A Quick Ramble Around the Topics of Unemployment, Welfare, Surf Carnivals and Liberty

Back in my married days, we had a next door neighbour who really was a Trotskyite – well an SWP member, which is pretty much the same thing. We once had a discussion over the front fence about work – she believed that society had an obligation to provide a job for everyone – and if it couldn’t be provided by the private sector, it ought to be provided by the government.

After we extricated ourselves from the discussion, the ex and I wandered down the hall to the lounge, talking the subject over between ourselves. We concluded that she’d got it all wrong – that what society (if it exists, of course – naively I tend to assume it does, because I see so much of it around me and a lot of people who profess to speak on its behalf are extremely fond of telling me that I have certain obligations to it) owed its citizens or subjects at all, was at least some basic income that met their subsistence needs so that they could get on with life.

Our attitudes, obviously (so much so that you can see the arterial spray), were influenced by our personal histories and circumstances. I was doing alright as a contracted programmer – to the point where I wouldn’t bother to register for the dole between gigs, because they had this dumb rule that you had to be looking for permanent full-time employment to qualify. I’d played that game of soldiers, gone over the hill and be damned if I was going back. Things were much the same with the ex. Neither of us wanted to live in some socialist paradise where we would find ourselves, perforce, constrained to be wage slaves of either private enterprise or the state. The whole idea had a slightly Stalinist ring to it.

Over at Club Troppo, Don Arthur finds it odd that Mark Bahnisch supports Jason Soon’s call, at Catallaxy, for a less paternalistic welfare system. I find it a bit odd to be on Jason’s “side” in this discussion – so far at least – but blogging does make strange bedfellows.

Here’s another odd thing – it seems that the conservatives or whatever they are who support so-called Mutual Obligation for dole recipients – sorry, dole bludgers – and other welfare cases have one thing in common with my long-lost SWP neighbour; they’re fixated on the idea that the only way to be a productive, useful member of society is to have a job. And that conspicuous failure to look for one is, in some way, a breach of the social contract (although if society doesn’t exist, there’s no such thing as a social contract either). The difference, if any, between my neighbour’s position and theirs is that she saw the breach as being on society’s side of the contract; Mutual Obligation buffs place it on the individual’s side.

At Club Troppo, after chiding Jason Soon and Don Arthur for misreading his position, Saunders invokes (or re-invokes) the norm of reciprocity to justify Mutual Obligation, pointing to

… the central importance in all human societies of the principle that if you are given something, you are expected to give something in return. One example of this is pocket money for tasks. Another is exchange of presents at Christmas time. A third is mutual obligation in welfare …

Now that’s as fine an “it weren’t me guv, nah never” as I’ve seen in some time. Saunders argument continues (taking it up to Mark Bahnisch):

But mutual obligation is no more an application of a family norm than it is of a Christmas norm. So let us please knock this family metaphor discussion on the head.

It is only by appreciating the importance of the norm of reciprocity in all human societies that we can see why Mark is so wrong when he writes: “If people choose to write novels or surf all day on a guaranteed minimum income, I for one, don’t care. I strongly suspect most wouldn’t.” But I assure you, most would, because it offends our fundamental sense of fairness, grounded in the norm of reciprocity. Libertarians of all people should be alert to this, given their (justifiable) concerns about governments abusing their monopoly coercive powers. How could libertarians possibly therefore be happy with a proposal that the power of the state should be used to forcibly extract money from those who have established an entitlement to it (in Nozick’s sense) in order to hand it to people who not only have no entitlement to it, but have no pressing need for it either (in that they could be working to support themselves rather than surfing)?

[my emphasis]

Whether or not the chagrin, anger or sometimes outright fury at the idea that some of us are having a good time organising surf carnivals at the Moonee Ponds Creek, while others have to earn a living by the sweat of their brow comes from a sense of fairness grounded in the norm of reciprocity, it does have a name. Chaucer nailed it in the last tale of his Canterbury Tales, the Parson’s Tale (no apologies to economists and social theories for dragging in a literary reference – I’m writing this piece and I’ll do it any way I damn well like):

After Pride wol I speken of the foule synne of Envye, which that is, as by the word of the philosophre, ‘sorwe of oother mans prosperitee’: and after the word of Seint Augustyn, it is ‘sorwe of oother mennes wele, and joye of othere mennes harm. This foule synne is platly agayns the Hooly Ghost.

(Incidentally if you want to run a surfing carnival at your own local creek, you’ll need some two-pack epoxy resin glue, Paddle Pop sticks, plastic figurines – check out your local op-shop for toy soldiers and the like – and lead sinkers. Glue a plastic figurine to each Paddle Pop stick, then a sinker underneath it, to keep it upright when it goes in the water. Voila! You now have a collection of toy surfers.)

