High Unemployment in Britain is its own Government’s Fault. No-one else’s!

There’s EU elections coming up soon. The debate has started already in the UK on the benefits of membership. EU supporters make a claim, without the slightest shred of evidence, of 3 million jobs being dependent on EU membership. Anti EU elements counter with claims that EU rules make energy too expensive and it actually costs a million jobs. Neither are right.

Unemployment is caused by the spending power, or aggregate demand in economics parlance, in an economy being less than is needed to buy up all the available goods and services which are for sale in that economy. This can be caused for two reasons.

Firstly, the spenders in that economy may consider, overall, they get better value for money, the money they have left after paying their taxes, by buying in someone else’s economy. They may prefer to buy an overseas product rather than a local product. This is largely a function of the exchange rate in that economy. If the exchange rate is too high importing goods will make more economic sense for the spenders.

Secondly, there may be not enough spenders. Some earners may choose to save their money. Earners aren’t just wage and salary earners. They would be anyone who has made money , by whatever means, by trading in that economy. Earnings would include the profits of businesses.

Governments have to borrow from the savers and spend that money back into the economy by deficit spending to ensure that everything which is available for sale, this includes the labour of any individual, is cleared. They also have to decide what to do about any trade imbalance. Do they issue bonds to overseas buyers and spend the proceeds back into their economies by deficit spending? If not, do they wish to see their currency adjust to a natural market value?

The countries of the Eurozone are trapped. Either the Euro works well for them or it doesn’t. It works reasonably well for Germany and the Netherlands but not at all well for Greece or Spain. The governments of those countries are users of someone else’s currency. They don’t have the necessary economic freedom to fix the problem.

But what about the UK? They are out of the Euro. Can they blame the EU for unemployment? Unemployment is much lower in the UK that it would have been had the UK decided to adopt the Euro. It was very sensible to retain the right to be an issuer of its own currency , rather a user of someone else’s currency. That gives the UK much better freedom and ability to decide its own economic status. There is some suggestion that the EU may try to impose budget rules on the UK even though it is outside the Eurozone. However, I doubt if the politicians in British government  are in any real disagreement with the ultra conservatives in charge of Euro monetary policy. They can’t claim its all their fault!

It therefore means that high unemployment in the UK is really no-one else’s fault other than its own government’s. It isn’t like Spain or Greece. It still has control over its own economy. If it wants to devalue the £ it can. If it wants to balance its external trade , it can. If it wants to deficit spend, and reduce the tax take from the population, to achieve full employment, it can. The UK can have any level of unemployment its government likes.

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One response to “High Unemployment in Britain is its own Government’s Fault. No-one else’s!

  1. What annoys me about the ‘three million job depend upon the EU’ brigade is that the leakage of jobs to Europe – which is currently suppressing three million other jobs in the UK – is never discussed.

    And that’s because business that don’t exist but would otherwise can’t hire a lobby group…

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