full employment

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pages: 128 words: 35,958

Getting Back to Full Employment: A Better Bargain for Working People by Dean Baker, Jared Bernstein

2013 Report for America's Infrastructure - American Society of Civil Engineers - 19 March 2013, Affordable Care Act / Obamacare, American Society of Civil Engineers: Report Card, Asian financial crisis, business cycle, collective bargaining, declining real wages, full employment, George Akerlof, income inequality, inflation targeting, mass immigration, minimum wage unemployment, new economy, price stability, publication bias, quantitative easing, Report Card for America’s Infrastructure, rising living standards, selection bias, War on Poverty

As we revisit this critical issue, the jobless rate has ranged from 7 percent to 10 percent for over four years, and it’s not expected to come down much anytime soon. A strong labor market with full employment need not be a rare economic anomaly that returns roughly twice for every one appearance of Halley’s Comet. Full employment can be a regular feature of the policy landscape, with tremendous benefits for rising living standards, poverty reduction, the federal budget, and equitable economic growth. In this book we present the benefits and importance of full employment in ways that are particularly germane to the economy today, and we offer policies to begin moving to full employment now. Full employment can be defined as the level of employment at which additional demand in the economy will not create more employment. All workers who seek a job have one, they are working for as many hours as they want to or can, and they are receiving a wage that is broadly consistent with their productivity.

ISBN: 978-0-615-91836-5 Contents Acknowledgements Chapter 1: Introduction Chapter 2: Evidence of the Benefits of Full Employment Data Appendix Chapter 3: Structural Unemployment: What It Is, Why It Matters, and Why It’s Not Our Biggest Problem Chapter 4: Full Employment and the Budget Chapter 5: Policies for Full Employment I: Improving the Trade Balance Chapter 6: Policies for Full Employment II: Public Investment, Public Jobs, and Work Sharing Chapter 7: Full Employment Now References Acknowledgements This book might not exist were it not for the help we got from many others. John Schmitt’s input—including number crunching and advice—was indispensable. His fingerprints are all over the book, but especially on Chapter 2. Pat Watson, editor extraordinaire, has been turning “economese” into English for decades and we know of no one who does it better. His value added is obvious on every page. The data resources of the Economic Policy Institute, where we met years ago, were also essential.

* * * [1] While we believe it is not possible to be this precise about the level of the NAIRU at a point in time, there are good reasons to use CBO’s series. First, it represents the industry standard for the unemployment rate associated with full employment; second, the values CBO derives are generally going to be close to the actual full employment rate (with the exception of the mid-1990s, when CBO’s estimate turned out to be well above the rate consistent with full employment); and third, though we can argue about the precise number, the nation would be well-served today were we to shoot for CBO’s current NAIRU of 5.5 percent. [2] See Immelt and Chenault (2011). [3] Michael Grunwald’s book, The New New Deal, provides an extensive analysis of the effectiveness of the Recovery Act. Chapter 2: Evidence of the Benefits of Full Employment The historical record in the United States supports the notion that, when labor markets are tight, the benefits of growth are more likely to flow to the majority of working people.


The-General-Theory-of-Employment-Interest-and-Money by John Maynard Keynes

bank run, business cycle, collective bargaining, declining real wages, delayed gratification, full employment, invisible hand, laissez-faire capitalism, marginal employment, means of production, moral hazard, Paul Samuelson, price stability, profit motive, quantitative easing, secular stagnation, The Wealth of Nations by Adam Smith, working-age population

Thus, given the propensity to consume and the rate of new investment, there will be only one level of employment consistent with equilibrium; since any other level will lead to inequality between the aggregate supply price of output as a whole and its aggregate demand price. This level cannot be greater than full employment, i.e. the real wage cannot be less than the marginal disutility of labour. But there is no reason in general for expecting it to be equal to full employment. The effective demand associated with full employment is a special case, only realised when the propensity to consume and the inducement to invest stand in a particular relationship to one another. This particular relationship, which corresponds to the assumptions of the classical theory, is in a sense an optimum relationship. But it can only exist when, by accident or design, current investment provides an amount of demand just equal to the excess of the aggregate supply price of the output resulting from full employment over what the community will choose to spend on consumption when it is fully employed. 26 J.

There is, therefore, no ground for the belief that a flexible wage policy is capable of maintaining a state of continuous full employment;—any more than for the belief that an open-market monetary policy is capable, unaided, of achieving this result. The economic system cannot be made self-adjusting along these lines. If, indeed, labour were always in a position to take action (and were to do so), whenever there was less than full employment, to reduce its money demands by concerted action to whatever point was required to make money so abundant relatively to the wage-unit that the rate of interest 236 J. M. Keynes would fall to a level compatible with full employment, we should, in effect, have monetary management by the trade unions, aimed at full employment, instead of by the banking system. Nevertheless while a flexible wage policy and a flexible money policy come, analytically, to the same thing, inasmuch as they are alternative means of changing the quantity of money in terms of wage-units, in other respects there is, of course, a world of difference between them.

It follows from this definition that the equality of the real wage to the marginal disutility of employment presupposed by the second postulate, realistically interpreted, corresponds to the absence of ‘involuntary’ unemployment. This state of affairs we shall describe as ‘full’ employment, both ‘frictional’ and ‘voluntary’ unemployment being consistent with ‘full’ employment thus defined. This fits in, we shall find, with other characteristics of the classical theory, which is best regarded as a theory of distribution in conditions of full employment. So long as the classical postulates hold good, unemployment, which is in the above sense involuntary, cannot occur. Apparent unemployment must, therefore, be the result either of temporary loss of work of the ‘between jobs’ type or of intermittent demand for highly specialised resources or of the effect of a trade union ‘closed shop’ on the employment of free labour.


pages: 142 words: 45,733

Utopia or Bust: A Guide to the Present Crisis by Benjamin Kunkel

anti-communist, Bretton Woods, business cycle, capital controls, Carmen Reinhart, creative destruction, David Graeber, declining real wages, full employment, Hyman Minsky, income inequality, late capitalism, liberal capitalism, liquidity trap, means of production, money: store of value / unit of account / medium of exchange, mortgage debt, Occupy movement, peak oil, price stability, profit motive, savings glut, Slavoj Žižek, The Wealth of Nations by Adam Smith, transatlantic slave trade, War on Poverty, We are the 99%, women in the workforce, Works Progress Administration, zero-sum game

Neither group, at least not their corporations or governments, truly wanted anything like full employment. For the net-exporting countries, full employment would have raised wage costs and threatened competitiveness. For the net-importing countries, full employment would have triggered inflation and so undermined purchasing power and asset prices. True, the lack of full employment spelled inadequate aggregate demand across the system. But an increasingly baroque financial shell game conjured just enough demand to keep things afloat—until it didn’t. Now the world’s exports can no longer be purchased with phantom wages. Now the project of developing internal markets in country after country will encourage the revival of true full employment as a condition of adequate overall demand. Global prosperity will come about not through further concessions from labor, or the elimination of industrial overcapacity by widespread bankruptcy, but through the development of societies in which people can afford to consume more of what they produce, and produce more with the entire labor force at work.

There are plenty of reasons to suspect this is only a daydream, not least the veto that international finance continues to wield over the policies of any country needing to borrow money to stimulate domestic development.* But if the US is to recommit itself to full employment, the first battle will have to be over the very definition of the term. Since Milton Friedman’s 1967 paper on the “natural rate of unemployment,” economic orthodoxy has defined full employment along Friedmanite lines as the Non-Accelerating Inflation Rate of Unemployment, or NAIRU. This is full employment not as common sense would gloss it—a job for all those willing and able to work—but as just enough unemployment for wage demands not to drive up inflation. Today full employment is defined by the Bureau of Labor Statistics as 4.9 percent unemployment. It’s true that full employment as common sense would understand the term has often been accompanied by relatively high inflation: the example of Sweden before 1990 is handiest.

In fact, the opposite is true. For left and mainstream economists alike, full employment has most often been seen as the snake in the garden of postwar prosperity, and the ultimate cause of its demise. The theory is simple enough: full employment raised wages to a level at which they cut too deeply into profits. Businesses could only react by raising consumer prices, leading workers to seek still higher wages. Inflation spiraled upward; profitability still faltered; and economies slid toward stagnation. The only way, then, to preserve “full employment” was to redefine it as an ideal rate of unemployment, just enough so that inflation would not increase. The scope of any left agenda this side of socialism depends on whether we retain this definition of full employment, and what answer we give to the related question of how the Golden Age turned leaden.


Money and Government: The Past and Future of Economics by Robert Skidelsky

anti-globalists, Asian financial crisis, asset-backed security, bank run, banking crisis, banks create money, barriers to entry, Basel III, basic income, Ben Bernanke: helicopter money, Big bang: deregulation of the City of London, Bretton Woods, British Empire, business cycle, capital controls, Capital in the Twenty-First Century by Thomas Piketty, Carmen Reinhart, central bank independence, cognitive dissonance, collapse of Lehman Brothers, collateralized debt obligation, collective bargaining, constrained optimization, Corn Laws, correlation does not imply causation, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, David Graeber, David Ricardo: comparative advantage, debt deflation, Deng Xiaoping, Donald Trump, Eugene Fama: efficient market hypothesis, eurozone crisis, financial deregulation, financial innovation, Financial Instability Hypothesis, forward guidance, Fractional reserve banking, full employment, Gini coefficient, Growth in a Time of Debt, Hyman Minsky, income inequality, incomplete markets, inflation targeting, invisible hand, Isaac Newton, John Maynard Keynes: Economic Possibilities for our Grandchildren, John Maynard Keynes: technological unemployment, Joseph Schumpeter, Kenneth Rogoff, labour market flexibility, labour mobility, law of one price, liberal capitalism, light touch regulation, liquidationism / Banker’s doctrine / the Treasury view, liquidity trap, market clearing, market friction, Martin Wolf, means of production, Mexican peso crisis / tequila crisis, mobile money, Mont Pelerin Society, moral hazard, mortgage debt, new economy, Nick Leeson, North Sea oil, Northern Rock, offshore financial centre, oil shock, open economy, paradox of thrift, Pareto efficiency, Paul Samuelson, placebo effect, price stability, profit maximization, quantitative easing, random walk, regulatory arbitrage, rent-seeking, reserve currency, Richard Thaler, rising living standards, risk/return, road to serfdom, Robert Shiller, Robert Shiller, Ronald Reagan, savings glut, secular stagnation, shareholder value, short selling, Simon Kuznets, structural adjustment programs, The Chicago School, The Great Moderation, the payments system, The Wealth of Nations by Adam Smith, Thomas Malthus, Thorstein Veblen, too big to fail, trade liberalization, value at risk, Washington Consensus, yield curve, zero-sum game

The crucial tool for fiscal policy was the multiplier, whose logic Keynes sketched out in chapter 10 of his book, and which is conventionally written: M = 1/(1–MPC) where M is the magnitude of the multiplier and MPC the marginal propensity to consume. By use of the formula, policymakers could calculate how much 125 T h e R i s e , T r i u m p h a n d Fa l l of K e y n e s extra spending needed to be injected into, or withdrawn from, the circular flow of spending to maintain full employment. The multiplier theory is the fiscal equivalent of the Quantity Theory of Money, and, at full employment, is identical to it. (For technical discussion of the multiplier, see Appendix 5.2, p. 133.) In advocating loan-financed public spending to maintain full employment, Keynes jettisoned the orthodox policy of cutting public spending to balance the budget in a slump. He wrote: it is a complete mistake to believe that there is a dilemma between schemes for increasing employment and schemes for balancing the budget – that we must go slowly and cautiously with the former for fear of injuring the latter.

His political genius was to see that when the problem was one of unused capacity, redistribution was a minor question, which could be postponed until later. But by the same token, his economics threw little light on what would happen to class income shares when his own policies achieved full employment, in conditions of trade-union control of the supply of labour. In such a situation, would capitalism need to recreate Marx’s ‘reserve army of the unemployed’ to restrain wage demands, or would the government be forced to inflate the economy to keep profits racing ahead of wages? The latter is what the economist Jacob Viner assumed would happen when society got accustomed to full employment.74 Keynes himself admitted that he had ‘no solution . . . to the wages problem in a full employment economy’.75 Marxists, too, believed that attempts to overcome the class struggle by inflation would bring only temporary relief. So the great question which Keynes believed he had settled for his own day remained for the future. 131 T h e R i s e , T r i u m p h a n d Fa l l of K e y n e s A ppe n di x 5.1: Con t r a st be t w e e n t h e Cl a ssic a l a n d K e y n e si a n mode l s In the classical model, the economy is always at full employment.

Or were conditions, unlike in the interwar years, sufficiently stimulating to make possible full employment and rapid growth without the need for deliberate Keynesian stimulants? And was the attention Keynesians paid to maintaining near-zero unemployment in an environment exhibiting strong secular tendencies to economic growth responsible for the upsurge of inflation which brought the golden age to an end? We shall discuss these questions at the end of this chapter. The Keynesian age charts a neat parabola of rise and fall. It went through three phases: Full Employment Keynesianism, Growth Keynesianism and Stagflation Keynesianism. I I. F u l l E m pl oy m e n t K e y n e si a n ism : 1945– 6 0 It was Britain and the United States that first adopted Keynesian policy. In both countries, Keynesian economic management was validated by the wartime experience of full employment with relative price stability.9 Unlike in the previous conflict, the economic policymakers (at least Allied ones) seemed to know what they were doing.


pages: 236 words: 67,953

Brave New World of Work by Ulrich Beck

affirmative action, anti-globalists, Asian financial crisis, basic income, Berlin Wall, collective bargaining, conceptual framework, Fall of the Berlin Wall, feminist movement, full employment, future of work, Gunnar Myrdal, hiring and firing, illegal immigration, income inequality, informal economy, job automation, knowledge worker, labour market flexibility, labour mobility, low skilled workers, McJob, means of production, mini-job, post-work, postnationalism / post nation state, profit maximization, purchasing power parity, rising living standards, Silicon Valley, working poor, working-age population, zero-sum game

To bring a certain clarity into this bustling international debate, it makes sense to draw a fundamental distinction between the framework of scenario-building and the challenges of the second modernity. Most of the scenarios revolve around the question of Yes or No, end or recovery of full employment, hopes and worries. And all the time, the leitmotifs of the second modernity – science-based information technology, globalization, individualization and ecological crisis – need to be analysed in their consequences for the future of work. Let us first distinguish the following scenarios within the framework of the full-employment society. If the framework of a full-employment society is replaced with that of a multi-activity society, the collapse scenarios become the occasion for a redefinition of work and of the necessary reforms. Three more future scenarios can then be developed, as questions are raised concerning the distribution between work and activity and the provision of a secure existence.

The ‘reformers’, for their part, base their political opposition upon conflicting accounts of the present state of the work society – for even when the adversaries belong to the same society, they live in different worlds. Here the main dividing line is between those who think that full employment will be possible in the future – provided a few levers and screws are properly adjusted – and those who rule this out. To avoid misunderstandings, the point is not that the work society will run out of work. It is not the end of paid work but the end of full employment which is at issue. Two per cent unemployment, social security in work, normal work relations as the usual case – is all this history? So the basic dispute is over whether the full-employment society has ended for ever or will one day come back. Scenario 1: from the work society to the knowledge society Many authors chase away, as if it were a troublesome fly, the human concern that the revolutionary rationalization based on information technology is designed, if not to eliminate, then to thin out paid employment.

For example, the number of people out of work rose dramatically in the crisis years of 1967 and 1975, only to fall again subsequently below 300,000. Apart from these exceptional periods, full employment remained the rule. But then the oil crisis destroyed this shining world of the full employment society. Slight conjunctural fluctuations aside, the number of unemployed rose tenfold between 1970 and 1996.22 Thus, ever since the 1970s unemployment has been constantly rising and the amount of work per capita has been constantly falling. This conclusion, which is used to counter the optimistic view that information technology will bring full employment, suggests that although the knowledge society is opening up new fields of work, it is gradually easing itself away from the normal work society. If it is true that technologically advanced capitalism reduces the number of well-paid and secure full-time jobs, then societies of the second modernity will have to choose between conflicting paths of development.


pages: 338 words: 104,684

The Deficit Myth: Modern Monetary Theory and the Birth of the People's Economy by Stephanie Kelton

2013 Report for America's Infrastructure - American Society of Civil Engineers - 19 March 2013, Affordable Care Act / Obamacare, American Society of Civil Engineers: Report Card, Asian financial crisis, bank run, Bernie Madoff, Bernie Sanders, blockchain, Bretton Woods, business cycle, capital controls, central bank independence, collective bargaining, COVID-19, Covid-19, currency manipulation / currency intervention, currency peg, David Graeber, David Ricardo: comparative advantage, decarbonisation, deindustrialization, discrete time, Donald Trump, eurozone crisis, fiat currency, floating exchange rates, Food sovereignty, full employment, Gini coefficient, global reserve currency, global supply chain, Hyman Minsky, income inequality, inflation targeting, Intergovernmental Panel on Climate Change (IPCC), investor state dispute settlement, Isaac Newton, Jeff Bezos, liquidity trap, Mahatma Gandhi, manufacturing employment, market bubble, Mason jar, mortgage debt, Naomi Klein, new economy, New Urbanism, Nixon shock, obamacare, open economy, Paul Samuelson, Ponzi scheme, price anchoring, price stability, pushing on a string, quantitative easing, race to the bottom, reserve currency, Richard Florida, Ronald Reagan, shareholder value, Silicon Valley, trade liberalization, urban planning, working-age population, Works Progress Administration, yield curve, zero-sum game

Why not just strive for a better mix of fiscal and monetary policy to keep the economy operating at its full employment potential? Couldn’t we achieve true full employment by asking the Fed to improve the way it runs monetary policy? Or maybe Congress could help fine-tune the economy with better real-time adjustments in government spending and taxation? Recall that the Fed chooses its own definition of full employment. For them, maximum employment is defined as the level of unemployment it believes is necessary to hit its inflation target. In other words, although it’s legally responsible for full employment and price stability, one goal takes clear priority over the other. If it takes eight or ten million unemployed people to stabilize prices, then that is how the Fed defines full employment. It’s counterintuitive to define full employment as a certain level of unemployment.

Kelton, Public Service Employment: A Path to Full Employment, Levy Economics Institute of Bard College, April 2018, www.levyinstitute.org/pubs/rpr_4_18.pdf. 24. Economists have proposed different versions of a job guarantee. This chapter features the version put forward by leading MMT economists. Workers would be paid $15/hr along with benefits (health care, childcare, and paid leave). For an alternative version that incorporates differential compensation based on experience and other considerations, see Mark Paul, William Darity Jr., and Darrick Hamilton, “The Federal Job Guarantee—A Policy to Achieve Permanent Full Employment,” Center on Budget and Policy Priorities, March 9, 2018, https://www.cbpp.org/research/full-employment/the-federal-job-guarantee-a-policy-to-achieve-permanent-full-employment. 25. It is not a make-work scheme.

It may be hard to imagine an economy that doesn’t allow millions to fall by the wayside. But that’s because America has almost never achieved anything like true full employment. It’s something we’ve rarely experienced, outside of wartime. One of the most important features of a job guarantee program is that it maintains a form of full employment by immediately rehiring the unemployed into public service work, providing them with income and the retraining required when they are displaced by trade shocks. In this way, the job guarantee can serve as the core of a response to both “free trade” and the “trade war.” With a job guarantee, free trade is no longer a threat to full employment, and trade wars are no longer necessary to prevent unemployment. Trade negotiations can then focus on labor standards and environmental sustainability, with the US using its market power to promote acceptable working conditions and environment standards worldwide.16 Today, Chinese firms sell American households many environmentally unfriendly products.


pages: 515 words: 142,354

The Euro: How a Common Currency Threatens the Future of Europe by Joseph E. Stiglitz, Alex Hyde-White

bank run, banking crisis, barriers to entry, battle of ideas, Berlin Wall, Bretton Woods, business cycle, buy and hold, capital controls, Carmen Reinhart, cashless society, central bank independence, centre right, cognitive dissonance, collapse of Lehman Brothers, collective bargaining, corporate governance, correlation does not imply causation, credit crunch, Credit Default Swap, currency peg, dark matter, David Ricardo: comparative advantage, disintermediation, diversified portfolio, eurozone crisis, Fall of the Berlin Wall, fiat currency, financial innovation, full employment, George Akerlof, Gini coefficient, global supply chain, Growth in a Time of Debt, housing crisis, income inequality, incomplete markets, inflation targeting, information asymmetry, investor state dispute settlement, invisible hand, Kenneth Arrow, Kenneth Rogoff, knowledge economy, light touch regulation, manufacturing employment, market bubble, market friction, market fundamentalism, Martin Wolf, Mexican peso crisis / tequila crisis, money market fund, moral hazard, mortgage debt, neoliberal agenda, new economy, open economy, paradox of thrift, pension reform, pensions crisis, price stability, profit maximization, purchasing power parity, quantitative easing, race to the bottom, risk-adjusted returns, Robert Shiller, Robert Shiller, Ronald Reagan, savings glut, secular stagnation, Silicon Valley, sovereign wealth fund, the payments system, The Rise and Fall of American Growth, The Wealth of Nations by Adam Smith, too big to fail, transaction costs, transfer pricing, trickle-down economics, Washington Consensus, working-age population

REFORMING THE STRUCTURE OF THE EUROZONE Reforms of the structure of the eurozone itself should aim at an economic system that can simultaneously achieve full employment and robust growth in each of the member countries with sustainable current account deficits in the absence of flexible exchange rates and independent monetary policies. There needs to be a fundamental commitment of the eurozone to maintain the economies at full employment. Markets do not on their own maintain full employment, and markets on their own are not in general stable. In the absence of government intervention, there can be persistent unemployment and high instability. Most critics of the euro crisis policies have focused on austerity, and rightly so. But without appropriate reforms in the structure of the eurozone—the institutions, rules, and regulations that govern it—restoring the countries to full employment will lead to unmanageable current account deficits.

If it borrows short-term, then the borrower may immediately face a problem: if it is the government, it confronts a fiscal deficit, as the interest rate it has to pay for funds increases immediately. Highly indebted households and firms can go bankrupt, because they cannot meet their debt obligations. The countries within Europe differed in these and other ways, implying that it was virtually impossible for them all to attain full employment and external balance simultaneously, in the absence of other institutional arrangements of the kind found in the United States. The eurozone failed to put into place these institutional arrangements. MAINTAINING FULL EMPLOYMENT An economy facing an economic slump has three primary mechanisms to restore full employment: lower interest rates, to stimulate consumption and investment; lower exchange rates, to stimulate exports; or use fiscal policy—increasing spending or decreasing taxes. The common currency eliminated the first two mechanisms, but then the convergence criteria effectively eliminated the use of fiscal policy.

STRUCTURAL REFORM #5: A EUROZONE STRUCTURE THAT PROMOTES FULL EMPLOYMENT AND GROWTH FOR ALL OF EUROPE—MACROECONOMICS Even if the eurozone were to manage all of these reforms and if the countries within it were finally to converge—or at least move closer together—full employment or high growth would not be guaranteed. Europe could have a stable economy beset by low growth and high unemployment. Indeed, that is the direction in which Europe seems to have been moving. It feels self-satisfied if it manages to prevent another crisis—even if a quarter of its young people are unemployed, and even if growth is mediocre at best. There are reforms in both the macroeconomic framework of the eurozone and in the eurozone structure itself that would facilitate full employment with sustainable growth. The key macroeconomic reform is changing the mandate of the ECB.


pages: 270 words: 73,485

Hubris: Why Economists Failed to Predict the Crisis and How to Avoid the Next One by Meghnad Desai

"Robert Solow", 3D printing, bank run, banking crisis, Berlin Wall, Big bang: deregulation of the City of London, Bretton Woods, BRICs, British Empire, business cycle, Capital in the Twenty-First Century by Thomas Piketty, Carmen Reinhart, central bank independence, collapse of Lehman Brothers, collateralized debt obligation, correlation coefficient, correlation does not imply causation, creative destruction, Credit Default Swap, credit default swaps / collateralized debt obligations, David Ricardo: comparative advantage, deindustrialization, demographic dividend, Eugene Fama: efficient market hypothesis, eurozone crisis, experimental economics, Fall of the Berlin Wall, financial innovation, Financial Instability Hypothesis, floating exchange rates, full employment, German hyperinflation, Gunnar Myrdal, Home mortgage interest deduction, imperial preference, income inequality, inflation targeting, invisible hand, Isaac Newton, Joseph Schumpeter, Kenneth Arrow, Kenneth Rogoff, laissez-faire capitalism, liquidity trap, Long Term Capital Management, market bubble, market clearing, means of production, Mexican peso crisis / tequila crisis, mortgage debt, Myron Scholes, negative equity, Northern Rock, oil shale / tar sands, oil shock, open economy, Paul Samuelson, price stability, purchasing power parity, pushing on a string, quantitative easing, reserve currency, rising living standards, risk/return, Robert Shiller, Robert Shiller, Ronald Reagan, savings glut, secular stagnation, seigniorage, Silicon Valley, Simon Kuznets, The Chicago School, The Great Moderation, The inhabitant of London could order by telephone, sipping his morning tea in bed, the various products of the whole earth, The Wealth of Nations by Adam Smith, Tobin tax, too big to fail, women in the workforce

But no one, however, had read that far and there has been no explicit recognition of his argument about the cycle. Keynes told the world that a capitalist economy could have two alternative states of equilibrium – one at full employment and the other at less than full employment. The economy might get stuck at the underemployment equilibrium for prolonged periods of time unless deliberately moved. The postwar data showed that the economy was cruising along at full employment. There were short lapses from full employment, but these were quickly corrected thanks to the “built-in” stabilizers – unemployment compensation, social security, old age pensions – which kept demand up even when unemployment was rising. The result of the continuous full employment was that any interest in business cycles disappeared from academia just 20 years after Schumpeter had written his two-volume classic, Business Cycles.

The marginal propensity to consume (MPC) – the ratio of additional consumption to additional income – was less than one. The intersection of the two curves – aggregate demand and aggregate supply – determined total employment. Keynes’s argument was that this level of employment might fall short of full employment; there might be workers willing to work who would not find employment. They were involuntarily unemployed. Aggregate demand was inadequate to ensure full employment. But if aggregate demand fell short of the full employment level, how could demand be raised to the level at which full employment would result? Consumption was determined by income and largely workers’ income. Income could only rise if there was an increase in employment but employment itself would only rise if incomes rose. Thus there is circularity in relying on consumption to raise employment.

The rejectionists had been waiting for such an event and pounced. As orthodox economists, they championed not only laissez-faire but also the quantity theory of money, which could explain inflation. Keynes had rejected the quantity theory as irrelevant for economies with mass unemployment. At full employment, he did acknowledge that the quantity theory would come into its own. Describing how the economy would behave if it got close to full employment, he wrote “We have reached … a situation (i.e. full employment) in which the crude quantity theory of money (interpreting ‘velocity’ to mean ‘income-velocity’) is fully satisfied; for output does not alter and prices rise in exact proportion to MV.”12 But his followers would have none of it. Money for them was a passive variable in driving the economy, and prices were determined not by money but by production costs.


pages: 494 words: 132,975

Keynes Hayek: The Clash That Defined Modern Economics by Nicholas Wapshott

"Robert Solow", airport security, banking crisis, Bretton Woods, British Empire, business cycle, collective bargaining, complexity theory, creative destruction, cuban missile crisis, Francis Fukuyama: the end of history, full employment, Gordon Gekko, greed is good, Gunnar Myrdal, if you build it, they will come, Isaac Newton, Joseph Schumpeter, Kickstarter, liquidationism / Banker’s doctrine / the Treasury view, means of production, Mont Pelerin Society, mortgage debt, New Journalism, Northern Rock, Paul Samuelson, Philip Mirowski, price mechanism, pushing on a string, road to serfdom, Robert Bork, Ronald Reagan, Simon Kuznets, The Chicago School, The Great Moderation, The Wealth of Nations by Adam Smith, Thomas Malthus, trickle-down economics, War on Poverty, Yom Kippur War

Truman Library, Independence, Mo., pp. 25–26. 16 Full Employment Bill of 1945, in Stephen Kemp Bailey, Congress Makes a Law: The Story behind the Employment Act of 1946 (Vintage, New York, 1964), p. 57. 17 U.S. Senate, Assuring Full Employment in a Free Competitive Economy. Report from the Committee on Banking and Currency, S. Rept. 583, 79th Congress, 1st session (Government Printing Office, Washington, D.C., September 22, 1945), p. 81. 18 Harry S. Truman (1884–1972), 33rd president of the United States (1945–53). 19 Full Employment Bill of 1945, section 2 (b–c). 20 Seymour E. Harris, “Some Aspects of the Murray Full Employment Bill,” Review of Economics and Statistics, vol. 27, no. 3, August 1945, pp. 104–106. 21 Gottfried Haberler, “Some Observations on the Murray Full Employment Bill,” Review of Economics and Statistics, vol. 27, no. 3, August 1945, pp. 106–109. 22 Employment Act of 1946, section 2. 23 Edwin Griswold Nourse (1883–1974), agricultural economist and chairman of the Council of Economic Advisers (1946–49). 24 Oral history interview with Edwin Nourse by Jerry N.

More distressing to Hayek, perhaps, was that Beveridge’s amanuensis both for the Beveridge Report, presaging nationalized social security and the National Health Service, and for full employment as national policy was Hayek’s star pupil, Nicholas Kaldor. Hayek conceded, with irritation, that “Kaldor, through the Beveridge Report, has done more to spread Keynesian thinking than almost anybody else.”8 The notion of full employment as a government’s prime responsibility was not restricted to Britain. The Australian Labor premier John Curtin in 1945 introduced “Full Employment in Australia,” mandating the government to find a job for everyone capable of working. The same year, drafters of the Charter of the United Nations included a pledge that all governments should strive for “higher standards of living, full employment, and conditions of economic and social progress.”9 The UN took a further step in 1948 when it declared, “Everyone has the right to work, to free choice of employment, to just and favourable conditions of work and to protection against unemployment.”10 War-torn Europe became a laboratory for Keynesianism.

“Suddenly everyone was looking to restrain inflation, cut deficit spending, reduce regulation, and encourage investment.”91 But the old thinking was hard to jettison. The ever-smiling Georgia peanut farmer and former submariner Jimmy Carter reached the White House on the Keynesian pledge of returning America to full employment. In 1978, he approved the Humphrey-Hawkins Full Employment Act,92 a reprise of the Full Employment Bill of 1945, mandating the president and the Federal Reserve to keep aggregate demand high enough to maintain full employment. In apparent contradiction, the act also directed the president and Congress to balance both the budget and the balance of trade. Like Canute93 commanding the tides, legislators were proving their impotence. Wishful thinking and majorities in Congress were not enough to beat stagflation.


pages: 90 words: 27,452

No More Work: Why Full Employment Is a Bad Idea by James Livingston

Affordable Care Act / Obamacare, business cycle, collective bargaining, delayed gratification, full employment, future of work, Internet of things, John Maynard Keynes: Economic Possibilities for our Grandchildren, labor-force participation, late capitalism, liberal capitalism, obamacare, post-work, Project for a New American Century, Ralph Waldo Emerson, Robert Gordon, Ronald Reagan, Silicon Valley, surplus humans, The Future of Employment, union organizing, working poor

In fact, they’ve become ridiculous, because there’s not enough work to go around, and what there is of it won’t pay the bills—unless, of course, you’ve landed a job as a drug dealer or a Wall Street banker, becoming a gangster either way. These days everybody from Left to Right—from Dean Baker to Arthur C. Brooks—addresses this breakdown of the labor market by advocating full employment, as if having a job is self-evidently a good thing, no matter how dangerous, demanding, or demeaning it is. But “full employment” is not the way to restore our faith in hard work, or playing by the rules, or whatever (note that the official unemployment rate is already below 6 percent, which is pretty close to what economists used to call full employment). Shitty jobs for everyone won’t solve any social problem we now face. Don’t take my word for it, look at the numbers. Already a fourth of the adults actually employed in the United States are paid wages lower than would lift them above the official poverty line—and so a fourth of American children live in poverty.

Still, unlike contemporary politicians, academics, journalists, and intellectuals, whether liberal, conservative, or radical, they didn’t turn away from either the threat or the promise. In their view, “full employment” was a receding horizon, almost a hopeless dream, not a self-evident purpose, and they acted accordingly. The world these people glimpsed is the reality of our time. But back then, full employment was not the uniform answer to the moral questions and economic issues attending the problem. Journalists, academics, intellectuals, and legislators agreed instead that neither private enterprise nor the government could create enough remunerative jobs. So they searched for alternatives to work—they tried to decouple income from occupations. We ought to be in the same hunt. Of course we can (A) try to create more jobs by whatever means, public or private, and move toward “full employment”—meanwhile hoping that a more intelligible, more justifiable relation between work performed and income received is created as a result.

No More Work No More WORK Why Full Employment Is a Bad Idea James Livingston The University of North Carolina Press Chapel Hill This book was published with the assistance of the Anniversary Fund of the University of North Carolina Press. © 2016 James Livingston All rights reserved Designed and set by Jamison Cockerham Set in Scala, designed by Martin Majoor Jacket illustration: Horizontal Breaking Paperclip Chain on Yellow, © Vince Clements/Shutterstock.com. Manufactured in the United States of America The University of North Carolina Press has been a member of the Green Press Initiative since 2003. LIBRARY OF CONGRESS CATALOGING-IN-PUBLICATION DATA Names: Livingston, James, 1949– Title: No more work : why full employment is a bad idea / James Livingston. Description: Chapel Hill: The University of North Carolina Press, [2016] | “This book was published with the assistance of the Anniversary Fund of the University of North Carolina Press.” | Includes bibliographical references.


Not Working by Blanchflower, David G.

active measures, affirmative action, Affordable Care Act / Obamacare, Albert Einstein, bank run, banking crisis, basic income, Berlin Wall, Bernie Madoff, Bernie Sanders, Black Swan, Boris Johnson, business cycle, Capital in the Twenty-First Century by Thomas Piketty, Carmen Reinhart, Clapham omnibus, collective bargaining, correlation does not imply causation, credit crunch, declining real wages, deindustrialization, Donald Trump, estate planning, Fall of the Berlin Wall, full employment, George Akerlof, gig economy, Gini coefficient, Growth in a Time of Debt, illegal immigration, income inequality, indoor plumbing, inflation targeting, job satisfaction, John Bercow, Kenneth Rogoff, labor-force participation, liquidationism / Banker’s doctrine / the Treasury view, longitudinal study, low skilled workers, manufacturing employment, Mark Zuckerberg, market clearing, Martin Wolf, mass incarceration, meta analysis, meta-analysis, moral hazard, Nate Silver, negative equity, new economy, Northern Rock, obamacare, oil shock, open borders, Own Your Own Home, p-value, Panamax, pension reform, plutocrats, Plutocrats, post-materialism, price stability, prisoner's dilemma, quantitative easing, rent control, Richard Thaler, Robert Shiller, Robert Shiller, Ronald Coase, selection bias, selective serotonin reuptake inhibitor (SSRI), Silicon Valley, South Sea Bubble, Thorstein Veblen, trade liberalization, universal basic income, University of East Anglia, urban planning, working poor, working-age population, yield curve

Central banks have wrongly concluded full employment is near at hand when it isn’t. Once economies reach full employment, workers are standing by, as in the past, waiting for decent job offers. Good. The elites have said this would be inflationary—but they have been wrong so many times, why believe them? The problem now, as we will see, is both price inflation and wage inflation are both too low, not too high. Past remedies have failed. Now is the time for a big rethink. I see no reason why advanced economies need to continue to run on empty. The fix is to get the unemployment rate in advanced countries down to levels not seen since the 1940s and 1950s; this can plausibly be done. At full employment the country would not be running on empty. If we were anywhere close to full employment so many people wouldn’t be hurting.

In the UK real wages in 2018 are 6 percent below their 2008 level. Because of the high levels of labor market slack around the world, wages are the dog that hasn’t barked. If there were no labor market slack, meaning economies were at what’s considered “full employment,” wages would be rising, as employers would have to attract workers from competitors, given there are so few people without jobs looking for work. To do that they would have to raise wages. The fact that they haven’t suggests full employment is a faraway dream. Despite this reality the Federal Reserve Board, known as “the Fed,” believes the United States is at full employment and wage growth is set to rise, and hence they are raising interest rates. This looks like a mistake. Pain, Immigration, and Politics Recessions, slow recoveries, and policy mistakes have consequences. Pain is up, depression and stress are up, binge drinking is up, obesity is up, and drug addiction is up.

There is considerable variation in these groups across countries, implying that there is no straightforward relationship that could be exploited to predict the U.S. underemployment rate. This seems a major omission. Table 5.3. Share of Excess Hours (%) As an economy moves toward full employment opportunities should increasingly present themselves for underemployed workers who want more hours and overemployed workers who want fewer hours to overcome their hours constraints. Full employment opens up possibilities as more jobs become available. One possibility for those who want more hours is to obtain a second job. A further possibility would be for employees to switch to self-employment, where they could choose their own hours. Self-employment could be a secondary or primary job. This should be especially apparent as the economy moves closer to full employment. There is no evidence in the data so far to support such a claim in the United States or the UK on either front in the recent period when the unemployment rate dropped below 5 percent to 4 percent and lower.


pages: 408 words: 108,985

Rewriting the Rules of the European Economy: An Agenda for Growth and Shared Prosperity by Joseph E. Stiglitz

Airbnb, balance sheet recession, bank run, banking crisis, barriers to entry, Basel III, basic income, Berlin Wall, bilateral investment treaty, business cycle, business process, Capital in the Twenty-First Century by Thomas Piketty, central bank independence, collapse of Lehman Brothers, collective bargaining, corporate governance, corporate raider, corporate social responsibility, creative destruction, credit crunch, deindustrialization, discovery of DNA, diversified portfolio, Donald Trump, eurozone crisis, Fall of the Berlin Wall, financial intermediation, Francis Fukuyama: the end of history, full employment, gender pay gap, George Akerlof, gig economy, Gini coefficient, hiring and firing, housing crisis, Hyman Minsky, income inequality, inflation targeting, informal economy, information asymmetry, intangible asset, investor state dispute settlement, invisible hand, Isaac Newton, labor-force participation, liberal capitalism, low skilled workers, market fundamentalism, mini-job, moral hazard, non-tariff barriers, offshore financial centre, open economy, patent troll, pension reform, price mechanism, price stability, purchasing power parity, quantitative easing, race to the bottom, regulatory arbitrage, rent-seeking, Robert Shiller, Robert Shiller, Ronald Reagan, selection bias, shareholder value, Silicon Valley, sovereign wealth fund, TaskRabbit, too big to fail, trade liberalization, transaction costs, transfer pricing, trickle-down economics, tulip mania, universal basic income, unorthodox policies, zero-sum game

This chapter has outlined a broad set of approaches for how Europe can achieve full employment, or at least steer toward that goal in all countries simultaneously. Solving Europe’s macroeconomic problem, namely ensuring that aggregate demand is sufficiently strong so that there is full employment across Europe, is a condition for achieving shared prosperity. Higher incomes and low unemployment would open up greater possibilities for public investment, directly reduce inequality, promote growth, and create the fiscal space adequate to test new ideas to achieve the inclusive, equitable, and sustainable growth that Europe seeks. This chapter has focused on one key set of instruments: fiscal policy to ensure full employment. The other major instrument is monetary policy, to which we now turn in Chapter 2

However, if demand does not move in tandem with supply, structural policies have no effect on output since there is already excess supply. In such a case, policies can simply exacerbate the gap between demand and supply. Over the long run, such policies may have a positive effect on standards of living, for if and when aggregate demand increases enough to restore the economy to full employment, output at full employment will be higher. But an economy has to get to full employment first. For that reason, we are focusing on the short-run impact here. In the short run, structural reforms increase output if they increase aggregate demand and decrease output if they decrease aggregate demand. A review of the structural reforms imposed by the Troika in the euro crisis makes clear that most of them worsened the downturn. The labor market reforms enabled firms to lower wages, the immediate impact of which was a lowering of demand.

The most important policy for workers is for the government to maintain full employment. The gross insufficiency of aggregate demand that has long been part of much of Europe’s policy framework contributes directly and indirectly to the problems of workers. Directly, because those without jobs suffer now, and their future job prospects diminish the longer they remain unemployed. Indirectly, because high levels of unemployment weaken the bargaining power of workers, which drives down wages. Chapters 1, 2, and 3 focused on the kinds of macro-policies and European rules that are most likely to lead to full employment. However, structural policies matter as well, and in this chapter we discuss the role of what are known as active labor market and industrial policies. Even with full employment, European workers might not have done well because of weakened bargaining power.