Mutual Obligation is the political expression of this unemployment-envy; its justification is to appease a substantial section who have, quite deliberately, been incited to near apoplectic resentment of the “idle unworthy poor”. Of whom there will always be too many, largely by definition. Its effect on the unemployed, and welfare recipients in general, is to deprive them of freedom, both as freedom from coercion or domination (under the Mutual Obligation dogma, Centrelink “customers” live largely at the behest of Centrelink) and freedom of opportunity (the continuing fixation on the job-search as the way out of unemployment constrains Newstart Recipients from exercising personal initiative, beyond a limited range of Centrelink approved forms). But what is going on when we impose “Mutual” Obligation on the unemployed, to satisfy the will to punish of the taxpayers who are being robbed of the wealth to which they have established a Nozickian entitlement? Perhaps John Stuart Mill points the way to an answer:

… such phrases as “self-government” and “the power of the people over themselves” do not express the true state of the case. The “people” who exercise the power are not always the same people with those over whom it is exercised; and the “self-government” spoken of is not the government of each by himself, but each by all the rest. The will of the people, moreover, practically means the will of the most numerous or most active part of the people; the majority or those who succeed in making themselves the majority; the people, consequently may desire to oppress a part of their number; and precautions are as much needed against this as against any other abuse of power.

(J.S. Mill On Liberty)

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49 responses to “A Quick Ramble Around the Topics of Unemployment, Welfare, Surf Carnivals and Liberty”

  1. Mick Strummer

    Here’s another odd thing – it seems that the conservatives or whatever they are who support so-called Mutual Obligation for dole recipients – sorry, dole bludgers – and other welfare cases have one thing in common with my long-lost SWP neighbour; they’re fixated on the idea that the only way to be a productive, useful member of society is to have a job.

    I got a job. Several jobs, in fact. I write – not only for blogs like this and loadedog
    but for a start up magazine here in the place where I live, I play music, I am a parent to a 16 year old boy, but for none of these activities do I get a wage. The music and the magazine writing are on the verge of producing a wage, but it has taken a long time to develop them to the point where they will be income producing. In the meantime, I have cheerfully and happily been a “dole bludger (hey, I paid lots of income tax over the 12 years I was a Uni lecturer) in the hope that one of these things will pay off. Meantime, I think that society and our culture is better off for me doing what I am doing than not…

  2. Mark

    Very nice post, Gummo.

    As to “unemployment envy”, speaking as someone who’s currently working up to 13 hour days, I know what that means – I’d love to just get the chance to relax more and even do stuff like watch tv for a bit!

  3. weathergirl

    Very nice post, Gummo. I always love your rants. And ditto re unemployment envy.

  4. tigtog

    The other side of a guaranteed minimum income is the Roman “bread and circuses” bargain: the major reason for giving the poorer residents of Rome enough free grain that they would never starve was to prevent large-scale rioting that would disrupt the orderly pursuit of commerce. There have been many examples through history of underclasses rebelling when their government refuses to provide them with the basics without stripping them of basic dignity.

    If we pay our underclass enough that they will not starve if they choose to be idle, then at least they are less likely to take to crime or engage in mass disruption, both of which activities impinge on the secure enjoyment and accumulation of property. Surely that’s worth something?

    What about weighing up the comparative costs to the wealthy of added security and gated estates compared to coughing up a bit extra in tax to ensure the idle underclass remains idle in front of the TV rather than running vindictive in front of the McMansions?

  5. tigtog

    I should quickly emphasise that the bread and circuses bargain was never the result of threats from the underclass about rioting. The original provision of free grain was merely recognition that it is inevitable that when resentment and despair reach a certain critical point then rioting, rebellion and disruption will always follow.

    Various “mutual obligation” types in the Roman Senate over the decades and centuries following felt that the free grain should be withdrawn in the interest of moral probity and encouraging the work ethic, and several times the ration was cut, always with disastrous effect on commercial districts.

    A GMI protects the commercial basis of our society.

  6. glen

    wow, I wish I had time to unleash the dogs of polemic against this utter nonsense:

    How could libertarians possibly therefore be happy with a proposal that the power of the state should be used to forcibly extract money from those who have established an entitlement to it (in Nozick’s sense) in order to hand it to people who not only have no entitlement to it, but have no pressing need for it either (in that they could be working to support themselves rather than surfing)?

    ‘Nozickian entitlement’ is an example of what Bourdieu called ‘symbolic violence’. There is never final agreement, rather ‘agreement’ is a politico-rhetorical strategy to attentuate disagreement and homogenise multiplicity. Bourgeois ‘libertarian’ philosophers really should be treated with extreme cautian (at a minimum).

