welfare payments could act as a disincentive to work. If there were a low number of applicants per opening, then welfare that paid better than the lowest-paid jobs available could be seen as a disincentive to work. But now, with job openings at a very low level? Don’t be ridiculous.

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Ben Bernanke Is Right About Interconnective Innovation

2013-05-18T152144Z_1_CBRE94H16OD00_RTROPTP_2_USA

I’d just like to double down on Ben Bernanke’s comments on why he is optimistic about the future of human economic progress in the long run:

Pessimists may be paying too little attention to the strength of the underlying economic and social forces that generate innovation in the modern world. Invention was once the province of the isolated scientist or tinkerer. The transmission of new ideas and the adaptation of the best new insights to commercial uses were slow and erratic. But all of that is changing radically. We live on a planet that is becoming richer and more populous, and in which not only the most advanced economies but also large emerging market nations like China and India increasingly see their economic futures as tied to technological innovation. In that context, the number of trained scientists and engineers is increasing rapidly, as are the resources for research being provided by universities, governments, and the private sector. Moreover, because of the Internet and other advances in communications, collaboration and the exchange of ideas take place at high speed and with little regard for geographic distance. For example, research papers are now disseminated and critiqued almost instantaneously rather than after publication in a journal several years after they are written. And, importantly, as trade and globalization increase the size of the potential market for new products, the possible economic rewards for being first with an innovative product or process are growing rapidly. In short, both humanity’s capacity to innovate and the incentives to innovate are greater today than at any other time in history.

My reasons for optimism for the long run are predominantly technological rather than social. I tend to see the potential for a huge organic growth in the long run resulting from falling energy and manufacturing costs from superabundant alternative energy sources like solar, synthetic petroleum, wind, and nuclear, as well as decentralised manufacturing through 3-D printing and ultimately molecular manufacturing.

But Bernanke’s reasons are pretty good too. I see it every day. Using Twitter, the blogosphere and various other online interfaces, I discuss and refine my views in the company a huge selection of people of various backgrounds. And we all have access to masses of data to backup or challenge our ideas. Intellectual discussions and disputes that might have taken years now take days or weeks — look at the collapse of Reinhart & Rogoff. Ideas, hypotheses, inventions and concepts can spread freely. One innovation shared can feed into ten or twenty new innovations. The internet has built a decentralised open-source platform for collaborative innovation and intellectual development like nothing the world has ever seen.

Of course, as the 2008 financial collapse as well as the more general Too Big To Fail problem shows greater interconnectivity isn’t always good news. Sometimes, greater interconnectivity allows for the transmission of the negative as well as the positive; in the case of 2008 the interconnective global financial system transmitted illiquidity in a default cascade.

But in this case, sharing ideas and information seems entirely beneficial both to the systemic state of human knowledge and innovation, and to individuals like myself who wish to hook into the human network.

So this is another great reason to be optimistic about the long run.

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Keep Inflation Unchained

Inflation

President Obama’s latest budget indexes cost-of-living-adjusted benefits like social security against chained-CPI, rather than the regular CPI that has been used case previously.

This is undoubtedly a cost-cutting measure — according to the numbers used, the measure “will reduce deficits by at least $230 billion over the next 10 years”.

But is Obama using the right numbers? Chained CPI is by definition not an apples-to-apples index. It tries to correct for what is called substitution bias, the idea that if prices are rising in apples, the basket of goods used to calculate inflation should be adjusted to include more of a substitute rising less fast. A truer measure of inflation would count the increase in the price of apples based on how many apples people were eating prior to the price increase, not just assume away the increase based on the assumption that people will switch to oranges. I like oranges. But if the price of apples is soaring, inflation figures should reflect this.

So chained CPI is a fudge, and a slippery slope. Taken to its logical conclusion  if the price of steak is soaring, but the price of pink slime (or, to give it its euphemistic name “lean finely-textured beef”) remains cheap then consumers may be assumed to substitute pink slime for steaks. That isn’t measuring the cost of living. That’s just an austerity fantasy.

