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CREATING UNEMPLOYMENT in the Kingdom of Good Intentions

December 2nd, 2013 by Viv

By Viv Forbes December 1990. First published in Business Queensland in 1990.

An economic and social tragedy called unemployment is now rolling over Australia like a toxic smog. Generated in the poisonous hot air rising from every Parliament in the land, this murky soup of legislative and bureaucratic stupidity will suffocate the productive life of many businesses and their workers. Most of the victims will be unaware of the cause of their problems. Bosses will blame workers, and vice versa, while the real culprits cavort the world on fact finding trips or debate irrelevancies in the Industrial Relations Club.

The majestic and relentless progress of this tragedy is recorded like epitaphs on numberless tombstones in each day’s headlines.

Just one day last week produced these four headlines – “Jobless Queue Grows”, “Business Denied Tax Relief”, “Builder in Receivership” and “Recession no Excuse for Pay Cuts”.

This last statement reported a warning by Senator Cook that the Federal Government “would not allow rapacious companies to force pay cuts because of the recession”. Like the most callous general in the trenches of Flanders, Senator Cook has just ordered another regiment of workers to sacrifice themselves on the unyielding bayonets of economic reality. In a recession, businesses must cut prices and workers must accept lower wages, or there will be unemployed gluts of both.

Governments have made huge efforts to hide our unemployment by keeping kids at school or transferring them to other agents of the welfare state such as Austudy, family allowances, retraining schemes or the public payroll. Irrespective of the fancy label, most of them are still unemployed and the cost of maintaining them will ensure that increasing numbers of productive Australians will be forced to join them.

We should learn from the Kingdom of Good Intentions.

Although small, it was a busy and fruitful kingdom. There was a farmer who was planning to buy a plough, hire a new hand and produce more pumpkins. There was a coal miner with a bit of money saved – he was going to employ another miner to dig more coal. And there was one man with a large family without work. The king felt badly about this disadvantaged family. So he taxed the farmer and the miner and gave the money to the man without work (who thus became the first pauper in the kingdom.)

The farmer used his savings to pay the tax. He could not afford to buy the plough or hire the field hand. The coal miner had no savings – he was forced to fire a gardener to pay the tax. There were then fewer jobs and more paupers in the Kingdom of Good Intentions.

So it is in Australia. Most of our long term unemployment can be traced to three political factors – minimum wage laws, excessive taxation and the dole.

A minimum award wage law makes it illegal to pay anyone less than some prescribed wage. No employer can stay in business if he pays workers more than they produce. Thus workers whose labour is worth less than the legislated minimum must be fired.

The chief result of minimum wage laws is to penalise those of limited talents – the young, the old, the unskilled, the handicapped and racial minorities. These workers are deprived of the right to earn even the moderate wage appropriate to their abilities and the community is deprived of their services. Unemployment is substituted for low wages. Those most hurt are those supposed to be protected by minimum wage laws.

Excessive taxation causes unemployment in two ways. Firstly it destroys jobs – payroll tax, for example, is a direct penalty for providing jobs. Secondly taxation reduces new investment – income tax, for example, reduces the profit available for re-investment, which is the sole source of new jobs. (Monetary taxes such as propped-up interest rates and exchange rates are more subtle, but have the same destructive effect as the honest taxes.)

Finally, growing acceptance that everyone has the right to a generous dole is destroying the incentive to work. Why should anyone work to earn just a bit more than they can get as a gift for lying on the beach?

People say there is a shortage of work, and we must thus invent work or accept the tragedy of long-term unemployment for our kids.

There never has been and never will be a shortage of work. There is a shortage of people able and willing to pay deluxe prices for standard labour. Unemployment can only be cured by repealing all the obstacles to employment put there by politicians of all parties.

The first step would be to abolish statutory minimum wages, abolish payroll tax and cut income tax. This should be followed by substantial cuts in dole benefits especially for able-bodied workers with no dependent families.

There is no other way to cure unemployment. We hear calls for increased government spending to relieve unemployment. This certainly can create pretend jobs in the public sector, but the accompanying increase in taxation or inflation will destroy an equal or greater number of productive jobs in the private sector. When the government spends, the economy drinks its own blood.

Unemployment is made in parliament.

Only they can undo what they have done.

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