Lost value from unemployment is a little bit like the problem of lost revenue when an hotel room is not rented or an airline seat is not sold. In the case of the hotel or the airline, what could have been contribution to profit is lost for ever ... in the case of unemployment, the loss of production and contribution to the performance of society is lost for ever.
With an estimated 15 million unemployed in the United States ... this is a huge loss of production and source of contribution to the value building of the society. How much might this be valued at using the money metrics of the modern US economy.
In a previous post with the title "Value ... the value of a lost job!" on April 5, 2010, I wrote, in part:
The following is a rough calculation to give some idea of the order of magnitude of the matter. If one million people are out of work with no prospect of new work ... and the remuneration per job would be $50,000 ... and the value multiplier is 10, then the total lost value becomes a whopping 50,000 X 10 X 1,000,000 or $500,000,000,000 or $500 billion. If 10% unemployment in the USA is equivalent to some 15 million people without jobs and remuneration the total value loss for society is about $1.5 trillion. One wonders why economic leaders ... specifically bankers ... do not understand this more clearly, and accordingly why they do not seem to be interested in addressing the matter seriously. I guess the same goes for the business media!This is a very simple calculation that takes into consideration the multiplier and the present lost value of future unemployment ... but it does not take into account the destruction of social value and quality of life of the family and friends.
These may be bigger issues than the money value element that has been computed. This might double or triple the value destruction ... value building missed ... from unemployment.
In the stable expanding money profit economy of the past 65 years since the end of World War II, most of the population of the developed economies have become comfortable with the status quo ... albeit somewhat "spooked" by the financial crisis of the last three years and the prevalence of a sub-prime housing crash and the associated foreclosures and personal financial tragedies ... and perhaps further stressed by the stories about sovereign debt in Europe, notably Greece and then the few minutes of sell off mayhem on stockmarkets courtesy of some technical glitch or something last Thursday! People are very comfortable, and nobody really wants to bite the bullet and get real.
The needs are huge. I talk about 4 billion people who are poor and hungry on the planet. These people are poor in the main because they are unable to do productive value adding work ... the system is not organized so that they are able to do things that are worthwhile.
In the United States there is a backlog of upgrading the infrastructure ... maybe a 50 year backlog because there has been a view that capital markets would allocate funds to important things ... which is fine, except that the measure of an important thing is that it generates profit ... when really an important thing is something that is important for society and adds value for society. The US road system has not been significantly upgraded for 50 years! 50 year old bridges are starting to fall down! Much of the water and sewage system in the US goes back 100 years! The energy systems are struggling on top of a grid much of which is more than 50 years old. There is a huge amount of work to do!
But the socio-economic system ... or is it the political system ... is not working! So much work to do, a huge pool of workers, and hardly any money getting deployed to do real work.
Washington is making news ... some high profile money is going into research for the technologies of the future ... but these are the same people that were being paid to do research for the past several decades, who at the end of the day proved unable to convert research into applied economic improvement. They are happy with what is happening with increased fund flows going into research ... but they are not doing so much with the real work of getting infrastructure upgraded. The financial sector ... the capital markets should be helping, but they are not seeing profit in this ... and they are working on other things. The value importance of this is not part of the capital market metrics, and without profit no matter how value important something is ... the capital market is not in play!
Communities, cities and states are the entities in a modern society that have a big role in the quality of life of the people ... more than a national government. In the main communities, cities and states are in a financial straitjacket ... often with laws that constrain them from being helpful in managing the local macro-economic situation. In the USA, far too little Federal money is finding its way to these entities that are responsible for infrastructure and the underlying capacity of society to function ... but Federal money is finding its way to organizations that are big ... failing ... and not doing a very good job. This is the financial sector ... banks and insurance companies ... and the US auto industry. There is no effective way to get funds to works in communities without going through the government structure ... no way to get funds into an organizational structure that can invest in things that are valuable.
Money is not well used when it finds its way into welfare ... more it should be going into workfare ... in other words into remuneration that results in work that has value. Valuable work needs to get funded ... and the value being created needs to be "on the record" on some "balance sheet" so that there can be accountability.
Which brings us back to an ongoing issue with the data, the analysis, the planning and the accountability ... it is difficult to do something effective when there are no "balance sheets" about important things. While every corporate business does a "balance sheet" as part of routine accounting ... this is not part of the public sector accounting systems, nor a significant factor in economic analysis! Without balance sheet, it is quite normal for analysis to become silly without anyone noticing!
The lost value from the unemployment of 15 million people in the US is upwards of $3 trillion. It is pretty ridiculous that society is willing to accept a $3 trillion value hit and not make any fuzz ... especially when there is so much that needs to be done. There are many well educated clever people who should be able to figure out some meaningful solutions ... but they are too busy studying profitable opportunities and ignoring valuable opportunities.
As long as the lost value of unemployment is not part of a common value metric ... as common as corporate profit ... nobody is ever going to take any notice! There has to be a new way to keep score so that there is a new way to play the game!
Peter Burgess
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