Trying to appease the Washington Post editorial board is no substitute for sound economic principles. When we measure inflation, we should use the best data available. As far as I can tell, that’s MIT Billion Prices Project which indexes by far the largest range of prices. More data means more accuracy.

According to their methodology, the CPI is very slightly underestimating the level of inflation, not overestimating it:

BPP

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Abenomics & Rooseveltian Resolve

The new Bank of Japan chief Haruhiko Kuroda today unveiled an aggressive new round of monetary easing, the latest step in the policy of recently-elected Japanese Prime Minister Shinzo Abe.

As part of a promise to do “whatever it takes” to return Japan to growth, Kuroda promised a level of quantitative easing unseen before in Japan, intended to discourage saving and encourage spending. Kuroda promised to print 50 trillion yen ($520bn; £350bn) per year.That is the equivalent of almost 10% of Japan’s annual gross domestic product, and over double the level of what the Federal Reserve is currently experimenting with.

Many are hailing this as an attempt to put into practice the advice of Ben Bernanke to Japan in the 1990s — what Bernanke called “Rooseveltian resolve“. In fact, Ben Bernanke has provided a practical as well as a theoretical template through the unconventional policies adopted in the last five years by the Federal Reserve. Although some economic commentators believe that Shinzo Abe was more interested in reviving Japanese mercantilism and drive exports through a cheap currency, it is fairly clear that even if that is Abe’s ultimate intent, Abe is certainly harnessing Bernankean monetary policies (as well as Keynesian fiscal stimulus policies) in that pursuit.

So, will Abe’s policies return Japan to growth, as Bernanke might have intended?

Well, this diagnostic pathway sees deflation as the great central ill. The rising value of a currency acts as a disincentive to economic action and the encouragement of hoarding, because economic participants may tend to offset projects and purchases to get a greater bang for their buck. (This, of course, would be the great problem with Bitcoin becoming the sole currency as its inherent deflationary nature encourages inactivity and not activity, but that is a topic for another day). During deflation, delayed projects and subdued consumer spending are reflected in weak or nonexistent growth. More expected inflation encourages businesses and individuals to consume and start projects rather than save. At least, that’s the theory.

In theory, there’s no difference between theory and practice. In practice, there is. So in practice, what other effects are at play here?

First of all, the Japanese in general (or a substantial and influential proportion of them) seem to really dislike inflation. Why? Well, since the initial housing and stocks bubble burst in the 1990s, they have become a nation of capital accumulators with a low private debt level. This is at least partially a demographic phenomenon. Older people tend to have a much higher net worth than younger people who have had less time to amass capital, and they need places to park it — places like government and corporate debt. This has driven Japanese interest rates to the lowest in the world:

bernanke-exhibit-20130301a1

The other side of the coin here is that this has made it very easy, almost inevitable, for the government to run massive budget deficits and run up huge levels of debt (which has to be rolled). Higher inflation would mean that those elderly creditors (who have up until now voted-in politicians who have kept the deflationary status quo) will very likely experience a negative real interest rate. Many may find this a painful experience, having grown used to deflation (which ensures a positive real interest rate even at a very low nominal interest rate, as has been the case in Japan since the 1990s):

JapanRealInterestRate

Every time Japan’s real interest rate has touched zero, it has shot back up. Japan has an aversion to negative real interest rates, it seems. And this is in stark contrast to countries like the UK and USA which have experienced much lower real interest rates since the 2008 crisis. A negative real interest rate in Japan would be a shock to the system, and a huge change for Japan’s capital-rich elderly who have happily ridden out the deflationary years in Japanese government bonds. (Of course, if reversing deflation revived real GDP growth then they would have more places to park their capital — like lending to or purchasing equity in growing business — but the question is whether or not the Japanese people at large have an appetite for such a shift).