Universal Basic Income and the Reshaping of Democracy: Towards a Citizens’ Stipend in a New Political Order by Burkhard Wehner

basic income, business cycle, full employment, universal basic income

Such a decision could therefore be morally well-founded even if political constraints allowed only a modest initial level of a citizens’ stipend. 3.4 Basic Income, Minimum Wage and Full Employment Guarantee If under a basic income scheme the citizens’ stipend alone is not sufficient for an adequate livelihood, then all members of the work force—at least all those who cannot live on savings—will want to earn a work income. For all these individuals there must then be work opportunities on acceptable terms, so that the sum of work income and citizens’ stipend ensures the minimum standard of living as stipulated. In this sense, full employment conditions must be fulfilled. In the recent past, such full employment conditions have proved no longer attainable in most countries. In a society with a basic income system, the circumstances could be fundamentally different. A citizens’ stipend would create conditions in the labor market that would make full employment objectives easier to achieve.

A citizens’ stipend is, however, not only a system of material redistribution, but affects social justice in a much broader moral sense. It does so particularly in its capacity as a full employment scheme. A distributional justice associated with full employment is morally superior to a purely arithmetic distributional justice, particularly because the unemployed can in part be assumed 16 3 A Long-Term Vision to belong to the least advantaged of a society. Full employment therefore not only improves the overall perception of social conditions, but also benefits those who are the materially and immaterially most needy. A citizens’ stipend system would, however, be superior to a conventional system even if it neither raised the minimum income nor ensured full employment. The system would be superior because the payment of citizens’ stipend is not subject to any preconditions.

Workers incapable of higher performance would not on that ground be excluded from the labor market. In this way, a citizens’ stipend could generate full employment conditions. Market processes alone, however, would not provide a guarantee that a sufficient minimum wage at this reduced level is actually paid. To ensure this, it may be necessary to establish a low statutory minimum wage at precisely this level. 3.4 Basic Income, Minimum Wage and Full Employment Guarantee 15 In combination with such a statutory minimum wage, a citizens’ stipend could reliably provide for the politically intended minimum standard of living for all employed. On the other hand, even a low minimum wage is a potential obstacle to employment and to full employment in particular. Therefore, additional policy tools could be necessary to ensure that actually all members of the work force can find acceptable work.


pages: 330 words: 77,729

Big Three in Economics: Adam Smith, Karl Marx, and John Maynard Keynes by Mark Skousen

"Robert Solow", Albert Einstein, banking crisis, Berlin Wall, Bretton Woods, business climate, business cycle, creative destruction, David Ricardo: comparative advantage, delayed gratification, experimental economics, financial independence, Financial Instability Hypothesis, full employment, Hernando de Soto, housing crisis, Hyman Minsky, inflation targeting, invisible hand, Isaac Newton, John Maynard Keynes: Economic Possibilities for our Grandchildren, John Maynard Keynes: technological unemployment, Joseph Schumpeter, Kenneth Arrow, laissez-faire capitalism, liberation theology, liquidity trap, means of production, microcredit, minimum wage unemployment, money market fund, open economy, paradox of thrift, Pareto efficiency, Paul Samuelson, price stability, pushing on a string, rent control, Richard Thaler, rising living standards, road to serfdom, Robert Shiller, Robert Shiller, rolodex, Ronald Coase, Ronald Reagan, school choice, secular stagnation, Simon Kuznets, The Chicago School, The Wealth of Nations by Adam Smith, Thomas Malthus, Thorstein Veblen, Tobin tax, unorthodox policies, Vilfredo Pareto, zero-sum game

Keynes explained what he meant by "unemployment equilibrium," but used no diagram to illustrate it. In a masterful article, "Mr. Keynes and the Classics," British economist John Hicks developed a graphic framework (known as the IS-LM diagram) to demonstrate Keynes's version of full-employment equilibrium (the special classical theory) versus unemployment equilibrium (the general theory) (Hicks 1937). Today's textbooks use a similar diagram to demonstrate aggregate supply (AS) and aggregate demand (AD). In Figure 5.1 we see how the economy is depressed at less than full employment. According to Keynes's model, the classical model only applies when the economy reaches full employment (Qj), while the Keynesian general theory applies at any point along the AS curve where it intersects with the AD curve. Who's to Blame? Irrational Investors! Keynes blamed the instability of capitalism on the bad behavior of investors.

It is set at a fixed amount because, according to Keynes's theory, investment is fickle and varies with the "animal spirits" and expectations of investors and businessmen. So the investment schedule is set at any level, unrelated to income. Equilibrium (M) is set at the point where S = I, which you will note falls short of full-employment income (F). Thus, the Keynesian cross reflects underemployment equilibrium. This static equilibrium model represents Samuelson's (and Keynes's) view that capitalism is inherently unstable and can be stuck indefinitely at less than full employment (M). No "automatic mechanism" guarantees full employment in the capitalist economy (Samuelson andNordhaus 1985,139). Samuelson compared capitalism to a car without a steering wheel; it frequently runs off the road and crashes: "The private economy is not unlike a machine without an effective steering wheel or governor," he wrote.

Sidney and Beatrice Webb returned from the Soviet Union brimming with optimism, firm in their belief that Stalin had inaugurated a "new civilization" of full employment and economic superiority. Was full-scale socialism the only alternative to an unstable capitalist sys"m? Who Would Save Capitalism? More sober intellectuals sought an alternative to wholesale socialism, nationalization, and central planning. Fortunately, there was a powerful voice urging a middle ground, a way to preserve economic liberty without the government taking over the whole economy and destroying the foundations of Western civilization. It was the voice of John Maynard Keynes, leader of the new Cambridge school. In his revolutionary 1936 book, The General Theory of Employment, Interest and Money, Keynes preached that capitalism is inherently unstable and has no natural tendency toward full employment. Yet, at the same time, he rejected the need to na-tionalize the economy, impose price-wage controls, and interfere with the microfoundations of supply and demand.


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The People: The Rise and Fall of the Working Class, 1910-2010 by Selina Todd

call centre, collective bargaining, conceptual framework, credit crunch, deindustrialization, deskilling, different worldview, Downton Abbey, financial independence, full employment, income inequality, longitudinal study, manufacturing employment, Neil Kinnock, New Urbanism, Red Clydeside, rent control, Right to Buy, rising living standards, sexual politics, strikebreaker, The Spirit Level, unemployed young men, union organizing, upwardly mobile, urban renewal, Winter of Discontent, women in the workforce, young professional

He could not have envisioned Labour’s landslide election victory in 1945, on a pledge to maintain full employment and a welfare state as thanks to the workers on whom victory had depended. The Second World War was the people’s war. It marked one of two major turning points in the twentieth century, heralding a period of full employment and comprehensive welfare provision that was only brought to an end by the second turning point: the election of Margaret Thatcher to government in 1979. During the war the government struck a contract with the people: work hard in return for a guaranteed job, a living wage and care in times of need. This bargain evolved because the demand for munitions and men created full employment in Britain for the first time, and the workers themselves used this to strengthen their collective bargaining power.

Local activists, voting figures and opinion polls revealed that Labour had continued to poll strongly in working-class constituencies, though the party had lost ground in some middle-class areas. The Conservatives concluded that Labour’s attractions were, in order of importance: ‘full employment, the National Health Service and social services, Fair Shares, bigger wage-packets [and] “Tory Misrule”’: voters vividly recalled the hungry thirties. While some middle-class voters were greatly attracted by the Conservatives’ commitment to cut income tax, working-class voters in particular were put off by the ‘vagueness of [Conservative] policy for full employment’, ‘cuts in food subsidies’ – including the promise to end rationing – and by ‘Churchill – seen as a warmonger’.50 Yet just one year later, on 26 October 1951, the Labour Party lost the general election. Winston Churchill’s Conservative Party returned to power.

But the yard was ‘like the old system of barons and serfs. There’s too much class distinction.’59 Post-war welfare and educational reforms, together with near-full employment and Labour’s rhetoric of equality and technological innovation, gave young workers a new confidence in their right to be listened to. They were angry to discover that most employers had no intention of consulting them. Wilson’s attitude to the strikers did nothing to assuage their anger. After the election of 1966, the government stopped talking so much about ending social inequality. Changes in the international economic situation were one cause: in the face of foreign manufacturing competition, Wilson fell silent on the issue of full employment, and instead focused on eradicating the most extreme cases of poverty. While this represented a progression from the 1950s, when poverty was rarely a subject for political debate, his approach implied that most workers’ lives were entirely satisfactory.


pages: 471 words: 97,152

Animal Spirits: How Human Psychology Drives the Economy, and Why It Matters for Global Capitalism by George A. Akerlof, Robert J. Shiller

"Robert Solow", affirmative action, Andrei Shleifer, asset-backed security, bank run, banking crisis, business cycle, buy and hold, collateralized debt obligation, conceptual framework, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, Daniel Kahneman / Amos Tversky, Deng Xiaoping, Donald Trump, Edward Glaeser, en.wikipedia.org, experimental subject, financial innovation, full employment, George Akerlof, George Santayana, housing crisis, Hyman Minsky, income per capita, inflation targeting, invisible hand, Isaac Newton, Jane Jacobs, Jean Tirole, job satisfaction, Joseph Schumpeter, Long Term Capital Management, loss aversion, market bubble, market clearing, mental accounting, Mikhail Gorbachev, money market fund, money: store of value / unit of account / medium of exchange, moral hazard, mortgage debt, Myron Scholes, new economy, New Urbanism, Paul Samuelson, plutocrats, Plutocrats, price stability, profit maximization, purchasing power parity, random walk, Richard Thaler, Robert Shiller, Robert Shiller, Ronald Reagan, South Sea Bubble, The Chicago School, The Death and Life of Great American Cities, The Wealth of Nations by Adam Smith, too big to fail, transaction costs, tulip mania, working-age population, Y2K, Yom Kippur War

The first such target— and the only one that would be needed in a normal recession—would be a monetary policy and a fiscal policy that would be jointly sufficient to return the economy to full employment. But because of the severe credit crunch, which has been induced by the low state of confidence, such a stimulus is not enough. Indeed, in the face of the credit crunch, it might take very large increases in government expenditures or tax reductions to reach full employment. So we argue that government macroeconomic policy should have a second, intermediate target. Credit flows should also be targeted at the level that would normally prevail at full employment. In the postscript to Chapter 7 we shall describe how the Federal Reserve has developed clever schemes that could enable it to achieve such a target even in these dire times.

The two targets provide such a gauge. Standard macro models are fairly accurate regarding the monetary-fiscal stimulus necessary to achieve full employment. But financial markets must also be targeted. The financial system is not the same as it was just a few months ago, before the fall of Humpty Dumpty. Only a portion of its prior self is now operating. The aggregate demand target will indicate, on the one hand, the fiscal stimulus and interest rate policy needed for full employment. The credit target will show what judicious application of methods 1, 2, and 3 must achieve: together they must create the financial flows—the issuance of commercial paper, bonds, and other instruments—that are also associated with full employment. The targets are needed not just to devise a plan that stands a good chance of getting us back to recovery.

In America the Employment Act of 1946 made the maintenance of full employment a federal responsibility. Keynesian principles regarding the role of fiscal and monetary policy in fighting recessions became fully incorporated into the thinking of economists and politicians, of academics, and of some of the general public. Even the late Milton Friedman has been quoted as saying “We are all Keynesians now”—although he later disavowed his statement.4 And Keynesian macroeconomic policies have largely worked. Yes, there have been ups and downs. Yes, there have been some major upheavals, such as Japan in the 1990s, Indonesia after 1998, and Argentina after 2001. But a bird’s-eye view of the world economy suggests that the entire postwar period has been, and continues to be, a success. Country after country has maintained something like full employment. And now that China and India have moderated their socialist leanings, they too, with their vast populations, have begun to experience economic prosperity and growth.


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Two Nations, Indivisible: A History of Inequality in America: A History of Inequality in America by Jamie Bronstein

Affordable Care Act / Obamacare, back-to-the-land, barriers to entry, basic income, Bernie Sanders, big-box store, blue-collar work, Branko Milanovic, British Empire, Capital in the Twenty-First Century by Thomas Piketty, clean water, cognitive dissonance, collateralized debt obligation, collective bargaining, Community Supported Agriculture, corporate personhood, crony capitalism, deindustrialization, desegregation, Donald Trump, ending welfare as we know it, Frederick Winslow Taylor, full employment, Gini coefficient, income inequality, interchangeable parts, invisible hand, job automation, John Maynard Keynes: technological unemployment, labor-force participation, land reform, land tenure, longitudinal study, low skilled workers, low-wage service sector, mandatory minimum, mass incarceration, minimum wage unemployment, moral hazard, moral panic, mortgage debt, New Urbanism, non-tariff barriers, obamacare, occupational segregation, Occupy movement, oil shock, plutocrats, Plutocrats, price discrimination, race to the bottom, rent control, road to serfdom, Ronald Reagan, Sam Peltzman, Scientific racism, Simon Kuznets, single-payer health, strikebreaker, too big to fail, trade route, transcontinental railway, Triangle Shirtwaist Factory, trickle-down economics, universal basic income, Upton Sinclair, upwardly mobile, urban renewal, wage slave, War on Poverty, women in the workforce, working poor, Works Progress Administration

Unfortunately, given the virulence of anti-Japanese racism during the war, their views were largely ignored.88 The Japanese and Japanese Americans lost their farms, businesses, houses, jobs, and opportunities for work experiences that suited them as individuals. Twenty-five years after internment, those who had been interned were still experiencing annual incomes 9 to 13 percent lower than those Japanese Americans (in Hawaii and outside the evacuation area) who were not interned.89 RIGHT TO FULL EMPLOYMENT Full employment had become so important that by 1944, Roosevelt proposed a second, “economic Bill of Rights,” in his State of the Union message. He hoped to guarantee Americans full employment at a living wage, medical care, and a social safety net—the same kinds of reforms called for in Britain’s Beveridge Report two years before.90 It is worth quoting Roosevelt at some length: We have come to a clear realization of the fact that true individual freedom cannot exist without economic security and independence.

In 1946, Congress passed an Employment Act committing the federal government to maximizing employment, production, and purchasing power “in a manner calculated to foster and promote free competitive enterprise and the general welfare.”8 Unlike the act that had failed to pass in 1945, this 1946 act strove for “maximum employment” rather than full employment, thus paving the way for a postwar consensus that varying degrees of unemployment were acceptable.9 The President’s Council of Economic Advisers (CEA), created by the act, advised successive presidents on policy, but none of the CEA chairmen prioritized government-guaranteed full employment.10 The Republican victory over both houses of Congress in 1946, and Truman’s Cold War military buildup further decreased concern with employment.11 As Cold War ideological divisions hardened into anticommunist hysteria, the degree of central planning that Roosevelt’s notions required may have seemed more Soviet than American to many. In any case, the question of a right to full employment was banished for the time being. Over Truman’s veto, Congress passed the Taft-Hartley Act (1947).

The bill passed handily in the Senate but was defeated in the House.93 Although both parties had expressed a commitment to full employment, the National Association of Manufacturers and the U.S. Chamber of Commerce lobbied against the 1945 bill. They claimed that the bill unprecedentedly interfered with entrepreneurship, that the United States was heading in the direction of totalitarianism, and that economic forecasting was too crude to ensure success. In committee, there was also much debate about the extent to which employment could be an actionable right—even for women, who were still expected to stay home and take care of their families if they could afford to do so—and to what extent it was just a worthy goal.94 When the 1945 act failed to pass, the notion of government-guaranteed full employment would have to wait until 1978 to be seriously pursued again.


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The End of Loser Liberalism: Making Markets Progressive by Dean Baker

Asian financial crisis, banking crisis, Bernie Sanders, business cycle, collateralized debt obligation, collective bargaining, corporate governance, currency manipulation / currency intervention, Doha Development Round, financial innovation, full employment, Home mortgage interest deduction, income inequality, inflation targeting, invisible hand, manufacturing employment, market clearing, market fundamentalism, medical residency, patent troll, pets.com, pirate software, price stability, quantitative easing, regulatory arbitrage, rent-seeking, Robert Shiller, Robert Shiller, Silicon Valley, too big to fail, transaction costs

The Federal Communications Commission (FCC) is an independent agency answerable to Congress, but it would be hard to contest the fact that it often is more responsive to industry concerns than the interests of the general public. But at least Disney and Comcast do not get to directly appoint members of the FCC. Chapter 6 Full Employment without the Fed In principle, the Fed should vigorously pursue policies that promote full employment. [49] However, it does not do so now, nor is it likely to do so in the near future. Under its current structure, the Fed is primarily responsive to the financial industry’s concerns about inflation, and full employment comes in a distant second. A progressive agenda should include efforts to educate the public about the Fed’s importance and its structure, for two reasons: to maintain pressure on the Fed to pursue the full-employment portion of its mandate, and to create support for legally restructuring the institution so that it is more accountable to democratically elected officials.

This raises the question of whether there are other steps that can be taken to move the economy back toward full employment even when the Fed is at best indifferent – if not outright hostile – to this effort. Work sharing: The quickest route back to full employment In the absence of a growing demand for labor that would increase employment, an alternative route is to divide up the existing work among more workers. While this may be an inferior path – there is enormous waste associated with an economy operating below its potential – it may be the only route available given that the possibility of further fiscal stimulus appears to be blocked by political considerations. Yet, in any case, work sharing might be a proper route back to full employment, since there is nothing written in stone about the current length of the work week or work year.

Yet, in any case, work sharing might be a proper route back to full employment, since there is nothing written in stone about the current length of the work week or work year. Work sharing is not a new idea. The idea of shortening work time to create more jobs has a long history. In the context of an economy that is at full employment, the approach might be misguided, since legislated reductions in work time can lead to increased inflationary pressure and economic distortions. However, in an economy that is operating well below its potential and that is projected to remain below potential output for much of the next decade, as is the case with the U.S. economy, work sharing may be the most viable way of bringing the nation back to full employment. Germany is the model in this respect. It has aggressively promoted a policy of work sharing, along with other measures aimed at persuading employers to retain workers. As a result, its unemployment rate stood at 6.1 percent in June 2011, 2.1 percentage points below the rate at the start of the downturn. [50] This remarkable achievement was not due to superior economic growth.


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Inventing the Future: Postcapitalism and a World Without Work by Nick Srnicek, Alex Williams

3D printing, additive manufacturing, air freight, algorithmic trading, anti-work, back-to-the-land, banking crisis, basic income, battle of ideas, blockchain, Boris Johnson, Bretton Woods, business cycle, call centre, capital controls, carbon footprint, Cass Sunstein, centre right, collective bargaining, crowdsourcing, cryptocurrency, David Graeber, decarbonisation, deindustrialization, deskilling, Doha Development Round, Elon Musk, Erik Brynjolfsson, Ferguson, Missouri, financial independence, food miles, Francis Fukuyama: the end of history, full employment, future of work, gender pay gap, housing crisis, income inequality, industrial robot, informal economy, intermodal, Internet Archive, job automation, John Maynard Keynes: Economic Possibilities for our Grandchildren, John Maynard Keynes: technological unemployment, Kickstarter, late capitalism, liberation theology, Live Aid, low skilled workers, manufacturing employment, market design, Martin Wolf, mass immigration, mass incarceration, means of production, minimum wage unemployment, Mont Pelerin Society, neoliberal agenda, New Urbanism, Occupy movement, oil shale / tar sands, oil shock, patent troll, pattern recognition, Paul Samuelson, Philip Mirowski, post scarcity, post-work, postnationalism / post nation state, precariat, price stability, profit motive, quantitative easing, reshoring, Richard Florida, rising living standards, road to serfdom, Robert Gordon, Ronald Reagan, Second Machine Age, secular stagnation, self-driving car, Slavoj Žižek, social web, stakhanovite, Steve Jobs, surplus humans, the built environment, The Chicago School, The Future of Employment, Tyler Cowen: Great Stagnation, universal basic income, wages for housework, We are the 99%, women in the workforce, working poor, working-age population

In recent years, global growth has remained significantly lower than during the pre-crisis period.132 Across the political spectrum, economists are warning that fundamental changes to the economy mean growth may have settled into a permanently lower state.133 Moreover, firms that are leading growth sectors – such as Facebook, Twitter and Instagram – simply do not create jobs on the scale of classic firms like Ford and GM.134 In fact, new industries currently only employ 0.5 per cent of the American workforce – hardly an inspiring record of job creation.135 And after a steady decline, the average new business creates 40 per cent fewer jobs than it did twenty years ago.136 The old social democratic plan to encourage employment in new industries falters in the face of low labour-intensity firms and sputtering economic growth. Still, it might be imagined that, with the right political pressure and policies, a return to full employment could be an option.137 But, given that the height of the social democratic era required the exclusion of women from the waged workforce, we should in fact wonder whether full employment has ever been possible. If full employment remains operative only as an ideological mystification, its normalisation of work still extends to the unemployed. The transformation of welfare and the rise of workfare – forcing people to work in order to receive benefits – represent an increasingly insidious example of this. Mirroring the changing fortunes of full employment, unemployment has long been governed according to different ideas.138 Initial approaches saw unemployment as an individual accident – something to be mitigated by insurance-like solutions.

The demand to educate workers for jobs held wide support during the high unemployment period of the Great Depression,124 and early neoliberals went so far as to argue that education was necessary only to adapt human beings to the constant changes in the economy.125 Today, the growth areas of the labour market tend to be in high-skilled, non-routine and cognitive jobs.126 This means any attempt at full employment increasingly requires new skills from workers – a demand that helps explain the aggressive efforts to reduce higher education to glorified job training.127 The overall societal aim becomes the production of competitive subjects undergoing constant self-improvement in an endless effort to be deemed ‘employable’.128 The demands that workers be constantly retraining and that policies support healthy economic growth are necessary components to the drive for full employment.129 But while calls for more jobs remain ideologically pervasive, the practical viability of full employment has largely disappeared. With tight labour markets in the postwar era, the ensuing strength of the working class increasingly became a problem for capitalism.

One set of arguments is concerned with the overlapping of particular social groups (for example, black minorities) with the concept of the surplus population. Another, much smaller, set of arguments has been interested in the claim that the surplus population has a secular trend to grow in size. 49.Marx, Capital, Volume I, p. 798. 50.Richard Duboff, ‘Full Employment: The History of a Receding Target’, Politics & Society 7: 1 (1977), pp. 7–8. 51.While NAIRU is debatable as a measure of full employment, the postwar period saw unemployment typically below NAIRU, and the neoliberal period has seen unemployment consistently above NAIRU. Jared Bernstein and Dean Baker, ‘Full Employment: The Recovery’s Missing Ingredient’, Washington Post, 3 November 2014, p. 10; José Nun, ‘The End of Work and the “Marginal Mass” Thesis’, Latin American Perspectives 27: 1 (2000), p. 8; Guy Standing, The Precariat: The New Dangerous Class (London: Bloomsbury Academic, 2011), pp. 46–7; Jeffrey Straussman, ‘The “Reserve Army” of Unemployed Revisited’, Society 14: 3 (1977), p. 42. 52.Economic Projections of Federal Reserve Board Members and Federal Reserve Bank Presidents, December 2014, Federal Reserve Board, 2014, pdf available at federal-reserve.gov, p. 1. 53.Claire Cain Miller, ‘As Robots Grow Smarter, American Workers Struggle to Keep Up’, New York Times, 15 December 2014. 54.Bureau of Labor Statistics, ‘Civilian Employment–Population Ratio’, Federal Reserve Bank of St Louis, 2014, at research.stlouisfed.org; Deepankar Basu, The Reserve Army of Labour in the Postwar US Economy: Some Stock and Flow Estimates, Working Paper (Amherst: University of Massachusetts, 2012), p. 7. 55.ILO, Global Employment Trends 2014, p. 17. 56.The job growth rate dropped from 1.7 per cent between 1991 and 2007 to 1.2 per cent between 2007 and 2014.


pages: 409 words: 118,448

An Extraordinary Time: The End of the Postwar Boom and the Return of the Ordinary Economy by Marc Levinson

affirmative action, airline deregulation, banking crisis, Big bang: deregulation of the City of London, Boycotts of Israel, Bretton Woods, business cycle, Capital in the Twenty-First Century by Thomas Piketty, car-free, Carmen Reinhart, central bank independence, centre right, clean water, deindustrialization, endogenous growth, falling living standards, financial deregulation, floating exchange rates, full employment, George Gilder, Gini coefficient, global supply chain, income inequality, income per capita, indoor plumbing, informal economy, intermodal, invisible hand, Kenneth Rogoff, knowledge economy, late capitalism, linear programming, manufacturing employment, new economy, Nixon shock, North Sea oil, oil shock, Paul Samuelson, pension reform, price stability, purchasing power parity, refrigerator car, Right to Buy, rising living standards, Robert Gordon, rolodex, Ronald Coase, Ronald Reagan, Simon Kuznets, statistical model, strikebreaker, structural adjustment programs, The Rise and Fall of American Growth, Thomas Malthus, total factor productivity, unorthodox policies, upwardly mobile, War on Poverty, Washington Consensus, Winter of Discontent, Wolfgang Streeck, women in the workforce, working-age population, yield curve, Yom Kippur War, zero-sum game

By the final months of World War II, a large majority of Americans, and nearly one-third of business leaders, told pollsters that it was government’s role to maintain full employment. Among Americans with college degrees, a stunning 70 percent concurred that “Full employment is something we should try to get, and it will require government action as well as planning by industry to get it.” When the US Senate, dominated by conservatives, considered the Full Employment Act in September 1945, seventy-one senators agreed that the government should ensure full employment when the private sector fell short, and only ten voted no.18 Although the Full Employment Act was much weakened before Congress finally approved it, support remained strong for the idea that government should, and could, ensure jobs for all. In the late 1940s, a US business organization, the Committee for Economic Development, proposed writing full employment into the federal government’s budget.

Now, the thinking went, government deficits were tolerable, and even desirable, when unemployment was high, but should vanish at full employment. No one seemed to notice that the “full-employment budget” created perverse incentives for elected politicians everywhere. Agreeing to more government spending at times of high unemployment was easy enough, but reducing spending during economic upturns was far less attractive. Deficit spending would become the norm. The well-intentioned idea of a full-employment budget, like many well-intentioned ideas, had unforeseen consequences. Economists became arbiters, specifying what unemployment rate would constitute “full employment” and then calculating how much government spending would be required to reach that target. “Conceptual advances and quantitative research in economics are replacing emotion with reason,” Walter Heller, formerly the chief economic adviser to presidents John F.

See also banks/banking systems; central banks Federal Reserve Bank of New York, 222, 247 Fernald, John, 269 financial assistance from foreign countries, 43 financial crisis of 2008, 270 Financial Times (London), 167 financialization, 236 Finland, 56, 215; labor share in, 141; welfare state in, 144 First National City Bank, 96 food production, 58 Ford, Gerald, 110, 173, 174 Ford administration, 112 Ford Foundation, 107 foreign-exchange rate, 11–12, 47, 51–55, 66, 67, 87, 90, 151, 184, 185, 252, 266; Bretton Woods agreement and, 52–55; France and, 202, 205, 209, 213; International Monetary Fund and, 38 foreign investors, 232–233 France, 19, 30, 62, 124, 163, 176, 199–211, 213–217; automobile industry in, 202, 207; banks/banking system in, 93, 206, 214–215 (see also specific banks); budget deficits in, 202, 208, 209, 215; Communist Party in, 201, 203, 204–205, 206, 210; dirigisme in, 203; economic crisis of 1970s in, 164, 201–203; economic planning in, 25; economic policies of the 1970s in, 204; economy at close of World War II in, 16; foreign-exchange rate and, 202, 205, 209, 213; income distribution in, 137, 140; income tax in, 164; inflation and buying power in, 55–56; inflation in, 202, 208–209; labor/trade unions in, 202, 208, 213; “lump of labor” theory in, 205–206; manufacturing in, 202; market-oriented economic policies of, 217; modernization in, 202; nationalism in, 206–208, 209, 210, 267; new version of socialism in, 210, 213–217; oil crisis of 1973 in, 72–73, 77, 78; political parties in, 199–200, 201, 203, 204–205, 206, 208–209, 210–211, 215, 217; postwar economic boom in, 20, 21; postwar economy of, 29; privatization in, 213, 215, 216–217; productivity bust in, 259; productivity growth in, 263; Socialist Party in, 199–200, 201, 203, 204–205, 206, 208–209, 210–211, 215, 217; taxes in, 208–209; technology in, 203; trade in, 202; “turn to austerity” policy in, 209–210; unemployment in, 202, 203, 207, 208, 209, 210, 217; welfare state in, 18, 144, 213. See also specific presidents and prime ministers Franco, Francisco, 211–213 Franklin National Bank, 87–89, 91, 95, 96 free enterprise, 224, 225 free-market economics, 30, 31, 254–255; Thatcher and, 172, 260 French Republic, 4 Friedman, Milton, 75, 76, 153, 176, 180–181, 185 full employment, 6, 25–26, 30, 35, 170, 179, 180, 233, 261; tax cuts, easy money, government programs and, 75. See also employment/unemployment; unemployment Full Employment Act, 25–26 full-employment budget, 26 Fullerton, Don, 228 G-77, 43 gas: deregulation of, 99–100, 102, 103–104, 107–108, 109, 113 GATT. See General Agreement on Tariffs and Trade General Agreement on Tariffs and Trade (GATT), 42 German Bundesbank, 28, 51, 55, 86, 181 Germany, 19, 224; banks/banking system in, 28, 91, 94 (see also banks/banking systems); debt crisis in, 246; economic crisis of 1970s in, 164; economic planning in, 28, 29–30; economy at close of World War II in, 16–17; economy policy in, 27–35; formal division into two zones in, 28–29; income inequality in, 135; inflation and buying power in, 55–56; labor/trade unions in, 169; political parties in, 27–28; postwar occupied zones in, 28; postwar productivity in, 23; welfare state in, 17.


pages: 462 words: 129,022

People, Power, and Profits: Progressive Capitalism for an Age of Discontent by Joseph E. Stiglitz

"Robert Solow", affirmative action, Affordable Care Act / Obamacare, barriers to entry, basic income, battle of ideas, Berlin Wall, Bernie Madoff, Bernie Sanders, business cycle, Capital in the Twenty-First Century by Thomas Piketty, carried interest, central bank independence, clean water, collective bargaining, corporate governance, corporate social responsibility, creative destruction, Credit Default Swap, crony capitalism, deglobalization, deindustrialization, disintermediation, diversified portfolio, Donald Trump, Edward Snowden, Elon Musk, Erik Brynjolfsson, Fall of the Berlin Wall, financial deregulation, financial innovation, financial intermediation, Firefox, Fractional reserve banking, Francis Fukuyama: the end of history, full employment, George Akerlof, gig economy, global supply chain, greed is good, income inequality, information asymmetry, invisible hand, Isaac Newton, Jean Tirole, Jeff Bezos, job automation, John Maynard Keynes: Economic Possibilities for our Grandchildren, John von Neumann, Joseph Schumpeter, labor-force participation, late fees, low skilled workers, Mark Zuckerberg, market fundamentalism, mass incarceration, meta analysis, meta-analysis, minimum wage unemployment, moral hazard, new economy, New Urbanism, obamacare, patent troll, Paul Samuelson, pension reform, Peter Thiel, postindustrial economy, price discrimination, principal–agent problem, profit maximization, purchasing power parity, race to the bottom, Ralph Nader, rent-seeking, Richard Thaler, Robert Bork, Robert Gordon, Robert Mercer, Robert Shiller, Robert Shiller, Ronald Reagan, secular stagnation, self-driving car, shareholder value, Shoshana Zuboff, Silicon Valley, Simon Kuznets, South China Sea, sovereign wealth fund, speech recognition, Steve Jobs, The Chicago School, The Future of Employment, The Great Moderation, the market place, The Rise and Fall of American Growth, the scientific method, The Wealth of Nations by Adam Smith, too big to fail, trade liberalization, transaction costs, trickle-down economics, two-sided market, universal basic income, Unsafe at Any Speed, Upton Sinclair, uranium enrichment, War on Poverty, working-age population

Given that we are so much richer than we were, surely we could run our economic system in a way that didn’t exert such a toll on so many families—this in an economy that pays homage to “family values.” I explain here what government can do to create the economy we should have. Ensuring full employment No policy is more important for equality, growth, and efficiency than maintaining full employment. And the most important ingredient in a middle-class life style is having a decent job. That in turn requires that there be jobs—a macroeconomic framework that ensures full employment. In spite of the fact that many conservative economists believe that markets always work efficiently, it should be obvious: there have been long periods of time in which the market, on its own, has failed to achieve full employment. Massive unemployment is a great waste of resources. Many economists believe that monetary policy—lowering interest rates—is the instrument that should primarily be relied upon.

If trade is roughly balanced, and if imports are more labor-intensive than exports, then overall, trade destroys jobs. If monetary policy responds by lowering interest rates, and the lower interest rates increase investment or consumption, full employment might be restored. But sometimes monetary policy doesn’t work, or at least work well enough to achieve full employment. That helps explain why after the admission of China to the WTO in 2001, American unemployment increased and wages fell in those places that produced goods that were competitive with things being imported in growing volume from China.5 Even when monetary and fiscal policy work to return the economy eventually to full employment, globalization often leads to job destruction in the short run, as the loss of jobs from an onslaught of imports occurs faster than job creation from additional exports, especially when banks aren’t lending much to new enterprises seeking to take advantage of the new opportunities offered, say, by a new trade agreement.6 Moreover, trade agreements and tax laws have effectively encouraged firms to move manufacturing abroad, destroying jobs at home.

The key is maintaining full employment. We can do this using fiscal policy (cutting taxes or increasing spending—increases in public investment can be a particularly effective way of stimulating the economy) when monetary policy (lowering interest rates or increasing the supply of credit) fails to do the trick. Both monetary and fiscal policy stimulate aggregate demand, and with enough stimulus, the economy can always be restored to full employment.11 The “jobs” problem of hi-tech is thus a political problem. Blind ideology, especially when combined with nasty politics, may make undertaking sufficient fiscal stimulus politically difficult.12 We saw this in the Great Recession. The Federal Reserve brought interest rates down to zero, but this didn’t suffice to restore full employment. Even so, Republicans and other fiscal hawks refused efforts to provide adequate fiscal stimulus.


pages: 267 words: 71,123

End This Depression Now! by Paul Krugman

airline deregulation, Asian financial crisis, asset-backed security, bank run, banking crisis, Bretton Woods, business cycle, capital asset pricing model, Carmen Reinhart, centre right, correlation does not imply causation, credit crunch, Credit Default Swap, currency manipulation / currency intervention, debt deflation, Eugene Fama: efficient market hypothesis, financial deregulation, financial innovation, Financial Instability Hypothesis, full employment, German hyperinflation, Gordon Gekko, Hyman Minsky, income inequality, inflation targeting, invisible hand, Joseph Schumpeter, Kenneth Rogoff, liquidationism / Banker’s doctrine / the Treasury view, liquidity trap, Long Term Capital Management, low skilled workers, Mark Zuckerberg, money market fund, moral hazard, mortgage debt, negative equity, paradox of thrift, Paul Samuelson, price stability, quantitative easing, rent-seeking, Robert Gordon, Ronald Reagan, Upton Sinclair, We are the 99%, working poor, Works Progress Administration

Of the 13 million U.S. workers who were unemployed in October 2011, only 1.1 million (a mere 8 percent) had previously been employed in construction. More broadly, if the problem is that many workers have the wrong skills, or are in the wrong place, those workers with the right skills in the right place should be doing well. They should be experiencing full employment and rising wages. So where are these people? To be fair, there is full employment, even a labor shortage, on the High Plains: Nebraska and the Dakotas have low unemployment by historical standards, largely thanks to a surge in gas drilling. But those three states have a combined population only slightly larger than that of Brooklyn, and unemployment is high everywhere else. And there are no major occupations or skill groups doing well.

It can’t make sense for so much of the world’s productive capacity to sit idle, for so many willing workers to be unable to find work. And yes, there are ways out. Before I get there, however, let’s talk briefly about the views of those who don’t believe any of what I’ve just said. Is It Structural? I believe this present labor supply of ours is peculiarly unadaptable and untrained. It cannot respond to the opportunities which industry may offer. This implies a situation of great inequality—full employment, much over-time, high wages, and great prosperity for certain favored groups, accompanied by low wages, short time, unemployment, and possibly destitution for others. —Ewan Clague The quotation above comes from an article in the Journal of the American Statistical Association. It makes an argument one hears from many quarters these days: that the fundamental problems we have run deeper than a mere lack of demand, that too many of our workers lack the skills the twenty-first-century economy requires, or too many of them are still stuck in the wrong locations or the wrong industry.

Sometimes it’s framed in terms of a story about how technology is simply making workers unnecessary—which is what President Obama seemed to be saying when he told the Today Show, There are some structural issues with our economy where a lot of businesses have learned to be much more efficient with fewer workers. You see it when you go to a bank and you use an ATM, you don’t go to a bank teller. Or you see it when you go to the airport and you use a kiosk instead of checking at the gate. [my emphasis] And most common of all is the assertion that we can’t expect a return to full employment anytime soon, because we need to transfer workers out of an overblown housing sector and retrain them for other jobs. Here’s Charles Plosser, the president of the Federal Reserve Bank of Richmond, and an important voice arguing against policies to expand demand: You can’t change the carpenter into a nurse easily, and you can’t change the mortgage broker into a computer expert in a manufacturing plant very easily.


Free Money for All: A Basic Income Guarantee Solution for the Twenty-First Century by Mark Walker

3D printing, 8-hour work day, additive manufacturing, Affordable Care Act / Obamacare, basic income, Baxter: Rethink Robotics, Capital in the Twenty-First Century by Thomas Piketty, commoditize, financial independence, full employment, happiness index / gross national happiness, industrial robot, intangible asset, invisible hand, Jeff Bezos, job automation, job satisfaction, John Markoff, Kevin Kelly, laissez-faire capitalism, longitudinal study, market clearing, means of production, new economy, obamacare, off grid, plutocrats, Plutocrats, precariat, profit motive, Ray Kurzweil, rent control, RFID, Rodney Brooks, Rosa Parks, science of happiness, Silicon Valley, surplus humans, The Future of Employment, the market place, The Wealth of Nations by Adam Smith, too big to fail, transaction costs, universal basic income, working poor

On the other hand, if the economy is able to generate full employment, then the economy will have to grow faster than the redundancy rate to maintain full employment. This means that the economists who predict full employment must also predict a massive growing economy of unprecedented proportions as a logical consequence. That is, optimism about full employment logically requires optimism about a massively expanded economy. In this case, paying for BIG will be comparatively easy as it will be a small percentage of total economic output. As noted in chapter 2, a reasonable BIG for US citizens works out to 11 percent of the economy at present. Using this as our baseline, we can see that if 20 percent of the jobs at present performed by human workers are executed by robots while full employment is maintained, then paying for BIG as a percentage of the economy should fall to 6 percent from 11 percent of the total Gross Domestic Product.

The point, in other words, is that new industries themselves will likely use advanced robotics and computers, and so economic output will have to increase faster than the percentage of unemployed to keep the economy at full employment. Figure 5.2 shows the relationship necessary for economic growth and full employment. Table 5.1 Increase in economic output Employees per firm Total employees 100 111 125 142 166 200 250 333 500 1,000 10 9 8 7 6 5 4 3 2 1 1,000 1,000 1,000 1,000 1,000 1,000 1,000 1,000 1,000 1,000 Economy Growth Necessary to maintain full employment Firms Total widgets Percentage of economy in 2014 (%) 1,000 1,110 1,250 1,425 1,660 2,000 2,500 3,333 5,000 10,000 100 111 125 142 166 200 250 333 500 1000 2000 1800 1600 1400 1200 1000 800 600 400 200 0 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Employment Redundancy Figure 5.2 redundancy Exponential rate of economic growth and employment PEACE, ROBOTS, AND TECHNOLOGICAL UNEMPLOYMENT 111 We are now in a position to see why BIG is a smart bet, given the uncertainties in employment creation.