    Perhaps it is necesaary to understand the current historical juncture where most western societies are dominated by post-industrial concerns. The so-called ‘service industry’ is a historical bandaid that cannot last. One way to tackle the problem is following post-marxists that have concerned themselves with the distribution of value in society. In post-industrial economies the act of consumption actually has productive value. This ranges from part of the spectacle of organised sporting events and the like being produced by the crowd of fans and so on through to the sense that unless there is a market of consumers then producers will have no one to sell to and the act of exchange is a valorisation of production. That is, the basic existence of people is a resource in itself that should be rewarded.

    Shareholders and CEOS through to small business people and labourers need to realise that in post-indsutrial economies their wealth is produced on the back of other’s enjoyment and consumption. It is actually in their interests to make sure that people have a basic level of income to insure they can keep on consuming.

  7. Mark

    Glen makes a good point. Even at the most simple level, 60% of GDP is actually dependent on the household sector and therefore consumption. That’s even before we start analysing knowledge economies, networked organisation, etc.

  8. Gummo Trotsky

    That was a rant, WG? Oops – obviously have some work to do to brush up my sardonic tone some.

    While we’re confessing sins, Mark, I’ll have to admit to having had the odd bout of unemployment-envy myself, back in the days when I had a socially acceptable job. These days I’m more prone to idle rich envy.

  9. weathergirl

    No, no, twasn’t! Just my shorthand way of appreciation…

  10. Mark

    Yeah, actually, idle rich would be nice, Gummo!

  11. phil

    I got into some minor bother over at Catallaxy some ago because I was arguing that the comsumption economy has some value. Every time I ring up a tradie to do something I can’t (which is all the time), it still seems like comparative advantage (actually, it’s absolute advantage I guess). Without the benefit of Glen’s knowledge of Nozick and Bourdieu, it seems to me that at some basic level, providing everyone with some minimum income keeps the wheels ticking over. As a bush economist (well, even that’s a stretch), it therefore seems to me that if the gap between the top and bottom continues to widen, there will eventually be some inevitable consequences. We need some other forms of endeavour apart from workin’ for the man to get appropriate recognition.

  12. observa

    ‘Working for the man’ as yoall put it is a lazy copout. We all work for the consumer. It’s just that some prefer to leave a great deal of that direct responsibility to others. Anyone is free to cut out the ‘middle man’ and deal direct with the customer. Let’s face it, the vast majority are either too lazy to do that, or simply prefer the tradeoffs involved in that choice.
    I agree with Gerard Jackson’s critique of mutual obligation under the circumstances.

  13. wbb

    This Nozick guy has a lot to answer for. The asumption that human beings born into their own habitat have to pay rent to those already there is obscene. Everybody needs to engage in the current exchange system for a plasma screen, but a guaranteed ration of potatoes and beer is literally everybody’s birthright.

    Nobody should be forced to do a stick of work (unless they want a plasma screen).

    Nozick’s delusional fear that the “State” is “forcibly” taking people’s property thru taxation is bizarre. It is the philosophy of someone whose feet never trod any surface other than bitumen and concrete, and whose sum experience of nature was the contents of an iron-grilled city zoo or the ghostly emanations of a plasma screen. Or in these days when such deprivation is the lived experience of most of us, it is the philosphy of someone whose imagination in so impoverished that they mistake our current predicament for the fabled Garden.

    We live on a big chunk of rock. Just like fur seals. We have an essential inalienable right to the sustenance that is derived from that rock. The bastards with big arses who take up more room on the rock than’s fair have zero right to come on with this bullshit line that we have to bow, scrape and clean out their litter tray before we get to sniff the fresh air.

    Taxation is merely the most limited form of proper sharing that only the most bestial inhabitants of the jungle would fail to recognise as a fair thing.

    I notice that this Nozick bloke only died a couple of years ago. Small wonder I didn’t notice an Irwinesque outpouring of grief at his moving on to the other side.

    (Or maybe his legacy has been intellctually raped by the current crop of libertarians and I owe him an apology.)

  14. Lefty E

    Allow me to salute that marvellous comment, Wbb.

    *tips hat*

  15. Gummo Trotsky

    ‘Working for the man’ as yoall put it is a lazy copout. We all work for the consumer… Anyone is free to cut out the ‘middle man’ and deal direct with the customer.

    How true. Why only yesterday afternoon I went to answer the doorbell and there was a bloke standing there, heavy set, one of your sons of toil types. I pegged him for a miner.

    “What is it?” I asked.

    “Bauxite mate.”


    “Yeah mate, got three cubics o’ bauxite in me truck outside. Yours for fifty bucks.”

    “What do I want with three cubics of bauxite?”

    “Well, I can put you onto a bloke who can sell you an electrolytic cell – walked out of the back of an aluminium smelter. There’s a bit of assembly needed – it didn’t exactly walk out all at the same time in one piece if you get my drift. Youse can set yourself up to make your own aluminium, mate.”

    “Fifty’s a bit steep. Make it twenty-five?”