Another challenge to growth is the existence of Japan’s zombie corporations and banks — inefficient, uncompetitive entities kept alive by government subsidies. Although some zombie banks left on life-support from the 1990s were terminated during the Koizumi years, it is fairly clear from total factor productivity figures of both Japanese manufacturing productivity and non-manufacturing productivity are still very uncompetitive. How can a burst of spending as a result of inflation turn that around? Without removing the subsidies — something that Abe, as a leader of the establishment Liberal Democratic Party, the party that has ruled Japan for the overwhelming majority of the postwar years, and is deeply interwoven with the crony industries is very unlikely to do — it may prove very difficult to return Japan to growth. And of course, these industries own the bulk of Japanese debt, so attempts to reduce the real interest rate is likely to prove deeply unpopular with them, too. (On the other hand, Japanese banks will profit from these open-market operations through flipping bonds at a profit, so the new policies may have their supporters as well as opposers among Japan’s zombie financiers).

This doesn’t necessarily mean that the Bank of Japan’s new programs are doomed to fail, or that they are likely to trigger severely adverse outcomes, but if serious attempts are not made to tackle the systemic challenges and entrenched interests, then it is hard to see how much can come out of this other than a transitory inflationary and devaluationary blip followed by a retreat to more of what Japan has become used to, and what much of Japanese society seems to like — low growth, a strong yen, and low inflation or deflation. And if Abe’s gameplan is really to grow by boosting the exports of the crony industries, then hope of desubsidisation of the crony industries seems almost entirely lost.

Certainly, more fiscal stimulus will eat up slack capital resources. And certainly, this is an interesting experiment on the fringes of Monetarism and monetary policy in general. If Japan goes through with this experiment, hits its inflation target and triggers sustained nominal GDP growth this will be a decent empirical test of whether or not such policies can lead to sustained real GDP growth. But there is no guarantee that Japan has the Rooseveltian resolve to follow through with these policies, and even if it does there is no guarantee that they will lead to a significantly higher trend in real GDP growth. The underlying system is deeply entrenched.

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Why Europe Is Still In Peril, In Two Charts

A lot of analysts, including myself, have given the European situation a rest since last year. There were certainly some signs that the ECB and IMF had slowed (if not stopped) the deterioration by providing liquidity backstops to the addled banking system. But perhaps that was just the calm before the storm.

In truth, things were still was probably just as perilous as ever up until yesterday when the ECB and IMF decided to start a banking panic by enforcing a haircut of up to 10% on bank depositors. That was literally the stupidest thing that anyone has done since the Euro crisis began, and while it may not lead to utter disaster, there is a significant chance that it will. Not only is it excruciatingly unjust (it’s theft!), it is also incredibly suicidal. Many, many Spaniards, Italians, Greeks and Portuguese will have looked at the Cyprus haircut in horror, and wondered “Am I next?” Some of those will withdraw their money from the bank and stuff it in a mattress or into tangible assets, furthering stressing the already-fragile and highly-leveraged European banking system. Even a 1% drop in European deposits would lead to over €100 billion of withdrawals.

The background to this is soaring European unemployment:

EuroUnemployment

The people running the European financial system and engineering the bailouts and austerity (ECB, EU, IMF, Germany) have ploughed on through with more and deeper austerity even as European countries (other, of course, than Germany) have run up to higher and higher unemployment levels. Spain and Greece are above 25%. Italy is above 10%, and Portugal above 15%. Hiking taxes and cutting spending is leading to more and more people in unemployment oblivion. That isn’t healthy. Let’s not forget what happened to Germany the last time when over 25% of its people found themselves unemployed:

Chart-German-Unemployment-and-Nazi-Links

If bank runs materialise across Europe next week, the unemployment situation is most likely to worsen even further. If that happens, expect more and more unemployed, underemployed and angry Europeans to start voting for increasingly radical political parties. This is suicidal. Europe needs to not only reverse the awful, stupid Cypriot haircut, but also to put fiscal consolidation on hold (it has, lest we forget, so far been counterproductive) and start worrying about unemployment levels.

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Do Wages Benefit From A Shrinking Labour Force?

Dean Baker says yes:

The retirement of the baby boom cohorts means that the country’s labor force is likely to be growing far more slowly in the decades ahead than it did in prior decades. The United States is not alone in facing this situation. The rate of growth of the workforce has slowed or even turned negative in almost every wealthy country. Japan leads the way, with a workforce that has been shrinking in size for more than a decade.

