Like “Millennium Development Goals” and “sustainability”, “youth unemployment” is one of those words that have suddenly reached buzzword status within the field of economics. Google Trends reveals that Google searches for youth unemployment have consistently increased from January 2008, coinciding with the Great Recession. With the average rate of youth unemployment at an egregious 23.9% in the Eurozone area, and even higher in the periphery with countries such as Greece experiencing youth unemployment rates as high as 59.2%, everyone from Arianna Huffington to Pope Francis have spoken out deploring this dismal economic reality. This has led to European leaders pledging a “Youth Guarantee” by pumping 8 billion euros to combat youth unemployment.
More specifically, the “Youth Guarantee” is a scheme that intends to combat youth unemployment by aiming to “provide a job, training or apprenticeship within four months of their leaving school, full-time education or becoming unemployed” according to the Reuters.
The “Youth Guarantee” has many parallels with Jeffrey Tucker’s description of young children who are shielded from the harsh reality of competition with the tranquilizing drug of “equality” and the message of the importance of sharing with everyone else. Like Tucker’s observation, the Youth Guarantee amounts to paternalism, with European leaders shielding unemployed youth across the Eurozone area from the dismal economic reality with fiscal stimulus.
The Youth Guarantee is not without historical precedent. The influential Post-Keynesian economist Hyman Minsky, following modern monetary theory (MMT), contended that the government should act as an employer of last resort. Several commentators have extrapolated from Minsky’s analysis and have gone as far as to define employment as a human right.
Many would agree that it is better to be told the truth than to be fed a lie. Every economic boom that resulted in a sudden bust was based on a lie. Prior to the Wall Street Crash of 1929, asset prices were substantially above their intrinsic value. Similarly with the dot-com bubble, many start-up companies had P/E ratios above 100. Closer to the present time, the subprime mortgage crisis was fuelled in part by rating agencies dishonestly giving higher ratings to credit debt obligations and mortgage-backed securities than they would otherwise have. Whilst the Youth Guarantee will unlikely create an economic boom, indeed only amounting to “€8 billion over two years” and “is the equivalent of less than 0.1% of GDP a year for the eligible countries” as The Economist points out, it will nevertheless still place unemployed youth in a mirage of being employed whereas in normal circumstances they would be unemployed. Many love to speak of a “lost generation” to stroke at the heartstrings of listeners and readers but there is no one more lost than one who lives under disillusionment.
It does not bode well for future policy-making if we are willing to make the same mistakes as those that preceded the crisis. If we are to get attractive economic statistics and sycophantic media headlines by priming the pump then we have learned nothing at all, and it reveals that we are content with an economy based on a mirage than reality. The situation has adverse incentives written all over it, and public choice theorists would have a field day predicting what else politicians would do in this context to maintain their reputation.
People want to know the truth. If that is the case then, we need to prise the visible hand of the government to allow the invisible hand of the market to take its place. The former almost always disillusions and the latter almost always enlightens. The former almost always requires merely shifting resources from one place to another whilst the latter performs the miraculous feat of conjuring value from something of lesser value.
The Economist recommends, especially in the context of southern European countries that have been at the brunt of the youth unemployment dilemma, greater liberalisation of labour legislation for permanent workers. Regardless of what specific policies may be recommended, one thing is certain: Any sustainable policy to help alleviate the youth unemployment condition faced in the Eurozone requires much more than simply throwing money at the problem and in the process giving youngsters false hope.