Aggregate demand or economic recalculation?

This is an interesting little snippet:

Yet some of these employers complain that they cannot fill their openings.

Plenty of people are applying for the jobs. The problem, the companies say, is a mismatch between the kind of skilled workers needed and the ranks of the unemployed…….

As unlikely as it would seem against this backdrop, manufacturers who want to expand find that hiring is not always easy. During the recession, domestic manufacturers appear to have accelerated the long-term move toward greater automation, laying off more of their lowest-skilled workers and replacing them with cheaper labor abroad.

Now they are looking to hire people who can operate sophisticated computerized machinery, follow complex blueprints and demonstrate higher math proficiency than was previously required of the typical assembly line worker.

Now, let\’s assume that standard Keynesianism is correct. There\’s insufficient demand, thus people are out of work and fiscal stimulus will boost demand leading to people going back to work.

Excellent.

Now, let us still assume that standard Keynesianism is correct but that we have, either as well as or instead of, makes no matter, a structural shift in the economy. That is, that people need to shift sector, or upgrade their skills, as well (or instead of) there being insufficient demand.

There are indeed those who would say that at least part of the Depression was because of that second reason: the move out of an increasingly mechanised agriculture into manufacturing.

In this case (and how much this is true depends upon how much is insufficient demand and how much is structural shift) fiscal stimulus does absolutely nothing.

It\’s entirely possible that, for example, increased productivity in manufacturing (which is just the flip side of increased automation) means that there just aren\’t manufacturing jobs for people to be stimulated into.

Which would mean that those calling for simply more stimulus (yes, even that Nobel Laureate, Paul Krugman) are wrong. You simply cannot deal with structural changes that way.

5 thoughts on “Aggregate demand or economic recalculation?”

  1. Interesting indeed. Before I checked the source I assumed it must be referring to the UK Labour Market. It’s often forgotten that the 1930s was one of the most innovative decades ever and that Adam Smith’s pin factory was very bad news for anyone who’d spent a seven year apprenticeship learning to handcraft pins.

  2. Don’t forget that the idea “we need to hire somebody to do ” is never a universal truth within a firm. Sometimes “well, we can’t find anybody” is nothing more than a resolution to an
    incoherent question.

  3. Brian, follower of Deornoth

    “Yet some of these employers complain that they cannot fill their openings.”

    Bollox.

    They aren’t paying enough. End of story. what part of the ‘market economy’ don’t they understand?

  4. ‘Yet some of these employers complain that they cannot fill their openings.’

    Brian, foD, Yes, but someone’s missing a great career as a straight man, with lines like that?

  5. Manufacturers aren’t just turning to automation, they are learning to run existing facilities with fewer people, using techniques pioneered by Deming and Ohno in Japan in the post war period.

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