Baker concludes:

With a stagnant or declining labor force, workers will have their choice of jobs. It is unlikely that they will want to work as custodians or dishwashers for $7.25 an hour. They will either take jobs that offer higher pay or these jobs will have to substantially increase their pay in order to compete.

This means that the people who hire low-paid workers to clean their houses, serve their meals, or tend their lawns and gardens will likely have to pay higher wages. That prospect may sound like a disaster scenario for this small group of affluent people, but it sounds like great news for the tens of millions of people who hold these sorts of jobs. It should mean rapidly rising living standards for those who have been left behind over the last three decades.

Of course, Baker could just look at the data from Japan. Real wages there have been depressed in recent years, even while the labour force has shrunk:

Japanwages

Even more damningly, labour’s share of income in Japan has declined even more considerably than the United States, and other nations with a growing working-age population:

ShareofLabourincome

Matthew C. Klein asks an important question:

Perhaps Mr Baker was thinking of an older example: the Black Death, which killed about half the people in Europe. Many (including me until I looked it up) believe that the resulting shortage in agricultural labour led to soaring real wages for peasants and a redistribution of economic power away from landowners. Recent evidence, however, casts doubt on this hypothesis. While nominal peasant wages did indeed increase in the aftermath of the Black Death, real wages may have actually fallen for decades. That may have helped heavily indebted peasants, but everyone else had to endure punishing declines in their standard of living, not to mention the psychological trauma of surviving such a devastating plague.

And the evidence on the Black Death seems conclusive:

In southern England, real wages of building craftsmen (rural and urban), having plummeted with the natural disaster of the Great Famine (1315-21), thereafter rose to a new peak in 1336-40. But then their real wages fell during the 1340s, and continued their decline after the onslaught of the Black Death, indeed into the 1360s. Not until the later 1370s – almost thirty years after the Black Death – did real wages finally recover and then rapidly surpass the peak achieved in the late 1330s.

And if we look at China — a country which has seen stunning real wage growth in recent years — it is clear that that growth has come in the context of a growth in the working-age population. China’s working-age population hit one billion for the first time in 2011.

To me at least, this seems to suggest that while all else being equal, a shrinking working age population might lead to a more competitive labour market, all else is not equal. Employers invest in more capital-intensive processes like automation and robots to compensate for a lack of workers, or in our globalised world they shift operations to somewhere with a stronger labour force (like China today, or perhaps like Africa further into the future). Even more simply, a falling population as a result of a natural disaster like the Black Death, or even just as a result of demographic trends like Japan, may lead to an economic depression due to falling demand.

This suggests that Baker’s conclusions are extremely optimistic for labour, and that shrinking populations may be bad news for wages.

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The Trouble With the Minimum Wage…

Opponents of the minimum wage tend to focus their attacks on the idea that it causes unemployment by forcing employers to discriminate against employees whose working abilities justify a wage less than the legal minimum:

Whether or not increases in the minimum wage (or minimum wage laws more generally) actually increase unemployment is a hotly-debated subject. Krueger and Card (1992) found that to not be the case; more recent meta-analyses of the academic literature such as Neumark and Wascher (2006) have found it to be true, but only to a small extent.

I want to come at this from a different angle. My intuition is that the minimum wage — even if it does not lead to decreased employment — is not an effective means to a fair wage level. This is because it is a price control set by the government, and as Hayek and Kirzner noted, the government has no scientific way to determine what an appropriate price level is for a good or service. Only a negotiation process between the employer and employees can organically determine such a thing. Moreover, as government is often bought out by large corporate interests, it is often in no position to fight for a fair share for workers. The notion that government dominated by corporate interests should set the minimum wage puts the fox in charge of the henhouse.

The empirical evidence seems to tally with my intuitions. Defenders of the minimum wage must confront the basic failure of minimum wage laws to secure the working class a fair share of the pie. Since the Federal minimum wage laws were introduced in the 1930s, wages and salaries as a percentage of GDP have gone on a general downward trend:

WASCUR:GDP

And the minimum wage has stagnated, even as productivity has risen:

min-wage1-fig2-2012-03

If the minimum wage is not meeting its aims, why do we continue to persist with it? There are other possible approaches.

