A while ago I wrote a quick post on what I suppose has become my core economic theory: that Money Is Time. As I’ve recently moved to Central Europe, I’m taking a new look at the world around me, and thinking about the problem of unemployment — particularly the unemployment of the youth.
As I previously articulated, the fundamental nature of wealth is the collective free-time of society. As a society becomes wealthier, it has more free-time for individuals to work at a more abstract level, which in turn provides both an increase in growth of free time, and an aesthetic and practical improvement in quality of life. Money itself is an abstraction of this saved free-time, and whenever we invest money we’re effectively investing some of our saved societal wealth — whether that be investment in a business to further increase overall wealth, investment in social projects to improve standard of living, or investment in the arts to improve our aesthetic life.
The Power of Capitalism and Republic
Over time, all of society, globally, has been on this continual quest to generate more free-time, enabling the citizens of the world to provide more abstract services, which services in turn continue to generate more free-time and better quality of life — everything from clean drinking water, to reductions in infant mortality, to modern medicine, to the arts, to professional sports. And in recent centuries, the reintroduction of representative democracy and the rise of capitalism have powered a global expansion of wealth to unprecedented levels and at almost inconceivable rates.
The easiest place to see the result of this increase in free-time is by looking at agriculture.
|Societal Free Time (%)
Basically, at the founding of the U.S., 90% of the population was engaged in generating the basics of survival, and 10% of the population was fully freed to engage in other activities of value to society. Of course, it’s not quite that simple. There were some small number of other people involved in provisioning of food (e.g., fisherman); and quite a bit of farming was already freed labor to the extent that it was either clothing related rather than food related, or it was for export. Nevertheless, it’s a useful approximation. By the end of the Industrial Revolution, that number had tripled, with almost a third of society totally freed to spend their time on more abstract activities. By World War II, four out of five people were free. By the 1990’s, only 2.6% of the population was engaged in farming. Again, now more than at the founding of the U.S., there are other, non-farming areas of food production. But also again, and even more so than 200 years ago, much of that farming isn’t devoted to national food production — weather that be food for export, cotton for clothing, or the ubiquitous production of corn for fuel.
Seriously, stop and think about that. Almost no one in America is working for basic survival. Nearly everyone is spending his time on “higher level” pursuits.
Pushing The Boundaries of Wealth
The U.S. and the world as a whole appear to be slowly dragging themselves out of the 2008 global crisis. That said, as one looks across Europe today, unemployment sits at just over 9%. We could argue over how unemployment is reported in Europe vs. the U.S., or about what maximum effective employment is, but for my purposes that doesn’t really matter. The number that’s far more interesting to me is the unemployment of youth. For the EU-27 as a whole, unemployment for people under 25 is over 20%. Twenty percent is well outside the bounds of full employment or reporting differences. And in Spain the number is well over 40%.
Now, from my perspective, that number in-and-of-itself isn’t the problem. In fact, it’s an indication of tremendous wealth. Spain has gotten so rich that nearly half of their youth aren’t working. Less than a century ago, the minimum working age would have been much younger, and everyone would have been working or they would have been starving. But these people, some of them pushing 11 years into “adulthood” (with the historical assumption that 14 is working age) have never worked, have never been homeless, and have never starved. To enable that requires tremendous wealth, no matter how you look at it.
But it’s also a societal problem. It’s too much wealth. Remember the fundamental thesis: aggregate free time is to be used to society’s advantage. But these long-term youthful unemployed aren’t becoming philosophers and artists; they’re not traveling to Africa to help starving, sick families; and they’re not working.
I don’t believe that’s because they don’t want to work. I believe that’s because we haven’t figured out a way to empower them to work. As we push the boundaries of global wealth, it’s incumbent upon us to facilitate the continued improvement of society. And the way we do this is through the abstraction of money. By providing people with more money than they require to survive, so they can take that time/money and do something new and creative with it. This is fundamentally what loans are about, and what venture capital is about.
In the edge cases, though, traditional loans and venture capital don’t work. The facilities of capitalism need to expand to empower societal improvement in the edge cases. And they do, naturally. This is why we’re seeing micro-loan programs throughout South East Asia. But micro loans have so far been primarily focused on third-world countries and the seriously impoverished. I believe it’s time for the investment community to start looking at the first world. The unemployed youth of today are still youth. They are full of boundless energy and amazing ideas.
Now, few of those amazing idea will be wild successes, which is why traditional investment in those ideas doesn’t work. As I mentioned, traditional investment has a problem below a certain size. And in this case, even angel investors would have a challenge going small enough. But micro-loans are a workable idea. By enabling small loans across the developed world to enable unemployed youth to try new things, we’ll invariably have some failures, but I also expect we’ll have some unexpected successes. And ultimately, these accidental successes are how the world advances. And if we don’t do something with these chronically unemployed youth, well, we’re just wasting time.