I do not mean to suggest that all economists endorse this idea, nor do I mean to suggest the idea is proposed only by economists. Indeed, the belief that the economy will always generate enough jobs seems to be well entrenched: every year I hear college freshmen state it with the same unflinching faith, just like economists such as Tabarrok. Notice that the economists have the more extreme position. They are committed to the idea that the economy will generate full employment. Chicken Little wins if there is anything less than full employment due to technology’s advancement. Despite Chicken Little’s horrendous track record of failure in predicting technological unemployment, I think the prediction of technological unemployment is sound. The Nature of the Debate between Chicken Little and the Economists Thus far, I have merely rehearsed the outlines of a familiar debate. It is easy to get the impression that we are at an argumentative impasse.


pages: 464 words: 139,088

The End of Alchemy: Money, Banking and the Future of the Global Economy by Mervyn King

"Robert Solow", Andrei Shleifer, Asian financial crisis, asset-backed security, balance sheet recession, bank run, banking crisis, banks create money, Berlin Wall, Bernie Madoff, Big bang: deregulation of the City of London, bitcoin, Black Swan, Bretton Woods, British Empire, business cycle, capital controls, Carmen Reinhart, Cass Sunstein, central bank independence, centre right, collapse of Lehman Brothers, creative destruction, Credit Default Swap, crowdsourcing, Daniel Kahneman / Amos Tversky, David Ricardo: comparative advantage, distributed generation, Doha Development Round, Edmond Halley, Fall of the Berlin Wall, falling living standards, fiat currency, financial innovation, financial intermediation, floating exchange rates, forward guidance, Fractional reserve banking, Francis Fukuyama: the end of history, full employment, German hyperinflation, Hyman Minsky, inflation targeting, invisible hand, John Maynard Keynes: Economic Possibilities for our Grandchildren, John Meriwether, joint-stock company, Joseph Schumpeter, Kenneth Arrow, Kenneth Rogoff, labour market flexibility, large denomination, lateral thinking, liquidity trap, Long Term Capital Management, manufacturing employment, market clearing, Martin Wolf, Mexican peso crisis / tequila crisis, money market fund, money: store of value / unit of account / medium of exchange, moral hazard, Myron Scholes, Nick Leeson, North Sea oil, Northern Rock, oil shale / tar sands, oil shock, open economy, paradox of thrift, Paul Samuelson, Ponzi scheme, price mechanism, price stability, purchasing power parity, quantitative easing, rent-seeking, reserve currency, Richard Thaler, rising living standards, Robert Shiller, Robert Shiller, Satoshi Nakamoto, savings glut, secular stagnation, seigniorage, stem cell, Steve Jobs, The Great Moderation, the payments system, The Rise and Fall of American Growth, Thomas Malthus, too big to fail, transaction costs, Tyler Cowen: Great Stagnation, yield curve, Yom Kippur War, zero-sum game

Growth today seems possible only if interest rates are much lower than normal – at present the long-term real rate of interest is close to zero. The ‘natural’ real rate is the real rate of interest that generates a level of total spending sufficient to ensure full employment. When asked why demand is weak, economists tend to answer that it is because the natural real rate of interest is negative – in other words, people will spend only when faced with negative real interest rates. And when asked why that is, they reply that it is because demand is insufficient to maintain full employment. The reasoning is circular. Simply restating the phenomenon of secular stagnation in different words and pretending to have offered an explanation does not amount to a theory. Secular stagnation is an important description of the problems afflicting the world economy, but we need a new theory, or narrative, to explain why global demand is so weak and real interest rates are so low.

From the start of monetary union until 2013, prices on this measure rose by 16 per cent in Germany, 25 per cent in France, 33 per cent in Greece, 34 per cent in Italy, 37 per cent in Portugal, and 40 per cent in Spain.19 So although the birth of the euro brought about some initial convergence of expected inflation rates, the consequence of a single interest rate was to generate subsequent divergence of inflation outcomes. The resulting loss of competitiveness among the southern members of the union against Germany is large, even allowing for some overvaluation of the Deutschmark when it was subsumed into the euro. It increased full-employment trade deficits (the excess of imports over exports when a country is operating at full employment) in countries where competitiveness was being lost, and increased trade surpluses in those where it was being gained. Those surpluses and deficits are at the heart of the problem today. Trade deficits have to be financed by borrowing from abroad, and trade surpluses are invested overseas. Countries like Germany have become large creditors, with a trade surplus in 2015 approaching 8 per cent of GDP, and countries in the southern periphery are substantial debtors.

The General Theory, although it contains some beautiful and compelling prose, includes many arguments that are obscure and difficult, even at times almost incomprehensible. Macroeconomics in this era became divided into two schools of thought: Keynesian and neoclassical.4 The former focused on the role of the state in returning an economy from depression to full employment. The latter studied the conditions in which a market economy returns to full employment under its own steam after a temporary deviation from its normal equilibrium. Neoclassical economists often argue that the Keynesian analysis presents a special case in which employment is temporarily below its attainable level, often as a result of misguided government policies. But Keynes did not choose his title carelessly – he meant the book to refer to a general theory of how capitalist economies could run indefinitely at levels of demand and output well below potential.


pages: 126 words: 37,081

Men Without Work by Nicholas Eberstadt

business cycle, Carmen Reinhart, centre right, deindustrialization, financial innovation, full employment, illegal immigration, jobless men, John Maynard Keynes: Economic Possibilities for our Grandchildren, Kenneth Rogoff, labor-force participation, low skilled workers, mass immigration, moral hazard, post-work, Ronald Reagan, secular stagnation, Simon Kuznets, The Rise and Fall of American Growth, War on Poverty, women in the workforce, working-age population

(April 2016, International New York Times4) •“June’s Super Jobs Report (July 2016, Atlantic Monthly5) In addition, U.S. economists and policymakers who have served under Republican and Democratic presidents maintain that today’s U.S. economy is either near or at “full employment”: •“It is encouraging to see that the U.S. economy is approaching full employment with low inflation.” (Ben Bernanke, former chairman of the Federal Reserve Board, October 20156) •“The American economy is in good shape . . . we are essentially at full employment . . . tight labor markets are leading to increases in hourly earnings and in the producer prices of services.” (Martin Feldstein, former chair of the President’s Council of Economic Advisers and longtime director of the National Bureau of Economic Research, February 20167) •“We are coming close to [the Federal Reserve’s] assigned congressional goal of full employment. [Many measures of unemployment] really suggest a labor market that is vastly improved.”

The United States has suffered something akin to a decimation of its male workforce over the past fifty years. This disturbing situation is our “new normal.” No less disturbing is the fact that the general public and political elites have uncritically accepted this American decimation as today’s “new normal.” Today’s received wisdom holds that the United States is now at or near “full employment.” An alternative view would hold that, by not-so-distant historic standards, the nation today is short of full employment by nearly 10 million male workers (to say nothing of the additional current “jobs deficit” for women). Unlike the dead soldiers in Roman antiquity, our decimated men still live and walk among us, though in an existence without productive economic purpose. We might say those many millions of men without work constitute a sort of invisible army, ghost soldiers lost in an overlooked, modern-day depression.

_r=0. 5.Bourree Lam, “June’s Super Jobs Report”, Atlantic Monthly, July 8 2016, http://www.theatlantic.com/business/archive/2016/07/june-jobs-report/490466/. 6.Ben Bernanke, “How the Fed Saved the Economy,” Brookings, October 4, 2015, https://www.brookings.edu/opinions/how-the-fed-saved-the-economy/. 7.Martin Feldstein, “The U.S. Economy Is in Good Shape,” Wall Street Journal, February 21, 2016, http://www.wsj.com/articles/the-u-s-economy-is-in-good-shape-1456097121. 8.Jana Raindow, Christopher Condon, and Matthew Boesler, “Yellen Says U.S. Near Full Employment, Some Slack Remains,” Bloomberg, April 7, 2016, http://www.bloomberg.com/news/articles/2016-04-07/yellen-says-u-s-close-to-full-employment-some-slack-remains. 9.Note that the workforce is officially defined as the sixteen-plus population (more or less is the age you legally can get out of school); historically it was the fourteen-plus population. In this study, I use three measures working age population: twenty-plus, twenty-to-sixty-four, and the “prime working” ages of twenty-five-to-fifty-four. 10.While the U.S.


pages: 484 words: 136,735

Capitalism 4.0: The Birth of a New Economy in the Aftermath of Crisis by Anatole Kaletsky

"Robert Solow", bank run, banking crisis, Benoit Mandelbrot, Berlin Wall, Black Swan, bonus culture, Bretton Woods, BRICs, business cycle, buy and hold, Carmen Reinhart, cognitive dissonance, collapse of Lehman Brothers, Corn Laws, correlation does not imply causation, creative destruction, credit crunch, currency manipulation / currency intervention, David Ricardo: comparative advantage, deglobalization, Deng Xiaoping, Edward Glaeser, Eugene Fama: efficient market hypothesis, eurozone crisis, experimental economics, F. W. de Klerk, failed state, Fall of the Berlin Wall, financial deregulation, financial innovation, Financial Instability Hypothesis, floating exchange rates, full employment, George Akerlof, global rebalancing, Hyman Minsky, income inequality, information asymmetry, invisible hand, Isaac Newton, Joseph Schumpeter, Kenneth Arrow, Kenneth Rogoff, Kickstarter, laissez-faire capitalism, Long Term Capital Management, mandelbrot fractal, market design, market fundamentalism, Martin Wolf, money market fund, moral hazard, mortgage debt, Nelson Mandela, new economy, Northern Rock, offshore financial centre, oil shock, paradox of thrift, Pareto efficiency, Paul Samuelson, peak oil, pets.com, Ponzi scheme, post-industrial society, price stability, profit maximization, profit motive, quantitative easing, Ralph Waldo Emerson, random walk, rent-seeking, reserve currency, rising living standards, Robert Shiller, Robert Shiller, Ronald Reagan, shareholder value, short selling, South Sea Bubble, sovereign wealth fund, special drawing rights, statistical model, The Chicago School, The Great Moderation, The inhabitant of London could order by telephone, sipping his morning tea in bed, the various products of the whole earth, The Wealth of Nations by Adam Smith, Thomas Kuhn: the structure of scientific revolutions, too big to fail, Vilfredo Pareto, Washington Consensus, zero-sum game

This inflationary crisis would, in turn, force the capitalist system to reinvent itself again—and economic theory would devise retrospective justifications for whatever new policies the survival of capitalism demanded: The assumption that a government will maintain full employment in a capitalist economy if it knows how to do it is fallacious . . . Under a regime of permanent full employment “the sack” would cease to play its role as a disciplinary measure. Continuous full employment would cause social and political changes which would give impetus to the opposition of business leaders . . . The self-assurance and class-consciousness of the working class would grow. Strikes for wage increases and improvements in working conditions would create political tension . . . Popular pressure for jobs would reach its height at or near election times, leading to government-induced preelection booms.

Toward the end of that decade, however, the accelerating growth of public-sector employment began to offset this decline in union power. More importantly, the twenty-five years of continuous full employment after 1945 transformed the psychology of the postwar generation of workers and union leaders. Full employment began to be taken for granted and unions became increasingly militant in demanding a larger share of corporate and national incomes, as predicted by Michal Kalecki in his 1943 article. 25 Companies and governments were generally willing to concede to these demands for higher wages against the background of rapid global growth—and this labor market pressure started turning easy monetary conditions into inflation. After the power of organized labor was broken by the combined effects of tough antiunion laws and the abandonment of Keynesian full-employment policies in the Thatcher-Reagan period, inflation subsided.

But there were deep political and sociological reasons why monetary expansion began to produce inflation in the late 1960s, instead of fueling rapid growth of employment and real output, as it had in the previous twenty years. The Keynesian full-employment policies of the postwar period sowed the seeds of their own destruction. In an economic system built on natural tensions over the distribution of wages and profits between workers and capitalists, unemployment, or at least the fear of unemployment, has a crucial disciplining effect. By the late 1960s , a postwar generation of workers had grown up with no experience of mass unemployment and no memories of the Great Depression. As a result, labor militancy intensified and pay demands escalated; and in an economic system where the top priority of government policy was maintaining full employment, companies felt confident that enough money would be printed to accommodate whatever pay offers were needed to stave off labor militancy and strikes.


pages: 580 words: 168,476

The Price of Inequality: How Today's Divided Society Endangers Our Future by Joseph E. Stiglitz

"Robert Solow", affirmative action, Affordable Care Act / Obamacare, airline deregulation, Andrei Shleifer, banking crisis, barriers to entry, Basel III, battle of ideas, Berlin Wall, business cycle, capital controls, Carmen Reinhart, Cass Sunstein, central bank independence, collapse of Lehman Brothers, collective bargaining, colonial rule, corporate governance, Credit Default Swap, Daniel Kahneman / Amos Tversky, Dava Sobel, declining real wages, deskilling, Exxon Valdez, Fall of the Berlin Wall, financial deregulation, financial innovation, Flash crash, framing effect, full employment, George Akerlof, Gini coefficient, income inequality, income per capita, indoor plumbing, inflation targeting, information asymmetry, invisible hand, jobless men, John Harrison: Longitude, John Markoff, John Maynard Keynes: Economic Possibilities for our Grandchildren, Kenneth Arrow, Kenneth Rogoff, London Interbank Offered Rate, lone genius, low skilled workers, Marc Andreessen, Mark Zuckerberg, market bubble, market fundamentalism, mass incarceration, medical bankruptcy, microcredit, moral hazard, mortgage tax deduction, negative equity, obamacare, offshore financial centre, paper trading, Pareto efficiency, patent troll, Paul Samuelson, payday loans, price stability, profit maximization, profit motive, purchasing power parity, race to the bottom, rent-seeking, reserve currency, Richard Thaler, Robert Shiller, Robert Shiller, Ronald Coase, Ronald Reagan, shareholder value, short selling, Silicon Valley, Simon Kuznets, spectrum auction, Steve Jobs, technology bubble, The Chicago School, The Fortune at the Bottom of the Pyramid, The Myth of the Rational Market, The Spirit Level, The Wealth of Nations by Adam Smith, too big to fail, trade liberalization, transaction costs, trickle-down economics, ultimatum game, uranium enrichment, very high income, We are the 99%, wealth creators, women in the workforce, zero-sum game

The United States is in a position, for instance, to tax corporations that operate in the United States on the full basis of the profits they derive from their sales in the United States, regardless of where their production occurs.13 Restoring and maintaining full employment A fiscal policy to maintain full employment—with equality. The most important government policy influencing well-being, with the most important consequences for distribution, is maintaining full employment. Unless the United States is careful, it could move into a situation similar to that of some European countries, with permanently higher unemployment—a vast waste of resources, which would simultaneously lead to more inequality and weaken both our economic and our fiscal situation. For seventy-five years we’ve known the basic principles of how to maintain the economy at or near full employment. Chapter 8 explained how well-designed macropolicies can actually achieve all three objectives simultaneously—lower debts and deficits, faster growth and employment, and an improved distribution of income.

A provision giving the Department of Agriculture discretion to do so was included in the 1995 farm bill, but never implemented. 22. As we noted in earlier chapters, a defense of these subsidies is that they increase employment. But as we noted there, too, the responsibility for maintaining the economy at full employment lies with macroeconomic policy (monetary policy and fiscal policy). If macroeconomic policy is managed well, we can have an economy at full employment, without these subsidies. If macroeconomic policy is not managed well, we won’t have full employment, even with the subsidies. 23. The balanced-budget multiplier is normally assumed to be around unity. But if taxes are increased on the rich, who otherwise would have saved a lot, and expenditure increases are focused on “high multiplier” activities, like investments in education, then the balanced-budget multiplier can be much larger. 24.

To stimulate investment, we must focus on how best to stimulate demand. Getting more money into the pockets of those in the middle and at the bottom would do that. That’s why deficit reduction proposals that would, in effect, impose much of the burden of tax increases on the middle would simply make things worse.29 It is the responsibility of macropolicy—monetary and fiscal policy—to maintain the economy at full employment. When things are going well, and the economy is operating near full employment, excessive military spending and lavish corporate welfare don’t create jobs. They just distort the economy by moving labor from more-productive uses to less-productive uses. It is true that if we correct these distortions, some workers with sector-specific skills will suffer, as their skills will no longer be in demand. But that is not an argument for keeping them in place.


pages: 263 words: 80,594

Stolen: How to Save the World From Financialisation by Grace Blakeley

"Robert Solow", activist fund / activist shareholder / activist investor, asset-backed security, balance sheet recession, bank run, banking crisis, banks create money, Basel III, basic income, battle of ideas, Berlin Wall, Big bang: deregulation of the City of London, bitcoin, Bretton Woods, business cycle, call centre, capital controls, Capital in the Twenty-First Century by Thomas Piketty, Carmen Reinhart, central bank independence, collapse of Lehman Brothers, collective bargaining, corporate governance, corporate raider, credit crunch, Credit Default Swap, cryptocurrency, currency peg, David Graeber, debt deflation, decarbonisation, Donald Trump, eurozone crisis, Fall of the Berlin Wall, falling living standards, financial deregulation, financial innovation, Financial Instability Hypothesis, financial intermediation, fixed income, full employment, G4S, gender pay gap, gig economy, Gini coefficient, global reserve currency, global supply chain, housing crisis, Hyman Minsky, income inequality, inflation targeting, Intergovernmental Panel on Climate Change (IPCC), Kenneth Rogoff, Kickstarter, land value tax, light touch regulation, low skilled workers, market clearing, means of production, money market fund, Mont Pelerin Society, moral hazard, mortgage debt, negative equity, neoliberal agenda, new economy, Northern Rock, offshore financial centre, paradox of thrift, payday loans, pensions crisis, Ponzi scheme, price mechanism, principal–agent problem, profit motive, quantitative easing, race to the bottom, regulatory arbitrage, reserve currency, Right to Buy, rising living standards, risk-adjusted returns, road to serfdom, savings glut, secular stagnation, shareholder value, Social Responsibility of Business Is to Increase Its Profits, sovereign wealth fund, the built environment, The Great Moderation, too big to fail, transfer pricing, universal basic income, Winter of Discontent, working-age population, yield curve, zero-sum game

Michał Kalecki — a Polish economist who theorised demand management at the same time, and some have said before, Keynes himself — had foreseen such problems decades earlier.21 After reaching his conclusions about the capacity of the state to control demand in the economy, he argued that such policies couldn’t work for long because there were “political aspects” of full employment policy that rendered it inherently unstable. The state’s commitment to promote full employment undermined the thing that made capitalism work: the threat of the sack. A policy of full employment would remove the “reserve army” that capitalists relied on to ensure a steady stream of cheap labour. Without desperate workers to exploit, profits would dry up. The powerful state that had emerged from the Second World War had committed a second sin: it was no longer afraid of the capitalists’ threats to withdraw investment.

Over the long-term, the combination of these factors encourages owners of capital to oppose policies that promote full employment, even if those policies also boost consumption and therefore support capitalists’ profits. Kalecki’s argument is not that social democracy is economically unsustainable, but that it is politically untenable: at some point, a political crisis moment will be reached. He explains: [U]nder a regime of full employment, the “sack” would cease to play its role as a disciplinary measure. The social position of the boss would be undermined, and the self-assurance and class-consciousness of the working class would grow. Strikes for wage increases and improvements in conditions of work would create political tension. It is true that profits would be higher under a regime of full employment than they are on the average under laissez-faire...

Keynesian economics was based on the idea of the Phillips Curve. In the 1960s, economists drew on the work of William Phillips to posit an inverse relationship between inflation and unemployment. According to the models they built, when unemployment was high, inflation was low, and vice versa, implying that states should tolerate moderate levels of inflation in order to promote full employment.20 Governments were supposed to boost spending and reduce interest rates until full employment was reached, at which point they should start to reduce spending and raise interest rates in order to bring down inflation. Effecting this balancing act between inflation and unemployment was seen as the main aim of economic policy throughout the post-war period. But by the 1970s, social democratic management of the economy was failing to bring down either unemployment or inflation — the latter of which was driven by political developments halfway around the world.


pages: 353 words: 81,436

Buying Time: The Delayed Crisis of Democratic Capitalism by Wolfgang Streeck

activist fund / activist shareholder / activist investor, banking crisis, basic income, Bretton Woods, business cycle, capital controls, Carmen Reinhart, central bank independence, collective bargaining, corporate governance, creative destruction, David Graeber, deindustrialization, Deng Xiaoping, Eugene Fama: efficient market hypothesis, financial deregulation, financial repression, fixed income, full employment, Gini coefficient, Growth in a Time of Debt, income inequality, Joseph Schumpeter, Kenneth Rogoff, Kickstarter, knowledge economy, labour market flexibility, labour mobility, late capitalism, liberal capitalism, means of production, moral hazard, Myron Scholes, Occupy movement, open borders, open economy, Plutonomy: Buying Luxury, Explaining Global Imbalances, profit maximization, risk tolerance, shareholder value, too big to fail, union organizing, winner-take-all economy, Wolfgang Streeck

His answer was that permanent full employment brought the danger that workers would become over-demanding once they had forgotten the insecurity and deprivation associated with unemployment. At that point discipline might break down at the workplace as well as in the political arena. This was why, in Kalecki’s view, capital should have an interest in lasting structural unemployment, serving to warn employees of what they might face if their demands became excessive. This, of course, assumed that governments could be persuaded to renounce Keynesian measures to guarantee full employment. To employers and governments under democratic capitalism, the global wave of wildcat strikes in 1968 and 1969 appeared to be the result of a long period of crisis-free growth and secure full employment that had fuelled excessive expectations on the part of a labour force spoiled by affluence and the welfare state.47 Workers, on the other hand, thought they had simply been insisting on their democratic right to continuous improvements in living standards and economic security.

Whereas recipients of residual income seek the highest possible yield on their capital investment, earners of fixed income try to keep as low as possible the input required of them.41 Distribution conflicts arise from the fact that, other things being equal, higher residual income for the profit-dependent entails lower wages for the wage-dependent, and vice versa.42 For a theory of political economy in which capital is an actor and not just machinery, the seemingly technical ‘functioning’ of the ‘economy’ – above all, growth and full employment – is in reality a political matter. Here lies the difference from a technocratic concept of crisis, such as we find in the years after the Second World War and also in Pollock’s work and Frankfurt social theory. Both growth and full employment depend on the willingness of capital owners to invest, and that in turn depends on their aspirations for an ‘adequate’ rate of return, as well as on their general assessment of the security and stability of the capitalist economic order. The absence of economic crises means that capital is content, while crises signal its discontent.

Stimulating economic growth, then, involves negotiating something like an equilibrium between, on the one hand, the profit expectations of capital owners and the demands they make on society and, on the other hand, the wage and employment expectations of wage-earners – a compromise that capital has to find sufficiently reasonable for it to keep engaging in the generation of prosperity. If this fails, and the insecurity and unsatisfied demands of capital make themselves felt as disturbances to ‘the economy’, a further, derivative legitimation crisis may ensue, this time among the wage-dependants for whom the technical functioning of the system, especially its provision of growth and full employment, is the necessary condition for them to be at peace with it. New demands are not required for this, only non-fulfilment of the old ones. In other words, capitalism presupposes a social contract in which the legitimate mutual expectations of capital and labour, of profit-dependants and wage-dependants, are more or less explicitly enshrined as a formal or informal economic constitution. Contrary to what economic theory and ideology would have us believe, capitalism is not a state of nature but a historical social order in need of institutionalization and legitimation: its concrete forms change with time and place and are in principle both susceptible to renegotiation and in danger of breaking down.


pages: 667 words: 149,811

Economic Dignity by Gene Sperling

active measures, Affordable Care Act / Obamacare, autonomous vehicles, basic income, Bernie Sanders, Cass Sunstein, collective bargaining, corporate governance, David Brooks, desegregation, Detroit bankruptcy, Donald Trump, Double Irish / Dutch Sandwich, Elon Musk, employer provided health coverage, Erik Brynjolfsson, Ferguson, Missouri, full employment, gender pay gap, ghettoisation, gig economy, Gini coefficient, guest worker program, Gunnar Myrdal, housing crisis, income inequality, invisible hand, job automation, job satisfaction, labor-force participation, late fees, liberal world order, longitudinal study, low skilled workers, Lyft, Mark Zuckerberg, market fundamentalism, mass incarceration, mental accounting, meta analysis, meta-analysis, minimum wage unemployment, obamacare, offshore financial centre, payday loans, price discrimination, profit motive, race to the bottom, RAND corporation, randomized controlled trial, Richard Thaler, ride hailing / ride sharing, Ronald Reagan, Rosa Parks, Second Machine Age, secular stagnation, shareholder value, Silicon Valley, single-payer health, speech recognition, The Chicago School, The Future of Employment, The Wealth of Nations by Adam Smith, Toyota Production System, traffic fines, Triangle Shirtwaist Factory, Uber and Lyft, uber lyft, union organizing, universal basic income, War on Poverty, working poor, young professional, zero-sum game

The stimulus enacted early in the Obama administration saved or created about nine million jobs from 2009 to 2012 and helped prevent a second Great Depression.120 The decreasing evidence over the last two decades that deficits lead to inflation has bolstered the already strong case for the use of government investment on an ongoing basis to expand economic demand and reap the economic dignity benefits of full employment. From a perspective of ensuring that work leads to economic dignity for all workers, the case for tighter labor markets and full-employment monetary and fiscal policy is very strong. As economists Dean Baker and Jared Bernstein summarized in their book Getting Back to Full Employment, “Unemployment is not just a problem that affects those unable to find jobs; it hurts the entire labor force. Unemployment reduces the bargaining power of all job holders.”121 Recent empirical work by Bernstein and Keith Bentele has further reinforced that the largest beneficiaries of such full-employment policies are low-income workers, particularly those non-white or single moms.122 Simply put: beyond wage growth, tight labor markets give higher capacity to make demands or exit to the very same workers who normally have the least power to say no to mandatory arbitration, no to noncompete clauses, no to erratic work schedules, and no to abuse at work.

“TAKE THIS JOB AND SHOVE IT” POWER Simply put, the power of workers to demand respect and more dignified treatment is largely a function of having options—the power to say “take this job and shove it.” Such power is strongly enhanced by what are called “full-employment policies.” This refers to the deployment of both monetary and fiscal policy to foster full-employment, or “tight,” labor markets. When everyone who wants to work has a job, the power balance can alter. Employers have to do more to court employees as opposed to the other way around. Workers have more leverage in negotiations not only for better wages and benefits but also for more dignified treatment at work, because they have more confidence that they can land on their feet and find another job if they exit. Unfortunately, the ability to tell an abusive employer to “take this job and shove it”—and the full employment that makes it possible—has not been central to the dictates of monetary policy.

In recent years, there has been renewed advocacy—including by the Fed Up campaign spearheaded by Ady Barkan—for monetary policy tilted far more toward an aggressive full-employment focus. Some of this has been based on recent evidence that the Phillips curve is broken: that unemployment can be driven lower and lower than previously thought without sparking an uptick in inflation. A more basic critique, however, is that conventional monetary economics have overweighted the fears of inflation compared with the vast benefits of tight labor markets with the economy at full employment, including the power of workers to demand more respectful treatment at work.119 In much the same way, expansionary fiscal policy—think government spending and stimulus—is often the most powerful tool to promote full employment by boosting the economic demand. This is especially and obviously true in economic downturns.


pages: 823 words: 206,070

The Making of Global Capitalism by Leo Panitch, Sam Gindin

accounting loophole / creative accounting, active measures, airline deregulation, anti-communist, Asian financial crisis, asset-backed security, bank run, banking crisis, barriers to entry, Basel III, Big bang: deregulation of the City of London, bilateral investment treaty, Branko Milanovic, Bretton Woods, BRICs, British Empire, business cycle, call centre, capital controls, Capital in the Twenty-First Century by Thomas Piketty, Carmen Reinhart, central bank independence, collective bargaining, continuous integration, corporate governance, creative destruction, Credit Default Swap, crony capitalism, currency manipulation / currency intervention, currency peg, dark matter, Deng Xiaoping, disintermediation, ending welfare as we know it, eurozone crisis, facts on the ground, financial deregulation, financial innovation, Financial Instability Hypothesis, financial intermediation, floating exchange rates, full employment, Gini coefficient, global value chain, guest worker program, Hyman Minsky, imperial preference, income inequality, inflation targeting, interchangeable parts, interest rate swap, Kenneth Rogoff, Kickstarter, land reform, late capitalism, liberal capitalism, liquidity trap, London Interbank Offered Rate, Long Term Capital Management, manufacturing employment, market bubble, market fundamentalism, Martin Wolf, means of production, money market fund, money: store of value / unit of account / medium of exchange, Monroe Doctrine, moral hazard, mortgage debt, mortgage tax deduction, Myron Scholes, new economy, non-tariff barriers, Northern Rock, oil shock, precariat, price stability, quantitative easing, Ralph Nader, RAND corporation, regulatory arbitrage, reserve currency, risk tolerance, Ronald Reagan, seigniorage, shareholder value, short selling, Silicon Valley, sovereign wealth fund, special drawing rights, special economic zone, structural adjustment programs, The Chicago School, The Great Moderation, the payments system, The Wealth of Nations by Adam Smith, too big to fail, trade liberalization, transcontinental railway, trickle-down economics, union organizing, very high income, Washington Consensus, Works Progress Administration, zero-coupon bond, zero-sum game

More broadly their concerns related to their ambition to replace London as the world’s international financial center.48 But above all Wall Street’s opposition reflected the concern that New Deal–type economists and technicians ensconced in permanent international institutions might have even greater autonomy from them than those in the Federal Reserve and the Treasury (especially since the Treasury clearly wanted the Fund to displace the Bank of International Settlements, which had been created by the bankers themselves).49 Moreover, given the Keynesian provenance of the Fund and the Bank, it was hardly surprising that bankers would be anxious lest full employment rather than price stability might become the priority for governments. Their anxiety about the inflationary implications of full employment was by no means an idle concern, and would indeed prove to be—as Michal Kalecki and Joan Robinson also predicted at the time—the central contradiction of Keynesianism in the postwar era. If there was ever a case where the advantages of relative autonomy were manifest, allowing a capitalist state to act on behalf of capital but not at its behest, it was in the extensive public campaign the US Treasury undertook to get the Bretton Woods agreement endorsed by Congress over the bankers’ opposition.

The vast cross-border flows of private capital this now involved were bound eventually to undermine the Bretton Woods system of fixed exchange rates. And a further, much more profound contradiction had arisen—one that overlapped with and to a considerable extent really underlay the others. The realization of Keynesian “full employment” objectives by the 1960s clearly brought to the fore the old question of how capital and the state were to cope with the demands made by working classes no longer restrained by the fear of involuntarily conscription into the reserve army of labor. The achievement of near full employment within all the advanced capitalist states spurred the growing militancy of a new generation of workers who drove up wages, challenged managerial prerogatives, and forced a steady increase in social expenditures—all of which not only made it very difficult for capitalist states to resolve international economic imbalances through domestic austerity policies, but generated growing worries about price stability, productivity and profits.

The most significant indicator of the changing political balance of class forces lay in the fate of the labor-backed Humphrey-Hawkins Equal Opportunity and Full Employment Bill, to which the administration—in order to win over Democratic “moderates” in the Senate and assuage business critics—attached provisions specifying that it should not encourage inflation or “employee migration from the private to the public sector.”16 Those endorsing the bill faced the seemingly insurmountable task of overcoming the “fears of expansive government, increased taxes, and, especially, the acceleration of inflation.” Unsurprisingly, the Humphrey-Hawkins Bill’s ambitious proposal for “nationally coordinated economic planning to bring about full employment” was countered by those “entrenched interests that opposed planning—interests that were aggressively re-organized in the 1970s.”17 By the time the bill was passed, in October 1978, as the Full Employment and Balanced Growth Act, the promise of access to work for all was gone, and it was stipulated that for fiscal deficit reasons no new job-creation programs could be started before the end of 1980.


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Modernising Money: Why Our Monetary System Is Broken and How It Can Be Fixed by Andrew Jackson (economist), Ben Dyson (economist)

bank run, banking crisis, banks create money, Basel III, Bretton Woods, business cycle, call centre, capital controls, cashless society, central bank independence, credit crunch, David Graeber, debt deflation, double entry bookkeeping, eurozone crisis, financial exclusion, financial innovation, Financial Instability Hypothesis, financial intermediation, floating exchange rates, Fractional reserve banking, full employment, Hyman Minsky, inflation targeting, informal economy, information asymmetry, intangible asset, land reform, London Interbank Offered Rate, market bubble, market clearing, Martin Wolf, means of production, money: store of value / unit of account / medium of exchange, moral hazard, mortgage debt, negative equity, Northern Rock, price stability, profit motive, quantitative easing, Real Time Gross Settlement, regulatory arbitrage, risk-adjusted returns, seigniorage, shareholder value, short selling, South Sea Bubble, The Great Moderation, the payments system, The Wealth of Nations by Adam Smith, too big to fail, total factor productivity, unorthodox policies

(Minsky, 1986, pp. 173-174) In today’s economy increases in lending for investment may also be non-inflationary at full employment so long as it attracts labour and capital that was previously not used to produce goods and services – that is, it must lead to an increase in the amount of goods produced in an economy. In an economy operating below full capacity It is unlikely that many people would argue that today’s economy is at ‘full employment’, even allowing for ‘natural’ or ‘frictional’ unemployment. In a situation where the economy is operating below potential output (less than full employment, however defined) many resources are lying idle. Credit creation for productive investment purposes should therefore increase output. eq. 4.8 Likewise, an increase in credit creation for consumption purposes at below full employment would not increase prices. Although the loan would increase the level of demand in the economy, it would also increase output, as firms would start to use some of their unused capacity.

(Turner, 2010, pp. 37-38) That asset price inflation and credit creation by banks interact with each other in potentially destabilising ways will be looked at in more detail in section 4.2. The next section will discuss the possibility that asset price inflation may feed into consumer price inflation. Box 4.B - ‘Full employment’ In neoclassical economics the term ‘full employment’i has a very specific meaning. It is not the level of employment where there is no unemployment, as one might expect, or even the level of employment which allows for a small amount of temporary unemployment as people shift between jobs. Instead the term full employment refers to the level of employment at which any increase in employment leads to an acceleration in the rate of inflation. In economics this is known as the Non Accelerating Inflation Rate of Unemployment (NAIRU). Despite its name, the NAIRU theory is actually remarkably simple.

Most of these have long been known – indeed, a central theme of Keynes’ ‘General Theory’ (1936) is that markets, left to their own devices, will not necessarily deliver full employment. Nevertheless, despite these problems it will be useful to consider the effects of bank lending in a scenario where the economy is at its ‘full capacity’. The rationale for doing so is to examine whether bank lending – i.e. increasing demand through the creation of new purchasing power – can actually be non-inflationary, despite the economy being at full capacity.iii i. Full employment is a controversial term amongst economists. Some (such as Tobin) argue the term should be taken literally, that is full employment refers to a 0% unemployment rate. Similarly, some use the term to refer to the level of employment that would exist if there were no ‘structural’ (i.e. long term) unemployment, so that ‘frictional’ unemployment (i.e. those between jobs) would not be counted as unemployed.


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The Shifts and the Shocks: What We've Learned--And Have Still to Learn--From the Financial Crisis by Martin Wolf

air freight, anti-communist, Asian financial crisis, asset allocation, asset-backed security, balance sheet recession, bank run, banking crisis, banks create money, Basel III, Ben Bernanke: helicopter money, Berlin Wall, Black Swan, bonus culture, break the buck, Bretton Woods, business cycle, call centre, capital asset pricing model, capital controls, Capital in the Twenty-First Century by Thomas Piketty, Carmen Reinhart, central bank independence, collateralized debt obligation, corporate governance, creative destruction, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, currency manipulation / currency intervention, currency peg, debt deflation, deglobalization, Deng Xiaoping, diversification, double entry bookkeeping, en.wikipedia.org, Erik Brynjolfsson, Eugene Fama: efficient market hypothesis, eurozone crisis, Fall of the Berlin Wall, fiat currency, financial deregulation, financial innovation, financial repression, floating exchange rates, forward guidance, Fractional reserve banking, full employment, global rebalancing, global reserve currency, Growth in a Time of Debt, Hyman Minsky, income inequality, inflation targeting, information asymmetry, invisible hand, Joseph Schumpeter, Kenneth Rogoff, labour market flexibility, labour mobility, light touch regulation, liquidationism / Banker’s doctrine / the Treasury view, liquidity trap, Long Term Capital Management, mandatory minimum, margin call, market bubble, market clearing, market fragmentation, Martin Wolf, Mexican peso crisis / tequila crisis, money market fund, moral hazard, mortgage debt, negative equity, new economy, North Sea oil, Northern Rock, open economy, paradox of thrift, Paul Samuelson, price stability, private sector deleveraging, purchasing power parity, pushing on a string, quantitative easing, Real Time Gross Settlement, regulatory arbitrage, reserve currency, Richard Feynman, risk-adjusted returns, risk/return, road to serfdom, Robert Gordon, Robert Shiller, Robert Shiller, Ronald Reagan, savings glut, Second Machine Age, secular stagnation, shareholder value, short selling, sovereign wealth fund, special drawing rights, The Chicago School, The Great Moderation, The Market for Lemons, the market place, The Myth of the Rational Market, the payments system, The Wealth of Nations by Adam Smith, too big to fail, Tyler Cowen: Great Stagnation, very high income, winner-take-all economy, zero-sum game

This is quite distinct from what happens when the fiscal deficit is expanded at full employment. In that case, interest rates rise, as the deficit crowds out private spending. Reliance on the fiscal buffer (the ability to let the fiscal deficit rise in response to a private-sector led recession) was essential this time, because even a strongly expansionary monetary policy was insufficient to prevent the shifts of the household and corporate sectors into surplus. We know it was insufficient because the monetary authorities initiated such a policy. This is a situation in which Keynesian fiscal policy becomes relevant. This is no more than to say that the economy was in a ‘liquidity trap’: at the lowest interest rate the central bank could create, the private and foreign sectors would have had a large excess of income over desired spending at full employment (the spending that would have occurred had the economy been at full employment, which, of course, it was not).

The Federal Reserve offset this drag on output and employment (and so inflation) by pursuing a more aggressive monetary policy. As domestic demand for both non-tradeables and tradeables expanded, a huge excess demand for tradeables emerged. The expansion of production abroad, notably in China, satisfied this excess demand, so generating huge trade and current-account deficits. Meanwhile demand and supply for non-tradeables returned to balance, producing the full employment the Federal Reserve was seeking. In this way, internal balance – full employment – was achieved, albeit temporarily, at the price of a huge external imbalance – excess demand for tradeables and so trade and current-account deficits. The global market for the US dollar is rigged. It is one in which governments are prepared to buy massively, to prevent prices from reaching natural market clearing levels. We do not know how much lower the dollar would have been if there had been no such intervention, but surely it would have been substantially weaker and US monetary policy would have consequently needed to be less expansionary.

Thus all forms of balanced-budget household economics applied to the government are nonsense unless it has ceased to be able to create money (as has happened inside the Eurozone). In Lerner’s words, ‘Government should adjust its rates of expenditure and taxation such that total spending is neither more nor less than that which is sufficient to purchase the full employment level of output at current prices. If this means there is a deficit, greater borrowing, “printing money”, etc., then these things in themselves are neither good nor bad, they are simply the means to the desired ends of full employment and price stability.’53 So long as these policies do not generate excess demand, there is no reason to fear their inflationary effects. This does not mean no constraint on monetary policy exists, but those constraints come from inflation and the associated risks of sharp declines in the value of the currency against other currencies.


The Rise and Decline of Nations: Economic Growth, Stagflation, and Social Rigidities by Mancur Olson

"Robert Solow", barriers to entry, British Empire, business cycle, California gold rush, collective bargaining, correlation coefficient, David Ricardo: comparative advantage, full employment, income per capita, Kenneth Arrow, market clearing, Norman Macrae, Pareto efficiency, price discrimination, profit maximization, rent-seeking, Sam Peltzman, selection bias, Simon Kuznets, The Wealth of Nations by Adam Smith, trade liberalization, transaction costs, urban decay, working poor

If, indeed, labour were always in a position to take action (and were to do so), whenever there was less than full employment, to reduce its money demands by concerted action to whatever point was required to make money so abundant relatively to the wage-unit that the rate of interest would fall to a level compatible with full employment, we should, in effect, have monetary management by the Trade Unions, aimed at full employment, instead of by the banking system.4 To be sure, Keynes's explanation of underemployment equilibrium did not consist merely of the assumption of sticky wages; pre-Keynesian theory already ascribed unemployment to unrealistically high wage levels, and Keynes was anxious to differentiate his theory from the theory that preceded it. Indeed, Keynes argued that reductions of money wages need not bring full employment, and that if they did it involved, in essence, "monetary management by the Trade Unions."

