$pending > $aving = Unemployment

Politicians say unemployment is due to the lack of economic stimulus spending. Now in the short-run the statistics can prove that this is the case, as people and businesses can afford to boost their spending and hire additional workers to fill their newly built factories, then yes it does reduce unemployment. However, the real case for unemployment is quite the opposite – in that there is a lack of savings to fulfill current expectations. Now it should not be justified that in order to fulfill for this lack of savings, that we must create more capital through credit expansion. As credit expansion can aggravate the issue by being confused for real loanable funds. Though, it is true that businesses do expand production, and we are often reminded of the enjoyable at the moment benefits, including more current employments. However, the pool of real savings in which the economy relies on for reducing unemployment is decreased as people decide to spend rather than save. These savings would had otherwise contributed as a benefit to the economy, to continue to save to provide for future employment. 

Credit expansion is bad, even though it is proven to reduce unemployment in the short-run, it is bad precisely because it focuses on assuming unemployment is the main issue. As if this were true, would it be are main priority for us all that we must rid of unemployment as soon as possible, besides it is now considered to be the main driving force of economic growth. I suppose you could take the mainstream advice of John Maynard Keynes and Paul Krugman and go ahead and employ as many people possible to the most tedious work imaginable. Such an employment devised was to employ people to dig ditches with spoons instead of diggers, and all readily subsidized by the government. Then again, it is just but a simple unthought through assumption to the unemployment problem.

This solution, however, would lead to a huge amount of wasted real savings. As any employment whether productive or not must be funded. Only in this case it is unproductive and just ends up directing savings away from productive employments which generate an economy’s wealth. Ultimately hindering infrastructure that has earned itself the use of real savings for a necessary expansion, of which will promote wealth and satisfy the best employments for society in the production of final goods and services. To sum up it should concern all that unemployment is not the worry for people, but it should rather be the ability for them to purchase goods and services.

Featured image supplied from Pixabay.

Copyright © 2016 Zoë-Marie Beesley

Creative Commons License Licensed under a Creative Commons Attribution 4.0 International License.


  1. Thanks for your post. You are arguing that the theory of loanable funds is the right one. If the state invests in new infrastructure which is needed, then that could crowd in private investment, increasing both demand and supply and productivity in the economy. If interest rates are very low as at the moment, this need not lead to crowding out if private investment is weak. I think the Keynesian argument is that in a deep recession or stagnation, economic forces tend to be too weak to restore prosperity in the short term, and even if they work in the long term, mass unemployment can threaten political stability and lead to social conflict before that happens. So the case is as much political as economic.

    1. Hi Nick, thanks for your comment. I understand your argument in that if we do nothing for the short-term weak private investments then it can lead to mass unemployment, threaten political stability, and lead to social conflict before we see any long-run benefits. However, private investment if it is weak or not, represents the current decisions of market participants toward preferring future consumption over present consumption. And to stimulate weak private investments with low interest rates could interfere in this process and could distort these individual valuations. As, in an unhampered economy unemployment is always voluntary in that job seekers and employers adjust and coordinate their expected wage rates.

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