The central themes of any electoral campaign are jobs, economic growth and often “competitiveness”. The yet more fuzzy concept of “(economic) wellbeing” can be considered to encapsulate all of these. (“Competitiveness” is even being redefined as a nation’s capacity to produce wellbeing for it’s citizens.)

Meanwhile economic cyclicity – that periods of growth (booms) have to eventually be followed by recessions (busts) – is considered an economic “law of nature” and the consensus is that a certain level of unemployment (NAIRU) has to exist to prevent inflation from getting out of hand. Any “outputgaps” have to be closed, in other words the economy kept running at it’s full production capacity (regardless of the participants actual income-leisure preferences) – for the system to remain functioning.

But what sense does it make trying to force economic growth or to create more work just so that people would have a chance to participate in it? Modern economics and politics talks about “jobs” as if of some kind of resource or product that the economy should be producing – when labor (work) essentially is the cost that an efficiency-oriented economy should be minimizing!

If total available earning opportunities depend on total spending and investing – as the circular flow of income demonstrates – then doesn’t involuntary unemployment and an absence of desired economic growth just mean that earning opportunities aren’t allocated to people according to their willingness to spend and invest – not even in the mid-term. In other words, that supply does not meet demand on the individual level, when the aggregate (total) demand for labor drops. And supply and demand is what a market economy should be the best at balancing.

The Root Bug hypothesis suggests that if we solved this chronic mismatch in the labor market and managed to get supply and demand to even tend towards an equilibirum regardless of aggregate demand:

  • The economic system would not be dependent on growth…
  • … but would facilitate just as much growth as people really want
  • Business cycles as we know it would be eliminated (of course investment goods industries would remain “cyclical”, volatile, but there is would be no self-reinforcing chain reaction, as reduced demand would not decrease long-term income security)
  • There would be no necessary NAIRU unemployment (as structural imbalances would occur as more temporary under- and over-employment)

Section 3.1 in Fixing the Root Bug explains these issues in more detail as well as:

  • Explains the banking sector can be made to carry it’s own risks by putting a fee on the government guarantee of bank deposits
  • Points out the causes of excessive debt and leverage in different parts of the economy are and how the Root Bug hypothesis assess these
  • Presents an extremely efficient and competitive taxation model based mostly on (natural) monopoly rents, fees for government services (like the deposit guarantee) and lower rates on government debt, that can balance public budgets without (Laffer curve-like) harmful effects on the economy
  • Suggests how even the public sector (which could also be downsized significantly) could be somewhat efficient if it no longer had an implicit responsibility to provide and maintain employment.