Unwillingness to invest in a second profession may be due to a deplorable conservatism in many individuals of middle age or older, but it surely often exists, and when it does, a full employment equilibrium literally could arrive only after most of those in the category at issue have retired. As Keynes wisely said, in the long run we are all dead. Even if we take a timeless view of macroeconomic fluctuations and we unrealistically ignore the costs of the resource reallocation to the flexprice or equilibrium sector whenever aggregate demand is substantially less than expected, the fact that there are always some flexible prices need not ever insure full employment. A second problem with the hurried economist's general-equilibrium argument is that it overlooks what can best be described as the "selling apples on street corners" syndrome.

Although the search, accelerationist/decelerationist, and equilibrium theories, which in most formulations attribute any macroeconomic problems to mistaken expectations, can explain some variations in the level of employment and the rate of utilization of other resources, they are not nearly sufficient to explain the depth and duration of the unemployment in the interwar period. If the economy is always at a full employment level of output, except when and only for as long as the rate of inflation that was anticipated exceeds that which occurs, why did the depression that began in the United States in 1929 and ended only with World War II involve such an enormous and prolonged reduction in employment and real output'? Consider also the case of Great Britain in the interwar period. Britain then as now used a system for measuring unemployment that by comparison with current U.S. practice understates the degree of unemployment; yet, from shortly after World War I until World War II, Great Britain almost never recorded less than 10 percent unemployment.


Meghnad Desai Marxian economic theory by Unknown

business cycle, commoditize, Corn Laws, full employment, land reform, means of production, p-value, price mechanism, profit motive

But then they do not replace the value scheme by a new theory in a Marxian framework. Their analysis of the behaviour of corporations follows very closely John Kenneth Galbraith's theories of the New Industrial State. Their statistical investigations of the surplus have been anticipated in traditional macro-economics by the measure known as the full employment surplus or the Okun gap.5 This is the gap between the potential level of GNP at full employment level and the actual level at any time. It is used for operational purposes of macroeconomic stabilisation. The label Baran and Sweezy attach to this concept is critical but its function can be easily operational. Baran and Sweezy's analysis is then a combination of Neoclassical microeconomics, without the assumption of perfect competition, and orthodox macroeconomics.

It was by way of inflation, debt-accumulation, government-induced production, war-preparation and actual warfare that the dominant capitalist nations reached an approximation of full employment." (pp.122 - 123). In earlier years, business cycles performed the task of destroying accumulated capital. But according to Mattick, at the turn of the century, a point was reached whereby cycles were no longer sufficient. "The business cycle as an instrument of accumulation had apparently come to an end; or, rather, the business cycle became a 'cycle' of world wars." (p.13S). While Mane did not foresee many of these events, Mattick says. they are perfectly consistent with his theory. Indeed the rise of Keynesianism is a socio-economic development predicted by Mane's theory, according to Mattick. (p.130). What is more, state intervention to achieve full employment is not even a new socio-economic development which need be p~edicted by Mane.

Having thus shorn Marxian theory of its historical and social content, having stripped it of its qualitative dynamics, an emasculated version of his model is retained to be criticised or worshipped, but not to be used as a tool for advancing our understanding of the real world. It is only in such emasculated systems that rising real wages and standards of living, shortening hours of work, continuous full employment etc. are seen ~s embarrassing to the Marxian model, to be regarded by the critics as refutations and to be denounced by the champions as illusory. All this is not said in a diehard defence of Marx's model. Whether we accept his theory or reject it, we need to specify correctly and completely all the aspects of his model. We c~ot neglect some aspects as 'sociological' and then discard the remaining bits of the concept of value as mystical.


pages: 436 words: 98,538

The Upside of Inequality by Edward Conard

affirmative action, Affordable Care Act / Obamacare, agricultural Revolution, Albert Einstein, assortative mating, bank run, Berlin Wall, business cycle, Capital in the Twenty-First Century by Thomas Piketty, Carmen Reinhart, Climatic Research Unit, cloud computing, corporate governance, creative destruction, Credit Default Swap, crony capitalism, disruptive innovation, diversified portfolio, Donald Trump, en.wikipedia.org, Erik Brynjolfsson, Fall of the Berlin Wall, full employment, future of work, Gini coefficient, illegal immigration, immigration reform, income inequality, informal economy, information asymmetry, intangible asset, Intergovernmental Panel on Climate Change (IPCC), invention of the telephone, invisible hand, Isaac Newton, Jeff Bezos, Joseph Schumpeter, Kenneth Rogoff, Kodak vs Instagram, labor-force participation, liquidity trap, longitudinal study, low skilled workers, manufacturing employment, Mark Zuckerberg, Martin Wolf, mass immigration, means of production, meta analysis, meta-analysis, new economy, offshore financial centre, paradox of thrift, Paul Samuelson, pushing on a string, quantitative easing, randomized controlled trial, risk-adjusted returns, Robert Gordon, Ronald Reagan, Second Machine Age, secular stagnation, selection bias, Silicon Valley, Simon Kuznets, Snapchat, Steve Jobs, survivorship bias, The Rise and Fall of American Growth, total factor productivity, twin studies, Tyler Cowen: Great Stagnation, University of East Anglia, upwardly mobile, War on Poverty, winner-take-all economy, women in the workforce, working poor, working-age population, zero-sum game

To reemploy U.S. workers idled by trade deficits, the U.S. economy must borrow and spend these newly created deposits. If these deposits sit idle, U.S. growth, employment, and wages will be lower than they would be if the economy used all its available resources—chiefly, labor idled by trade deficits. Of course, the economy can always reach full employment by cutting wages, in effect, by spreading a given amount of labor income over a greater number of workers. To reach full employment at the highest possible wages, the economy must fully utilize all its resources. To put risk-averse savings to work, someone must bear the risk of using those savings. With a limited capacity and willingness to bear risk, a portion of this capacity must be used to regain employment lost to trade deficits rather than using it to grow employment and wages further.

He feared households would continue to save for retirement, down payments for homes, and college for their children, but without faster growth, there would be more savings than investment. To achieve full employment at the highest possible wage, the economy must deploy all its resources. It must either consume or invest its output. If consumers reduce consumption and increase savings, investors must borrow and invest the additional savings to maintain full utilization of the economy’s resources. Otherwise, growth will slow if savings sit unused. When growth slows, unemployment rises and wages fall relative to the economy deploying all its resources. Wages and unemployment are two sides of the same coin. Theoretically, the economy can always reach full employment by lowering wages. It simply spreads a given amount of GDP over a greater number of workers. If growth slows and unemployment rises, the value of the output labor would have produced if the economy had employed it is lost forever.

Employing their workers instead of ours, which is not the case with balanced trade, and using our equity to underwrite the risk of redeploying their risk-averse savings in order to reach full employment at the highest possible wage have real costs to Americans. Allowing Germany and China to trade their unused savings for employment at a time when we have little use for their risk-averse savings slows America’s growth. Policies that demand balanced trade with trade partners would accelerate growth, increase employment, and reduce the inherent instability of banking under the current set of circumstances. The costs of demanding balanced trade are likely to be less than the alternatives for putting risk-averse savings stemming from trade deficits to work in order to reach full employment. Large government deficits in the face of historically high government debt levels decouple voters and lawmakers from constraining government spending and push out-of-control costs onto younger generations.


pages: 497 words: 143,175

Pivotal Decade: How the United States Traded Factories for Finance in the Seventies by Judith Stein

"Robert Solow", 1960s counterculture, activist lawyer, affirmative action, airline deregulation, anti-communist, Ayatollah Khomeini, barriers to entry, Berlin Wall, blue-collar work, Bretton Woods, business cycle, capital controls, centre right, collective bargaining, Credit Default Swap, crony capitalism, David Ricardo: comparative advantage, deindustrialization, desegregation, energy security, Fall of the Berlin Wall, falling living standards, feminist movement, financial deregulation, floating exchange rates, full employment, Gunnar Myrdal, income inequality, income per capita, intermodal, invisible hand, knowledge worker, laissez-faire capitalism, liberal capitalism, Long Term Capital Management, manufacturing employment, market bubble, Martin Wolf, new economy, oil shale / tar sands, oil shock, open economy, Paul Samuelson, payday loans, post-industrial society, post-oil, price mechanism, price stability, Ralph Nader, RAND corporation, reserve currency, Robert Gordon, Ronald Reagan, Simon Kuznets, strikebreaker, trade liberalization, union organizing, urban planning, urban renewal, War on Poverty, Washington Consensus, working poor, Yom Kippur War

Their only success was the Humphrey-Hawkins full employment law, and even this victory was more a tribute to Hubert Humphrey, who had died of cancer in January 1978, than a blueprint for action. In fact, it underscored the poverty of liberal economics. Humphrey-Hawkins was a lightweight version of the Humphrey-Javits bill, which was a full-blown planning bill. Humphrey-Javits had been introduced in the midst of the recession of 1975, when it seemed that the economy needed a major overhaul. It included new forms of sectoral, or “micro,” planning to ensure full employment. When the economy picked up in 1976, its sponsors dropped it. Because unemployment was still high, Humphrey then joined with Augustus Hawkins to introduce new legislation to guarantee full employment. Humphrey-Javits had provided new tools for the government; Humphrey-Hawkins relied upon traditional macroeconomic techniques, supplemented with government jobs.

The British economist John Maynard Keynes showed that economies lacked mechanisms to attain the full employment of their resources. Even if wages fell, the expectation of classical economists, profit prospects were not certain. If there was little prospect of demand, a businessman would not expand his factory, even if wages and interest rates were low. Keynes found answers by studying and compiling aggregate, nationwide statistics. He invented macroeconomics, the branch of economics that studied the performance of the economy as a whole.8 He discovered that governments could either spend money or reduce taxes to increase the demand that would generate more private investment, leading to full employment. Keynes was no radical, but he believed that mass unemployment was unjust and a threat to free society and civilization.

Like Eisenhower, Ford hoped for border states like Virginia and Texas.45 (He won the former, but not the latter.) All of these decisions reinforced class voting and made region, ethnicity, race, and religion secondary. Not surprisingly, the Democrats also went back to their traditional issues. Determined to avoid the mistake McGovern made in 1972, the Democratic platform clearly embraced the federal government’s responsibility to create a full-employment economy. The Humphrey-Hawkins full-employment bill was written into the platform despite Jimmy Carter’s lack of enthusiasm for it. Democrats embraced wage and price control to address inflation. But the candidate continued the morality and leadership themes that had won him the nomination, avoiding specifics as much as the press allowed. One reason that his twelve-percentage-point margin over the president faded was his unwillingness to address the recession and anemic recovery.


pages: 767 words: 208,933

Liberalism at Large: The World According to the Economist by Alex Zevin

activist fund / activist shareholder / activist investor, affirmative action, anti-communist, Asian financial crisis, bank run, Berlin Wall, Big bang: deregulation of the City of London, Bretton Woods, British Empire, business climate, business cycle, capital controls, centre right, Chelsea Manning, collective bargaining, Columbine, Corn Laws, corporate governance, corporate social responsibility, creative destruction, credit crunch, David Ricardo: comparative advantage, debt deflation, desegregation, disruptive innovation, Donald Trump, Edward Snowden, failed state, Fall of the Berlin Wall, financial deregulation, financial innovation, Francis Fukuyama: the end of history, full employment, Gini coefficient, global supply chain, hiring and firing, imperial preference, income inequality, interest rate derivative, invisible hand, John von Neumann, Joseph Schumpeter, Julian Assange, Khartoum Gordon, land reform, liberal capitalism, liberal world order, light touch regulation, Long Term Capital Management, market bubble, Martin Wolf, means of production, Mikhail Gorbachev, Monroe Doctrine, Mont Pelerin Society, moral hazard, Naomi Klein, new economy, New Journalism, Norman Macrae, Northern Rock, Occupy movement, Philip Mirowski, plutocrats, Plutocrats, price stability, quantitative easing, race to the bottom, railway mania, rent control, rent-seeking, road to serfdom, Ronald Reagan, Rosa Parks, Snapchat, Socratic dialogue, The Wealth of Nations by Adam Smith, Thomas Malthus, too big to fail, trade liberalization, trade route, unbanked and underbanked, underbanked, unorthodox policies, upwardly mobile, War on Poverty, WikiLeaks, Winter of Discontent, Yom Kippur War, young professional

‘The comments I make below are in the nature of footnotes rather than dissent.’34 Yet these footnotes did make clear three important concerns Crowther harboured about a post-war world of welfare and full employment, which carried over from the pre-war decade, and set strict limits to it. First, any major change in social structure must be ruled out. Crowther poured scorn on economist E. F. Schumacher, who had remarked in the draft that full employment might be hard to achieve without tackling the issue of ownership of the means of production. ‘No doubt it would be easier to achieve full employment if Control of Employment and the Essential Works Order remained in force in peacetime. No doubt it would also be easier if the whole of industry – or at least the large capital-using industries – were nationalised.’

Yet it was simply a tax plan to secure ‘minimum levels of income’ with a Keynesian aim of ‘subsidising consumption’ and ‘preventing sharp falls in production and employment’.31 The success of the entire project, which was ‘not revolutionary’, depended on a return to liberalism at home and abroad: never so loose as to ‘lessen incentives to work and advancement’, promoting ‘full employment and the freest possible trade’, and ensuring low and steady inflation, which Beveridge’s plan secured by creating ‘a greater class of rentiers than ever before’ with a ‘vested interest in the stability of the currency’.32 Crowther did a variety of war work while editor, from analyses of manpower deployment for the Cabinet, to US goodwill tours.33 No job was more revealing, however, than his role in drafting the follow-up report from Beveridge in 1944, Full Employment in a Free Society. ‘I am fully in agreement with the line you take, which is closely similar to that taken in the series of articles in The Economist a year ago’, Crowther remarked in a detailed memorandum to Beveridge, followed up by in-person meetings, on the draft that emerged from the conference on international aspects of post-war employment policy at Nuffield College in September 1943.

Britain required large injections in emulation of its two powerful allies: to close the gap in labour productivity with the American worker, what was needed was ‘a long-term Stalinist policy of investment, on which the chief hope for a rapid rise in the standard of living depends’.36 For Crowther, this excluded any deliberate attempt to restrict savings, and meant that consumption would have to be closely watched, lest stimulus of it lead to ‘a shortage, not surfeit, of savings’. The third point is the most striking, for unlike the first two, it seems to have been the common assumption of all participants including Beveridge.37 The main ‘international implications of full employment’ for Britain in the post-war world were that the country must work to prevent any repetition of the rising tariffs, currency devaluations and other moves to autarky of the inter-war period. Full employment in one country was impossible. For if others allowed their trade cycles to continue, leading to a crash and mass unemployment, they would again try to export their way out of trouble at the expense of trading partners, precipitating a global race to the bottom. In contemplating one international obstacle, however, the participants in the conference tellingly all but ignored another, arguably more salient one – that of finance capital, the free movement of which had repeatedly imperilled progressive social legislation in Britain, in a pattern that was set to recur: cries of capital flight and lost confidence in protest at the People’s Budget in 1909, collapse of the second Labour government amidst a run on the pound in 1931.38 The war represented the finest hour for the extreme centre, giving its advocates a voice inside the state, while demonstrating that ‘vested interests’ still operated there to frustrate its boldest initiatives.


pages: 424 words: 115,035

How Will Capitalism End? by Wolfgang Streeck

accounting loophole / creative accounting, Airbnb, basic income, Ben Bernanke: helicopter money, Bretton Woods, business cycle, capital controls, Capital in the Twenty-First Century by Thomas Piketty, Carmen Reinhart, central bank independence, centre right, Clayton Christensen, collective bargaining, conceptual framework, corporate governance, creative destruction, credit crunch, David Brooks, David Graeber, debt deflation, deglobalization, deindustrialization, disruptive innovation, en.wikipedia.org, eurozone crisis, failed state, financial deregulation, financial innovation, first-past-the-post, fixed income, full employment, Gini coefficient, global reserve currency, Google Glasses, haute cuisine, income inequality, information asymmetry, invisible hand, John Maynard Keynes: Economic Possibilities for our Grandchildren, Kenneth Rogoff, labour market flexibility, labour mobility, late capitalism, liberal capitalism, market bubble, means of production, moral hazard, North Sea oil, offshore financial centre, open borders, pension reform, plutocrats, Plutocrats, Plutonomy: Buying Luxury, Explaining Global Imbalances, post-industrial society, private sector deleveraging, profit maximization, profit motive, quantitative easing, reserve currency, rising living standards, Robert Gordon, savings glut, secular stagnation, shareholder value, sharing economy, sovereign wealth fund, The Future of Employment, The Wealth of Nations by Adam Smith, Thorstein Veblen, too big to fail, transaction costs, Uber for X, upwardly mobile, Vilfredo Pareto, winner-take-all economy, Wolfgang Streeck

The structure of the post-war settlement between labour and capital was fundamentally the same across the otherwise widely different countries where democratic capitalism had come to be instituted. It included an expanding welfare state, the right of workers to free collective bargaining and a political guarantee of full employment, underwritten by governments making extensive use of the Keynesian economic toolkit. When growth began to falter in the late 1960s, however, this combination became difficult to maintain. While free collective bargaining enabled workers through their unions to act on what had become firmly ingrained expectations of regular yearly wage increases, governments’ commitment to full employment, together with a growing welfare state, protected unions from potential employment losses caused by wage settlements in excess of productivity growth. Government policy thus leveraged the bargaining power of trade unions beyond what a free labour market would have sustained.

In subsequent years governments all over the Western world faced the question of how to make trade unions moderate their members’ wage demands without having to rescind the Keynesian promise of full employment. In countries where the institutional structure of the collective-bargaining system was not conducive to the negotiation of tripartite ‘social pacts’, most governments remained convinced throughout the 1970s that allowing unemployment to rise in order to contain real wage increases was too risky for their own survival, if not for the stability of capitalist democracy as such. Their only way out was an accommodating monetary policy which, while allowing free collective bargaining and full employment to continue to coexist, did so at the expense of raising the rate of inflation to levels that accelerated over time. In its early stages, inflation was not much of a problem for workers represented by strong trade unions and politically powerful enough to achieve de facto wage indexation.

However that may be, in the years immediately after the Second World War there was a widely shared assumption that for capitalism to be compatible with democracy, it would have to be subjected to extensive political control – for example, nationalization of key firms and sectors, or workers’ ‘co-determination’, as in Germany – in order to protect democracy itself from being restrained in the name of free markets. While Keynes and, to some extent, Kalecki and Polanyi carried the day, Hayek withdrew into temporary exile. Since then, however, mainstream economics has become obsessed with the ‘irresponsibility’ of opportunistic politicians who cater to an economically uneducated electorate by interfering with otherwise efficient markets, in pursuit of objectives – such as full employment and social justice – that truly free markets would in the long run deliver anyway, but must fail to deliver when distorted by politics. Economic crises, according to standard theories of ‘public choice’, essentially stem from market-distorting political interventions for social objectives.3 In this view, the right kind of intervention sets markets free from political interference; the wrong, market-distorting kind derives from an excess of democracy; more precisely, from democracy being carried over by irresponsible politicians into the economy, where it has no business.


pages: 182 words: 53,802

The Production of Money: How to Break the Power of Banks by Ann Pettifor

Ben Bernanke: helicopter money, Bernie Madoff, Bernie Sanders, bitcoin, blockchain, borderless world, Bretton Woods, capital controls, Carmen Reinhart, central bank independence, clean water, credit crunch, Credit Default Swap, cryptocurrency, David Graeber, David Ricardo: comparative advantage, debt deflation, decarbonisation, distributed ledger, Donald Trump, eurozone crisis, fiat currency, financial deregulation, financial innovation, financial intermediation, financial repression, fixed income, Fractional reserve banking, full employment, Hyman Minsky, inflation targeting, interest rate derivative, invisible hand, John Maynard Keynes: Economic Possibilities for our Grandchildren, Joseph Schumpeter, Kenneth Rogoff, Kickstarter, light touch regulation, London Interbank Offered Rate, market fundamentalism, Martin Wolf, mobile money, Naomi Klein, neoliberal agenda, offshore financial centre, Paul Samuelson, Ponzi scheme, pushing on a string, quantitative easing, rent-seeking, Satyajit Das, savings glut, secular stagnation, The Chicago School, the market place, Thomas Malthus, Tobin tax, too big to fail

Sir Peter Middleton, permanent secretary to the Treasury from 1983 to 1991, described the mood there when he first joined in 1960: It was a period of confidence and consensus in the Treasury. A post-war deflation had been avoided. The commitment in the wartime White Paper to employment policy to maintain a high and stable level of employment had been achieved to an extent greater than anyone expected – and was reiterated both in the 1956 White Paper on the economic implications of full employment and in the Radcliffe Report in 1959. We had lived within the Bretton Woods arrangements – a little precariously at times but successfully.14 But the achievement of full employment was disregarded by economists and policymakers then, much as it is disregarded today: as a non-event. They promoted instead an agenda based on ‘growth’ and financial liberalisation. From the early 1960s with full unemployment at 2 percent, British policymakers echoed the OECD in setting an explicit target for real annual ‘growth’ of 4 percent.

The assumption that it is the supply of money that is important is repeated when Fisher and his modern-day supporters echo another misunderstanding at the heart of monetarist and Austrian economics (the orthodox economics of the Austrian School based on the rejection of macroeconomics). This is the assumption that aggregate economic activity tends to be stable, or moving towards an equilibrium in which supply matches demand and full employment follows. In this view, very little can be done by the authorities to change or improve levels of activity. Instead matters are left to the ‘invisible hand’ to move the economy to full employment. According to this view, if the supply of money aimed at a given level of activity is too high, the result will be higher prices or inflation. The solution, monetarists argued, is to reduce the supply of money. However, aggregate economic activity (and especially employment) is never fixed or stable.

CHAPTER 1 Credit Power Modern finance is generally incomprehensible to ordinary men and women … The level of comprehension of many bankers and regulators is not significantly higher. It was probably designed that way. Like the wolf in the fairy tale: ‘All the better to fleece you with.’ Satyajit Das, Traders, Guns and Money (2010) Finance must be the servant, and the intelligent servant, of the community and productive industry; not their stupid master. National Executive Committee of the British Labour Party (June 1944), Full Employment and Financial Policy The global finance sector today exercises extraordinary power over society and in particular over governments, industry and labour. Players in financial markets dominate economic policy-making, undermine democratic decisionmaking, and have helped financialise almost all sectors of the economy (except perhaps faith organisations). Financiers have made vast capital gains by siphoning rent (interest) from debt, but also by effortlessly draining rent from pre-existing assets such as land, property, natural resource monopolies (water, electricity), forests, works of art, race horses, brands and companies.


Globalists: The End of Empire and the Birth of Neoliberalism by Quinn Slobodian

Asian financial crisis, Berlin Wall, bilateral investment treaty, borderless world, Bretton Woods, British Empire, business cycle, capital controls, central bank independence, collective bargaining, David Ricardo: comparative advantage, Deng Xiaoping, desegregation, Dissolution of the Soviet Union, Doha Development Round, eurozone crisis, Fall of the Berlin Wall, floating exchange rates, full employment, Gunnar Myrdal, Hernando de Soto, invisible hand, liberal capitalism, liberal world order, market fundamentalism, Martin Wolf, Mercator projection, Mont Pelerin Society, Norbert Wiener, offshore financial centre, oil shock, open economy, pattern recognition, Paul Samuelson, Pearl River Delta, Philip Mirowski, price mechanism, quantitative easing, random walk, rent control, rent-seeking, road to serfdom, Ronald Reagan, special economic zone, statistical model, The Chicago School, the market place, The Wealth of Nations by Adam Smith, theory of mind, Thomas L Friedman, trade liberalization, urban renewal, Washington Consensus, Wolfgang Streeck, zero-sum game

The first consequence of the New Deal’s internationalization was the diverse experimentation with planning that emerged in postwar Western Eu­rope.72 In an attack on Marshall Plan aid for Britain and France in 1950, a Missouri senator quoted Röpke’s observation of the irony “that the Marshall Plan, which should have pulled Western Eu­ rope out of the muck of collectivistic, nationalist economic policy, has threatened to create a new supercollectivism on a super-­state level.”73 Röpke offered colorful terms for the occasion, denouncing the U.S. support for the planning bodies of the European Economic Community (EEC) as “vulgar gigantolatry and technolatry.”74 International organ­ izations threatened to expand the pernicious effects of planning to an even larger scale. In 1952 the American Enterprise Association (­later the American Enterprise Institute) published Röpke’s critique of the UN “Report on National and International Mea­sures for Full Employment” (1949), which had been written primarily by British and French Keynesians.75 Röpke wrote that ­there was “no other economic issue which appears so attractive and yet may be so dangerous as the one based on this misleading and bitterly discussed concept” of full employment and warned that the report marked the dangerous shift from “national planning” to “international planning.”76 With the launch of Kennedy’s New Frontier program in 1961, Röpke found another “New” entity to place in the crosshairs of critique. In April 1963 he published a half-­page editorial in the Wall Street Journal A W o r l d of Rac e s 159 titled “Washington’s Economics: A German Scholar Sees Nation Moving into Fiscal Socialism.”

Bauer, “The United Nations Report on the Economic Development of Under-­Developed Countries,” Economic Journal 63, no. 249 (March 1953): 210–222; Gottfried Haberler, “The Case for Minimum Interventionism,” in Foreign Aid Reexamined: A Critical Appraisal, ed. James W. Wiggins, 139–150 (Washington, DC: Public Affairs Press, 1958); Henry Hazlitt, Illusions of Point Four (Irvington-­on-­Hudson, NY: Foundation for Economic Education, 1950); Gaston Leduc, “Le Sous-­devéloppment et ses problèmes,” Revue d’économie politique 62, no. 2 (May 1952): 133–189; Wilhelm Röpke, The Economics of Full Employment: An Analy­sis of the UN Report on National and International Mea­sures for Full Employment (New York: American Enterprise Association, 1952); Wilhelm Röpke, “Unentwickelte Länder,” Ordo 5 (1953): 63–113. For an overview of MPS discussions of development, see Dieter Plehwe, “The Origins of the Neoliberal Economic Development Discourse,” in The Road from Mont Pèlerin: The Making of the Neoliberal Thought Collective, ed. Philip Mirowski and Dieter Plehwe (Cambridge, MA: Harvard University Press, 2009), 238–279; Jean Solchany, Wilhelm Röpke, l’autre Hayek: Aux origines du néolibéralisme (Paris: Sorbonne, 2015), 371–383. 7.

The quote was repeated in a 1957 study sponsored by seventeen congressmen and published in the national magazine of the Chamber of Commerce: “Adverse Effects of Expanding Government,” Nation’s Business 45, no. 9 (September 1957): 39–94, at 89. 74. Quoted in Wegmann, Früher Neoliberalismus, 317. 75. Röpke, The Economics of Full Employment; J. F. J. Toye and Richard Toye, The UN and Global Po­liti­cal Economy: Trade, Finance, and Development (Bloomington: Indiana University Press, 2004), 93. 76. Röpke, The Economics of Full Employment, 5, 31. 77. Wilhelm Röpke, “Washington’s Economics: A German Scholar Sees Nation Moving into Fiscal Socialism,” Wall Street Journal, April 1, 1963. 78. Röpke, “Die unentwickelten Länder,” 15, 59. Myrdal was often singled out for special criticism by neoliberal critics of development aid like Peter T.


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Aftershock: The Next Economy and America's Future by Robert B. Reich

Berlin Wall, business cycle, declining real wages, delayed gratification, Doha Development Round, endowment effect, full employment, George Akerlof, Home mortgage interest deduction, Hyman Minsky, illegal immigration, income inequality, invisible hand, job automation, labor-force participation, Long Term Capital Management, loss aversion, mortgage debt, new economy, offshore financial centre, Ralph Nader, Ronald Reagan, school vouchers, sovereign wealth fund, Thorstein Veblen, too big to fail, World Values Survey

During the depths of the Great Depression, when many doubted capitalism would survive, Keynes declared capitalism the best system ever devised to achieve a civilized economic society. But he recognized in it two major faults—“its failure to provide for full employment and its arbitrary and inequitable distribution of wealth and incomes.” Until these were corrected, Keynes argued, capitalism would continue to be highly unstable, vulnerable to economic booms that would often be followed by catastrophic collapses. Yet if government worked to correct these faults, he felt confident that future generations could inherit a stable and prosperous world. Classical economists had viewed markets as self-correcting. They had supposed that full employment would always prevail in the end. Any spate of unemployment would cause wages to drop until employers found it profitable to hire workers again. By this view, persistent unemployment was the result of stubborn resistance on the part of workers who insisted on keeping their old level of wages even though they didn’t work hard enough to justify them.

He saw it as a failure of demand. Average workers lacked enough purchasing power to buy what they produced. Keynes’s big idea was to use macroeconomic policy to maintain full employment. Policymakers should expand the money supply to permanently lower interest rates, so that consumers and businesses could get lower-cost loans, and government should increase its own spending to make up for the shortfall in consumer demand, so that more jobs would be created. Part of Keynes’s answer was also to spread the benefits of economic growth. Keynes recognized that growth depends on the incentives of the rich to save and invest. But he noted that until an economy reaches full employment, additional savings don’t help; in fact, they cause harm by reducing the demand for goods and services. The central problem isn’t too little savings; it’s too little demand for all the goods and services an economy can produce.

It is still possible to find people who believe that government policy did not end the Great Depression and undergird the Great Prosperity, just as it is possible to uncover people who do not believe in evolution. To be sure, the U.S. government refrained from doing what many of Europe’s social democratic countries did—directly redistribute income from the rich to the poor and middle class, and nationalize industries. Nonetheless, it actively created the conditions for the middle class to fully share in the nation’s prosperity. It did so by pushing the economy toward full employment, creating a more progressive income tax, enhancing the bargaining power of average workers, building up Social Security, providing workers with a strong safety net when they couldn’t work, and improving their productivity. Franklin D. Roosevelt never fully understood Keynesian economics, despite the efforts of Marriner Eccles and others to educate him, but FDR proved the success of Keynesianism.


pages: 364 words: 99,613

Servant Economy: Where America's Elite Is Sending the Middle Class by Jeff Faux

back-to-the-land, Bernie Sanders, Black Swan, Bretton Woods, BRICs, British Empire, business cycle, call centre, centre right, cognitive dissonance, collateralized debt obligation, collective bargaining, creative destruction, Credit Default Swap, credit default swaps / collateralized debt obligations, crony capitalism, currency manipulation / currency intervention, David Brooks, David Ricardo: comparative advantage, disruptive innovation, falling living standards, financial deregulation, financial innovation, full employment, hiring and firing, Howard Zinn, Hyman Minsky, illegal immigration, indoor plumbing, informal economy, invisible hand, John Maynard Keynes: Economic Possibilities for our Grandchildren, Kickstarter, lake wobegon effect, Long Term Capital Management, market fundamentalism, Martin Wolf, McMansion, medical malpractice, mortgage debt, Myron Scholes, Naomi Klein, new economy, oil shock, old-boy network, Paul Samuelson, plutocrats, Plutocrats, price mechanism, price stability, private military company, Ralph Nader, reserve currency, rising living standards, Robert Shiller, Robert Shiller, rolodex, Ronald Reagan, school vouchers, Silicon Valley, single-payer health, South China Sea, statistical model, Steve Jobs, Thomas L Friedman, Thorstein Veblen, too big to fail, trade route, Triangle Shirtwaist Factory, union organizing, upwardly mobile, urban renewal, War on Poverty, We are the 99%, working poor, Yogi Berra, Yom Kippur War

The war itself brought full employment, demonstrating Keynes’s thesis that the government can spend an economy out of a depression. It also rescued FDR and the country from his act of economic folly. Although travel time across the seas had shortened, the Atlantic and Pacific Oceans were still wide enough that we could fight a war in two arenas with little damage to our infrastructure and comparatively little sacrifice by the majority of our people. The human cost of World War II for the United States—more than four hundred thousand dead nearly seven hundred thousand wounded, and the grief of their families—cannot be priced. But in terms of the economy, whatever sacrifices of rationing and minor scarcity were required of those on the home front was more than made up for by the creation of full employment after a decade of depression.

The economic models they use to “prove” the benefits of globalization focus almost exclusively on consumer prices. The models conclude what is obvious to virtually anyone over the age of twelve: consumers will benefit from cheaper goods made by cheaper labor. What the typical American trying to understand the debate is not told is that these models invariably assume full employment. So it’s no surprise that they do not find that trade deficits cost jobs. Obviously, in the real world, economies are not constantly, or even typically, at full employment. So, unless compensated by an increase in consumer, business, or government spending, a trade deficit always means a slowdown in the growth of the GDP, which means a slowdown in job growth. Here the U.S. economics profession has disgraced itself over the trade issue. It has allowed the governing class to argue that these trade agreements increased exports.

Therefore, for musician’s wages to increase along with the wages of industrial workers, the price of a symphony ticket has to rise much faster than prices in the industrial sector.11 Similarly, the public sector, which is also labor intensive, will naturally require higher prices (in the form of taxes) to maintain the quality of its services. In a full-employment economy with a healthy industrial sector, workers whose wages are rising can afford to pay high prices for services and pay rising taxes. But with the offshoring of the high-productivity sectors, the source of rising wages shrinks. Add the ideological resistance to tax increases and the undercutting of the bargaining position of labor, and you have a formula for wage stagnation. Add in economic policies that favor price stability over full employment and you have a formula for wage decline. Still, Pollyanna will not be suppressed. Like Alan Blinder, the few pundits who have looked toward the personal service future tell us to cheer up.


pages: 446 words: 117,660

Arguing With Zombies: Economics, Politics, and the Fight for a Better Future by Paul Krugman

affirmative action, Affordable Care Act / Obamacare, Andrei Shleifer, Asian financial crisis, bank run, banking crisis, basic income, Berlin Wall, Bernie Madoff, bitcoin, blockchain, Bonfire of the Vanities, business cycle, capital asset pricing model, carbon footprint, Carmen Reinhart, central bank independence, centre right, Climategate, cognitive dissonance, cryptocurrency, David Ricardo: comparative advantage, different worldview, Donald Trump, Edward Glaeser, employer provided health coverage, Eugene Fama: efficient market hypothesis, Fall of the Berlin Wall, fiat currency, financial deregulation, financial innovation, financial repression, frictionless, frictionless market, fudge factor, full employment, Growth in a Time of Debt, hiring and firing, illegal immigration, income inequality, index fund, indoor plumbing, invisible hand, job automation, John Snow's cholera map, Joseph Schumpeter, Kenneth Rogoff, knowledge worker, labor-force participation, large denomination, liquidity trap, London Whale, market bubble, market clearing, market fundamentalism, means of production, New Urbanism, obamacare, oil shock, open borders, Paul Samuelson, plutocrats, Plutocrats, Ponzi scheme, price stability, quantitative easing, road to serfdom, Robert Gordon, Robert Shiller, Robert Shiller, Ronald Reagan, secular stagnation, The Chicago School, The Great Moderation, the map is not the territory, The Wealth of Nations by Adam Smith, trade liberalization, transaction costs, universal basic income, very high income, working-age population

From a modern perspective, “functional finance” is really cavalier in its discussion of monetary policy. Lerner says that the interest rate should be set at the level that produces “the most desirable level of investment,” and that fiscal policy should then be chosen to achieve full employment given that interest rate. What is the optimal interest rate? He doesn’t say—maybe because through the thirties the zero lower bound made that point moot. Anyway, what actually happens at least much of the time—although, crucially, not when we’re at the zero lower bound—is more or less the opposite: political trade-offs determine taxes and spending, and monetary policy adjusts the interest rate to achieve full employment without inflation. Under those conditions budget deficits do crowd out private spending, because tax cuts or spending increases will lead to higher interest rates. And this means that there is no uniquely determined correct level of deficit spending; it’s a choice that depends on how you value the trade-off.

I myself recognized that we had a huge housing bubble, but was shocked at the damage the burst bubble inflicted, mainly because I hadn’t realized how vulnerable our financial system had become thanks to the growth of unregulated “shadow” banking. Once the crash happened, however, economists who had studied these things found themselves in familiar territory. We know a lot about financial crises, from both theory and history. We also know a lot about how economies work in the aftermath of crises: that 1998 paper was about what happens when even a zero interest rate isn’t enough to restore full employment, a condition that went from being a uniquely Japanese problem to the norm across the Western world. For me, then, the five or so years following the 2008 crisis were both the best and the worst of times. They were the best of times in the sense that my role as newspaper columnist and my academic research converged almost perfectly, so that I was in a position to say a lot about what policymakers should be doing.

Budget deficits haven’t led to soaring interest rates (and the Fed’s “money-printing” hasn’t led to inflation); austerity policies have greatly deepened economic slumps almost everywhere they have been tried. Yes, the government must pay its bills in the long run. But spending cuts and/or tax increases should wait until the economy is no longer depressed, and the private sector is willing to spend enough to produce full employment. Is this impossibly complicated? I don’t think so. Now, I suppose that someone like Langone will just respond that it’s all gibberish he can’t understand. But unless he really is stupid, which as I said I doubt, that’s only because he doesn’t want to understand. NOBODY UNDERSTANDS DEBT February 9, 2015 Many economists, including Janet Yellen, view global economic troubles since 2008 largely as a story about “deleveraging”—a simultaneous attempt by debtors almost everywhere to reduce their liabilities.


pages: 279 words: 87,910

How Much Is Enough?: Money and the Good Life by Robert Skidelsky, Edward Skidelsky

"Robert Solow", banking crisis, basic income, Bertrand Russell: In Praise of Idleness, Bonfire of the Vanities, call centre, creative destruction, David Ricardo: comparative advantage, death of newspapers, financial innovation, Francis Fukuyama: the end of history, full employment, happiness index / gross national happiness, income inequality, income per capita, informal economy, Intergovernmental Panel on Climate Change (IPCC), invisible hand, John Maynard Keynes: Economic Possibilities for our Grandchildren, John Maynard Keynes: technological unemployment, Joseph Schumpeter, market clearing, market fundamentalism, Paul Samuelson, profit motive, purchasing power parity, Ralph Waldo Emerson, The Wealth of Nations by Adam Smith, Thomas Malthus, Thorstein Veblen, Tobin tax, union organizing, University of East Anglia, Veblen good, wage slave, wealth creators, World Values Survey, zero-sum game

The New Liberal theory of the “enabling state”—a state that enabled human flourishing—is a forerunner of many later theories, including those of Amartya Sen and Martha Nussbaum, which have had as their aim state action to facilitate individual “capabilities.” A second wave of New Liberalism associated with Keynes, Beveridge and Roosevelt took root in the troubled 1930s and 1940s and came of age in the 1950s and 1960s. Keynes aimed to fill the most important “gap” in the classical market economy, its failure to provide for continuous full employment. In his General Theory of Employment, Interest, and Money (1936), he argued that it was the state’s duty to maintain enough aggregate demand to ensure the continuous use of all potential resources. Continuous full employment was not only an essential condition of security, but, as we have seen, part of Keynes’s ethical project for getting over the hump of “economic necessity” as quickly as possible in order to open up the possibility of a good life for all. William Beveridge, founder of the British welfare state, and one of the original New Liberals, aimed to slay the five giant evils of squalor, ignorance, want, idleness and disease.

“His worst, because some of his social and political theory would not stand too close a scrutiny; because society is not likely to run out of new wants as long as consumption is conspicuous and competitive … His best because of the roving, inquiring, intuitive, provocative mind of the man.”4 But for all its futurism, “Economic Possibilities” links up directly with Keynes’s main preoccupation: the problem of persistent mass unemployment. It provides the “ideal” motivation for the revolution in economic policy for which he is chiefly known: continuous full employment, uninterrupted by slumps, was the quickest route to the utopia towards which the essay beckoned. Keynes wanted to ensure that the capitalist system worked at full blast so as to hasten the day when it would come to an end. More than eighty years have passed since he wrote his essay; we are his “grandchildren,” even his great-grandchildren. So how well has Keynes’s prophecy turned out? The Fate of Keynes’s Prophecy Keynes’s essay offered two predictions and one possibility.