    “Sorry mate, not worth me while to sell it for less than forty.”

    “Well you could try next door I suppose.”

    “Yeah, ta mate. ‘Bye”


    Pity I didn’t have more cash on me – I could have got myself into the home-made aluminium business.

  16. Paulus

    a politico-rhetorical strategy to attentuate disagreement and homogenise multiplicity

    That would be a great name for a band! (Or a racehorse.)

    I agree with the remarkable left/right near-consensus: that a GMI makes sense.

    But Saunders finds something immoral in the GMI. I read an article a while back — unfortunately I can’t remember details — which argued that all people had an inherent right to a GMI because of the nature of states.

    The government in every country has ultimate control over all land and natural resources. When the government assigns real property rights to individuals and corporations, in exchange for fees and taxes, it is in a sense expropriating the collective rights of every other citizen to that land.

    That isn’t an argument for communism, because private property rights are an invaluable tool for economic growth, but it does entitle every citizen to a direct share in the government’s revenue from land and natural resources. Without needing to feel guilty about it.

  17. Paulus

    I’ve just read the Catallaxy threads on this. Jason makes the same point (but more elegantly).

    Fundamentally we can think of our society as having moved from one where all humans had a stake in natural resources which no one created as their stake in the ‘commons’ to a divvying up and marketisation of these commons. Of course the reason we have done so is because there were substantial gains from doing so, so much that we have been able to expand the size of the ‘pie’ and that’s great. Indeed the gains are so great that a not insignificant proportion of our wealth doesn’t come from natural resources at all.

    But to achieve this ‘great society’ of trade and production, the way of living through the commons is no longer sustainable. Arguably an unconditional basic income from the State is the compensation given to each of us for having given up our share of the ‘commons’ … and as a result giving up our option of living in the commons.


  18. Paulus

    P.S. Great post, Gummo!

  19. Christo

    Interesting post and comments (esp. wbb).

    I always thought that the point of Marxism was that we should take advantage of the industrial revolution such that we don’t have to work more for the finer things as machines can do that for us, but unfortunately the machines don’t work for us but to make a profit in a symbolic game for a small minorty.
    (I hope that makes sense)

  20. Don Wigan

    I’ve had some concerns about this topic, and was hoping Gummo would post. As usual, He gets to one of the chief issues – unemployment envy.

    People working long hours in jobs or for employers they hate have considerable envy of others doing whatever they want and actually getting an allowance for it. Not enough to make much money (unless they are dishonest and very good at fraud) but enough to survive minus the materialist requirements of home, car etc. The paid workers think they’re getting away with something.

    This is a pretty easy issue to exploit poltically whether you’re in tabloid media or a politician seeking a populist bandwagon. It’s even easier than Boat People or coloured immigration. If nothing else, the Howard Government has always been closely attuned to McMansions Country concerns. Likely to get any sympathy for a GMI from this lot? Not on your nelly. Make ’em jump through a few more hoops on Mutual Obligation sounds more like it. And if possible, make the dole a lot less attractive than low-paid wages.

    I’d suggest things have gone a stage further – to Downward Envy. There’s a big fear out there that low-income people and especially those on benefits are getting away with something and ought to be paying their share. Hence, Youth Allowance is used for anyone under 23 whose parents ought to be helping out more. It was originally brought in to attack the dole bludger living in the parental home who (with lower living costs) could get by without ever bothering to get up. The theory was, if the allowance was reduced and the parents had to pay some of his support, he/she would soon be on the road looking for a job. And if not, then at least part of the cost was shifted back where it belonged to the ungrateful dolee and his family.

    So successful, apparently, has this concept been that it has been exended to students. When Centrelink discovered that our (parental) gross income/spending was $45,000 pa (not exactly easy street I’d have thought) they wanted to drag our daughters’ Youth Allowances back from $212 pf to $57 pf. This is despite the fact that they’re attending unversities 300 km from the family home. They’re still classed as my/my wife’s dependents. I was able to head that one off after I’d pointed out I’d borrowed $15,000 just to stay afloat. But it has left me uneasy about what they’ll try at the end of this year when we’ve earned a little more.

    We’re already propping them up quite a bit as it is. How can they renege on the proper allowance and expect us to make it up?

    Centrelink is doggedly carrying out the Government’s directives. As with Immigration a culture is developing to encourage the most hard-nosed approach.

    The GMI idea sounds better but I don’t know how to bring it into place.

  21. FDB

    WBB – you nailed that one.

    Another aspect:

    I feel like some of the impetus for Mutual Obligation and its various philosophical bases is religious in origin. That we are here partly to ‘impress’ the Big Boss in the Sky with our virtuous toil. Hopefully get ourselves a ‘raise’.