Repealing minimum wage laws may be a better bet. Let the market negotiation process deal with wage levels. Accept that government has no scientific means to determine an appropriate wage level throughout the economy. Then treat any overhanging issues of poverty and living costs entirely separately, perhaps with a basic income guarantee as proposed by Milton Friedman and embraced by economists from across the political spectrum from Friedrich Hayek on the libertarian right to Lord Skidelsky on the Keynesian left. Such a scheme combined with a repeal of minimum wage laws would free labour markets from unnecessary price fixing, while still addressing the issues of poverty and unequal access to capital by providing citizens with a basic income to spend or invest.

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Does Shelf Stacking Beat Geology?

The British Work and Pensions Secretary Iain Duncan-Smith reacted angrily to the victorious legal challenge made by an unemployed geography graduate who was forced to do unpaid work stacking shelves at Poundland, a British discount chain.

iain-duncan-smith-image-1-760284306

The BBC reports:

Miss Reilly, a University of Birmingham geology graduate, and 40-year-old unemployed HGV driver Jamie Wilson, from Nottingham, both succeeded in their claims that the unpaid schemes were legally flawed.

This was because the regulations behind the schemes did not comply with the Act of Parliament that gave the DWP the power to introduce the programme.

Miss Reilly said that in November 2011 she had to leave her voluntary work at a local museum and work unpaid at the Poundland store in Kings Heath, Birmingham, under a scheme known as the “sector-based work academy”.

“Those two weeks were a complete waste of my time, as the experience did not help me get a job,” she said, after the court ruling on 12 February.

“I was not given any training and I was left with no time to do my voluntary work or search for other jobs.

“The only beneficiary was Poundland, a multi-million pound company. Later I found out that I should never have been told the placement was compulsory.

“I don’t think I am above working in shops like Poundland. I now work part-time in a supermarket. It is just that I expect to get paid for working.”

Now, I don’t think that people should be paid for doing nothing, and I want to see a reduction in the welfare bill through employment growth as much as anyone else. But the idea that people with skills and qualifications should be forced into subsidised menial labour is absurd, and an absolute misallocation of capital and labour.

It is important to emphasise that this was not a paid job, because that has important economic implications. If this were a paid job, offered by the market, then there would be no reason for the unemployed person to refuse it. In a market economy, there will always be a degree of economic mismatch, and people who are trained in one thing may well have to take a job in another temporarily or even permanently. That is undisputed. But that is not the issue at stake here.

If the company in question cannot or will not pay a wage for a worker’s labour, then the position is unsustainable and untenable. Effectively, the government is engaging in subsidisation — providing labour free of cost to corporations to support otherwise unsustainable activities. So in this case the government is choosing to subsidise shelf-stacking over geology.

Iain Duncan-Smith’s words actually make this very clear:

Shelf-stacking is more important than geology.

This is an outstandingly unwise decision, made by a government that has spent the last three years making profoundly unwise decisions that has led to a severe stagnation in growth worse than the Great Depression.

The state should not prioritise one sector over another. The state should certainly not subsidise work in one industry, when an unemployed person has skills and qualifications to work in another industry where there are vacancies. It is a waste of taxpayer’s money to place unemployed people in an irrelevant sector. In fact, the energy and mining industries are a key growth sector today in Britain and around the world, so the notion that someone trained in geology should be subsidised into stacking shelves is eye-poppingly absurd, and reminiscent of the kinds of grotesque capital misallocations in the Soviet Union and North Korea where skilled workers and intellectuals were (and are) often forced to work in demeaning jobs.

The real point of these programs appears to be to provide corporations with a source of free labour, and to engage in demeaning moral paternalism. As Iain Duncan-Smith himself puts it:

I’m sorry, but there is a group of people out there who think they’re too good for this kind of stuff.

Duncan-Smith seems keener to teach young unemployed people a moralising, paternalistic lesson than he is to pursue sound economic policies. In fact that is very much the trajectory of this entire government and its self-defeating “age of austerity” project.