Obesity has risen threefold across Europe since the 1980s, even in countries with traditionally low rates.38 UK prescriptions for depression have also increased, though that may not reflect any rise in depression itself.39 And work-related stress has got worse since 1992, especially for women.40 By historical standards, we remain extremely healthy, but the old assurance that this state of affairs would continue in perpetuity is fading. The maladies of affluence may yet come to outweigh those of poverty. Chart 9. Alcohol-related Deaths in the UK Source: WHO Global Information System on Alcohol and Health Security. Full employment as a goal of macroeconomic policy was abandoned during the Reagan/Thatcher era and has not been reinstated. UK unemployment exceeded the 5 percent mark in 1980 and has largely stayed there since, soaring during recessions to 10 percent or higher. A similar pattern prevails across the OECD, as Chart 11 shows. In Britain and the USA, jobs for life have increasingly been replaced by temporary or open contracts.


pages: 162 words: 51,473

The Accidental Theorist: And Other Dispatches From the Dismal Science by Paul Krugman

"Robert Solow", Bonfire of the Vanities, Bretton Woods, business cycle, clean water, collective bargaining, computerized trading, corporate raider, declining real wages, floating exchange rates, full employment, George Akerlof, George Gilder, Home mortgage interest deduction, income inequality, indoor plumbing, informal economy, invisible hand, Kenneth Arrow, knowledge economy, life extension, new economy, Nick Leeson, paradox of thrift, Paul Samuelson, plutocrats, Plutocrats, price stability, rent control, Ronald Reagan, Silicon Valley, trade route, very high income, working poor, zero-sum game

So-called “classical” macroeconomics asserted that the economy had a long-run tendency to return to full employment, and focused only on that long run. Its two main tenets were the quantity theory of money—the assertion that the overall level of prices was proportional to the quantity of money in circulation—and the “loanable funds” theory of interest, which asserted that interest rates would rise or fall to equate total savings with total investment. Keynes was willing to concede that in some sufficiently long run, these theories might indeed be valid; but, as he memorably pointed out, “In the long run we are all dead.” In the short run, he asserted, interest rates were determined not by the balance between savings and investment at full employment but by “liquidity preference”—the public’s desire to hold cash unless offered a sufficient incentive to invest in less safe and convenient assets.

It so happens that I am about to use my hot-dog-and-bun example to talk about technology, jobs, and the future of capitalism. And I plan to make some serious points about those subjects—the kind of points that can only be made if you are willing to play around with a thought experiment or two. So let’s continue. Suppose that our economy initially employs 120 million workers, which corresponds more or less to full employment. It takes two person-days to produce either a hot dog or a bun. (Hey, realism is not the point here.) Assuming that the economy produces what consumers want, it must be producing 30 million hot dogs and 30 million buns each day; 60 million workers will be employed in each sector. Now, suppose that improved technology allows a worker to produce a hot dog in one day rather than two. And suppose that the economy makes use of this increased productivity to increase consumption to 40 million hot dogs with buns a day.

In the short run, he asserted, interest rates were determined not by the balance between savings and investment at full employment but by “liquidity preference”—the public’s desire to hold cash unless offered a sufficient incentive to invest in less safe and convenient assets. Savings and investment were still necessarily equal; but if desired savings at full employment turned out to exceed desired investment, what would fall would be not interest rates but the level of employment and output. In particular, if investment demand should fall for whatever reason—such as, say, a stock-market crash—the result would be an economy-wide slump. It was a brilliant reimagining of the way the economy worked, one that received quick acceptance from the brightest young economists of the time. True, some realized very early that Keynes’s picture was oversimplified; in particular, that the level of employment and output would normally feed back to interest rates, and that this might make a lot of difference.


pages: 370 words: 102,823

Rethinking Capitalism: Economics and Policy for Sustainable and Inclusive Growth by Michael Jacobs, Mariana Mazzucato

balance sheet recession, banking crisis, basic income, Bernie Sanders, Bretton Woods, business climate, business cycle, Carmen Reinhart, central bank independence, collaborative economy, complexity theory, conceptual framework, corporate governance, corporate social responsibility, creative destruction, credit crunch, Credit Default Swap, crony capitalism, David Ricardo: comparative advantage, decarbonisation, deindustrialization, dematerialisation, Detroit bankruptcy, double entry bookkeeping, Elon Musk, endogenous growth, energy security, eurozone crisis, factory automation, facts on the ground, fiat currency, Financial Instability Hypothesis, financial intermediation, forward guidance, full employment, G4S, Gini coefficient, Growth in a Time of Debt, Hyman Minsky, income inequality, information asymmetry, Intergovernmental Panel on Climate Change (IPCC), Internet of things, investor state dispute settlement, invisible hand, Isaac Newton, Joseph Schumpeter, Kenneth Rogoff, Kickstarter, knowledge economy, labour market flexibility, low skilled workers, Martin Wolf, mass incarceration, Mont Pelerin Society, neoliberal agenda, Network effects, new economy, non-tariff barriers, paradox of thrift, Paul Samuelson, price stability, private sector deleveraging, quantitative easing, QWERTY keyboard, railway mania, rent-seeking, road to serfdom, savings glut, Second Machine Age, secular stagnation, shareholder value, sharing economy, Silicon Valley, Steve Jobs, the built environment, The Great Moderation, The Spirit Level, Thorstein Veblen, too big to fail, total factor productivity, transaction costs, trickle-down economics, universal basic income, very high income

She consults with policy-makers, investment banks and portfolio managers across the globe, and is a regular commentator on national radio and broadcast television. L. Randall Wray is Professor of Economics at Bard College and Senior Scholar at the Levy Economics Institute. He is the author of Money and Credit in Capitalist Economies (Edward Elgar, 1990); Understanding Modern Money: The Key to Full Employment and Price Stability (Edward Elgar, 1998); and Modern Money Theory: A Primer on Macroeconomics for Sovereign Monetary Systems (Palgrave Macmillan, 2012, 2nd rev ed, 2015). He is also co-editor of, and a contributor to, Money, Financial Instability, and Stabilization Policy (Edward Elgar, 2006), and Keynes for the 21st Century: The Continuing Relevance of The General Theory (Palgrave Macmillan, 2008).

Since the financial crisis it has fallen further in most developed countries, including the US, Japan, France and the UK.16 At the same time there appears to be some evidence that rates of productivity-enhancing innovation have also slowed down.17 All this has led some economists to ask whether Western capitalism has entered a period of ‘secular stagnation’, in which a structural weakness of investment and demand leaves positive interest rates no longer able to support full employment. While such a prospect should not be regarded as somehow inevitable, it reflects a widespread concern that developed economies may face a long period of low growth and financial instability.18 Stagnant living standards and rising inequality But weak and unstable growth is only part of modern capitalism’s problem. One of the most striking features of Western economies over the past four decades is that, even when growth has been strong, the majority of households have not seen commensurate increases in their real incomes.

, 2016, available at http://doi:10.1080/13662716.1146124 (accessed 12 April 2016). 51 J. M. Keynes, The General Theory of Employment, Interest and Money, London, Macmillan, 2007 [1936]. 52 Shiller, Irrational Exuberance. 53 ‘I expect to see the State … taking an ever greater responsibility for directly organising investment … I conceive, therefore, that a somewhat comprehensive socialisation of investment will prove the only means of securing an approximation to full employment.’ J. M. Keynes, The Collected Writings of John Maynard Keynes, vol. 7, Cambridge, Cambridge University Press, 1973, pp. 164, 378. 54 H.-J. Chang, Globalization, Economic Development and the Role of the State, London, Zed Books, 2002. 55 T. Piketty, Capital in the 21st Century, Cambridge, MA, Harvard University Press, 2014. 56 A. Berg and J. D. Ostry, Inequality and Unsustainable Growth: Two Sides of the Same Coin?


pages: 376 words: 118,542

Free to Choose: A Personal Statement by Milton Friedman, Rose D. Friedman

affirmative action, agricultural Revolution, air freight, back-to-the-land, bank run, banking crisis, business cycle, Corn Laws, Fractional reserve banking, full employment, German hyperinflation, invisible hand, means of production, minimum wage unemployment, oil shale / tar sands, oil shock, price stability, Ralph Nader, RAND corporation, rent control, road to serfdom, Sam Peltzman, school vouchers, Simon Kuznets, The Wealth of Nations by Adam Smith, union organizing, Unsafe at Any Speed, Upton Sinclair, urban renewal, War on Poverty, working poor, Works Progress Administration

In addition, obstacles to the free operation of the labor market—trade union restrictions, minimum wages, and the like—increase the difficulty of matching worker and job. Under these circumstances, what average number of persons employed corresponds to full employment? As with spending and taxes, there is here, too, an asymmetry. Measures that can be represented as adding to employment are politically attractive. Measures that can be represented as adding to unemployment are politically unattractive. The result is to impart a bias to government policy in the direction of adopting unduly ambitious targets of full employment. The relation to inflation is twofold. First, government spending can be represented as adding to employment, government taxes as adding to unemployment by reducing private spending. Hence, the full employment policy reinforces the tendency for government to increase spending and lower taxes, and to finance any resulting deficit by increasing the quantity of money rather than by taxes or borrowing from the public.

Financing government spending by increasing the quantity of money is often extremely attractive to both the President and members of Congress. It enables them to increase government spending, providing goodies for their constituents, without having to vote for taxes to pay for them, and without having to borrow from the public. A second source of higher monetary growth in the United States in recent years has been the attempt to produce full employment. The objective, as for so many government programs, is admirable, but the results have not been. "Full employment" is a much more complex and ambiguous concept than it appears to be on the surface. In a dynamic world, in which new products emerge and old ones disappear, demand shifts from one product to another, innovation alters methods of production, and so on without end, it is desirable to have a good deal of labor mobility. People change from one job to another and often are idle for a time in between.

Second, the Federal Reserve System can increase the quantity of money in ways other than financing government spending. It can do so by buying outstanding government bonds, paying for them with newly created high-powered money. That enables the banks to make a larger volume of private loans, which can also be represented as adding to employment. Under pressure to promote full employment, the Fed's monetary policy has had the same inflationary bias as the government's fiscal policy. These policies have not succeeded in producing full employment but they have produced inflation. As Prime Minister James Callaghan put it in a courageous talk to a British Labour party conference in September 1976: "We used to think that you could just spend your way out of a recession and increase employment by cutting taxes and boosting government spending. I tell you, in all candor, that that option no longer exists; and that insofar as it ever did exist, it only worked by injecting bigger doses of inflation into the economy followed by higher levels of unemployment as the next step.


Basic Income: A Radical Proposal for a Free Society and a Sane Economy by Philippe van Parijs, Yannick Vanderborght

"Robert Solow", Airbnb, Albert Einstein, basic income, Berlin Wall, Bertrand Russell: In Praise of Idleness, centre right, collective bargaining, cryptocurrency, David Graeber, declining real wages, diversified portfolio, Edward Snowden, eurozone crisis, Fall of the Berlin Wall, feminist movement, full employment, future of work, George Akerlof, illegal immigration, income per capita, informal economy, job automation, John Maynard Keynes: Economic Possibilities for our Grandchildren, John Maynard Keynes: technological unemployment, Kickstarter, Marshall McLuhan, means of production, minimum wage unemployment, open borders, Paul Samuelson, pension reform, precariat, price mechanism, profit motive, purchasing power parity, quantitative easing, race to the bottom, road to serfdom, Second Machine Age, secular stagnation, selection bias, sharing economy, sovereign wealth fund, The Spirit Level, The Wealth of Nations by Adam Smith, Thomas Malthus, Tobin tax, universal basic income, urban planning, urban renewal, War on Poverty, working poor

It does not impose a maximum limit on everyÂ�one’s working time but it makes it easier for Â�people to reduce their working time, both Â�because it reduces what they lose if they do and because Â� it gives them a firm income on which they can rely. It thereby attacks the root cause of trouÂ�bles for both Â�those who get sick by working too much and Â�those who get sick Â�because they cannot find jobs.58 It does not amount to giving up the objective of full employment sensibly interpreted. For full employment can mean two Â�things: full-Â�time paid work for the entire able-Â�bodied part of the population of working age, or the real possibility of getting meaningful paid work for all Â�those who want it. As an objective, the basic income strategy rejects the former but embraces the latter.59 And it pursues it both by subsidizing low-Â� paid work with low immediate productivity and by making it easier for Â�people to choose to work less at any given point in their lives.

As documented by Juliet Schor (1993), some Americans are overworked Â�because they earn too much (say, one hour less a week would mean giving up a new swimming pool) and Â�others Â�because they earn too Â�little (say, one hour less a week would mean junk food for the kids). 59. A basic income is often defended as an alternative to full employment, though not always by distinguishing clearly between Â�these two interpretations. See, for example, Robert Theobald 1967, Claus Offe 1992, 1996a, Fritz Scharpf 1993, James Â�Meade 1995, Jean-Â�Marc Ferry 1995, André Gorz 1997, Yoland Bresson 1999. On the relationship between basic income, wage subsidies, and working time reduction, see chapter 2. ReÂ�sisÂ�tance to technological change and the banning of volunteering are two other (worse) ways of pursuing full employment (Â�whether in the bad or the good sense) for which basic income provides an alternative. 60. Less consumption in the rich countries does not entail less production in rich countries, as global justice arguably requires permanent cross-Â�border transfers (see chapter 8). 2.

Thus, economist Xavier Greffe, while recognizing that the proposal “rests on justified criticisms of current social policy” and “would increase the effectiveness of social policy,” nonetheless found it badly defective: “Located at the heart of liberal discourse, the negative income tax implicitly admits that the market constitutes the privileged mechanism of social integration and that it therefore suffices to help individuals artificially when they access it in order to overcome inÂ�equality and the lack of integration.”108 Similarly, in one of his legendary lectures at the Collège de France, Michel Foucault (1926–1984) first presented the negative income tax in a way that sounded sympathetic: “Â�After all, it does not and should not concern us to know why someone falls below the level of the social game; Â�whether he is a drug addict or voluntarily unemployed is not imporÂ�tant.â•‹.â•‹.â•‹.╋╉The only Â�thing 95 BASIC INCOME that Â�matters is that the individual has fallen below a given level and, at that point, without looking further, and so without having to make all Â�those bureaucratic, police, or inquisitorial investigations, the problem becomes one of granting him a subsidy.â•‹.â•‹.â•‹.”109 Ultimately, however, the negative income tax is for Foucault essentially a tool in the serÂ�vice of “neoliberal” policies. Now that the peasant population no longer provides an “endless fund of manpower,” that function is to be served by the population assisted by the negative income tax scheme—Â� admittedly “in a very liberal and much less bureaucratic and disciplinary way than it is by a system focused on full employment”: “Ultimately, it is up to Â�people to work if they want or not work if they Â�don’t. Above all Â�there is the possibility of not forcing them to work if Â�there is no interest in Â�doing so. They are merely guaranteed the possibility of minimal existence at a given level, and in this way the neoliberal policy can be got to work.”110 For Foucault as for many of Â�those in EuÂ�rope who cared about the fate of the poor and the unemployed, this association with the functional needs of capitalism and neoliberal thought sufficed to discredit the idea, or at least to discourage active interest in it.


Making Globalization Work by Joseph E. Stiglitz

affirmative action, Andrei Shleifer, Asian financial crisis, banking crisis, barriers to entry, Berlin Wall, business process, capital controls, central bank independence, corporate governance, corporate social responsibility, currency manipulation / currency intervention, Doha Development Round, Exxon Valdez, Fall of the Berlin Wall, Firefox, full employment, Gini coefficient, global reserve currency, Gunnar Myrdal, happiness index / gross national happiness, illegal immigration, income inequality, income per capita, incomplete markets, Indoor air pollution, informal economy, information asymmetry, Intergovernmental Panel on Climate Change (IPCC), inventory management, invisible hand, John Markoff, Jones Act, Kenneth Arrow, Kenneth Rogoff, low skilled workers, manufacturing employment, market fundamentalism, Martin Wolf, microcredit, moral hazard, new economy, North Sea oil, offshore financial centre, oil rush, open borders, open economy, price stability, profit maximization, purchasing power parity, quantitative trading / quantitative finance, race to the bottom, reserve currency, rising living standards, risk tolerance, Silicon Valley, special drawing rights, statistical model, the market place, The Wealth of Nations by Adam Smith, Thomas L Friedman, trade liberalization, trickle-down economics, union organizing, Washington Consensus, zero-sum game

Typically, developing countries have difficulty financing the required stimulus, but Ecuador and Bolivia were lucky—they had massive amounts of oil and gas resources that would soon become available, which they could have used as collateral for borrowing. The Bolivians and Ecuadorians argued—rightly, I thought—that the return on investing in the recession was far higher than it would be when global conditions returned to normal levels and their economy was nearer to full employment. In addition to the direct return, there would be a multiplier effect, as the spending would stimulate the entire economy, which was marked by huge underutilization of productive capacity, and help it move toward full employment. Spending money, with natural resources to back the loans, made good economic sense. But the IMF, always worried about government overspending, pressured Ecuador and Bolivia to follow a quite different course. Not only did the IMF not want these countries to stimulate their economies through increased expenditures; they actually demanded cuts in spending in order to offset the decline in tax revenues from the recession.

Unfortunately, as America’s slowdown of 2001–03 showed, even interest rates close to zero may not be sufficient to restore robust growth and full employment. Large deficit spending may be necessary.16 In this view, it is the trade deficit that leads to the fiscal deficit, not the other way around. Support for seeing the world of deficits through this lens is provided by looking at the pattern of trade and fiscal deficits during the past quarter century. What is remarkable about America is that it has had trade deficits through thick and thin—when the government has had a fiscal deficit and when it has not. The 1990s can be thought of as an exceptional period: an investment boom meant that the economy could remain at full employment even without a fiscal deficit, but the gap between investment and savings remained—the elimination of the fiscal deficit may have increased national savings, but national investment increased almost in tandem.

To do any less would have been a dereliction of my responsibilities. What we had fought for while I was in the Clinton administration was relevant, not just to Americans but to the rest of the world as well. As I moved from the Clinton administration to the World Bank, I continued to push for the right balance between the private and public sectors and to advance policies promoting equality and full employment. The issues I raised during my tenure at the World Bank—which received a warm reception by many of the economists there—are the same ones I raised in Globalization and Its Discontents. The passions evoked by the global financial crises and the difficult transitions from communism to a market economy have now faded. Today, these matters can be looked at more calmly and, as I describe in chapter 1, on many of the pivotal issues there is an emerging consensus that resembles the ideas put forth in Globalization and Its Discontents.


pages: 488 words: 144,145

Inflated: How Money and Debt Built the American Dream by R. Christopher Whalen

Albert Einstein, bank run, banking crisis, Black Swan, Bretton Woods, British Empire, business cycle, buy and hold, California gold rush, Carmen Reinhart, central bank independence, commoditize, conceptual framework, corporate governance, corporate raider, creative destruction, cuban missile crisis, currency peg, debt deflation, falling living standards, fiat currency, financial deregulation, financial innovation, financial intermediation, floating exchange rates, Fractional reserve banking, full employment, global reserve currency, housing crisis, interchangeable parts, invention of radio, Kenneth Rogoff, laissez-faire capitalism, liquidity trap, means of production, money: store of value / unit of account / medium of exchange, moral hazard, mutually assured destruction, non-tariff barriers, oil shock, Paul Samuelson, payday loans, plutocrats, Plutocrats, price stability, pushing on a string, quantitative easing, rent-seeking, reserve currency, Ronald Reagan, special drawing rights, The Chicago School, The Great Moderation, too big to fail, trade liberalization, transcontinental railway, Upton Sinclair, women in the workforce

It would take four more years and the election of Ronald Reagan for the Kemp–Roth tax cut to be adopted by Congress. Humphrey-Hawkins and Full Employment The political reaction by the Democratic majority in Congress to the election of Jimmy Carter and Senator Fritz Mondale (D-MN) was to greatly increase federal spending. Among even mainstream Democrats, the answer to the years of uncertainty and unemployment during the 1970s was to embed in the law the right to full employment. Senator Hubert Humphrey (D-MN) and Congressman Gus Hawkins (D-CA) sponsored legislation in the early 1970s to do just that and in 1978 the Congress passed the Humphrey-Hawkins Full Employment and Balanced Growth Act. The law established a maximum unemployment rate of 4 percent and did not mandate a government-paid job for anyone who sought one.

In recognition of the decline in purchasing power of the dollar, in 1946 Congress passed the Employment Act, which directed the federal government to “promote maximum employment, production, and purchasing power.” Taxes were cut to stimulate the economy after the war concluded, so that the United States did not experience a severe downturn in economic activity, as was the case following WWI. This act marked one of the early instances of Congress mandating full employment as a matter of government policy and giving responsibility for this goal to Washington. Like the promises made by Washington of financial regulation or consumer protection, the promise of full employment is worth no more than Washington’s paper money, but none-the-less helps define the American dream. As with much of the government effort and expenditure in the 1930s, the ostensible goal of Washington was to use a postwar surge in economic prosperity as an antidote to the return of national socialism or anything like it.

Louis Federal Reserve Bank maintenance Free Banking era cessation Free Banking Model, collapse Freedoms (FDR) Free silver coinage, agitation Free trade American devotion global commitment, shift Keynes criticism policy, Federal Reserve System (impact) proposal Frick, Henry campaign contributions Friedman, Milton Depression arguments FDR analysis Fed analysis Monetary History of the United States New Deal documentation U.S. money supply analysis Full employment priorities Full employment, government mandate Fundamental disequilibrium Future earnings, trend (assessment) G-7 countries, loan guarantees Galbraith, John Kenneth deficit support Great Crash Gallatin, Albert Gardner, Richard (Sterling-Dollar Diplomacy in Current Perspective) Gary, Elbert H. Geithner, Timothy General Agreement on Tariffs and Trade (GATT) General Motors (GM) bailout bankruptcy organization collapse debt, impact du Pont investment Durant support General Motors Acceptance Corporation (GMAC) bailout credit supply founding Germany Barron attack (Wall Street Journal) central powers, attack (Barron support) WWI debt imposition, impact GI Bill of Rights Gilbert, Clinton (Mirrors of Wall Street) Gilbert, Parker Gilded Age cessation comparison impact trusts, near-bank status Glass, Carter American principle devotion Banking Act sponsorship populist facade proposal Secretary of the Treasury status Glass-Steagall Act Glass-Steagall laws Global currency backing system, problem Global imbalances Global inflation Global marketplace, U.S. advantage Global markets, dollar flow Global payments system, U.S. response Global system, equilibrium Gold Bretton Woods, impact coinage, hard money Jacksonian notion (continuation) coins (specie) confiscation hoarding confiscation conspiracy, relief convertibility Nixon cessation restoration (1879) American resistance return dollar peg, cessation (1971) dollar price, increase exchange FDR, impact greenbacks convertibility, restoration exchange market dynamic movement Fed policy independence impact paper dollars, relationship payment (WWI), promise post-market crisis, Gould operation price fluctuation peak (1869) production purchase, greenbacks (Gould usage) refinement, cyanide process (adoption) reserves bank drain drain seizure Board of Governors complicity stocks, U.S. government holding supply, expansion Goldenweiser, E.A.


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The New Economics: A Bigger Picture by David Boyle, Andrew Simms

Asian financial crisis, back-to-the-land, banking crisis, Bernie Madoff, Big bang: deregulation of the City of London, Bonfire of the Vanities, Bretton Woods, capital controls, carbon footprint, clean water, collateralized debt obligation, colonial rule, Community Supported Agriculture, congestion charging, corporate raider, corporate social responsibility, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, delayed gratification, deskilling, en.wikipedia.org, energy transition, financial deregulation, financial exclusion, financial innovation, full employment, garden city movement, happiness index / gross national happiness, if you build it, they will come, income inequality, informal economy, Intergovernmental Panel on Climate Change (IPCC), Jane Jacobs, Kickstarter, land reform, light touch regulation, loss aversion, mega-rich, microcredit, Mikhail Gorbachev, mortgage debt, neoliberal agenda, new economy, North Sea oil, Northern Rock, offshore financial centre, oil shock, peak oil, pensions crisis, profit motive, purchasing power parity, quantitative easing, Ronald Reagan, seigniorage, Simon Kuznets, sovereign wealth fund, special drawing rights, The Wealth of Nations by Adam Smith, Thomas L Friedman, too big to fail, trickle-down economics, Vilfredo Pareto, Washington Consensus, wealth creators, working-age population

Once it drops out of the conventional economic system, it becomes invisible to policy makers, unless it can be sold and commodified. It also leads to a situation where the government believes that ‘full employment’ – or 80 per cent of the working age population in work – is a valuable objective, when their voluntary work or their work as parents might actually be more valuable to the neighbourhood. There are costs – social and economic – of everyone being at work.20 It would mean, for example, that with no one at home except the frail and elderly, there is a gap left among those who socialize our children, look after older people, prevent crime and provide the human face of our neighbourhoods and communities. Some of those gaps include informal childcare. The problem is, under a successful policy of full employment, when all available carers of working age would be at work in the daytime and, in the period after school, the time they have previously spent looking after children will have to be replaced.

The problem is, under a successful policy of full employment, when all available carers of working age would be at work in the daytime and, in the period after school, the time they have previously spent looking after children will have to be replaced. The same is true for the people who look after sick or elderly relatives at home. If the full employment policy were successful, these people might no longer be available. WHY DO BRITONS WORK HARDER THAN MEDIEVAL PEASANTS? 87 The care they provide includes help with shopping, cleaning, finances, washing, bathing and administering medicine, tube feeding, even occupational therapy. About 890,000 people in the UK over 16 are providing this informally for 50 or more hours a week, at an equivalent cost of £57.4 billion per year, two thirds of what it costs to run the National Health Service.21 Full employment would also considerably reduce the amount of time and effort that goes into volunteering. There is also increasing evidence that it is sheer neighbourhood activity, at all times of the day – not just outside working hours – that is the main determinant of crime rates.

The major study of Chicago by the Harvard School of Public Health showed that it was the willingness of neighbours to intervene in small ways that was by far the most important factor in reducing crime.22 Full employment, in other words, is likely to be corrosive of social capital, if it leaves nobody available in communities. The total costs of benefits are dwarfed by the extra costs that are liable to be caused elsewhere in the system by the savings they make from getting people off benefits and into total employment. But the one-dimensionality of government targets means that they are blind to the problem of costs as externalities elsewhere in the system, even if there are direct causes. Most of the likely costs of full employment will probably not be direct – like the increasing cost of providing basic care to older people – but in less direct ways that are more difficult to quantify, in higher crime and shortfalls in the socialization of children.


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Money Mischief: Episodes in Monetary History by Milton Friedman

Bretton Woods, British Empire, business cycle, currency peg, double entry bookkeeping, fiat currency, financial innovation, fixed income, floating exchange rates, full employment, German hyperinflation, income per capita, law of one price, money market fund, oil shock, price anchoring, price stability, transaction costs

A second source of higher monetary growth in the United States was the attempt to produce full employment. The objective, as for so many government programs, is admirable, but the results have not been. Full employment is a much more complex and ambiguous concept than it appears to be on the surface. Moreover, there is an asymmetry that imparts a bias to government policy in the direction of adopting unduly ambitious targets of full employment. Any measure that can be represented as adding to employment is politically attractive. Any measure that can be represented as adding to unemployment is politically unattractive. The relation of employment to inflation is twofold. First, government spending can be represented as adding to employment, government taxes as adding to unemployment by reducing private spending. Hence, the full-employment policy reinforces the tendency for the government to increase spending without increasing taxes, or even while lowering taxes, and to finance any resulting deficit by increasing the quantity of money.

Second, the Federal Reserve System can increase the quantity of money in ways other than the financing of government spending. One way it can do so is by buying outstanding government bonds and paying for them with newly created high-powered money. That enables the banks to make a larger volume of private loans, which can also be represented as adding to employment. The pressure to promote full employment has given the Fed's monetary policy the same inflationary bias as it has given the government's fiscal policy. These policies have not succeeded in producing full employment, but they have produced inflation. As Prime Minister James Callaghan put it in a courageous talk to a British Labour party conference in September 1976: "We used to think that you could just spend your way out of a recession and increase employment by cutting taxes and boosting government spending. I tell you, in all candour, that that option no longer exists; and that insofar as it ever did exist, it only worked by injecting bigger doses of inflation into the economy followed by higher levels of unemployment as the next step.

Whatever may have been true for money linked to silver or gold, with today's paper money it is governments and governments alone that can produce excessive monetary growth, and hence inflation. In the United States, the accelerated monetary growth from the mid-1960s to the end of the 1970s—the most recent period of accelerating inflation—occurred for three related reasons: first, the rapid growth in government spending; second, the government's full-employment policy; third, a mistaken policy pursued by the Federal Reserve System. Higher government spending will not lead to more rapid monetary growth and inflation if the additional spending is financed either by taxes or by borrowing from the public. In both cases, the government has more to spend, the public less. However, taxes are politically unpopular. While many of us may welcome additional government spending, few of us welcome additional taxes.


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Jihad vs. McWorld: Terrorism's Challenge to Democracy by Benjamin Barber

airport security, anti-communist, Apple's 1984 Super Bowl advert, Ayatollah Khomeini, Berlin Wall, borderless world, Bretton Woods, British Empire, computer age, Corn Laws, Corrections Corporation of America, David Brooks, deindustrialization, Deng Xiaoping, digital map, Fall of the Berlin Wall, Francis Fukuyama: the end of history, full employment, George Gilder, global village, invisible hand, Joan Didion, Kevin Kelly, laissez-faire capitalism, late capitalism, Live Aid, market fundamentalism, Marshall McLuhan, minimum wage unemployment, new economy, Norbert Wiener, North Sea oil, pirate software, postnationalism / post nation state, profit motive, race to the bottom, Right to Buy, road to serfdom, Ronald Reagan, The Wealth of Nations by Adam Smith, Thomas L Friedman, undersea cable, young professional, zero-sum game

Markets are by their nature unfair, and when confronted with state-generated public interest issues like justice, full employment, and environmental protection they seek above all to be left alone. That is what a market is: an unobstructed set of exchange relationships among individual consumers and individual producers that is allowed to take its course; and McWorld is nothing if not a market. Market proponents insist that, like a river kept from its natural flood plain by engineers bent on containing its occasional rampages, a market hemmed in by government levees and regulatory dams will in the end create far more havoc than one left to follow its own cycles. Government has a perfect right, indeed it has a duty, to intervene in the economy in the name of justice, ecology, strategic interests, full employment, or other public goods in which the market has and can have no interest.

Not long after World War II, Victor Lebow recognized that “Our enormously productive economy … demands that we make consumption our way of life, that we convert the buying and selling of goods into rituals, that we seek our spiritual satisfaction, our ego satisfaction, in consumption.”8 Today, as Alan Durning remarks, “the words ‘consumer’ and ‘person’ have become virtual synonyms. The world economy,” Durning concludes, “is currently organized to furnish I. I billion people with a consumer life-style long on things but short on time High consumption is a precondition to neither full employment nor the end of poverty.”9 It is this world that the consumers of Ireland and Palestine and South Africa are now free to join. But full employment and social justice, or a lifestyle that leaves time to enjoy the goods wealth and education produce, are the concerns of citizens, not consumers, and the release from Jihad will not automatically make them citizens. Until McWorld finds a way to nurture citizens as successfully as it nurtures buyers and sellers, such aims will be systematically neglected, whatever innovative transnational institutions are introduced.

“Communist” Vietnam is not far behind, and was opened to American trade recently, presumably on the strength of the belief that markets ultimately defeat ideology.24 Capitalism requires consumers with access to markets and a stable political climate in order to succeed: such conditions may or may not be fostered by democracy, which can be disorderly and even anarchic, especially in its early stages, and which often pursues public goods costly to or at odds with private-market imperatives—environmentalism or full employment for example. On the level of the individual, capitalism seeks consumers susceptible to the shaping of their needs and the manipulation of their wants while democracy needs citizens autonomous in their thoughts and independent in their deliberative judgments. Aleksandr Solzhenitsyn wishes to “tame savage capitalism,” but capitalism wishes to tame anarchic democracy and appears to have little problem tolerating tyranny as long as it secures stability.25 Certainly the hurried pursuit of free markets regardless of social consequences has put democratic development in jeopardy in many nations recently liberated from communism.26 Social insecurity and rampant unemployment for peoples accustomed to the cradle-to-the-grave ministrations of paternalistic socialist bureacracies are unlikely to convert them to a system of democracy for which they have otherwise had no preparation.


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Creating Unequal Futures?: Rethinking Poverty, Inequality and Disadvantage by Ruth Fincher, Peter Saunders

barriers to entry, ending welfare as we know it, financial independence, full employment, Gini coefficient, income inequality, income per capita, labour market flexibility, labour mobility, longitudinal study, low skilled workers, low-wage service sector, marginal employment, minimum wage unemployment, New Urbanism, open economy, pink-collar, positional goods, purchasing power parity, shareholder value, spread of share-ownership, The Bell Curve by Richard Herrnstein and Charles Murray, urban planning, urban renewal, very high income, women in the workforce, working poor, working-age population

Loader, Routledge, London, pp. 38–48 Horsburgh, S. 1998 ‘Living on the edge’ Time 28 September, pp. 49–51 Horton, W. 1999 Libraries: Explore and Discover—Australian Library Week Oration, Parliament House, Canberra, May Hout, M. 1997 ‘Inequality at the margins: the effects of welfare, the minimum wage, and tax credits on low-wage labor’ Politics and Society vol. 25, no. 4, December Hout, M., Arum, R. and Voss, K. 1996 ‘The political economy of inequality in the ‘‘age of extremes’’’ Demography vol. 33, no. 4, pp. 421–5 Howarth, C., Kenway, P. , Palmer, G. and Street, C. 1999 Monitoring Poverty and Social Exclusion: Labour’s Inheritance, Joseph Rowntree Foundation, York Hughes, H. 1994, Achieving Full Employment Discussion Paper No. 1, Full Employment Project, Institute of Public Affairs and Melbourne University, Melbourne Hunter. B. 1997a ‘An indigenous worker’s guide to the Workplace Relations and Other Legislation Amendment Act’ Journal of Industrial Relations vol. 39, no. 4, pp. 439–56 ——1997b ‘The determinants of indigenous employment outcomes: the importance of education and training’ Australian Bulletin of Labour vol. 23, no. 3, pp. 177–92 ——1999 Three Nations, Not One: Indigenous and Other Australian Poverty CAEPR Working Paper No. 1, Centre for Aboriginal Economic and Policy Research, The Australian National University, Canberra Hunter, B.H. and Gray, M.C. 1999 Income Fluctuations over the Lifecycle— A Cohort Analysis of Indigenous and Non-indigenous Australians, 1986–96 CAEPR Discussion Paper No. 183, Centre for Aboriginal 237 PDF OUTPUT c: ALLEN & UNWIN r: DP2\BP4401W\MAIN p: (02) 6232 5991 f: (02) 6232 4995 36 DAGLISH STREET CURTIN ACT 2605 237 CREATING UNEQUAL FUTURES?

Model: Jobs and Wages in a Deregulated Economy, Economic Policy Institute, Washington Mitchell, D. 1991 Income Transfers in Ten Welfare States, Aldershot, Avebury Mitchell, D. and Harding, A. 1993 Changes in Poverty Among Families During the 1990s: Poverty Gap Versus Poverty Head-count Approaches Discussion Paper No. 2, National Centre for Social and Economic Modelling, University of Canberra Mitchell, W.F. 1999 ‘Full employment abandoned—the macroeconomic story’, Out of the Rut: Making Labor a Genuine Alternative eds M. Carman and I. Rogers, Allen & Unwin, St Leonards Mitchell, W.F and Watts, M.J. 1997 ‘The path to full employment’ Australian Economic Review vol. 30, no. 4, pp. 436–44 Moore, D. 1998 Why Regulation of the Labour Market is Inequitable, Outdated and Inefficient, Occasional Address to Annual Meeting of the HR Nicholls Society, 30 November Morehead, A., Steele, M., Alexander, M., Stephen, K. and Duffin, L. 1997 Change at Work: The 1995 Australian Workplace Industrial Relations Survey (AWIRS 95), Longman, South Melbourne Morris, P. 1996 ‘Newspapers and the new information media’ Media International Australia no. 17, pp. 10–21 Mullins, P. 1991 ‘Tourism urbanisation’ International Journal of Urban and Regional Research vol. 15, no. 3, pp. 326–42 Murie, A. and Musterd, S. 1996 ‘Social segregation, housing tenure and social change in Dutch cities in the late 1980s’ Urban Studies vol. 33, no. 3, pp. 495–516 Murphy, P. and Watson, S. 1994 ‘Social polarisation and Australian cities’ International Journal of Urban and Regional Research vol. 8, no. 4, pp. 573–90 Murray, C. 1984 Losing Ground New York, Basic Books 240 PDF OUTPUT c: ALLEN & UNWIN r: DP2\BP4401W\MAIN p: (02) 6232 5991 f: (02) 6232 4995 36 DAGLISH STREET CURTIN ACT 2605 240 REFERENCES National Board of Employment, Education and Training: Higher Education Council 1996 Equality, Diversity and Excellence: Advancing the National Higher Education Equity Framework, AGPS, Canberra National Commission of Audit 1996 Report to the Commonwealth Government, AGPS, Canberra National Health Strategy 1992 Enough to Make you Sick: How Income and Environment Affect Health, Research Paper No. 1, National Health Strategy, Melbourne National Inquiry into the Separation of Aboriginal and Torres Strait Islanders from their Families 1997 Bringing Them Home: National Inquiry into the Separation of Aboriginal and Torres Strait Islander Children from their Families, Human Rights and Equal Opportunity Commission, Sydney Neumark, D. and Wascher, W. 1997 Do Minimum Wages Fight Poverty?

Evidence from the Luxembourg Income Study Project, Discussion Paper No. 81, Social Policy Research Centre, University of New South Wales, Sydney Saunders, P. and Whiteford, P. 1989 Measuring Poverty: A Review of the Issues Discussion Paper 88/11, Economic Planning Advisory Council, Canberra Sawyer, M. 1976 Income Distribution OECD Occasional Studies, OECD, Paris Schlesinger, P. 1972 The Sociology of Knowledge paper presented to the 1972 Meeting of the British Sociological Association Schmid, G. 1995 ‘Is full employment still possible? Transitional labour markets as a new strategy of labour market policy’ Economic and Industrial Democracy vol. 16, no. 3 Schmid, G. and Auer, P. 1998 ‘Transitional labour markets: concepts and examples in Europe’ New Institutional Arrangements in the Labour Market: Transitional Labour Markets as a New Full Employment Concept, European Academy of the Urban Environment, Berlin Schmid, G. et al. 1996 International Handbook of Labour Market Policy and Evaluation, Edward Edgar, Cheltenham, UK Sen, A. 1982 Poverty and Famines, Clarendon Press, Oxford ——1983 ‘Poor, relatively speaking’ Oxford Economic Papers, vol. 35, pp. 153–69 ——1985 Commodities and Capabilities, North Holland, Amsterdam ——1992 Inequality Re-examined, Oxford University Press, Oxford ——1997 ‘Inequality, unemployment and contemporary Europe’ International Labour Review vol. 136, no. 2, pp. 155–72 Shaver, S. 1990 Gender, Social Policy Regimes and the Welfare State, Discussion Paper No. 26, Social Policy Research Centre, University of New South Wales, Sydney Shaver, S. and Bradshaw, J. 1993 The Recognition of Wifely Labour by Welfare States, Discussion Paper No. 44, Social Policy Research Centre, University of New South Wales, Sydney Smeeding, T.M. 1997 Financial Poverty in Developed Countries: The Evidence from LIS Final Report to the United Nations Development Programme, LIS Working Paper No. 155, CEPS/INSTEAD, Luxembourg Smeeding, T., O’Higgins, M. and Rainwater, L. eds 1990 Poverty, Inequality and Income Distribution in Comparative Perspective, Harvester Wheatsheaf, Hemel Hempstead Smeeding, T. et al. 1992 Noncash Income, Living Standards and Inequality: 244 PDF OUTPUT c: ALLEN & UNWIN r: DP2\BP4401W\MAIN p: (02) 6232 5991 f: (02) 6232 4995 36 DAGLISH STREET CURTIN ACT 2605 244 REFERENCES Evidence from the Luxembourg Income Study, LIS Working Paper No. 79, CEPS/INSTEAD, Luxembourg Smeeding, T. and Coder, J. 1993 Income Inequality in Rich Countries During the 1980s LIS Working Paper No. 88, CEPS/INSTEAD, Luxembourg Society of St Vincent de Paul 1999 The ‘Hidden Faces’ of Poverty.