    Of course, mostly it probably comes from our origins in the ‘real world’, pre-society, where anyone not helping find nuts and berries – absent a reasonable excuse – was genuinely endangering others welfare. But isn’t the removal of such crass constraints on welfare (by organising and specialising and helping each other to excel) the point of having a society?

    Seems to me there are so many incentives to work that we really needn’t concern ourselves too much with disincentives not to.

    Fantastic post, GT. Good to see you back on board.

  22. Chris

    but it does entitle every citizen to a direct share in the government’s revenue from land and natural resources. Without needing to feel guilty about it.

    But thats not how a GMI would actually do would it? The money would only be given to those who aren’t supplied with money from other sources (which may have very little to do with govt revenue from land and natural resources).

    If people choose to write novels or surf all day on a guaranteed minimum income, I for one, don’t care. I strongly suspect most wouldn’t.

    I’d put myself in the camp of those who probably would care. I think its important to support those who need help (eg sick, can’t find a job, have to look after others). I also think its valuable to society to pay people to do things which may have difficulty getting funding from non government sources (eg. writing certain types of books, many of the arts). However, helping those who choose not to support themselves is much lower down on the list of my priorities.

    That being said, I’m pragmatic enough that I’d support a GMI type system if it was shown it was cheaper than having a system that trys to chase down the very small minority who chose not to support themselves.

  23. Mike B

    You’re right, Christo, that more marxists would see it like that than like Gummo’s straw trots-over-the-back-fence. Marx himself, certainly.

    I completely sympathise with Gummo et al that freedom from work is a worthier goal than freedom to work. But there’s more in the way of a ‘guaranteed minimum income’ than resentment of the idle.

    Capitalism showed pretty clearly in the 1970s that it couldn’t live with full employment. If jobs are too easy to come by, wages rise too fast and slacking off is all too easy. Also a pool of unemployed greases the wheels of structural change – firms don’t have to compete with each other so intensely for new hires.

    But the unfortunates in that pool have to feel pressure to look for work, or the function is lost. They can’t get too comfortable. The literature on the ‘natural rate of unemployment’ shows that economists understand this, even if they wouldn’t put it so bluntly. All the ‘mutual reciprocity’ stuff about dole-bludgers, welfare mums, etc., is just a populist cloak for sound economic management.

    So it doesn’t surprise me that libertarians like Soon are getting on the guaranteed minimum income (or negative tax credits) bandwagon. Few people have a more idealist view of how capitalism works than libertarians. But there is no way really-existing capitalism could handle such a fantasy.

  24. Jason Soon

    Nozick is not my favourite writer though his actual vision of libertarianism in the final chapters of Anarchy, State and Utopia is a very appealing one. His actual analysis is flawed but if it is flawed it is only because all he was doing was paraphrasing and elaborating on Locke (this whole ‘mixing something with your labour makes it your property’ shtick, so take it up with Locke.

    One of the flaws in his analysis is indeed that he fails to take account of the ‘uncreated’ bit of our world which arose unmixed with any labour and started out as the common property of all. He just started his analysis at the part where people went about mixing their labour with the land and that was that. Hence having thought about this, I arrived at my conclusion that *if* you want to think about things in a Lockean way, to be consistent you would arrive at a libertarian right to some level of unconditional welfare which represents this ‘cashing out’ of the commons.

    But as I also said in my Catallaxy post, I’m not particularly enamoured of this way of thinking in the first place and would rather focus on the effective consequences of implementing one system compared to another and how this might better facilitate the dovetailing of individual plans.

  25. Jason Soon

    “Capitalism showed pretty clearly in the 1970s that it couldn’t live with full employment. If jobs are too easy to come by, wages rise too fast and slacking off is all too easy”

    What are you rabbitting on about, MarkB? This idea of a natural rate of unemployment is just Keynesian rubbish. Blame the Keynesians then for propagating the idea that capitalism needs to ‘punish workers’ to sustain itself.

    ‘Inflation is always and everywhere a monetary pheonomenon’. Who said this? Milton Friedman. Friedman was the one who exonerated the unions from inflation. Friedman was behind the NIT (a variant of the GMI) and nearly got it implemented under Nixon.

    Where do you get your idea that capitalism depends on businesses getting the upper hand? What complete and utter rubbish.

  26. Gummo Trotsky


    No way am I talking about “freedom from work” – I’m talking about the freedom to find work in your own way. That requires a considerable loosening of the hold Centrelink has over the jobless.

    As I’ve suggested at Troppo, and the reason I raised the “job-fixation” of the traditional approaches of both left and right as an issue in this post, is that it prevents the “jobless” from finding their own way out of the trap. In many ways it works to keep them there. Surfing while you’re on the dole is unlikely, perhaps, to get you far, unless you hone your skills to the point where you’re winning events at Bell’s Beach. Writing a novel – shit, who knows?

