“Bite-sized” Macroeconomics Sunday – Unemployment

Today is “Bite-sized” Macroeconomics Sunday, where instead of long articles, I will discuss concepts using easily digested, bite-sized posts. Continuing with unemployment…
Jobs are not magically created out of thin air by business. Business needs a good, financial reason to increase payroll.

We live in a modern monetary economy, where “money” (US Dollars, British Pounds, Australian Dollars) is used to produce and consume goods and services. Consumers purchase goods and services using “money” and business produces goods and services using “money”. It is the goods and services that are important. Unless there is enough “money”, consumers cannot buy and business cannot increase production. “Money” (US Dollars, British Pounds, Australian Dollars) is just the catalyst that causes production to go into motion.

There are two things that business needs to increase the production of goods and services: “Money” and labour.

When British consumers have enough extra British Pounds, they will spend them, which, in turn, puts pressure on business to increase its production of goods and services. The end result of that consumer pressure on business is job creation. Business hires more workers to help meet the demand of consumers for more goods and services.

When American consumers do not have enough extra US Dollars, they will decrease their spending, which, in turn, relieves pressure on business to increase its production of goods and services. The end result of that reduced consumer pressure on business is unemployment. Business now has excess inventory that it cannot sell and excess payroll, which means lost income. Business will lay off workers, because they are a drag on its income and it no longer needs the workers.

The source of every single Australian Dollar is the Australian government. Since the economy operates based on “money” and the Australian government is the only source of Australian Dollars, if the Australian government issues enough dollars through deficit spending into the Australian economy, then pressure on consumer savings is lifted and consumers now have more dollars to spend, which, in turn, puts pressure on business to increase its production of goods and services. The end result of that deficit spending is job creation.

The source of every single US Dollar is the US government. Since the economy operates based on “money” and the US government is the only source of US Dollars, if the US government does not issue enough dollars through deficit spending into the US economy, then pressure on consumer savings increases and consumers now have less US dollars to spend, which, in turn, relieves pressure on business to increase its production of goods and services. The end result of that reduced deficit spending is unemployment.

The US, UK and Australian governments control the unemployment rate through their deficit spending. They are the reason why unemployment exists and they are also the only entities that can eliminate unemployment in their domestic economies.