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Austerity Britain: 1945-51 by David Kynaston

Alistair Cooke, anti-communist, British Empire, Chelsea Manning, collective bargaining, continuous integration, deindustrialization, deskilling, Etonian, full employment, garden city movement, hiring and firing, industrial cluster, invisible hand, job satisfaction, labour mobility, light touch regulation, mass immigration, moral panic, Neil Kinnock, occupational segregation, price mechanism, rent control, reserve currency, road to serfdom, Ronald Reagan, shared worldview, stakhanovite, strikebreaker, the market place, upwardly mobile, urban planning, urban renewal, very high income, wage slave, washing machines reduced drudgery, wealth creators, women in the workforce, young professional

Overall, most historians are agreed with Correlli Barnett that a more modest appraisal of Britain’s place in the world, accompanied by lower levels of taxation, would have been beneficial to the productive economy – especially in terms of investment at a time when so much plant and machinery was rundown or even destroyed. Where his case becomes much more controversial is in his often polemical attack on what he sees as the unnecessary twin burdens of full employment and the welfare state. ‘The Pervasive Harm of “Full Employment”’ is one of the chapter titles in The Lost Victory – a doctrine embodied in the strongly Keynesian White Paper of 1944 and typically castigated by Barnett as ‘not so much a Schwerpunkt as a shackle’. He argues vigorously that it was a doctrine that owed everything to faulty perceptions of the inter-war years, when in fact, ‘except during the hurricane of the world’s slump in 1930–3’, unemployment had ‘never constituted a general problem . . . but a local and structural one’.

In it he set out proposals for a comprehensive post-war system of social security, in effect laying the foundations for the ‘classic’ welfare state – an attack upon what he memorably depicted as ‘the five giant evils’ of want, disease, ignorance, squalor and idleness – and in so doing caused such a stir that an extraordinary 630,000 copies of the report (mainly the abridged, popular edition) were sold. Then, in 1944, as the war began to draw to a close, there were two major ‘reconstruction’ moments: in May the publication of a White Paper that committed the British government to the pursuit of full employment as the highest economic objective; and in August the arrival on the statute book of R. A. (‘Rab’) Butler’s Education Act, which, among other things, created free, non-fee-paying grammar schools. To all appearances the reforming, forward-looking tide was running fast. Who Else Is Rank was the symptomatic title of an unpublished novel co-written the following winter by a 22-year-old Kingsley Amis and a fellow Signals officer.

‘We must see to it after we’re demobilised,’ the Amis figure (a sensitive young lieutenant) says at one point, ‘that these common men, from whom we’re separated only by a traditional barrier – we’re no more than common men ourselves – benefit from the work that has been done, and if the system won’t let that happen, well, we shall just have to change the system.’3. In April 1945, as Hitler made his last stand in Berlin, the Labour Party issued its manifesto for the election that was bound to follow the end of the war. Called Let Us Face the Future, it demanded decisive action by the state to ensure full employment, the nationalisation of several key industries, an urgent housing programme, the creation of a new national health service and (in a nod to Beveridge) ‘social provision against rainy days’. The tone was admirably lacking in bombast but distinctly high-minded. ‘The problems and pressures of the post-war world,’ the fairly brief document declared, ‘threaten our security and progress as surely as – though less dramatically than – the Germans threatened them in 1940.


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A Pelican Introduction: Basic Income by Guy Standing

bank run, basic income, Bernie Sanders, Bertrand Russell: In Praise of Idleness, Black Swan, Boris Johnson, British Empire, centre right, collective bargaining, cryptocurrency, David Graeber, declining real wages, deindustrialization, Donald Trump, Elon Musk, Fellow of the Royal Society, financial intermediation, full employment, future of work, gig economy, Gunnar Myrdal, housing crisis, hydraulic fracturing, income inequality, intangible asset, job automation, job satisfaction, Joi Ito, labour market flexibility, land value tax, libertarian paternalism, low skilled workers, lump of labour, Mark Zuckerberg, Martin Wolf, mass immigration, mass incarceration, moral hazard, Nelson Mandela, offshore financial centre, open economy, Panopticon Jeremy Bentham, Paul Samuelson, plutocrats, Plutocrats, precariat, quantitative easing, randomized controlled trial, rent control, rent-seeking, Sam Altman, self-driving car, shareholder value, sharing economy, Silicon Valley, sovereign wealth fund, Stephen Hawking, The Future of Employment, universal basic income, Wolfgang Streeck, women in the workforce, working poor, Y Combinator, Zipcar

The point being made here, however, is that support for or opposition to a policy should not be based on whether someone one does not like supports or opposes it. A Basic Income Would Distract from Progressive Policies, Such as ‘Full Employment’ There are several ways of rebutting this version of Hirschmann’s ‘jeopardy’ point. First, in the second decade of the twenty-first century, where is the pressure to achieve other progressive policies? The growth and level of inequality are almost unprecedented; economic insecurity is pervasive; full employment has been redefined to be about 5 per cent unemployment with much ‘underemployment’, concealed by labour statistics that are unfit for purpose; and, above all, the growing precariat has been neglected by mainstream politics. Second, why should ‘full employment’ be regarded as a progressive policy? What is so desirable about putting as many people as possible in ‘jobs’, in positions of subordination to ‘bosses’?

If the basic income was funded by switching public expenditure rather than by additional spending, the inflationary effect would be minimal. As Geoff Crocker has shown, only if aggregate spending power were higher than economic production (GDP) could there be an inflationary impact.12 The inflation claim would only be valid in relation to an economy that was at or close to ‘full employment’. No modern economy is close to ‘full employment’. And labour markets are much more open than they used to be, so any increase in the demand for labour could be expected to lead either to more labour force entrants or, more likely, to a relative shift of jobs abroad, dampening the impact on wages. It is worth pointing out that, in recent years, central banks and governments around the world have been desperately trying to overcome price deflation (falling prices) and to increase inflation.

After the Second World War, the ‘right’ was formalized in Article 23 of the Universal Declaration of Human Rights of 1948, as follows: ‘Everyone has the right to work, to free choice of employment, to just and favourable conditions of work and to protection against unemployment.’ This commitment coincided with a sudden faith in the ability, and thus duty, of governments to create ‘full employment’ (which really meant ‘full employment’ of men). The International Labour Organization went a step further in its Employment Policy Convention No.122 of 1964. Although the Convention did not include an obligation on governments to commit to a ‘right to work’ in those words, it was subsequently interpreted that way. In 1983, the ILO’s Employment Committee said: ‘The promotion of full, productive and freely chosen employment provided for in the Employment Policy Convention and Recommendation, 1964, should be regarded as the means of achieving in practice the realization of the right to work.’


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A Brief History of Neoliberalism by David Harvey

affirmative action, Asian financial crisis, Berlin Wall, Bretton Woods, business climate, business cycle, capital controls, centre right, collective bargaining, creative destruction, crony capitalism, debt deflation, declining real wages, deglobalization, deindustrialization, Deng Xiaoping, Fall of the Berlin Wall, financial deregulation, financial intermediation, financial repression, full employment, George Gilder, Gini coefficient, global reserve currency, illegal immigration, income inequality, informal economy, labour market flexibility, land tenure, late capitalism, Long Term Capital Management, low-wage service sector, manufacturing employment, market fundamentalism, mass immigration, means of production, Mexican peso crisis / tequila crisis, Mont Pelerin Society, mortgage tax deduction, neoliberal agenda, new economy, Pearl River Delta, phenotype, Ponzi scheme, price mechanism, race to the bottom, rent-seeking, reserve currency, Ronald Reagan, Silicon Valley, special economic zone, structural adjustment programs, the built environment, The Chicago School, transaction costs, union organizing, urban renewal, urban sprawl, Washington Consensus, Winter of Discontent

The US itself turned towards a liberal democratic state form, and Japan, under the close supervision of the US, built a nominally democratic but in practice highly bureaucratic state apparatus empowered to oversee the reconstruction of that country. What all of these various state forms had in common was an acceptance that the state should focus on full employment, economic growth, and the welfare of its citizens, and that state power should be freely deployed, alongside of or, if necessary, intervening in or even substituting for market processes to achieve these ends. Fiscal and monetary policies usually dubbed ‘Keynesian’ were widely deployed to dampen business cycles and to ensure reasonably full employment. A ‘class compromise’ between capital and labour was generally advocated as the key guarantor of domestic peace and tranquillity. States actively intervened in industrial policy and moved to set standards for the social wage by constructing a variety of welfare systems (health care, education, and the like).

And change it she did, though in ways that were by no means comprehensive and complete, let alone free of political costs. In October 1979 Paul Volcker, chairman of the US Federal Reserve Bank under President Carter, engineered a draconian shift in US monetary policy.18 The long-standing commitment in the US liberal democratic state to the principles of the New Deal, which meant broadly Keynesian fiscal and monetary policies with full employment as the key objective, was abandoned in favour of a policy designed to quell inflation no matter what the consequences might be for employment. The real rate of interest, which had often been negative during the double-digit inflationary surge of the 1970s, was rendered positive by fiat of the Federal Reserve (Figure 1.5). The nominal rate of interest was raised overnight and, after a few ups and downs, by July 1981 stood close to 20 per cent.

Since degree of neoliberalization was increasingly taken by the IMF and the World Bank as a measure of a good business climate, the pressure on all states to adopt neoliberal reforms ratcheted upwards.2 Thirdly, the Wall Street–IMF–Treasury complex that came to dominate economic policy in the Clinton years was able to persuade, cajole, and (thanks to structural adjustment programmes administered by the IMF) coerce many developing countries to take the neoliberal road.3 The US also used the carrot of preferential access to its huge consumer market to persuade many countries to reform their economies along neoliberal lines (in some instances through bilateral trade agreements). These policies helped produce a boom in the US in the 1990s. The US, riding a wave of technological innovation that underpinned the rise of a so-called ‘new economy’, looked as if it had the answer and that its policies were worthy of emulation, even though the relatively full employment achieved was at low rates of pay under conditions of diminishing social protections (the number of people without health insurance grew). Flexibility in labour markets and reductions in welfare provision (Clinton’s draconian overhaul of ‘the welfare system as we know it’) began to pay off for the US and put competitive pressures on the more rigid labour markets that prevailed in most of Europe (with the exception of Britain) and Japan.


pages: 453 words: 117,893

What Would the Great Economists Do?: How Twelve Brilliant Minds Would Solve Today's Biggest Problems by Linda Yueh

"Robert Solow", 3D printing, additive manufacturing, Asian financial crisis, augmented reality, bank run, banking crisis, basic income, Ben Bernanke: helicopter money, Berlin Wall, Bernie Sanders, Big bang: deregulation of the City of London, bitcoin, Branko Milanovic, Bretton Woods, BRICs, business cycle, Capital in the Twenty-First Century by Thomas Piketty, clean water, collective bargaining, computer age, Corn Laws, creative destruction, credit crunch, Credit Default Swap, cryptocurrency, currency peg, dark matter, David Ricardo: comparative advantage, debt deflation, declining real wages, deindustrialization, Deng Xiaoping, Doha Development Round, Donald Trump, endogenous growth, everywhere but in the productivity statistics, Fall of the Berlin Wall, fear of failure, financial deregulation, financial innovation, Financial Instability Hypothesis, fixed income, forward guidance, full employment, Gini coefficient, global supply chain, Gunnar Myrdal, Hyman Minsky, income inequality, index card, indoor plumbing, industrial robot, information asymmetry, intangible asset, invisible hand, job automation, John Maynard Keynes: Economic Possibilities for our Grandchildren, joint-stock company, Joseph Schumpeter, laissez-faire capitalism, land reform, lateral thinking, life extension, low-wage service sector, manufacturing employment, market bubble, means of production, mittelstand, Mont Pelerin Society, moral hazard, mortgage debt, negative equity, Nelson Mandela, non-tariff barriers, Northern Rock, Occupy movement, oil shale / tar sands, open economy, paradox of thrift, Paul Samuelson, price mechanism, price stability, Productivity paradox, purchasing power parity, quantitative easing, RAND corporation, rent control, rent-seeking, reserve currency, reshoring, road to serfdom, Robert Shiller, Robert Shiller, Ronald Coase, Ronald Reagan, school vouchers, secular stagnation, Shenzhen was a fishing village, Silicon Valley, Simon Kuznets, special economic zone, Steve Jobs, The Chicago School, The Wealth of Nations by Adam Smith, Thomas Malthus, too big to fail, total factor productivity, trade liberalization, universal basic income, unorthodox policies, Washington Consensus, We are the 99%, women in the workforce, working-age population

Instead, he argued for government spending, and incurring a budget deficit if necessary, to bring the economy back to full employment. His views were shaped by the persistently high unemployment rates that followed the Great Depression, and Keynes’s ideas made him an influential figure, even posthumously during the post-war period which saw the birth of large government programmes such as the welfare state. In another parallel to today, the dominant economic debate since the Great Recession of 2009 has been over austerity – cutting government spending and raising taxes to reduce the budget deficit. One of the results of austerity measures is a huge drop in government/public/state investment, which hampers economic growth. Looking ahead, what would Keynes advise today’s governments to do about public investment, an important driver of growth and full employment in the economy? Another big economic debate is over how to make economies more productive.

He homed in on deficient demand, which included weak household consumption and low firm investment, as determinants of the Great Depression. He argued that, even in normal times, the incentive to invest is too weak and the propensity to hoard cash is too strong. Without the necessary investment, the economy tends to operate at less than full employment, where all labour is deployed productively. If there were also a ‘shock’ to investment demand, such as a stock market crash, output and employment would decline, resulting in economic slumps. So, Keynes proposed that governments should incur debt to move the economy back to full employment. He stressed that government borrowing to spend need not be inflationary if the economy was operating below its potential, and advocated deficit spending, where the government borrowed to spend during downturns and repaid debt during the good times: ‘The boom not the slump is the right time for austerity.’18 A practical economist, he proposed a board of public investment to plan to have a stock of projects ready for when other types of investments started to decline.

But Ricardo doesn’t examine the consequences of incomplete specialization, nor does he work out where prices of traded goods settle and just assumes it’s at a mid-point between the prices of the two trading nations. Perhaps more important than the technical objections is that Ricardo was thought to have ignored the question of the ‘distributional’ impact of trade as well as the politics of when nations trade. For instance, he assumes full employment and automatic adjustments of sectors of the economy to the introduction of international trade, neither of which is usually the case. Also, he doesn’t address what happens to those who become redundant when their industries are abandoned or downsized following specialization. As ever, even though the country is better off, some will benefit more than others. Ricardo has also been criticized for neglecting the unequal power relations between England and Portugal, the illustrative countries he used in Principles.


pages: 374 words: 113,126

The Great Economists: How Their Ideas Can Help Us Today by Linda Yueh

"Robert Solow", 3D printing, additive manufacturing, Asian financial crisis, augmented reality, bank run, banking crisis, basic income, Ben Bernanke: helicopter money, Berlin Wall, Bernie Sanders, Big bang: deregulation of the City of London, bitcoin, Branko Milanovic, Bretton Woods, BRICs, business cycle, Capital in the Twenty-First Century by Thomas Piketty, clean water, collective bargaining, computer age, Corn Laws, creative destruction, credit crunch, Credit Default Swap, cryptocurrency, currency peg, dark matter, David Ricardo: comparative advantage, debt deflation, declining real wages, deindustrialization, Deng Xiaoping, Doha Development Round, Donald Trump, endogenous growth, everywhere but in the productivity statistics, Fall of the Berlin Wall, fear of failure, financial deregulation, financial innovation, Financial Instability Hypothesis, fixed income, forward guidance, full employment, Gini coefficient, global supply chain, Gunnar Myrdal, Hyman Minsky, income inequality, index card, indoor plumbing, industrial robot, information asymmetry, intangible asset, invisible hand, job automation, John Maynard Keynes: Economic Possibilities for our Grandchildren, joint-stock company, Joseph Schumpeter, laissez-faire capitalism, land reform, lateral thinking, life extension, manufacturing employment, market bubble, means of production, mittelstand, Mont Pelerin Society, moral hazard, mortgage debt, negative equity, Nelson Mandela, non-tariff barriers, Northern Rock, Occupy movement, oil shale / tar sands, open economy, paradox of thrift, Paul Samuelson, price mechanism, price stability, Productivity paradox, purchasing power parity, quantitative easing, RAND corporation, rent control, rent-seeking, reserve currency, reshoring, road to serfdom, Robert Shiller, Robert Shiller, Ronald Coase, Ronald Reagan, school vouchers, secular stagnation, Shenzhen was a fishing village, Silicon Valley, Simon Kuznets, special economic zone, Steve Jobs, The Chicago School, The Wealth of Nations by Adam Smith, Thomas Malthus, too big to fail, total factor productivity, trade liberalization, universal basic income, unorthodox policies, Washington Consensus, We are the 99%, women in the workforce, working-age population

Instead, he argued for government spending, and incurring a budget deficit if necessary, to bring the economy back to full employment. His views were shaped by the persistently high unemployment rates that followed the Great Depression, and Keynes’s ideas made him an influential figure, even posthumously during the post-war period which saw the birth of large government programmes such as the welfare state. In another parallel to today, the dominant economic debate since the Great Recession of 2009 has been over austerity – cutting government spending and raising taxes to reduce the budget deficit. One of the results of austerity measures is a huge drop in government/public/state investment, which hampers economic growth. Looking ahead, what would Keynes advise today’s governments to do about public investment, an important driver of growth and full employment in the economy? Another big economic debate is over how to make economies more productive.

He homed in on deficient demand, which included weak household consumption and low firm investment, as determinants of the Great Depression. He argued that, even in normal times, the incentive to invest is too weak and the propensity to hoard cash is too strong. Without the necessary investment, the economy tends to operate at less than full employment, where all labour is deployed productively. If there were also a ‘shock’ to investment demand, such as a stock market crash, output and employment would decline, resulting in economic slumps. So, Keynes proposed that governments should incur debt to move the economy back to full employment. He stressed that government borrowing to spend need not be inflationary if the economy was operating below its potential, and advocated deficit spending, where the government borrowed to spend during downturns and repaid debt during the good times: ‘The boom not the slump is the right time for austerity.’18 A practical economist, he proposed a board of public investment to plan to have a stock of projects ready for when other types of investments started to decline.

But Ricardo doesn’t examine the consequences of incomplete specialization, nor does he work out where prices of traded goods settle and just assumes it’s at a mid-point between the prices of the two trading nations. Perhaps more important than the technical objections is that Ricardo was thought to have ignored the question of the ‘distributional’ impact of trade as well as the politics of when nations trade. For instance, he assumes full employment and automatic adjustments of sectors of the economy to the introduction of international trade, neither of which is usually the case. Also, he doesn’t address what happens to those who become redundant when their industries are abandoned or downsized following specialization. As ever, even though the country is better off, some will benefit more than others. Ricardo has also been criticized for neglecting the unequal power relations between England and Portugal, the illustrative countries he used in Principles.


pages: 190 words: 53,409

Success and Luck: Good Fortune and the Myth of Meritocracy by Robert H. Frank

2013 Report for America's Infrastructure - American Society of Civil Engineers - 19 March 2013, Amazon Mechanical Turk, American Society of Civil Engineers: Report Card, attribution theory, availability heuristic, Branko Milanovic, Capital in the Twenty-First Century by Thomas Piketty, carried interest, Daniel Kahneman / Amos Tversky, David Brooks, deliberate practice, en.wikipedia.org, endowment effect, experimental subject, framing effect, full employment, hindsight bias, If something cannot go on forever, it will stop - Herbert Stein's Law, income inequality, invisible hand, labor-force participation, lake wobegon effect, loss aversion, minimum wage unemployment, Network effects, Paul Samuelson, Report Card for America’s Infrastructure, Richard Thaler, Rod Stewart played at Stephen Schwarzman birthday party, Ronald Reagan, Rory Sutherland, selection bias, side project, sovereign wealth fund, Steve Jobs, The Wealth of Nations by Adam Smith, Tim Cook: Apple, ultimatum game, Vincenzo Peruggia: Mona Lisa, winner-take-all economy

WOULDN’T TAXING CONSUMPTION INHIBIT SPENDING, CAUSING THE ECONOMY TO SLOW DOWN? Yes, but only if the economy was sluggish to begin with. The basic problem plaguing an economy operating at less than full employment is that low levels of total spending enable producers to serve their customers without having to hire everyone who wants to work. So, by making the after-tax price of consumer goods higher, taxing consumption would indeed inhibit spending, exacerbating an already sluggish economy. Since the economies of most nations have not yet recovered fully from the global financial crisis of 2008, adoption of a progressive consumption tax should be postponed until full employment has again been restored. Once that happens, the progressive consumption tax should be phased in slowly, allowing it to gradually replace the income tax. As people responded by increasing their savings slightly, the effect at first would be to produce a small reduction in the share of national output consumed.

At the same, the availability of additional savings would cause interest rates to fall, which would give firms an incentive to increase their investment spending. For each dollar by which consumption went down, then, investment would go up by a dollar, leaving total spending the same as before. An economy’s ability to achieve full employment depends on its total spending, not on how that total is apportioned between consumption and investment. So a progressive consumption tax would not cause the economy to slow down, provided it was already operating at full employment. On the contrary, the progressive consumption tax would actually stimulate long-term economic growth in a fully employed economy. With higher investment and lower consumption, more workers would be employed to produce investment goods and fewer to produce consumer goods. Over time, higher investment would increase worker productivity, leading to higher wages and more rapid growth in national income.

But absent additional spending of that sort, encouraging even wasteful consumption spending would be better than doing nothing. The mere announcement that a progressive consumption tax was coming would stimulate hundreds of billions of dollars of additional private spending. Building larger mansions may not make the wealthy any happier, but it does create jobs for unemployed architects and carpenters. Phased in gradually when the economy is back at full employment, a progressive consumption tax would induce a gradual shift in the composition of national spending. The proportion devoted to luxury consumption would slowly decline, while the proportion devoted to investment would slowly rise. A progressive consumption tax implemented in that way would not reduce the number of jobs; it would merely alter the mix of tasks that get done. If the progressive consumption tax is such a good idea, why haven’t we already adopted it?


The State and the Stork: The Population Debate and Policy Making in US History by Derek S. Hoff

"Robert Solow", affirmative action, Alfred Russel Wallace, back-to-the-land, British Empire, business cycle, clean water, creative destruction, David Ricardo: comparative advantage, demographic transition, desegregation, Edward Glaeser, feminist movement, full employment, garden city movement, George Gilder, Gunnar Myrdal, immigration reform, income inequality, income per capita, invisible hand, Jane Jacobs, John Maynard Keynes: technological unemployment, Joseph Schumpeter, labor-force participation, manufacturing employment, mass immigration, New Economic Geography, new economy, old age dependency ratio, Paul Samuelson, peak oil, pensions crisis, profit motive, Ralph Waldo Emerson, road to serfdom, Ronald Reagan, Scientific racism, secular stagnation, Simon Kuznets, The Chicago School, The Wealth of Nations by Adam Smith, Thomas L Friedman, Thomas Malthus, Thorstein Veblen, trickle-down economics, urban planning, urban sprawl, wage slave, War on Poverty, white flight, zero-sum game

Belshaw had studied under Keynes at Cambridge in the mid 1930s, but he diverged from his mentor’s populationism. In Population Growth and Levels of Consumption (1956), Belshaw argued that the former generally hindered the latter. Perhaps demographic expansion offers poorly performing economies a meager boost, but any benefits while at full employment are the “exception rather than the rule.”87 “The case for population growth in terms of . . . [higher] consumption,” he concluded, “rests on the failure to sustain full employment by other means.”88 Minimization of the importance of population growth also emanated, ironically, from some theorists who, despite the obvious inaccuracy of 1930s secular-stagnation theory’s predictions of the end of economic growth, continued to believe that modern capitalism had run its course. After the war, those who diagnosed secular stagnation in developed economies identified not a lack of exogenous variables necessary for economic growth (population growth, new lands, and new technologies) but endogenous, structural failings.

Right now, we are not making it.”46 The idea of a demographically induced gap between current and necessary economic growth received the administration’s stamp of approval in the 1962 Economic Report of the President, which CEA member James Tobin called one of the agency’s two “economic manifestos” (the other came under Ronald Reagan).47 The impression that the demographic bubble forced the economy to work harder just to stand still was thus an important weapon in the push for an aggressive full-employment policy, which culminated in major Keynesian-inspired tax cuts in 1964. managing the great society’s population growth 143 The aggregate-demand camp’s emphasis on the sluggish macroeconomy did not run counter to SPK.48 The community of economists surrounding the Kennedy and Johnson administrations maintained that, given the state’s ability to spur prosperity and full employment, population growth was a neutral economic variable—and hence the regulation of population growth proposed from various quarters could proceed. On occasion, leading economists expressed SPK sentiments directly.

He had long been impressed by historical connections between demographic and economic expansion, although he believed that the causal link between them was tenuous.118 In the 1960s, Kuznets would move into the pro–population growth camp, but in the 1950s he was still sympathetic to the Coale-Hoover paradigm that rapid population growth—what he called “population swarming”—stunts capital formation and income growth.119 At the 1954 Columbia University Conference on Economic Welfare, Kuznets doubted whether continual population growth is necessary to preserve full employment, noting the “elusive . . . indirect association between population growth patterns and economic growth.”120 At the Population Council meeting, Kuznets declared that neither Harberger nor Spengler had sufficient evidence to prove the forecast that continued population growth would stunt per capita income, and he retained his view that the relationship between population and economic growth was unresolved.121 Overall, the meeting’s participants seem to have debated to a draw, and Osborn captured the unresolved nature of the economic debate when he wrote in his summary: “Economists seem generally to agree that per capita production and per capita consumption are now handicapped rather than benefitted by further increase in numbers of people, though technical advances, new capital and other factors will for a long time to come more than offset this handicap.”122 Though population anxiety remained widespread, several theoretical contradictions and barriers squeezed the economic case against population growth.


pages: 293 words: 91,412

World Economy Since the Wars: A Personal View by John Kenneth Galbraith

business cycle, central bank independence, full employment, income inequality, James Hargreaves, James Watt: steam engine, John Maynard Keynes: Economic Possibilities for our Grandchildren, joint-stock company, means of production, price discrimination, price stability, road to serfdom, Ronald Reagan, spinning jenny, The Wealth of Nations by Adam Smith, Thorstein Veblen, union organizing, War on Poverty

Some who have seen no conflict between fiscal policy and growth have, without doubt, viewed it in such a context. But if full employment and full use of capacity is taken as the norm of economic policy, as in modern times it is, then the rate of investment associated with full use of capacity is also normal. A policy which holds production below capacity in the interest of price stability inescapably sacrifices economic growth. IV So long as the use of fiscal policy is in unresolved conflict with other and prior economic goals, it will not be used with effective vigor, at least in peacetime. This conflict and the resulting inutility of fiscal measures are not yet widely conceded by economists. The textbooks still elucidate the use of fiscal measures as a device for ensuring price stability. They concede that we must settle for something less than completely full employment and that this will offer difficulties.

Fiscal policy is sharply at odds with the commitment to a level of output that ensures full employment and the accompanying economic security. Direct controls, which in theory might reconcile high employment with price stability, are under a heavy ideological cloud. We assume that we must have them in unworkable mass or not at all. They are in ostensible conflict with the goal of efficient production, for that has anciently been identified with market allocation of resources. These conflicts are partly obscured. The conservative disguises the conflict between monetary policy and production by his faith that this policy has occult or other transcendental effects not visible to the naked eye. The liberal, including the Keynesian economist, conceals the conflict between fiscal policy and production at full employment not so much by resort to mysticism as by a systematic refusal to face issues.

Let him assume that a President, or other candidate for reelection to major public office, has the opportunity of defending a large increase in man-hour productivity which has been divided equally between greatly increased total output and greatly increased unemployment. And let it be assumed that as an alternative he might choose unchanged productivity which has left everyone employed. That full employment is more desirable than increased production combined with unemployment would be clear alike to the most sophisticated and the most primitive politician. The foregoing provides the basic rule of procedure for the remainder of this essay. It shows that, in the absence of a genuine grading up of lower incomes, we need not be much concerned with the supply of goods for their own sake. The urgencies here are founded not on substance but on myth.


pages: 576 words: 105,655

Austerity: The History of a Dangerous Idea by Mark Blyth

"Robert Solow", accounting loophole / creative accounting, balance sheet recession, bank run, banking crisis, Black Swan, Bretton Woods, business cycle, buy and hold, capital controls, Carmen Reinhart, Celtic Tiger, central bank independence, centre right, collateralized debt obligation, correlation does not imply causation, creative destruction, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, currency peg, debt deflation, deindustrialization, disintermediation, diversification, en.wikipedia.org, ending welfare as we know it, Eugene Fama: efficient market hypothesis, eurozone crisis, financial repression, fixed income, floating exchange rates, Fractional reserve banking, full employment, German hyperinflation, Gini coefficient, global reserve currency, Growth in a Time of Debt, Hyman Minsky, income inequality, information asymmetry, interest rate swap, invisible hand, Irish property bubble, Joseph Schumpeter, Kenneth Rogoff, liberal capitalism, liquidationism / Banker’s doctrine / the Treasury view, Long Term Capital Management, market bubble, market clearing, Martin Wolf, money market fund, moral hazard, mortgage debt, mortgage tax deduction, Occupy movement, offshore financial centre, paradox of thrift, Philip Mirowski, price stability, quantitative easing, rent-seeking, reserve currency, road to serfdom, savings glut, short selling, structural adjustment programs, The Great Moderation, The Myth of the Rational Market, The Wealth of Nations by Adam Smith, Tobin tax, too big to fail, unorthodox policies, value at risk, Washington Consensus, zero-sum game

A version of this is currently being tried in the Eurozone, and as we saw there, the healing is not going so well. We should also remember that we have been here before. These same ideas were offered as explanations and implemented as policies in many countries in the 1920s and 1930s, and as we shall see in chapter 6, they didn’t work then either. As Keynes demonstrated, there is no reason for an economy to “naturally” return to a full-employment equilibrium after a shock. It can settle into a state far from full employment for a very long time.53 The Austrian explanation of sustained unemployment after a bust—the inability of the economy to self-heal as it should—is that trade unions are holding up the market-clearing wage. But in the United States, for example, where unions cover less than one in eight workers, such an explanation is simply not credible.54 Moreover, Germany and Sweden, countries with much higher unemployment rates through the business cycle, also have far higher unionization rates.

In his assessment of George’s proposals, Keynes “first adumbrated the … relation of saving to investment.”88 That is, he argued that saving doesn’t drive investment if “investment is free to fluctuate under the influence of expectations” such that income and employment adjust to the ex post level of saving.89 As a consequence, government should “fill the gap/prime the pump” by spending money that business is sitting on because of uncertainty about the future. This view was extremely threatening to the Treasury since it implied that supply-side factors were insufficient to drive the economy to full employment. It required a response, which the Treasury duly provided in both the “Memoranda on Certain Proposals” and most publicly in Winston Churchill’s 1929 budget speech in which he argued that “when the Government borrow[s] in the money market it becomes a new competitor with industry and engrosses to itself resources which would otherwise have been employed by private enterprise, and in the process raises the rent of money to all who have need of it.”90 This is as pure a statement of the notion that the government crowds out investment as one can find.

This, in turn, causes consumption to shrink, which in the aggregate pulls the economy down further and makes the debt to be paid back all the greater. Fourth, just as it does not follow that governments should always intervene to stave off market adjustments, as the “Greenspan put” and Ireland’s bank rescue showed only too well, to argue that there should never be intervention presumes knowledge of the system—it will return to full employment if left alone—that Austrians themselves say is impossible to attain. The Austrian counterfactual, that in the absence of interventions market allocation will be optimal, can never be satisfied. After all, if entrepreneurs are duped by short-term interest-rate cuts, there is no reason to assume that their choices would necessarily be any better than those of the state doing the duping when it comes to choosing how to allocate capital in the first instance.56 Fifth, one doesn’t have to accept a John Galt anti-inflationary capital strike thesis to explain why companies are currently sitting on tons of cash.


pages: 385 words: 111,807

A Pelican Introduction Economics: A User's Guide by Ha-Joon Chang

Affordable Care Act / Obamacare, Albert Einstein, Asian financial crisis, asset-backed security, bank run, banking crisis, banks create money, Berlin Wall, bilateral investment treaty, borderless world, Bretton Woods, British Empire, call centre, capital controls, central bank independence, collateralized debt obligation, colonial rule, Corn Laws, corporate governance, corporate raider, creative destruction, Credit Default Swap, credit default swaps / collateralized debt obligations, David Ricardo: comparative advantage, deindustrialization, discovery of the americas, Eugene Fama: efficient market hypothesis, eurozone crisis, experimental economics, Fall of the Berlin Wall, falling living standards, financial deregulation, financial innovation, Francis Fukuyama: the end of history, Frederick Winslow Taylor, full employment, George Akerlof, Gini coefficient, global value chain, Goldman Sachs: Vampire Squid, Gordon Gekko, greed is good, Gunnar Myrdal, Haber-Bosch Process, happiness index / gross national happiness, high net worth, income inequality, income per capita, information asymmetry, intangible asset, interchangeable parts, interest rate swap, inventory management, invisible hand, Isaac Newton, James Watt: steam engine, Johann Wolfgang von Goethe, John Maynard Keynes: Economic Possibilities for our Grandchildren, John Maynard Keynes: technological unemployment, joint-stock company, joint-stock limited liability company, Joseph Schumpeter, knowledge economy, laissez-faire capitalism, land reform, liberation theology, manufacturing employment, Mark Zuckerberg, market clearing, market fundamentalism, Martin Wolf, means of production, Mexican peso crisis / tequila crisis, Nelson Mandela, Northern Rock, obamacare, offshore financial centre, oil shock, open borders, Pareto efficiency, Paul Samuelson, post-industrial society, precariat, principal–agent problem, profit maximization, profit motive, purchasing power parity, quantitative easing, road to serfdom, Robert Shiller, Robert Shiller, Ronald Coase, Ronald Reagan, savings glut, Scramble for Africa, shareholder value, Silicon Valley, Simon Kuznets, sovereign wealth fund, spinning jenny, structural adjustment programs, The Great Moderation, The Market for Lemons, The Spirit Level, The Wealth of Nations by Adam Smith, Thorstein Veblen, trade liberalization, transaction costs, transfer pricing, trickle-down economics, Vilfredo Pareto, Washington Consensus, working-age population, World Values Survey

If excess savings are reduced in this way, there will be no downward pressure on interest rates and thus no extra stimulus for investment. Keynes thought that investment will be high enough for full employment only when animal spirits – ‘a spontaneous urge to action rather than inaction’, as he defines it – of the potential investors are stimulated by new technologies, financial euphoria and other unusual events. The normal state of affairs, in his view, would be that investment is equated to savings at a level of effective demand (the demand that is actually backed up by purchasing power) that is insufficient to support full employment. In order to achieve full employment, Keynes argued, the government therefore has to use its spending actively to prop up the level of demand.18 Money gets a real job in economics: the Keynesian theory of finance The prevalence of uncertainty in Keynesian economics means that money is not simply an accounting unit or merely a convenient medium of exchange, as the Classical (and the Neoclassical) school thought.

Rejecting this view, Keynes sought to explain how there could be unemployed workers, idle factories and unsold products for prolonged periods when markets are supposed to equate supply and demand. Why is there unemployment?: the Keynesian explanation Keynes started from the obvious observation that an economy doesn’t consume all that it produces. The difference – that is, savings – needs to be invested, if everything that has been produced is to be sold and if all productive inputs, including the labour service of workers, are to be employed (this is known as full employment). Unfortunately, there is no guarantee that savings will equal investment, especially when those who invest and those who save are not one and the same, unlike in the early days of capitalism, when capitalists mostly invested out of their own savings and workers could not save, given their low wages. This is because investment, whose returns are not immediate, is dependent on investors’ expectations about the future.

In a press briefing regarding the situation in Afghanistan in 2002, Rumsfeld opined: ‘There are known knowns. There are things we know that we know. There are known unknowns. That is to say, there are things that we now know we don’t know. But there are also unknown unknowns. There are things we do not know we don’t know.’ The idea of ‘unknown unknowns’ nicely sums up Keynes’ concept of uncertainty. Active fiscal policy for full employment: the Keynesian solution In an uncertain world, investors may suddenly become pessimistic about the future and reduce their investments. In such a situation, there will be more savings than are needed – there will be, in technical terms, a ‘savings glut’. The Classical economists thought this glut would be sooner or later eliminated, as the lower demand for savings would drive the interest rate (that is, the price of borrowing, if you like) down, making investments more attractive.


pages: 215 words: 64,460

Shadows of Empire: The Anglosphere in British Politics by Michael Kenny, Nick Pearce

battle of ideas, Berlin Wall, Boris Johnson, Bretton Woods, British Empire, colonial rule, corporate governance, Dominic Cummings, Donald Trump, eurozone crisis, Fall of the Berlin Wall, floating exchange rates, Francis Fukuyama: the end of history, full employment, global reserve currency, imperial preference, informal economy, invention of the telegraph, Khartoum Gordon, labour mobility, liberal capitalism, Mahatma Gandhi, mass immigration, Monroe Doctrine, Nixon shock, quantitative easing, reserve currency, Ronald Reagan, trade route, Washington Consensus

The managed international monetary system in which both the USA and the UK had a stake, as sovereigns of the world's two major currencies, was gradually replaced by a liberalised economic order under renewed American leadership. The class compromises of the post-war era, cemented on the foundations of full employment, real wage growth and the construction of the national welfare state, broke down, at first due to conflicts over coordinated wage restraint and the management of inflation, and later because of bitter struggles over the power of trade unions. At the same time, the Keynesian coordinates of macro-economic demand management and the maintenance of full employment were dismantled in favour of inflation control and public spending cuts. As the 1970s ended, Britain and the USA began the process of constructing a new neo-liberal political economy, with the financial sector at its heart.

As it turned out, the British economy could not withstand convertibility when it duly arrived in the summer of 1947. A full-blown sterling crisis ensued and dollar convertibility had to be suspended within weeks, followed by further rationing of food and petrol. The alternative option – of severe deflation to restore Britain's balance of payments – could not be countenanced, since it would mean sacrificing full employment and the building of the New Jerusalem on which the Attlee government was embarked. But the suspension of convertibility had to be acceptable to the USA, since it was being asked to continue to allow the sterling area to remain protected, with imperial tariff preferences, import controls on dollar goods, and a currency that could not be freely exchanged – ‘precisely those things that American leaders had been so determined to crush eighteen months earlier.’2 American forbearance when Britain defaulted on its loan terms was based on a new strategic assessment of the USA's economic and military interests.

Australia's long-serving post-war prime minister, Robert Menzies, was a romantic monarchist who declared himself ‘British to his boot straps’. Support for the British Empire was the lodestar of his foreign policy, and he staunchly maintained it, even as he negotiated Australia's place within the USA's Pacific security umbrella (in 1951, to the UK's intense irritation, Australia and New Zealand took their place in the US constellation of Cold War alliances by signing the ANZUS Pact). Although, in the post-war era of full employment, Australia's labour supply needs could no longer be met by British migrants, it nonetheless maintained a ‘white’ immigration policy that lasted into the 1970s (the post-war Labour immigration minister, Arthur Calwell, notoriously declared when he deported Chinese refugees in 1947 that ‘Two Wongs don't make a White’). New Zealand's British identity was perhaps even stronger, underpinned by a consistent flow of expats – known, as in Australia, as Ten Pound Poms – from the mother country.


pages: 102 words: 30,120

Why Wages Rise by F. A. Harper

business cycle, collective bargaining, fixed income, full employment, means of production, wage slave

The difference is only in the rate of response, in new jobs available at differing wages. Let us take these Douglas-Pigou figures, leaning a bit on the conservative side of their conclusions. Let us say that the figure is 3 per cent. What would this mean when applied to real life? The accompanying chart of the wage level and unemployment shows how unemployment and the wage level are related on this three-to-one basis. At the free market wage of 100 (base scale) there is full employment — no unemployment. Everyone who really wants to work has a job. Now assume that wages are to be forced above the free market level (moving leftward from 100, on the base scale). Employment declines — unemployment increases — at a rapid rate, according to the factor of three. Starting from whatever level one wants to consider, a one per cent rise in wages will reduce employment by 3 per cent.