    Generally speaking, people don’t like enforced idleness – whether it’s that of unemployment or sitting in an office in that last dragged out hour between four and five pretending to be busy because you’ve actually done all that you can effectively do in the previous seven hours. Or looking for busy work to do to fill in the time etc.

    There are very few people who don’t have a work ethic – what a lot are lacking, one way or another, is a job ethic.

  27. Jason Soon

    To clarify, though Friedman coined the term ‘natural rate of unemployment’ what he meant was that expansionary monetary policy alone cannot expand employment – it merely leads to inflation. The fact that Friedman proposed a NIT meant that he saw it as a way of facilitating greater flexibility. Indeed a NIT or GMI would increase labour mobility. It would make it *easier* for capitalism to restructure and easier for politicians to let ‘creative destruction’ happen and for industries to go bust without clamouring for subsidy because it would take the pressure off using regulation (which stifles innovation and necessary restructuring) to achieve ‘social objectives’. People would just use their GMI until they found a new job. Thus your interpretation of GMI as something that would stifle capitalism is precisely the opposite of how libertarian economists like Friedman who originally proposed it see it.

  28. Gummo Trotsky

    And one other thing Mike – the Trot over the fence was very much a flesh and blood person. Nothing straw about her.

  29. Mike B


    Er, the concept ‘natural rate of unemployment’ comes from Friedman. It is absolutely essential to his analysis of inflation. I can list the relevant papers if you’re not familiar with them.

    You are right that Friedman often downplayed the role of unions in raising wages, especially during debates in the 1950s when union strength in the US was at its height. (He did, though, call on the state to fight the unions for other reasons, and said that if they were economically important, the state should “take drastic measures to abolish them”.)

    Later, though, Friedman did blame the unions for increasing the ‘”natural” rate of unemployment’ (his words, by the way), in his classic 1968 article “The role of monetary policy”.

  30. Mike B


    I completely agree with what you say about work fixation. I’m sure the DSP woman was flesh and blood. It only irked me slightly that the example seemed to set her up as an example of ‘marxist orthodoxy’, when many marxists have, as you know, been much closer to your own position.

  31. Jason Soon

    Er, the concept ‘natural rate of unemployment’ comes from Friedman

    Yes I acknowledged that in my clarification but explained what he meant by it. It’s also worth noting that later he said he regretted using the term ‘natural rate’ as he didn’t want to imply that any non-zero rate of involuntary unemployment was acceptable. The natural rate was subsequently incorporated into Keynesian analysis.

    My point is that Friedman’s work as a whole is generally inconsistent with the view that he believed in having a ‘reserve army of the unemployed’. All his efforts promoting the combination of the NIT, educational reform through vouchers and labour market reform and licensing reform suggest the complete opposite.

    That truly competitive capitalism is not good for capitalists is a trite observation that no economists or libertarians have any problem with, and which they in fact approve of.

  32. Gummo Trotsky


    OK, I’m over my “goddamn noobie” moment. But she ain’t there as an example of “Marxist orthodoxy” ut as an example of “a Marxist orthodoxy” – either her own or that of the organisation she belonged to. The other reason she’s mentioned in the post is to twit the conservative Mutual Obligation buffs whose position isn’t all that far from hers.

  33. Mike B


    Your follow-up had not appeared when I started writing that last comment. Apologies for implying you were not aware of the origins of the ‘natural rate’ idea. Friedman’s theory of the relationship between the quantity of money and inflation makes no sense without it.

    It is interesting that you originally described it as “just Keynesian rubbish” though. It is true that Keynesian economists on the whole were very worried about the inflationary implications of full employment. Friedman was not really a break from that tradition, he only reformulated it. In fact his theory of money is basically a reworking of the older quantity theory in Keynesian terms.

    As for the broader question about whether or not a guaranteed minimum income in whatever form would be functional for capitalism: It doesn’t really fit with most of what Friedman wrote about what would influence that natural rate.

    By all means, if you can organise some kind of political coalition for a GMI, I would back it all the way. If it works, great. But it certainly goes against the stream at the moment, doesn’t it, with all this talk of labour shortages, and the need for people to postpone their retirements as the population ages, etc? And how would you address the inflationary implications?

  34. Jason Soon

    The ageing population crisis is a beat up. Improvements in productivity will add to future output and reforms should be focused on policies that achieve this which are mainly to do with competition policy.

    As for inflation, I’ll take Friedman’s fundamental insight as the one that trumps whatever he may have said about unions in the past.If markets are flexible (and note that this is coupled with the GMI under a libertrian agenda), then inflation only happens because central banks let it happen, it’s a monetary phenomenon.

  35. Mike B


    It’s interesting, though, that Friedman’s ‘natural rate of unemployment’ hypothesis has survived in mainstream economics, while the idea of a causal link from money supply to the price level is distinctly out of fashion after the debacle of monetarism in practice. (Simon Guttmann’s recent book, “The Rise and Fall of Monetary Targeting in Australia”, is great on the track record here.) The US doesn’t even collect data for the monetary aggregate M3 anymore.