All we have to do is to look at the unemployment figures, assuming the figures to be accurate. Or one might ask people who are not working whether they have turned down jobs at the price offered, or whether they are out of work because they couldn’t find any jobs at any price. Moving in the opposite direction of wages below the free market price (rightward from 100, on the base scale) results in the opposite tendency. More and more people are wanted for work. But since there is full employment at the free market wage, reductions in wages from that point can cause “negative unemployment” only under special conditions. New persons not normally in the working force may be pulled into jobs at a wage below the free market point if they can be induced to do so under the urgency of war, or something like that. Overfull employment seldom happens except in wartime, for two reasons. One reason is that wages tend quickly to bounce upward to the free market point, there being no potent and effective force in the nation to hold them below that point for long.

One reason is that wages tend quickly to bounce upward to the free market point, there being no potent and effective force in the nation to hold them below that point for long. This is because wage earners are voters, and they do not form unions to keep wages below the free market point. The other reason why “negative unemployment” does not last long is that the labor statisticians soon conclude that their count of the working force must have been wrong before. So they revise their figures in such a way that full employment is not exceeded, according to the newly revised statistics. Such is the problem of pricing work in the market for labor. Such is the function of freedom in wages. ____________ 1Douglas, Paul H. The Theory of Wages. New York: The Macmillan Company, 1934. p. 501. Pigou, A. C. Theory of Unemployment. New York: The Macmillan Company, 1933. p. 97. 12. Riding The Waves Of Business In pricing one’s work, wages are subject to all the influences and characteristics that affect any other price.


Rethinking Money: How New Currencies Turn Scarcity Into Prosperity by Bernard Lietaer, Jacqui Dunne

3D printing, agricultural Revolution, Albert Einstein, Asian financial crisis, banking crisis, Berlin Wall, BRICs, business climate, business cycle, business process, butterfly effect, carbon footprint, Carmen Reinhart, clockwork universe, collapse of Lehman Brothers, complexity theory, conceptual framework, credit crunch, different worldview, discounted cash flows, en.wikipedia.org, Fall of the Berlin Wall, fear of failure, fiat currency, financial innovation, Fractional reserve banking, full employment, German hyperinflation, happiness index / gross national happiness, job satisfaction, liberation theology, Marshall McLuhan, microcredit, mobile money, money: store of value / unit of account / medium of exchange, more computing power than Apollo, new economy, Occupy movement, price stability, reserve currency, Silicon Valley, the payments system, too big to fail, transaction costs, trickle-down economics, urban decay, War on Poverty, working poor

It persists precisely because of the myopic focus on monetary exchanges regardless of the broader-term consequences for society at large. The devastation of the Great Depression and the dramatic economic ramifications of the 1930s forced economists and nations to reexamine their assumptions regarding the economy, particularly the thendominant view that a free market, unfettered by government interference, would naturally bring about full employment equilibrium. This debate still rages, almost a century later. Without needing to parse the theories, ideas from three iconic schools of thought shape current economic and political debates: John Maynard Keynes, Friedrich Hayek, and Milton Friedman and their respective Keynesian, Austrian, and Chicago schools of economics. Their viewpoints, together with those of another once-prominent economist, Irving Fisher, not only show how the views of prominent economists diverge but also highlight what is almost entirely lacking from traditional economic thought.

MIT economist David Autor predicts that automation will eliminate middle-class jobs, and shows that the trend of demand for mainly high- and low-wage extremes will continue for the foreseeable future. 119 120 PROSPERITY These views are supported by the official statistics, which show that employers tend to be hiring more temporary part-time workers or volunteer workers such as interns, with most job creation trending to lower-paying work. A staggering 21 million jobs need to be created by 2020 to return America to full employment.3 Santa Fe Institute economist Brian Arthur cogently describes the ongoing transition from industrial to information age: “With the coming of the Industrial Revolution—roughly from the 1760s, when Watt’s steam engine appeared, through around 1850 and beyond—the economy developed a muscular system in the form of machine power. Now it is developing a neural system. This may sound grandiose, but actually the metaphor seems valid.

This page intentionally left blank Chapter Ten TRUTH AND CONSEQUENCES Lessons Learned In dreams begin responsibility.1 William Butler Yeats, 20th-century Irish poet and playwright It was hard to contain the emotions that were surprisingly welling up inside while I was standing on the bridge in the small Tyrolean village of Wörgl. The bridge was so different from how it had been described in various books and articles. It seemed in real life more diminutive, plainer, and definitely shorter, yet its impact was unexpectedly overwhelming. Back in the dreary days of the 1930s Great Depression, this nondescript yet iconic overpass symbolized the dreams of full employment and a decent standard of living for all. Scholars, government officials, and thousands of others traveled to this Austrian community to personally witness and learn from the miracle of Wörgl. Today, the town has little significance, noted mostly for its railway junction connecting the line from Innsbruck to Munich with the inner-Austrian line to Salzburg. A small museum run by volunteers bears homage to Wörgl’s short-lived chapter in monetary history.


pages: 233 words: 71,775

The Joy of Tax by Richard Murphy

banking crisis, banks create money, carried interest, correlation does not imply causation, en.wikipedia.org, failed state, full employment, Gini coefficient, high net worth, land value tax, means of production, offshore financial centre, quantitative easing, race to the bottom, savings glut, seigniorage, The Spirit Level, The Wealth of Nations by Adam Smith, transfer pricing

The second additional purpose for tax is to reorganize the economy to ensure that it delivers the government’s economic goals. Money is, of course, an issue of some importance in any economy. In fact, given that inflation was the sole issue of apparent concern in the mandate for the Bank of England from 1997 until recently, you might have gained the idea that money has been the most important issue to be addressed in the UK economy of late. I would strongly disagree: full employment, the sustainability of the economy and its ability to meet the real needs of those who live within it are all in my view of more importance than money; and yet if money is ignored none of those other objectives can be achieved. The amount of money in an economy has a dramatic impact on the scale of economic activity that takes place within it, and just two factors – the relationship between the amount of tax the government collects and its total spending; and the amount of money that is created by the banks when making loans – determine how much money (or credit, because all money is a promise to pay) there is in that economy to facilitate the trades people want to undertake.

In itself this chart shows the difficulty of delivering vertical equity in a tax system: when taxes on consumption are high (as they are in the UK when the combination of VAT, excise duty and other charges is taken into account) and those on low incomes spend all they have (and sometimes more besides because of untaxed income sources or borrowing), then what appears to be a partially regressive tax system results. In fact, the 10 per cent of people with the highest incomes in the UK appear to pay less in total taxation than many on lower incomes. Figure 8: UK tax paid by income decile, 2010–11 Source: Richard Murphy and Howard Reed, ‘Financing the Social State: Towards a full employment economy’, April 2013, Class Think Tank9 Equality may be the name of the game in tax, but we aren’t delivering it – and that is taking into account only the obvious issues relating to tax and equality that most people tend to think of. As I said at the start of this section, there is rather more to tax and equality than these obvious considerations. To presume that equality, when it comes to tax, is restricted to such technical issues as those already mentioned would be absurd.

Secondly, it is clear that the tax and social security systems must be integrated to ensure that there is equality of treatment, which is not always achieved. It is then important to note that this issue extends beyond mere cash payments to and from the individual. Ensuring availability of resources such as appropriate housing is an essential part of this process of achieving equality of sufficient well-being to participate in society, as too is a policy of full employment. It is pointless having a tax system that says it promotes equality of sufficiency but does not also promote the means to deliver it. One can, of course, extend this notion to education and healthcare as well as many aspects of the social welfare system on which so many depend at some point in their lives. It follows that within this definition of equality is to be found most of the framework of what we call the welfare state.


pages: 405 words: 109,114

Unfinished Business by Tamim Bayoumi

algorithmic trading, Asian financial crisis, bank run, banking crisis, Basel III, battle of ideas, Ben Bernanke: helicopter money, Berlin Wall, Big bang: deregulation of the City of London, Bretton Woods, British Empire, business cycle, buy and hold, capital controls, Celtic Tiger, central bank independence, collapse of Lehman Brothers, collateralized debt obligation, credit crunch, currency manipulation / currency intervention, currency peg, Doha Development Round, facts on the ground, Fall of the Berlin Wall, financial deregulation, floating exchange rates, full employment, hiring and firing, housing crisis, inflation targeting, Just-in-time delivery, Kenneth Rogoff, liberal capitalism, light touch regulation, London Interbank Offered Rate, Long Term Capital Management, market bubble, Martin Wolf, moral hazard, oil shale / tar sands, oil shock, price stability, prisoner's dilemma, profit maximization, quantitative easing, race to the bottom, random walk, reserve currency, Robert Shiller, Robert Shiller, Rubik’s Cube, savings glut, technology bubble, The Great Moderation, The Myth of the Rational Market, the payments system, The Wisdom of Crowds, too big to fail, trade liberalization, transaction costs, value at risk

In this system, described in more detail in the next chapter, countries kept their exchange rates fixed against the US dollar, which itself was fixed against gold and (at least in theory) any changes in parity against the dollar needed to be discussed with the international community via the International Monetary Fund. The system was supported by an intellectual framework in which countries could use a combination of fiscal and monetary policy to achieve full employment and a desirable trade balance. The key insight was that, in response to excess economic slack, either a looser monetary policy or a larger government deficit could be used to achieve full employment (“internal balance”), but that the two policies had contrasting effects on the trade balance. Cutting short-term interest rates to stimulate activity via monetary policy would tend to lower the exchange rate, increase exports, and create a larger trade surplus. By contrast, running a larger government deficit for the same purpose would raise interest rates, appreciate the exchange rate, reduce exports, and lower the trade balance.

A judicious use of the two instruments allowed policymakers to keep the domestic economy in sync while also achieving a desired trade balance. The two macroeconomic policies (monetary and fiscal) could combine to achieve the two objectives (full employment and a desirable trade balance). Support for this integrated policy framework started to fray soon after the break-up of the Bretton Woods system in the early 1970s as belief in the active use of fiscal policy waned. This came in large part from a backlash against the increased size of government and rapid rise in government debt in the 1960s and 1970s. The focus of fiscal policymakers switched from fine-tuning the government deficit so as to achieve full employment to longer-term objectives such as reducing the size of government and the associated tax bill. This was accompanied by a revival of the “Ricardian equivalence” hypothesis in economics, which held the view that if people could lend and borrow easily, tax cuts or hikes had small effects on spending as households and firms would simply save the money from (say) a tax cut to pay the resulting higher future taxes.

In addition, central banks across the advanced world have yet to start shedding the assets they bought as part of quantitative easing. Equally importantly, assigning macroeconomic stability solely to the central bank is not intuitive. Indeed, before the 1980s the macroeconomic orthodoxy embraced an integrated approach in which monetary and fiscal policies were used simultaneously achieve full employment (“internal balance”) and a desirable trade position (“external balance”). In this macroeconomic scheme there were two objectives (full employment/stable inflation and a sustainable external position) and two instruments (monetary and fiscal policy). Currently, there are four objections—stable inflation/low slack, high underlying growth, low government debt, and financial stability—as well as four instruments—monetary, fiscal, structural, and financial policies. Since there are as many policies as objectives, it is possible (at least in principle) to achieve each objective independently.


pages: 298 words: 95,668

Milton Friedman: A Biography by Lanny Ebenstein

"Robert Solow", affirmative action, banking crisis, Berlin Wall, Bretton Woods, business cycle, Deng Xiaoping, Fall of the Berlin Wall, fiat currency, floating exchange rates, Francis Fukuyama: the end of history, full employment, Hernando de Soto, hiring and firing, inflation targeting, invisible hand, Joseph Schumpeter, Kenneth Arrow, Lao Tzu, liquidity trap, means of production, Mont Pelerin Society, Myron Scholes, Pareto efficiency, Paul Samuelson, Ponzi scheme, price stability, rent control, road to serfdom, Robert Bork, Ronald Coase, Ronald Reagan, Sam Peltzman, school choice, school vouchers, secular stagnation, Simon Kuznets, stem cell, The Chicago School, The inhabitant of London could order by telephone, sipping his morning tea in bed, the various products of the whole earth, The Wealth of Nations by Adam Smith, Thorstein Veblen, zero-sum game

It is this propensity to consume that declines as income rises, not consumption as such, according to Keynes. Keynes believed that the major cause of national economic activity at less than full employment in advanced economies was attempted excess saving for which investment opportunities did not exist. Essential to his view was that as an economy matures, desired savings exceed desired investment. As Keynes defined them, savings always equal investment after the fact. He argued that in developed economies, a failure to find investment opportunities would stymie the attempt to save. The result would be unemployment because money saved would not be spent on consumption. Economic equilibrium could occur at less than full employment and maximum output. Keynes’s General Theory is filled with references to the existence of and problems caused by excess saving as economics mature: The fundamental psychological law, upon which we are entitled to depend with great confidence . . . is that men are disposed . . . to increase their consumption as their income increases, but not by as much as the increase in their income.2 [W]e take it as a fundamental... rule of any modern community that, when its real income is increased, it will not increase its consumption by an equal absolute amount.3 In the United States... by 1929 the rapid capital expansion of the previous five years had led cumulatively to the setting up of sinking funds and depreciation allowances... on so huge a scale that an enormous volume of entirely new investment was required merely to absorb these financial provisions; and it became almost hopeless to find still more new investment on a sufficient scale to provide for such new saving as a wealthy community . . . would be disposed to set aside.

If an economy has become used to inflation, then inflation will have all of its bad effects in distorting price signals (the relative change of prices in guiding production is lost in the cacophony of generally rising prices) and in discouraging saving. The only way to maintain the temporarily beneficial effects of inflation is for inflation to rise at increasing, unanticipated rates, which is unsustainable. According to Friedman: “Keynes’s key theoretical proposition . . . [is] that even in a world of flexible prices, a position of equilibrium at full employment might not exist.”19 Friedman’s view, on the other hand, is that in a world of flexible prices, equilibrium at full employment will exist. Friedman’s view in the middle 1960s was that a regime of generally stable prices is the best public policy. To accomplish this goal, he recommends a fixed annual increase in the money supply, variously estimated (in part based on the money aggregates used) at 2 to 5 percent, about equal to long-term growth in the economy.

Therefore, to the extent that Friedman’s theory dampened economists’ enthusiasm for an active fiscal policy, it thus helped to dampen the rate of growth of government.12 Friedman emphasizes the importance of the findings of A Theory of the Consumption Function in its final chapter. One of the major theoretical outcomes of Keynesian analysis is “the denial that the long-run equilibrium position of a free enterprise economy is...at full employment.”13 In Keynes’s view, free private property capitalism is inherently unstable or nonmaximally productive because of excess saving as capitalist economies mature. In challenging this hypothesis, Friedman helped to pave the way academically for the intellectual rehabilitation of free private property capitalism from the 1960s to the present. Friedman wrote in 2006 that, for the most part, A Theory of the Consumption Function “pertains to the history of economic thought....


pages: 572 words: 134,335

The Making of an Atlantic Ruling Class by Kees Van der Pijl

anti-communist, banking crisis, Berlin Wall, Boycotts of Israel, Bretton Woods, British Empire, business cycle, capital controls, collective bargaining, colonial rule, cuban missile crisis, deindustrialization, deskilling, diversified portfolio, European colonialism, floating exchange rates, full employment, imperial preference, Joseph Schumpeter, liberal capitalism, mass immigration, means of production, North Sea oil, plutocrats, Plutocrats, profit maximization, RAND corporation, strikebreaker, trade liberalization, trade route, union organizing, uranium enrichment, urban renewal, War on Poverty

Although this was a logically powerful elucidation of industrial capital’s real interest, it was nonetheless prejudiced in bourgeois eyes by its explicit reliance on the national state, and, even more, by its implicit assumption of a class compromise with the national labour movement. In particular, it was feared that the logic of the socialization of the productive forces might spill over to the relations of production if, after the recommended ‘euthanasia of the rentier’, only the managerial element was left to maintain the rate of exploitation. As Kalecki argued in a well-known article of 1943, a democratic full-employment policy would always entail unacceptable consequences for the capitalist class. Keynes, too, was aware that the full realization of his programme risked endangering the capitalist form it intended to save and could only be attempted under emergency or wartime conditions. In a 1940 article, he conceded that ‘it seems politically impossible for a capitalist democracy to organize expenditure on the scale necessary to make the grand experiment which would prove my case — except in war conditions’.32 By this time, the class struggles underlying the ascendancy of the productive-capital concept over the previous liberalism had produced highly divergent outcomes in the United States and Europe.

The AFL had associated itself closely with the pro-war drive of the Wilson administration, and the reforms of 1916 included a number of gestures to organized labour. In October, the AFL leader, Samuel Gompers, was appointed to the Advisory Commission of the Council of National Defense, and in 1917, Wilson addressed the national convention of the AFL, inviting its leaders to serve on the National Labor Conference and later on the National War Labor Board. The war, with it stimulus to full employment,34 reinforced the hold of imperialist ideology not just over the trade-union bureacracy, but also over much of the native skilled working class.35 Their contribution to the war effort notwithstanding, however, workers’ standards of living declined; only after Armistice did wages begin to catch up with prices that by 1919 had doubled over their 1915 level. By that time, a wave of strikes, involving one out of five American workers, broke the truce with the labour leaders.36 Although Gompers failed to consolidate an effective Atlantic trade-union alliance (despite a mission to England), Wilson’s crusade against the Bolshevik Revolution contributed much to the split in the European labour movement.

At a meeting of the AFL Executive Council in 1917, Gompers reprimanded a Negro delegation for ‘somehow conveying the idea that they are to be petted or coddled and given special consideration and special privilege. Of course that can’t be done’.39 Confronted by an upsurge of class struggle and reaction at home, the AFL’s new-found internationalism collapsed with even greater speed than Wilson’s attempt to create a new world order. Yet the Wilson offensive, absorbing social pressures generated by near-full employment and redirecting them (partly through an appeal to Anglo-Saxon chauvinism and partly through reform) towards support for expansion into the European sphere-of-influence, served as the paradigmatic precedent for the later Roosevelt, Marshall and Kennedy offensives. Atlantic unity, whether positive (for democracy) or negative (against socialism) in its explicit programme, derived its basic structural characteristics from this episode. 2.


pages: 363 words: 98,024

Keeping at It: The Quest for Sound Money and Good Government by Paul Volcker, Christine Harper

anti-communist, Ayatollah Khomeini, banking crisis, Bretton Woods, business cycle, central bank independence, corporate governance, Credit Default Swap, Donald Trump, fiat currency, financial innovation, fixed income, floating exchange rates, forensic accounting, full employment, global reserve currency, income per capita, inflation targeting, liquidationism / Banker’s doctrine / the Treasury view, margin call, money market fund, Nixon shock, Paul Samuelson, price stability, quantitative easing, reserve currency, Right to Buy, risk-adjusted returns, Ronald Reagan, Rosa Parks, secular stagnation, Sharpe ratio, Silicon Valley, special drawing rights, too big to fail, traveling salesman, urban planning

From my point of view, we clearly kept monetary policy too easy for too long. The growing sense of frustration and political concerns about the lack of full employment were reflected in new legislation. In 1977 the Federal Reserve Act was amended to require that the central bank “maintain long run growth of the monetary and credit aggregates commensurate with the economy’s long run potential to increase production, so as to promote the goals of maximum employment, stable prices, and moderate long-term interest rates.” Reasonable enough as an aspiration, but here we have the origin of what has since been interpreted as the “dual mandate.” The following year, Congress passed the Full Employment and Balanced Growth Act, known more widely as the “Humphrey-Hawkins Act” for the senator and congressman who sponsored the legislation.

Then, with victory in sight, the authorities relax and accept a “little inflation” in the hope of stimulating further growth, only to see the process resume all over again. The sad history of economic policy over much of Latin America offers too many examples. The United States is not Latin America, with its history of recurrent inflation. But it does face an ongoing challenge for monetary and fiscal policy. The now long expansion and full employment with signs of growing pressures on labor markets have, so far, not upset price stability. But it is a crucial period for monetary policy. The late Bill Martin, as I recalled earlier, is famous for his remark that the job of the central bank is to take away the punch bowl just when the party gets going. The hard fact of life is that few hosts want to end the party prematurely. They wait too long and when the risks are evident the real damage is done.

Moreover, as an economy grows or slows, there is a tendency for prices to change, a little more up in periods of economic expansion, maybe a little down as the economy slows or recedes, but not sideways year after year. Yet, as I write, with economic growth rising and the unemployment rate near historic lows, concerns are being voiced that consumer prices are growing too slowly—just because they’re a quarter percent or so below the 2 percent target! Could that be a signal to “ease” monetary policy, or at least to delay restraint, even with the economy at full employment? Certainly, that would be nonsense. How did central bankers fall into the trap of assigning such weight to tiny changes in a single statistic, with all of its inherent weakness? I think I know the origin. It’s not a matter of theory or of deep empirical studies. Just a very practical decision in a far-away place. New Zealand is a small country, known among other things for excellent trout fishing.


pages: 356 words: 103,944

The Globalization Paradox: Democracy and the Future of the World Economy by Dani Rodrik

affirmative action, Asian financial crisis, bank run, banking crisis, bilateral investment treaty, borderless world, Bretton Woods, British Empire, business cycle, capital controls, Carmen Reinhart, central bank independence, collective bargaining, colonial rule, Corn Laws, corporate governance, corporate social responsibility, credit crunch, Credit Default Swap, currency manipulation / currency intervention, David Ricardo: comparative advantage, deindustrialization, Deng Xiaoping, Doha Development Round, en.wikipedia.org, endogenous growth, eurozone crisis, financial deregulation, financial innovation, floating exchange rates, frictionless, frictionless market, full employment, George Akerlof, guest worker program, Hernando de Soto, immigration reform, income inequality, income per capita, industrial cluster, information asymmetry, joint-stock company, Kenneth Rogoff, land reform, liberal capitalism, light touch regulation, Long Term Capital Management, low skilled workers, margin call, market bubble, market fundamentalism, Martin Wolf, mass immigration, Mexican peso crisis / tequila crisis, microcredit, Monroe Doctrine, moral hazard, night-watchman state, non-tariff barriers, offshore financial centre, oil shock, open borders, open economy, Paul Samuelson, price stability, profit maximization, race to the bottom, regulatory arbitrage, savings glut, Silicon Valley, special drawing rights, special economic zone, The Wealth of Nations by Adam Smith, Thomas L Friedman, Tobin tax, too big to fail, trade liberalization, trade route, transaction costs, tulip mania, Washington Consensus, World Values Survey

Countries on gold faced rapid capital outflows at the slightest hint of trouble, which required high interest rates and endangered their governments’ ability to maintain fixed parities. Stability on the foreign exchanges clashed with the goal of full employment. These financial market pressures ultimately condemned Britain’s return to the gold standard to failure. Once markets’ dynamics became intertwined with domestic politics, there was no hope that a world of smoothly functioning, self-equilibrating finance would lie within reach. Keynes identified another, more fundamental problem. Unfettered capital flows undermined not only financial stability but also macroeconomic equilibrium—full employment and price stability. The idea that the macroeconomy would self-adjust, without help from domestic fiscal and monetary policies, had been buried by the experience of the Great Depression and the chaos of the 1930s.

Markets assumed that governments would eventually defend the parities come hell or high water. They did so because that was the belief system that governed central bank behavior at the time. The maintenance of the gold standard had absolute priority in the conduct of monetary policy both because the system came to be viewed as the foundation of monetary stability and because there were no competing objectives—such as full employment or economic growth—in the conduct of monetary policy. Ideas mattered, here as elsewhere. The notion that active monetary and fiscal policies could systematically smooth business cycles or that currency devaluation could help reduce trade imbalances—these were yet to come, or heretical at best. There was no widely believed or well-articulated conception of how governments could stabilize demand, output, or employment.

(So in fact a preferential trade agreement with one or a few trade partners is unlikely to satisfy the requirement.) There must be no microeconomic market imperfections other than the trade restrictions in question, or if there are some, the second-best interactions that are entailed must not be too adverse. The home economy must be “small” in world markets, or else the liberalization must not put the economy on the wrong side of the “optimum tariff.” The economy must be in reasonably full employment, or if not, the monetary and fiscal authorities must have effective tools of demand management at their disposal. The income redistributive effects of the liberalization should not be judged undesirable by society at large, or if they are, there must be compensatory tax-transfer schemes with low enough excess burden. There must be no adverse effects on the fiscal balance, or if there are, there must be alternative and expedient ways of making up for the lost fiscal revenues.


pages: 278 words: 82,069

Meltdown: How Greed and Corruption Shattered Our Financial System and How We Can Recover by Katrina Vanden Heuvel, William Greider

Asian financial crisis, banking crisis, Bretton Woods, business cycle, buy and hold, capital controls, carried interest, central bank independence, centre right, collateralized debt obligation, conceptual framework, corporate governance, creative destruction, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, declining real wages, deindustrialization, Exxon Valdez, falling living standards, financial deregulation, financial innovation, Financial Instability Hypothesis, fixed income, floating exchange rates, full employment, housing crisis, Howard Zinn, Hyman Minsky, income inequality, information asymmetry, John Meriwether, kremlinology, Long Term Capital Management, margin call, market bubble, market fundamentalism, McMansion, money market fund, mortgage debt, Naomi Klein, new economy, offshore financial centre, payday loans, pets.com, plutocrats, Plutocrats, Ponzi scheme, price stability, pushing on a string, race to the bottom, Ralph Nader, rent control, Robert Shiller, Robert Shiller, Ronald Reagan, savings glut, sovereign wealth fund, structural adjustment programs, The Great Moderation, too big to fail, trade liberalization, transcontinental railway, trickle-down economics, union organizing, wage slave, Washington Consensus, women in the workforce, working poor, Y2K

In the crisis of the Great Depression such odd political convergences occurred. The self-taught Eccles (he never went to college) personally intuited what John Maynard Keynes developed as a formal theory: The national government, including the Fed, must become the intervening balance wheel in a modern industrial economy—the stabilizing force that, when necessary, stimulates the economy to encourage faster growth and full employment, while at other times it puts the brakes on economic activity to avoid inflation. Eccles essentially invented the modern Federal Reserve, liberating the central bank from the 1920s hard-money orthodoxy of banking and finance, an inflexible doctrine that gravely worsened the Depression. Greenspan, one might say, devoted his tenure to eliminating vestiges of Eccles and FDR. He resurrected the financier’s lost religion, now dignified by conservative economists as the new theory of “efficient markets.”

A public official who fails to alert investors to such risks “is no better than a doctor who, having diagnosed high blood pressure in a patient, says nothing because he thinks the patient might be lucky and show no ill effects,” Shiller wrote. The Price of “Sound Money” The lopsided focus of Greenspan’s Fed—exalting financial markets over the real economy—is perhaps his greatest ideology-driven error, and it caused the deepest damage to society. Congress by law instructs the Federal Reserve to pursue twin goals—stable money and full employment—and there is always a natural tension between those two objectives. Maintaining low price inflation gets much more difficult when the economy expands more vigorously, so the central bank traditionally tried to sustain a rough balance. Greenspan resolved the tension easily (as most conservatives probably would) by tipping the scales in favor of sound money. The strategy produced very low price inflation, as close to zero as possible, which boosted prices for financial assets, stocks and bonds but also pumped up the financial bubble even further.

Conservative orthodoxy provided no good answers to this dilemma, since it claims that zero inflation is a state of perfection. In fact, it is the most dangerous terrain in capitalism. Preventing deflationary calamities was one of the main reasons the Federal Reserve was created. After years of doing the opposite, the chairman belatedly took his foot off the brake pedal and decided to let the economy grow faster. His shift generated full employment and rising wages—the chairman was celebrated as an economic genius—but booming relief for the real economy came too late to last, given the other imbalances Greenspan had fostered. Faster growth perversely expanded the stock market’s delusions, and the price mania spiraled to new heights. Remember the predictions of Dow 35,000? Instead of confronting the real problem, the financial excesses, Greenspan once again turned on the real economy and hammered it with increased interest rates, deceit-fully claiming he was attacking wage-price inflation.


pages: 324 words: 86,056

The Socialist Manifesto: The Case for Radical Politics in an Era of Extreme Inequality by Bhaskar Sunkara

Affordable Care Act / Obamacare, agricultural Revolution, Bernie Sanders, British Empire, business climate, business cycle, capital controls, centre right, Charles Lindbergh, collective bargaining, Deng Xiaoping, deskilling, Donald Trump, equal pay for equal work, feminist movement, Ferguson, Missouri, Francis Fukuyama: the end of history, full employment, gig economy, Gunnar Myrdal, happiness index / gross national happiness, Honoré de Balzac, income inequality, inventory management, labor-force participation, land reform, land value tax, Mark Zuckerberg, means of production, Mikhail Gorbachev, Neil Kinnock, new economy, Occupy movement, postindustrial economy, precariat, race to the bottom, Ralph Waldo Emerson, self-driving car, Silicon Valley, single-payer health, telemarketer, The Wealth of Nations by Adam Smith, too big to fail, union organizing, Upton Sinclair, urban renewal, We are the 99%

Sweden in the 1970s was not simply the most livable society in history; it was also the European country where, after World War II, socialists got the furthest along in undermining capital’s power. While capitalists worried about Nikita Khrushchev’s shoe-banging promises to bury the West, the greatest threat to free market capitalism was not in Russia but in Scandinavia, where the combination of a universal welfare state, full employment, and centralized unions gave labor enormous power. Swedish trade unions even came out with a proposal for wage-earner funds in 1976 that would have slowly socialized private firms. How Sweden’s social democrats got to that point, and why their experiment eventually fell apart, is an unlikely, instructive story. Yet to understand the success of postwar Sweden, we need to first understand the failures of interwar social democracy and the important lesson they offer about the pitfalls socialists encounter when governing without a plan to achieve economic and political change.

With the Communist vote tripling to 10 percent, the combined Left had an absolute majority in the 1944 elections. And even in a period with emergency wage, price, and consumption controls, planning had a great deal of mystique. Despite Wigforss’s assurances about the continued role of private capital, the 1944 program advocated government takeovers of basic industries and finance and an overarching state responsibility for shaping investment and maintaining full employment. Economist and trade minister Gunnar Myrdal spoke of a “harvest time” for the labor movement, in which the fruits of recent economic development would fall to workers. Yet a push for nationalization found resistance from a capitalist class that could credibly threaten to withhold investment. That climate, combined with the onset of the Cold War, tempered the SAP, which forsook alliance with the Communists in favor of a new coalition with the Agrarians.10 With the march toward socialization blocked, the party eventually adopted a 1951 plan created by LO economists Gösta Rehn and Rudolf Meidner.

The system helped encourage high-wage, capital-intensive industry. These negotiations were done directly between labor and capital, but the role of the state was crucial: “active labor market policies” helped workers formerly employed in less productive firms get reabsorbed in expanding parts of the economy. Social guarantees—for health care, education, child care, and so on—meant that there was a growing state sector to help ensure full employment. It was a program for “functional socialism,” in that it made certain socialist priorities clear but would seek them by shaping the outcomes of capitalist enterprise rather than through nationalization. Such a model, however, was one that capitalists would agree to only under duress. As Meidner put it, “management prefers decentralized bargaining” and “wage differentials as instruments for managerial control.”12 Even though capitalists benefited from the Rehn-Meidner plan in many respects, it was only implemented because a powerful labor movement and social-democratic party forced its way.


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The Great Divide: Unequal Societies and What We Can Do About Them by Joseph E. Stiglitz

"Robert Solow", accounting loophole / creative accounting, affirmative action, Affordable Care Act / Obamacare, agricultural Revolution, Asian financial crisis, banking crisis, Berlin Wall, Bernie Madoff, Branko Milanovic, Bretton Woods, business cycle, capital controls, Capital in the Twenty-First Century by Thomas Piketty, Carmen Reinhart, carried interest, clean water, collapse of Lehman Brothers, collective bargaining, computer age, corporate governance, credit crunch, Credit Default Swap, deindustrialization, Detroit bankruptcy, discovery of DNA, Doha Development Round, everywhere but in the productivity statistics, Fall of the Berlin Wall, financial deregulation, financial innovation, full employment, George Akerlof, ghettoisation, Gini coefficient, glass ceiling, global supply chain, Home mortgage interest deduction, housing crisis, income inequality, income per capita, information asymmetry, job automation, Kenneth Rogoff, Kickstarter, labor-force participation, light touch regulation, Long Term Capital Management, manufacturing employment, market fundamentalism, mass incarceration, moral hazard, mortgage debt, mortgage tax deduction, new economy, obamacare, offshore financial centre, oil shale / tar sands, Paul Samuelson, plutocrats, Plutocrats, purchasing power parity, quantitative easing, race to the bottom, rent-seeking, rising living standards, Ronald Reagan, school vouchers, secular stagnation, Silicon Valley, Simon Kuznets, The Chicago School, the payments system, Tim Cook: Apple, too big to fail, trade liberalization, transaction costs, transfer pricing, trickle-down economics, Turing machine, unpaid internship, upwardly mobile, urban renewal, urban sprawl, very high income, War on Poverty, Washington Consensus, We are the 99%, white flight, winner-take-all economy, working poor, working-age population

From Reagan-era to the Great Recession and its long aftermath, Stiglitz delves into the irresponsible policies—deregulation, tax cuts, and tax breaks for the 1 percent—that are leaving many Americans farther and farther beyond and turning the American dream into an ever more unachievable myth. With formidable yet accessible economic insight, he urges us to embrace real solutions: increasing taxes on corporations and the wealthy; offering more help to the children of the poor; investing in education, science, and infrastructure; helping out homeowners instead of banks; and, most importantly, doing more to restore the economy to full employment. Stiglitz also draws lessons from Scandinavia, Singapore, and Japan, and he argues against the tide of unnecessary, destructive austerity that is sweeping across Europe.Ultimately, Stiglitz believes our choice is not between growth and fairness; with the right policies, we can choose both. His complaint is not so much about capitalism as such, but how twenty-first-century capitalism has been perverted.

If it tightens monetary policy too much—raising interest rates too high or restricting credit availability too severely—unemployment will be higher than it otherwise would be, hurting workers both directly and indirectly, through the resulting downward pressure on wages. If it tightens prematurely—as soon as inflation seems nascent—it is likely that the share of wages will be ratcheted downward, for during the downturn, workers fare badly, and they have to be allowed to make up for what they lost. While the main thrust of the Fed’s policy has been to restore the economy to full employment—a policy that would be an enormous boon to workers—some of what it has done may have contributed to inequality. One of the main effects of quantitative easing, the policy of buying long-term bonds to lower the long-term interest rate, has been to bolster the stock market—of benefit disproportionately to the rich. Meanwhile, its failure to do what it could and should have done to make the financial market work better for ordinary Americans—to ensure competition, to restrict the excessive fees that credit and debit cards charge to merchants that ultimately get paid by consumers, to restore lending to small and medium-size enterprises, to create a mortgage market that serves Americans rather than the interests of the banks—has hurt those in the middle and bottom at the same time that it has enriched the coffers of the banks.

Meanwhile, its failure to do what it could and should have done to make the financial market work better for ordinary Americans—to ensure competition, to restrict the excessive fees that credit and debit cards charge to merchants that ultimately get paid by consumers, to restore lending to small and medium-size enterprises, to create a mortgage market that serves Americans rather than the interests of the banks—has hurt those in the middle and bottom at the same time that it has enriched the coffers of the banks. Yellen is right, too, to point out (as I have done in this book) the limits to monetary policy. It is hard-pressed to restore the economy to full employment on its own. Indeed, it may be contributing to the jobless recovery that we are experiencing (the percentage of the working-age population that is employed, though it has rebounded slightly since the crisis, is still lower than at any time since 1984). Low interest rates encourage firms, when they invest, to invest in very capital intensive technologies—replacing unskilled workers with machines makes no sense in an era in which so many unskilled workers are striving to find jobs.


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Roller-Coaster: Europe, 1950-2017 by Ian Kershaw

airport security, anti-communist, Ayatollah Khomeini, banking crisis, Berlin Wall, Big bang: deregulation of the City of London, Boris Johnson, Bretton Woods, British Empire, business cycle, centre right, colonial rule, cuban missile crisis, deindustrialization, Deng Xiaoping, Donald Trump, European colonialism, eurozone crisis, Exxon Valdez, failed state, Fall of the Berlin Wall, falling living standards, feminist movement, first-past-the-post, fixed income, floating exchange rates, Francis Fukuyama: the end of history, full employment, illegal immigration, income inequality, Johann Wolfgang von Goethe, labour market flexibility, land reform, late capitalism, liberal capitalism, liberation theology, low skilled workers, mass immigration, means of production, Mikhail Gorbachev, mutually assured destruction, Nelson Mandela, North Sea oil, Northern Rock, oil shale / tar sands, oil shock, open borders, precariat, price stability, quantitative easing, race to the bottom, reserve currency, rising living standards, road to serfdom, Ronald Reagan, Ronald Reagan: Tear down this wall, Sinatra Doctrine, The Chicago School, trade liberalization, union organizing, upwardly mobile, washing machines reduced drudgery, Washington Consensus, Winter of Discontent, young professional

Only from the 1970s onwards would the environment become a significant political theme – and even then have difficulty in stirring the interest of most of the population. THE WELFARE STATE Part of the virtuous circle of economic growth was the increased stream of revenue to governments that enabled states to spend far greater amounts on welfare provision. Tax revenue rose at unprecedented rates with the return to full employment and the big expansion of consumer spending. State budgets in Western Europe were up to twenty times higher in the 1970s than they had been in 1950. Governments were consequently in a position to spend far more on welfare programmes than ever before. Welfare provision and full employment had been the overwhelming needs of a new society – the obvious lesson of the Great Depression, and recognized by all post-war governments. In the post-war decades all political parties agreed on the need to expand welfare provision. The extraordinary economic growth allowed the fulfilment of both aims – in the east under communist regimes that forcibly created societies more equal than ever before, if at a high political price, and greatly extended welfare provision from the state, and in Western Europe under liberal capitalism that also reduced social inequalities (though to a far smaller degree than in the east) and combined market forces with the varying forms of welfare state.

It had proved the tried and tested way out of economic trouble, stagnation and mass unemployment. But this remedy did not fit the conditions of the early 1970s. Two decades of high growth had produced full employment. The problem now was of rising inflation. Pumping money into the economy was guaranteed merely to add to inflationary pressures. Stimulating demand simply prompted claims for higher wages. Without increased productivity that just fed into further inflation. A large (and still rising) proportion of workers, especially in the expanded public sector, belonged to trade unions – in 1970 around two-thirds in Sweden, half in Britain, a third in West Germany (though little over a fifth in France). Unions were able to exploit virtually full employment and a labour shortage to win sometimes spectacular wage increases – 19 per cent in Italian industry in 1969 – without commensurate increases in productivity.

It did, however, create lasting stability and prosperity. Some literati thought the critique among intellectuals had gone too far. The writer Johannes Gaitanides acknowledged in 1959 ‘the weaknesses, mistakes and failings of the Federal Republic’, but claimed it was a mistake to dismiss its notable achievements. ‘How would this critique of the Federal Republic look,’ he asked, ‘if it had not produced an economic miracle, full employment, improvement in the social status of workers, integration of expellees from the east and refugees from central Germany [by which he meant from the regions that had become the German Democratic Republic], further development of social security, shortened working hours, co-determination of workers in heavy industry and restitution to victims of Nazism?’ He thought little of criticism that ignored the advances made, including reconciliation with France (for so long the ‘arch-enemy’), the growing integration of West Germany into Europe, greater intellectual and artistic interchange with the West, and the breaking-down of barriers between Catholics and Protestants.


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State of Emergency: The Way We Were by Dominic Sandbrook

anti-communist, back-to-the-land, banking crisis, Bretton Woods, British Empire, centre right, collective bargaining, Corn Laws, David Attenborough, Doomsday Book, edge city, estate planning, Etonian, falling living standards, fear of failure, Fellow of the Royal Society, feminist movement, financial thriller, first-past-the-post, fixed income, full employment, German hyperinflation, global pandemic, mass immigration, moral panic, Neil Kinnock, new economy, New Urbanism, Norman Mailer, North Sea oil, oil shock, Own Your Own Home, sexual politics, traveling salesman, union organizing, upwardly mobile, urban planning, Winter of Discontent, young professional

In retrospect, it is obvious that full employment as it was understood in the 1940s and 1950s was destined for the scrapheap. From the Wilson years onwards, successive governments were forced to run the economy at higher levels of unemployment simply to keep inflation in check, and even during the fat years under Tony Blair full employment never returned. Indeed, by the standards of later administrations an unemployment rate of around 4 per cent, for which Heath was mercilessly pilloried, was astonishingly good. Under Margaret Thatcher, after all, it reached three times that, and even during the boom of the Blair years unemployment remained much higher than it had been under Heath. There is an argument that Heath should simply have bitten the bullet and explained to the nation that the days of full employment were dead.