    His rehashed Keynesian quantity theory is arguably the least successful of Friedman’s insights. That’s partly because it has turned out to be difficult to quantify money in any meaningful way, central banks do not control it anyway – but merely occupy a strategic position in the monetary system, and causation seems to go both ways between money and prices.

    Central banks seem to be on to a winner, though, raising interest rates every time bottlenecks start to appear in the economy. Labour, of course, is the most important of those bottlenecks.

  36. Jason Soon

    His monetarism wasn’t a failure. The insight (i.e. what causes inflation ) is sound. The way to implement it has been undermined because it has become too difficult to track monetary growth – though Friedman himself doesn’t conceded this. What central banks do is essentially indirect monetarism

    See here

    They use the short-term interest rate as a way of controlling the quantity of money. If you look at the statistics, the rate of change of the quantity of money from month to month, quarter to quarter, year to year, it has never been so low as it has been over the last 20 years.

    I don’t believe there’s another 20-year period in the history of the country in which you can find so steady a rate of growth in the quantity of money and that can’t all be an accident. That’s because they use the short-term interest rate. Look at it in the simplest possible way.

  37. Mike B

    It’s understandable that Friedman would argue that his quantity theory was not a failure. But it’s clear from the interview you link to that Friedman himself realises that the central bankers do not track the quantity of money. (As I said above, the US does not even collect the once-crucial M3 statistic anymore.) But he doesn’t seem to understand why:

    What they deal with are interest rates and therefore, it’s natural and so many of the central bankers are themselves from the banking industry. They’re bankers. And so it’s natural for them to think in terms of interest rates and, moreover, when they think in terms of interest rates, they’ve got all kinds of interest rates—short-term interest rates, long-term interest rates—all kinds of excuses for exercising power or thinking they’re exercising power.

    That strikes me as an incredibly weak explanation! It’s not like monetarist ideology never had a good chance among central bankers – it did in the late 1970s and early 1980s in a number of countries. They found it impossible to control the ‘quantity of money’, however that is measured. In fact, nowhere was inflation tamed without a major recession and high unemployment – think Keating’s ‘recession we had to have’ in Australia.

    Note that many of the players from the heyday of monetarism have revised their position. Nowadays they say that Friedman was a useful idiot, who, by describing manupulating the money supply as a painless, technical decision, made provoking a recession politically palatable. One of my favourite quotes on the subject comes from Charles Schultz, who was President Carter’s economic adviser at the time of the ‘monetarist’ Volcker shock:

    In the mind of the Fed, this whole move was, in the broadest sense, a political move, not an economic move. In theory, the Fed could have kept on raising the bejesus out of the interest rates, but that’s what it couldn’t do politically. The beautiful thing about this new policy was that as interest rates kept going up, the Fed could say, “Hey, ain’t nobody here but us chickens. We’re not raising interest rates, we’re only targeting the money supply.â€? This way they could raise the rates and nobody could blame them. [quoted in William Greider, “Secrets of the Temple” p. 120]

    Central banks use interest rates rather than the money supply because the latter simply isn’t in their control. Expanding credit is normally a business decision of private banks. All central banks can do is manipulate the short-term interest rate by buying and selling in the market. Banks usually adjust their whole structure of rates based on that, but not always.

  38. Bring Back EP

    If I can recycle my old question here again.

    Friedman relied on a stable demand for money equation hence money supply growth was the key to economic stability.
    This is why he wanted a horse as chief of the Fed. It would hit the ground four times and thus money supply would be able to grow at four per cent.

    Unfortunately the demand for money equation is far from stable or it wasn’t back in the mid 80s.

    Is it still unstable which makes money supply growth irrelevant or has it become stable?

  39. shuanna

    The whole purpose of punitive regulation and surveillance of welfare recipients is to deliver to business a ready workforce that is docile, submissive and acquiesient. Strong willed or articulate individuals often find that such attributes are a liability, except when pursuing leadership position.

    There is in economics a need for a “non-accelerating inflation rate of unemployment” called NAIRU. This is to theoretically maintain downward pressure on real wages, and is largely successful, except for highly skilled occupations.

    The cynic in me says that the plan of big business and its allies in Howard’s govt to cut back on training skilled workers is so that employers can save money by hiring filipinos and indians for as low a wage as they can get away with. Their culture ingrains in them behaviors and values of docility, acquiesience and submissiveness. They are against unions, and don’t ask uncomfortable questions. Why is it that poor Asians prostitute their daughters for a buck [overseas or in global hubs like BKO, MNL, HKG, etc], but the same approach is rare among the poorest Aussies? They’ll do almost anything for a buck and will look the way when someone else does.

    Our elites have sold us down the river on this one. Our elites aren’t the small-l liberals, academics, greens or progressives [as neocons claim], but Howards mob, his hillbilly petit burgeois property investors [billions to them through neg gearing] the fundys big business and also the SME business sector.

  40. adrian

    Why is it that poor Asians prostitute their daughters for a buck [overseas or in global hubs like BKO, MNL, HKG, etc], but the same approach is rare among the poorest Aussies? They’ll do almost anything for a buck and will look the way when someone else does.

    For heaven’s sake, it is precisely because they are so desperate because they don’t have the kind of safety nets that we have in the west, imperfect as they may be. To characterise ‘poor Asians’ as somehow indifferent to their children by comparison with comparatively privileged westerners is just plain stupid and discredits the rest of your argument.

  41. Gummo Trotsky

    What adrian said. We’ll have no more of that “poor asians” stuff, thank you Shuanna.

  42. Phill

    Shuanna wel done excellent comments.It amazes me how people love to quote the opinions of economists, and other such wankery’s to make a point, my God dont people have any lifes experiences of their own to formulate a valid opinion?.Who the fuck is Friedman?please don’t answer that I don’t give a flying fuck.

    All of your comments are correct,I am a child of the fifty’s and rememberr well the “Master/Servant relationship of the working class.To deny this existed is 1.To live in a dream world.2.To call me a lier,and Im not having it.

    The Jason Soons and others of his ilk that comment on this blog I can only assume must be about twenty years old,because anyone over the age of sixty,who is not a rabid right wing cracker jack, would not write such shite.

    Instead of filling their heads with theshite by written by economists of the modern era,they should try, I don’t know what about Charles Dickens that might be a good start. Of course that would mean a trip to the local library.For you right wing try hards that’s the place they keep collections of books.

  43. Mike B

    Bring Back EP:

    Yes, a stable money demand relationship was crucial to Friedman’s reworking of the quantity theory. It didn’t have to be stationary, but it had to move in predictable ways. Some of the instability you talk about was no doubt caused by developments in the banking system and how we all use money – ie more credit cards and electronic payments.

    In any case the problem with Friedman’s analysis is deeper than that. The ‘demand for money’ is really only a reflection of a number of other variables, such as income and spending patterns. Friedman looked at that reflection and said it was the cause.

    But it’s not as if when the money supply expands we all suddenly find all this money in our bank accounts which exceeds our demand for it, so we spend it. It comes to people and firms by being spent by other people, firms and government. Any theory of inflation has to move beyond abstract theories of money to an explanation of the real economic relationships that are expressed in money.

    That’s where the ‘natural rate of unemployment’ comes in for Friedman and the neoclassicals in general. It’s really a theory of the relationship between unemployment and wages. Inflation may be “always and everywhere a monetary phenomenon”, since buying and selling things usually involves money, but even for Friedman it’s not only a monetary phenomenon.

  44. Gummo Trotsky


    Cool it. No one’s called you a liar. Your implied abuse of previous commenters is gratuitous. We’re not having any of that, either.

  45. Phill

    Gummo it’s under the heading of” reciprocation”.Not the same topic mind you,but valid none the less.Well for me anyways I mean shit,I believe in capital punishment.Shite is still shite by any other name.

  46. shuanna

    For heaven’s sake, it is precisely because they are so desperate because they don’t have the kind of safety nets that we have in the west, imperfect as they may be. To characterise ‘poor Asians’ as somehow indifferent to their children by comparison with comparatively privileged westerners is just plain stupid and discredits the rest of your argument.

    qouted from Adrian

    Well they don’t give a cracker about human life. If the mastermind of the Bali bombings is already out of prison after not even 5 years, and someone can be shot by sniper for carting heroin, then obviously they don’t place upon human life the same value that we do.

    Living costs in Asia are far lower than in Australia. Their diet is comparatively economical compared to ours. The poor may even bear more children in order to offset the loss of the ones they’ve sold to brothel lords and organized crime.

    Life is cheap in Asia. Drug dealers are executed to keep the foreign aid from Uncle Sam flowing. This applies to those busted in airports at Manila, Bangkok, KL, HK, Singapore etc.

  47. adrian

    Not much point arguing with someone as ignorant as you, shaunna, but had you been to Asia and met some of the people you are so keen to deride you may realise that they have as much respect for human life as we ‘civilised’ Westerners.
    And if you start condemning a whole race for the actions of a government, then I hope you likewise condemn us for the atrocities committed by our governments. Otherwise you are a hypocrite of the worst sort.

  48. Gummo Trotsky

    Goodbye shuanna. You were warned and chose to ignore the warning. I don’t give second chances.

    Please refrain from posting any more responses to shuanna’s last outburst, people. Let’s try to stay somewhere vaguely in the vicinity of the topic.

  49. Bring Back EP

    thanks Mike B