For more than a decade, as Britain’s imperial possessions disappeared, its economic lead evaporated and its manufacturers struggled to compete with foreign rivals, politicians of both parties had talked of sweeping modernization and structural reform, from decimalization to European integration. In general, however, they had shrunk from radical economic change, frightened that it would undermine full employment and alienate the voters, content merely to keep muddling through. Perhaps this was not surprising: for twenty years, thanks to its soft Commonwealth markets and the weakness of its rivals, Britain had been protected from the harsh winds of global competition. But by the early 1970s, as Edward Heath was to discover, the kaleidoscope was shifting. Not only were foreign consumers less inclined to buy expensive British goods, but international investors were much less disposed to prop up an economy that had become slack and self-indulgent.

In his grandfather’s day, even his father’s, it had been a quiet rural backwater. Now it was a typical section of the south London commuter belt, a world of identical semi-detached houses and brick council estates, inhabited by skilled workers, clerks and technicians. In 1945 it had been a safe Labour seat; now it was classic aspirational upper-working-class and middle-class Conservative. It was a place transformed by light industry, rising wages and full employment, a place where farms had been replaced by shopping centres and labourers had given way to pharmacists. It seemed a long way from the sensationalist high jinks that later dominated popular memories of the post-war years – the Profumo scandal, Swinging London, the Beatles and the Rolling Stones – and yet, better than any of those things, it symbolized the subterranean economic and social trends that had changed the lives of Britain’s 55 million people.


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Debunking Economics - Revised, Expanded and Integrated Edition: The Naked Emperor Dethroned? by Steve Keen

"Robert Solow", accounting loophole / creative accounting, banking crisis, banks create money, barriers to entry, Benoit Mandelbrot, Big bang: deregulation of the City of London, Black Swan, Bonfire of the Vanities, business cycle, butterfly effect, capital asset pricing model, cellular automata, central bank independence, citizen journalism, clockwork universe, collective bargaining, complexity theory, correlation coefficient, creative destruction, credit crunch, David Ricardo: comparative advantage, debt deflation, diversification, double entry bookkeeping, en.wikipedia.org, Eugene Fama: efficient market hypothesis, experimental subject, Financial Instability Hypothesis, fixed income, Fractional reserve banking, full employment, Henri Poincaré, housing crisis, Hyman Minsky, income inequality, information asymmetry, invisible hand, iterative process, John von Neumann, Kickstarter, laissez-faire capitalism, liquidity trap, Long Term Capital Management, mandelbrot fractal, margin call, market bubble, market clearing, market microstructure, means of production, minimum wage unemployment, money market fund, open economy, Pareto efficiency, Paul Samuelson, place-making, Ponzi scheme, profit maximization, quantitative easing, RAND corporation, random walk, risk tolerance, risk/return, Robert Shiller, Robert Shiller, Ronald Coase, Schrödinger's Cat, scientific mainstream, seigniorage, six sigma, South Sea Bubble, stochastic process, The Great Moderation, The Wealth of Nations by Adam Smith, Thorstein Veblen, time value of money, total factor productivity, tulip mania, wage slave, zero-sum game

If we like we can think of the curve as approaching these limits asymptotically. (Ibid.) This ‘liquidity trap’ enabled Hicks to provide an explanation for the Great Depression, and simultaneously reconcile Keynes with ‘the Classics.’ Keynes was consigned to one end of the LM curve, where the liquidity trap applied, and ‘the Classics’ to the other, where full employment was the rule (see Figure 3.1). In the ‘classical’ range of the LM curve, conventional economics reigned supreme: there was a maximal, full employment level of income, where any attempts to increase output would simply cause a rising interest rate (or inflation, in extensions of the IS-LM model). In the ‘Keynesian’ region, monetary policy (which moved the LM curve) was ineffective, because the LM curve was effectively horizontal, but fiscal policy (which moved the IS curve) could generate greater output – and hence employment – without increasing interest rates.

As a result, the media and the public were clamoring for change, supporting the efforts of leading neoclassicals like Milton Friedman to overthrow their Keynesian overlords in the academy. The public policy focus shifted from the Keynesian emphasis upon keeping unemployment low – and tolerating higher inflation as a side effect – to keeping inflation low, in the belief that this would allow the private sector to ‘do its thing’ and achieve full employment. The initial results were mixed – inflation plunged as Fed chairman Volcker pushed the cash rate3 to 20 percent, but unemployment exploded to its post-war peak of almost 11 percent in 1983. But that painful crisis proved to be the worst under neoclassical management of economic policy. The next recession in the early 1990s had a peak unemployment rate of less than 8 percent. The one after that in 2003 had a peak unemployment rate of 6.3 percent.

But they have no knowledge of the actual state of neoclassical economics because their education shields them from it, right from their very first exposure to economic theory (for the rest of the book, if I say ‘economics’ without qualification, I will normally mean ‘neoclassical economics,’ unless otherwise noted). Educated into ignorance If the real world were accurately described by economic textbooks, there would not now be a financial crisis – and nor would there ever have been one in the past either: the Great Depression would not have happened. The economy would instead be either in equilibrium, or rapidly returning to it, with full employment, low inflation, and sensibly priced assets. Of course, the real world is nothing like that. Instead, it has been permanently in disequilibrium, and in near-turmoil, ever since the financial crisis began in 2007. So the textbooks are wrong. But there is a bizarre irony in this disconnect between reality and economic textbooks. If those same textbooks gave an accurate rendition of the underlying theory, they would describe an economy that generated cycles, was in disequilibrium all the time, and was prone to breakdown.


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The Weightless World: Strategies for Managing the Digital Economy by Diane Coyle

"Robert Solow", barriers to entry, Berlin Wall, Big bang: deregulation of the City of London, blue-collar work, Bretton Woods, business cycle, clean water, computer age, Corn Laws, creative destruction, cross-subsidies, David Ricardo: comparative advantage, dematerialisation, Diane Coyle, Edward Glaeser, everywhere but in the productivity statistics, financial deregulation, full employment, George Santayana, global village, hiring and firing, Howard Rheingold, income inequality, informal economy, invention of the sewing machine, invisible hand, Jane Jacobs, Joseph Schumpeter, Kickstarter, knowledge economy, labour market flexibility, laissez-faire capitalism, lump of labour, Marshall McLuhan, mass immigration, McJob, microcredit, moral panic, Network effects, new economy, Nick Leeson, night-watchman state, North Sea oil, offshore financial centre, pension reform, pensions crisis, Ronald Reagan, Silicon Valley, spinning jenny, The Death and Life of Great American Cities, the market place, The Wealth of Nations by Adam Smith, Thorstein Veblen, Tobin tax, two tier labour market, very high income, War on Poverty, winner-take-all economy, working-age population

The Culture of Contentment, Chapter 14. Tracy Chapman, Elektra/Asylum records 1988. By Maarten Lindeboom and Jan Van Ours, in Jobs, Wages and Poverty, Centre for Economic Performance 1997. Figures from the OECD’s Employment Outlook 1996. In Working for Full Employment, ed.John Philpott. The State We’re In, Will Hutton. Article in New Statesman, London, 21 February 1997. How Fat Cats Rock the Boat by Charles Leadbetter, Independent on Sunday, London, 3 November 1996. See, for example, The Stakeholder Society, by John Plender. Essay in Working for Full Employment, ed.John Philpott. In What Labour Can Do, Warner Books, 1997. Chapter Six. The End of Welfare It always seems to be dark, appropriately enough. The city — it could be any American megalopolis, but it happens to be LA — is swarming, noisy, filthy, crumbling, dangerous.

Just as the great inequalities generated by the Industrial Revolution created the political dynamic that led to the extension of the vote, the creation of social insurance and the redistribution of income through the national economy, the scarcities and inequalities of the late twentieth century will prompt a political reaction. It is one that will bring to an end the identification of citizenship with the nation state. Cities will rise in power and the movement of people will become more fluid, ending the social contract that guarantees the welfare of a citizen within fixed borders. The idea of full employment, of a full-time job paying enough to support a family for all who want it, is also in its dying days. Both the nature of work and the influence governments have over employment have already changed irreversibly, although tax and regulatory policies have not yet adapted to the more fluid, riskier and more unequal world. Weightlessness is inexorable, but there is nothing inevitable about the way technology is going to shape the industrial societies.

Its alternative name, the social economy, makes its potential contribution to social capital clearer. Putnam concluded that it had not grown enough to offset his gloomy conclusion. But the partial exception he makes for the third sector highlights its political potential. Consider the point raised by Ed Mayo, director of the New Economics Foundation, in an article where he argues against the desirability of conventional full employment. He writes: ‘The labour market exclusively defines how we organise and validate work within society (where those out of employment are dismissed as “economically inactive”). The results? We have two — twin — evils: mass unemployment on the one hand and a large amount of socially useful Nourishing the Grass Roots 73 work remaining undone on the other. It is hard to imagine a worse outcome.’10 The social economy offers a way of tackling these twin evils.


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Prosperity Without Growth: Foundations for the Economy of Tomorrow by Tim Jackson

"Robert Solow", bank run, banking crisis, banks create money, Basel III, basic income, bonus culture, Boris Johnson, business cycle, carbon footprint, Carmen Reinhart, Cass Sunstein, choice architecture, collapse of Lehman Brothers, creative destruction, credit crunch, Credit Default Swap, David Graeber, decarbonisation, dematerialisation, en.wikipedia.org, energy security, financial deregulation, Financial Instability Hypothesis, financial intermediation, full employment, Growth in a Time of Debt, Hans Rosling, Hyman Minsky, income inequality, income per capita, Intergovernmental Panel on Climate Change (IPCC), Internet of things, invisible hand, job satisfaction, John Maynard Keynes: Economic Possibilities for our Grandchildren, Joseph Schumpeter, Kenneth Rogoff, Kickstarter, laissez-faire capitalism, liberal capitalism, Mahatma Gandhi, mass immigration, means of production, meta analysis, meta-analysis, moral hazard, mortgage debt, Naomi Klein, new economy, offshore financial centre, oil shale / tar sands, open economy, paradox of thrift, peak oil, peer-to-peer lending, Philip Mirowski, profit motive, purchasing power parity, quantitative easing, Richard Thaler, road to serfdom, Robert Gordon, Ronald Reagan, science of happiness, secular stagnation, short selling, Simon Kuznets, Skype, smart grid, sovereign wealth fund, Steve Jobs, The Chicago School, The Great Moderation, The Rise and Fall of American Growth, The Spirit Level, The Wealth of Nations by Adam Smith, Thorstein Veblen, too big to fail, universal basic income, Works Progress Administration, World Values Survey, zero-sum game

A structural shift towards service-based enterprise entails a reduction in labour productivity growth. Put otherwise, this shift increases the employment intensity of the economy and facilitates full employment. In a series of economic simulations, calibrated loosely for the Canadian and UK economies, Peter Victor and I have shown how this kind of structural shift, in combination with work-time policies, can indeed maintain high levels of employment, even as growth rates decline to (and below) zero.31 The transition to services offers a more ‘holistic’ solution to the employment challenge of a low-growth economy. The apparent ‘growth imperative’ arising from the pursuit of productivity is less decisive than the dilemma of growth suggests. There are routes to full employment that are entirely consistent both with stagnating demand and with improved prosperity. Of course, a shift of this kind raises deeper questions about the structure of the capitalist economy.

But Tim Jackson compellingly urges those politicians to give up their comfort blanket, to re-think our continuing dependence on economic growth, and to start preparing – urgently – for a world where such growth is no longer viable as its environmental cost massively exceeds its benefits. Prosperity without Growth remains the single most important book addressing this most critical of contemporary challenges.’ Jonathon Porritt, Founder Director of Forum for the Future ‘Tim Jackson spearheads the obvious truth that GDP growth is not necessary in order to achieve higher well-being in the rich world. Government intervention can produce the desired result, namely full employment, less inequity and reduced greenhouse gas emissions.’ Jørgen Randers, author of 2052: A Global Forecast for the Next Forty Years ‘Tim Jackson has brought his groundbreaking book bang up to date and substantially deepened its arguments. This extensively revised edition sets out more clearly than ever the dimensions of a new and different economics – working for people, planet and prosperity.

Switching to more energy efficient appliances or less labour-intensive processes requires capital. And this continuing capital need both motivates the search for low-cost credit and highlights the dangers of credit drying up. It also explains why reducing capital costs indefinitely isn’t an option.13 When it comes to choosing which of the other two factors to target, a lot depends on the relative price of labour and materials. In a growing economy with full employment, wages tend to rise in real terms. Until very recently at least (Figure 1.1), material costs have tended to fall in real terms. So in practice, companies have invested preferentially in technologies that reduce labour costs even if this increases material costs: an obvious counter to the trend of resource productivity discussed in Chapter 5.14 For a company, then, higher labour productivity lowers the cost of its products and services.


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Strange Rebels: 1979 and the Birth of the 21st Century by Christian Caryl

anti-communist, Ayatollah Khomeini, Berlin Wall, Bretton Woods, British Empire, colonial rule, Deng Xiaoping, financial deregulation, financial independence, friendly fire, full employment, income inequality, industrial robot, Internet Archive, Kickstarter, land reform, land tenure, liberal capitalism, liberation theology, Mahatma Gandhi, means of production, Mikhail Gorbachev, Mohammed Bouazizi, Mont Pelerin Society, Neil Kinnock, new economy, New Urbanism, oil shock, open borders, open economy, Pearl River Delta, plutocrats, Plutocrats, price stability, rent control, road to serfdom, Ronald Reagan, single-payer health, special economic zone, The Chicago School, union organizing, upwardly mobile, Winter of Discontent, Xiaogang Anhui farmers, Yom Kippur War

In some cases, supply and demand could achieve equilibrium without creating full employment. Governments could pick up the slack by stimulating demand through increased spending during economic slowdowns.9 Keynesian prescriptions had picked up many adherents throughout the Anglo-Saxon world since the great deflationary crisis of the Great Depression. The policies he proposed seemed to offer a tool for overcoming the problem of the destructive boom-and-bust cycles that seemed to plague capitalist economies. The Labour government of 1945, which touted its belief in “rational” economic decision making, was ready to follow suit. The centerpiece of Attlee’s New Jerusalem was “freedom from want,” which meant, in practical terms, full employment. Keynes had argued that the best way to sustain full employment was through government spending—even if it led to temporary budget deficits.

The speech that Callaghan gave at the 1976 Labour Party conference, authored by Jay, turned into something of a eulogy for Britain’s postwar economic system: For too long this country—all of us, yes this conference too—has been ready to settle for borrowing money abroad to maintain our standards of life, instead of grappling with the fundamental problems of British industry. . . . [T]he cozy world we were told would go on forever, where full employment would be guaranteed . . . that cozy world is now gone. . . . We used to think we could spend our way out of a recession and increase employment by cutting taxes and boosting government spending. I tell you in all candor that that option no longer exists, and that insofar as it ever did exist, it only worked on each occasion since the war by injecting a bigger dose of inflation into the economy followed by a higher level of unemployment as the next step.6 Finally, in November 1976, the United Kingdom was forced to ask the International Monetary Fund (IMF) for a $3.9 billion loan to tide it over through the crisis.

The Beveridge Report fired the public imagination because it provided the blueprint for a reorganization of the British state that would eliminate poverty, hunger, and sickness. “Now, when the war is abolishing landmarks of every kind, is the opportunity for using experience in a clear field,” the report declared. “A revolutionary moment in the world’s history is a time for revolutions, not for patching.” What the report proposed, however, was a distinctly British kind of revolution: a bureaucratic transformation of the state. It declared that full employment should be the goal of economic policy. It proposed the creation of comprehensive public pensions and unemployment insurance. It laid out the basis for a national health insurance system. And it argued for a broad expansion of public education at all levels. We have no record of how the young Margaret Thatcher regarded the report. But it is entirely possible that, like so many of her young Conservative contemporaries, she accepted its conclusions.


Technological Revolutions and Financial Capital: The Dynamics of Bubbles and Golden Ages by Carlota Pérez

agricultural Revolution, Big bang: deregulation of the City of London, Bob Noyce, Bretton Woods, business cycle, capital controls, commoditize, Corn Laws, creative destruction, David Ricardo: comparative advantage, deindustrialization, distributed generation, financial deregulation, financial innovation, Financial Instability Hypothesis, financial intermediation, full employment, Hyman Minsky, informal economy, joint-stock company, Joseph Schumpeter, knowledge economy, late capitalism, market fundamentalism, new economy, nuclear winter, offshore financial centre, post-industrial society, profit motive, railway mania, Robert Shiller, Robert Shiller, Sand Hill Road, Silicon Valley, Simon Kuznets, South Sea Bubble, Thomas Kuhn: the structure of scientific revolutions, Thorstein Veblen, trade route, tulip mania, Upton Sinclair, Washington Consensus

Though the debate about the causes and the culprits can go on forever, the more practical task of setting up an adequate regulatory system and a set of effective safeguards is soon undertaken. Thanks to the crash and the recession, there is a newfound readiness to accept such rules on the part of the – until recently arrogant – financial wizards, now sobered up. If, at this turning point, the institutional adjustment is successfully achieved, what follows may be a golden age. It can be a period of full employment and widespread productive investment, a period when production is at center stage, when at last the benefits of the system begin to spread down and an era of ‘good feeling’ sets in. The best face of capitalism can then be seen. It is the face of progress and of relative coincidence between individual and collective interests. Financial capital goes out of public sight into boardrooms and offices.

Nevertheless, American historians have labeled the period the ‘Progressive Era’, putting the accent on the political changes and on the many attempts at controlling the trusts and establishing greater social justice, as opposed to the preceding callousness. 54 Technological Revolutions and Financial Capital ily as exuberant as in Frenzy. It can be felt across society and proceed at a healthy rhythm. Full employment – or the nearest thing to it, depending on the period – may become a realized possibility. When a mode of growth based on social cohesiveness is established, moral principles are in force, ideas of confidence flourish and business is satisfied about its positive social role. It is a time of advance in labor laws and other measures for social protection of the weak, a time for income redistribution in one form or another, leading to enlarged consumption markets.

This may very well be so and is wholly within the logic of the present model. For the previous paradigm, John Maynard Keynes developed a new economics, providing both a different understanding and a whole new set of policy tools. Although the debate still rages,228 these policies, where applied, pretty much achieved their purpose of tempering the business cycle and supporting smooth growth, full employment and consistent investment, for the duration of the deployment period of the fourth great surge. That set of policies and that vision of economics lost effectiveness when the economy of the mass-production revolution, for which it was designed, became exhausted at the end of the 1960s. Once productivity stopped growing and investment opportunities dwindled, the whole basis of the model broke down and stagflation, that unusual combination of inflation with unemployment, rendered its main policy tools impotent.


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What's Wrong with Economics? by Robert Skidelsky

"Robert Solow", additive manufacturing, agricultural Revolution, Black Swan, Bretton Woods, business cycle, Cass Sunstein, central bank independence, cognitive bias, conceptual framework, Corn Laws, corporate social responsibility, correlation does not imply causation, creative destruction, Daniel Kahneman / Amos Tversky, David Ricardo: comparative advantage, disruptive innovation, Donald Trump, full employment, George Akerlof, George Santayana, global supply chain, global village, Gunnar Myrdal, happiness index / gross national happiness, hindsight bias, Hyman Minsky, income inequality, index fund, inflation targeting, information asymmetry, Internet Archive, invisible hand, John Maynard Keynes: Economic Possibilities for our Grandchildren, Joseph Schumpeter, Kenneth Arrow, knowledge economy, labour market flexibility, loss aversion, Mark Zuckerberg, market clearing, market friction, market fundamentalism, Martin Wolf, means of production, moral hazard, paradox of thrift, Pareto efficiency, Paul Samuelson, Philip Mirowski, precariat, price anchoring, principal–agent problem, rent-seeking, Richard Thaler, road to serfdom, Robert Shiller, Robert Shiller, Ronald Coase, shareholder value, Silicon Valley, Simon Kuznets, survivorship bias, technoutopianism, The Chicago School, The Market for Lemons, The Nature of the Firm, the scientific method, The Wealth of Nations by Adam Smith, Thomas Kuhn: the structure of scientific revolutions, Thomas Malthus, Thorstein Veblen, transaction costs, transfer pricing, Vilfredo Pareto, Washington Consensus, Wolfgang Streeck, zero-sum game

Neoclassical economists of left-wing persuasion used to busy themselves with working out schemes for an ‘optimal’ distribution of income which satisfied the requirements of both efficiency and justice. But the propaganda for productive efficiency has latterly become so powerful that interest in moral efficiency has waned. The growth of inequality, in turn, has produced growing popular disenchantment with supposedly ‘efficient’ market outcomes. (For a further discussion, see Chapter 13.) Finally, the assumption of mainstream economists that economies have a spontaneous tendency to full employment leads them to ignore the ever-present possibility of crashes and weak recoveries. The heavy unemployment, poor growth, and depressed wages in most of Europe since 2008 is an example of scarcity created by bad economic policy. We are now in a position to criticise the way the Robbins definition sets up the economic problem. We can consider the issue from the point of both demand and supply.

Today’s neoclassical economists love telling stories of how governments invariably ‘pick losers’, constructing roads which lead nowhere, towns which no one wants to live in, and steel mills which use lots of capital and very little labour, and whose products cannot be sold for hard currencies. The sweeping denunciation of government failure pays no attention to the character of governance, or the distribution of power. It assumes that all states are inherently incompetent, if not also corrupt and predatory. But performance of the pre-modern state is no guide to what a modern state might achieve. The neoclassical parody ignores the fact that governments, dedicated to full employment or growth, have often picked winners. Consider Toyota, the Japanese automobile manufacturer. Starting as a tiny textile manufacturer it was propelled to world rank by acts of government: tariffs, exclusion of competitors, and subsidy. In Ha-Joon Chang’s words: ‘. . . had the Japanese government followed the free-trade economists back in the early 1960s, there would have been no Lexus. Toyota today would, at best, be a junior partner to some western car manufacturer, or worse, have been wiped out.

Rather than presupposing the direction of causality and performing a revisionist exercise to provide a semi-coherent interpretation of apparently disconfirming facts, such as Becker and Murphy’s theory of rational addiction, ontological enquiry should be a normal part of economic practice.21 That is, in attempting to answer any given problem, economists should think seriously about the structures and elements involved, and whether or when reduction to a lower level adds or subtracts from explanatory power. 8 INSTITUTIONAL ECONOMICS The nature of the firm is not simply a minimizer of transaction costs, but a kind of protective enclave from the potentially volatile and sometimes destructive, ravaging speculation of a competitive market. Geoffrey Hodgson, Economics and Institutions Anglo-American thinkers of the Enlightenment had an intense suspicion of institutions, which they saw as impediments to the flowering of individual liberty. The economists shared this attitude and perpetuated it. They have been wont to explain the frequent lapses from full employment by the existence of institutional impediments to fully competitive markets. But this begs the question of why institutions exist. Could it not be that many of them exist to protect society against the market, as Polanyi suggested? This raises another question. What is the advantage of theorising as though institutions are absent? The only advantage would seem be to set up a standard to which institutions should conform.


pages: 1,242 words: 317,903

The Man Who Knew: The Life and Times of Alan Greenspan by Sebastian Mallaby

"Robert Solow", airline deregulation, airport security, Andrei Shleifer, anti-communist, Asian financial crisis, balance sheet recession, bank run, barriers to entry, Benoit Mandelbrot, Bretton Woods, business cycle, central bank independence, centralized clearinghouse, collateralized debt obligation, conceptual framework, corporate governance, correlation does not imply causation, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, currency peg, energy security, equity premium, fiat currency, financial deregulation, financial innovation, fixed income, Flash crash, forward guidance, full employment, Hyman Minsky, inflation targeting, information asymmetry, interest rate swap, inventory management, invisible hand, Kenneth Rogoff, Kickstarter, Kitchen Debate, laissez-faire capitalism, Long Term Capital Management, low skilled workers, market bubble, market clearing, Martin Wolf, money market fund, moral hazard, mortgage debt, Myron Scholes, new economy, Nixon shock, Northern Rock, paper trading, paradox of thrift, Paul Samuelson, plutocrats, Plutocrats, popular capitalism, price stability, RAND corporation, rent-seeking, Robert Shiller, Robert Shiller, rolodex, Ronald Reagan, Saturday Night Live, savings glut, secular stagnation, short selling, The Great Moderation, the payments system, The Wealth of Nations by Adam Smith, too big to fail, trade liberalization, unorthodox policies, upwardly mobile, WikiLeaks, women in the workforce, Y2K, yield curve, zero-sum game

At the Bretton Woods conference in 1944, America had committed itself to a system of fixed exchange rates: the dollar was pegged to gold, and other major currencies were pegged to the dollar. The system had worked well for fifteen years, but then the New Frontier economists had embraced the goal of “full employment.” To preserve the fixed exchange rate, the United States had to avoid inflation, which would undermine the value of its money. But to attain full employment, the United States had to do the opposite—it had to accept inflation in accordance with the implication of the Phillips curve, which indicated that rising prices could sustainably boost the number of jobs in the economy. As the goal of full employment trumped the fealty to Bretton Woods, rising inflation eroded confidence in the dollar.41 Indeed, by the time Nixon’s advisers gathered at Camp David, the dollar-gold link was close to breaking.

True to his new political persona, and betraying his old Randian one, Greenspan quickly disowned the quotation, insisting that his words had been taken out of context.75 But the damage had been done. Humphrey seized the opening to excoriate Nixon for being willing to accept less than “full” employment. The Nixon men turned to Arthur Burns, Greenspan’s professor from Columbia, to cast his student overboard. “I can say categorically,” Burns told the Washington Post, “that this does not reflect Mr. Nixon’s position. This world of ours won’t accept anything but a full employment policy.”76 • • • Humphrey caught up with Nixon in the lead-up to Election Day. The race was too close to call after the polls closed, and the outcome remained uncertain throughout most of the evening. Around nine o’clock the next morning, Nixon climbed out of bed in his pajamas in the campaign’s suite at the Waldorf Towers in Manhattan.77 Turning on his television set, he found that the networks were calling the race in his favor; though the popular vote was remarkably close, he had won decisively in the electoral college.

Humphrey teamed up with Representative Augustus Hawkins, a California Democrat, to promote a law that would mandate full employment, ambitiously defined as an adult unemployment rate of just 3 percent; the federal government was to act as “employer of last resort,” hiring anyone who could not find a job at “prevailing wages.”108 Early drafts of the legislation quixotically allowed unemployed workers to sue the federal government for failure to provide jobs; and it called for a permanent antirecession program that would ramp up public works whenever unemployment crept above 4.5 percent.109 In March, Greenspan appeared before the Joint Economic Committee of Congress to point out the pitfalls in the Humphrey-Hawkins bill: experts disagreed on what constituted “full employment,” so it was dangerous to enshrine one number in the law; it would be folly to commit to an employment goal that would detract from the fight against inflation.110 The following month Greenspan weighed in again, insisting that the bill’s emphasis on government planning implied a dangerously exaggerated faith in economists’ ability to forecast the economy.111 But however cogent Greenspan’s arguments, Congress was evidently a long way from his worldview.


pages: 381 words: 101,559

Currency Wars: The Making of the Next Gobal Crisis by James Rickards

Asian financial crisis, bank run, Benoit Mandelbrot, Berlin Wall, Big bang: deregulation of the City of London, Black Swan, borderless world, Bretton Woods, BRICs, British Empire, business climate, buy and hold, capital controls, Carmen Reinhart, Cass Sunstein, collateralized debt obligation, complexity theory, corporate governance, Credit Default Swap, credit default swaps / collateralized debt obligations, currency manipulation / currency intervention, currency peg, Daniel Kahneman / Amos Tversky, Deng Xiaoping, diversification, diversified portfolio, Fall of the Berlin Wall, family office, financial innovation, floating exchange rates, full employment, game design, German hyperinflation, Gini coefficient, global rebalancing, global reserve currency, high net worth, income inequality, interest rate derivative, John Meriwether, Kenneth Rogoff, laissez-faire capitalism, liquidity trap, Long Term Capital Management, mandelbrot fractal, margin call, market bubble, Mexican peso crisis / tequila crisis, money market fund, money: store of value / unit of account / medium of exchange, Myron Scholes, Network effects, New Journalism, Nixon shock, offshore financial centre, oil shock, one-China policy, open economy, paradox of thrift, Paul Samuelson, price mechanism, price stability, private sector deleveraging, quantitative easing, race to the bottom, RAND corporation, rent-seeking, reserve currency, Ronald Reagan, sovereign wealth fund, special drawing rights, special economic zone, The Myth of the Rational Market, The Wealth of Nations by Adam Smith, The Wisdom of Crowds, Thomas Kuhn: the structure of scientific revolutions, time value of money, too big to fail, value at risk, War on Poverty, Washington Consensus, zero-sum game

First in 1929–1933, when it should have provided liquidity and did not. Then again in 2007–2009, when it should have closed insolvent banks but instead provided liquidity. The upshot of these two episodes, curiously, is that the Fed has revealed it knows relatively little about the classic arts of banking. In 1978, the Humphrey-Hawkins Full Employment Act, signed by President Jimmy Carter, added management of unemployment to the Fed’s mandate. The act was an explicit embrace of Keynesian economics and mandated the Fed and the executive branch to work together in order to achieve full employment, growth, price stability and a balanced budget. The act set a specific numeric goal of 3 percent unemployment by 1983, which was to be maintained thereafter. In fact, unemployment subsequently reached cyclical peaks of 10.4 percent in 1983, 7.8 percent in 1992, 6.3 percent in 2003 and 10.1 percent in 2009.

In fact, unemployment subsequently reached cyclical peaks of 10.4 percent in 1983, 7.8 percent in 1992, 6.3 percent in 2003 and 10.1 percent in 2009. It was unrealistic to expect the Fed to achieve the combined goals of Humphrey-Hawkins all at once, although Fed officials still pay lip service to the idea in congressional testimony. In fact, the Fed has not delivered on its mandate to achieve full employment. As of 2011, full employment as it is conventionally defined is still five years away, according to the Fed’s own estimates. To these failures of price stability, lender of last resort and unemployment must be added the greatest failure of all: bank regulation. The Financial Crisis Inquiry Commission created by Congress in 2009 to examine the causes of the current financial and economic crisis in the United States heard from more than seven hundred witnesses, examined millions of pages of documents and held extensive hearings in order to reach conclusions about responsibility for the financial crisis that began in 2007.

Ed Koch, the popular mayor of New York in the 1980s, was famous for walking around the city and asking passersby, in his distinctive New York accent, “How’m I doin’?” as a way to get feedback on his administration. If the Fed were to ask, “How’m I doin’?” the answer would be that since its formation in 1913 it has failed to maintain price stability, failed as a lender of last resort, failed to maintain full employment, failed as a bank regulator and failed to preserve the integrity of its balance sheet. The Fed’s one notable success has been that, under its custody, the Treasury’s gold hoard has increased in value from about $11 billion at the time of the Nixon Shock in 1971 to over $400 billion today. Of course, this increase in the value of gold is just the flip side of the Fed’s demolition of the dollar.


pages: 361 words: 97,787

The Curse of Cash by Kenneth S Rogoff

Andrei Shleifer, Asian financial crisis, bank run, Ben Bernanke: helicopter money, Berlin Wall, bitcoin, blockchain, Boris Johnson, Bretton Woods, business cycle, capital controls, Carmen Reinhart, cashless society, central bank independence, cryptocurrency, debt deflation, disruptive innovation, distributed ledger, Edward Snowden, Ethereum, ethereum blockchain, eurozone crisis, Fall of the Berlin Wall, fiat currency, financial exclusion, financial intermediation, financial repression, forward guidance, frictionless, full employment, George Akerlof, German hyperinflation, illegal immigration, inflation targeting, informal economy, interest rate swap, Isaac Newton, Johann Wolfgang von Goethe, Johannes Kepler, Kenneth Rogoff, labor-force participation, large denomination, liquidity trap, money market fund, money: store of value / unit of account / medium of exchange, moral hazard, moveable type in China, New Economic Geography, offshore financial centre, oil shock, open economy, payday loans, price stability, purchasing power parity, quantitative easing, RAND corporation, RFID, savings glut, secular stagnation, seigniorage, The Great Moderation, the payments system, The Rise and Fall of American Growth, transaction costs, unbanked and underbanked, unconventional monetary instruments, underbanked, unorthodox policies, Y2K, yield curve

Taylor’s 1993 formulation assumed equal weights on stabilizing inflation and output, with inflation deviations measured around a target level presumed to be 2%, and output deviations measured around potential output (loosely speaking, the rate of output consistent with full employment).4 When Taylor formulated his rule in the early 1990s, it seemed reasonable for him to build his approach on the assumption that a normal Federal Reserve overnight policy interest rate would be 4%. This presumed a normal real interest rate of 2% and an assumed target inflation rate of 2%. The original Taylor rule formulation specified that the interest rate ought to be adjusted according to i = 4 + 0.5(π – 2) + 0.5y,(original Taylor formulation) where y is the deviation of output from its full employment level, and π is the expected inflation rate. Even this simple formulation has considerable room for interpretation, for example, the central bank needs to determine exactly what inflation rate it wants to target, how to figure out whether the economy is at full employment, how to measure expected inflation, and so forth.5 There are also variants that allow for lagged output gaps.

Others, such as the United States Federal Reserve, practice flexible inflation targeting, which tends to mean that inflation is a factor in the central bank’s interest rate decision, but not necessarily to the exclusion of other macroeconomic variables, notably output and employment. Among modern-day monetary rules that take multiple factors into account, perhaps the best known is the Taylor rule (discussed in the section on Taylor’s rule in the appendix), which posits that the central bank should set its policy interest rate according to deviations of output from its full-employment level and inflation from its target level. The Taylor rule has many virtues and is certainly a quantum improvement over the gold standard or the Friedman rule. But even the original Taylor rule, which had proved a very useful device for many years, is not reliable enough to enshrine in any kind of rigid law for central banks. Indeed, in the aftermath of the financial crisis of 2008, central banks held interest rates at zero for much longer than a mechanical interpretation of the Taylor rule would have suggested, yet inflation remained stubbornly low anyway.

Even this simple formulation has considerable room for interpretation, for example, the central bank needs to determine exactly what inflation rate it wants to target, how to figure out whether the economy is at full employment, how to measure expected inflation, and so forth.5 There are also variants that allow for lagged output gaps. The basic Taylor formulation would not necessarily have produced negative interest rates in the financial crisis of 2008 (except perhaps at the early peak), in part because the baseline interest rate is high (4%), and in part because it takes a really big output gap to pull rates below zero; an output gap of 8%, multiplied by 0.5, subtracts only 4% from the policy interest rate. If inflation is at target (it never moved all that far below), it is hard to get a negative number. But one can easily get much bigger negative rates if one adopts the view that (1) the equilibrium real interest rate is significantly lower than 2% and (2) output stabilization should get twice the weight of inflation stabilization, as current Fed chair Janet Yellen argued back in 2012.


Corbyn by Richard Seymour

anti-communist, banking crisis, battle of ideas, Bernie Sanders, Boris Johnson, British Empire, call centre, capital controls, centre right, collective bargaining, credit crunch, Donald Trump, eurozone crisis, first-past-the-post, full employment, gender pay gap, housing crisis, income inequality, knowledge economy, land value tax, liberal world order, mass immigration, means of production, moral panic, Naomi Klein, negative equity, Neil Kinnock, new economy, non-tariff barriers, Northern Rock, Occupy movement, offshore financial centre, pension reform, Philip Mirowski, precariat, quantitative easing, race to the bottom, rent control, Snapchat, stakhanovite, Washington Consensus, wealth creators, Winter of Discontent, Wolfgang Streeck, working-age population, éminence grise

Almost uniformly, albeit at different paces and to differing degrees, they found themselves overwhelmed by the transformations in the global economy and the resistance of business to their attempts to keep the old status quo going. As the priorities of national states switched from full employment, as a condition for the old class compromise, to counter-inflation and balanced budgets, as a condition for businesses to keep investing, social democracy abandoned the policy instruments that had made it distinctive. Only in Sweden and Austria was there a brief period in which counter-inflation existed successfully alongside extensive public sector investment and an institutional commitment to full employment, but this did not survive the turn of the nineties. In Britain, New Labour had consecrated neoliberal orthodoxy before its election in 1997, such that nothing else was expected. In France, a ‘plural-Left’ government led by the Socialist Party was elected just as the European Stability and Growth Pact was passed, committing all signatories to fiscal discipline.

Wilson, though he was from the centre, was reviled by the Gaitskellites and able to garner the support of the Left. Thanks to left-wing support, he was able to take the leadership after Gaitskell’s death in 1963. He was careful to avoid outright attacks on ‘fellow travellers’ in the fashion of his predecessor, and evinced an informality and comic turn that went with the grain of popular culture. Labour under his leadership was elected to government on an ambitious project for full employment and public investment, breaking thirteen years of uninterrupted Conservative rule. At first, everything seemed to be going exceptionally well, despite the tiny parliamentary majority with which the government was formed. Labour began to implement its National Plan for industry, secured agreement with the CBI and TUC, and implemented many of its policies including pension increases, rent controls and the abolition of prescription charges.

Further, despite the enduring influence of Gaitskellite revisionism and the talk of ‘affluence’, the limits of the post-1945 settlement were becoming visible – the existence of a wide swathe of impoverished people, especially pensioners, was recognised.38 Even the early attempts by Lord Cromer, the Governor of the Bank of England and a close ally of the City, to force a reverse in policy were seen off. Speculative attacks on the currency – which Cromer advised Wilson signified investors’ demands that the government row back from its policy of full employment, use incomes policy to stifle wages and raise interest rates – were not enough to force the government’s capitulation at this stage. In the end, Cromer was replaced and returned to the family merchant bank Barings. Labour was confident enough in 1966 to call a new election and extend its mandate, gaining some 48 per cent of the vote compared to the Tories 41.4 per cent. And despite the enduring influence of revisionism, this was clearly a class vote: despite the fact that the Labour leadership was predominantly middle class, it scored the highest share of manufacturing workers’ votes in its history, some 69 per cent.39 How, then, did the government end up implementing the bankers’ desiderata?


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Bullshit Jobs: A Theory by David Graeber

1960s counterculture, active measures, basic income, Berlin Wall, Bernie Sanders, Bertrand Russell: In Praise of Idleness, Bretton Woods, Buckminster Fuller, call centre, cognitive dissonance, collateralized debt obligation, David Graeber, Donald Trump, equal pay for equal work, full employment, global supply chain, High speed trading, hiring and firing, informal economy, Jarndyce and Jarndyce, Jarndyce and Jarndyce, job automation, John Maynard Keynes: technological unemployment, knowledge worker, moral panic, post-work, precariat, Silicon Valley, Silicon Valley startup, single-payer health, software as a service, telemarketer, The Future of Employment, Thorstein Veblen, too big to fail, Travis Kalanick, universal basic income, unpaid internship, wage slave, wages for housework, women in the workforce, working poor, Works Progress Administration, young professional, éminence grise

Social engineering does happen. The regime of make-work jobs that existed in the Soviet Union or Communist China, for example, was created from above by a self-conscious government policy of full employment. To say this is in no sense controversial. Pretty much everyone accepts that it is the case. Still, it’s hardly as if anyone sitting in the Kremlin or the Great Hall of the People actually sent out a directive saying “I hereby order all officials to invent unnecessary jobs until unemployment is eliminated.” The reason no such orders were sent out was because they didn’t have to be. The policy spoke for itself. As long as you don’t say “Aim for full employment, but do not create jobs unless they conform to the following standards”—and make it clear you will be very punctilious about ensuring those standards are met—then one can be sure of the results.

As long as you don’t say “Aim for full employment, but do not create jobs unless they conform to the following standards”—and make it clear you will be very punctilious about ensuring those standards are met—then one can be sure of the results. Local officials will do what they have to do. While no central directives of this kind were ever sent out under capitalist regimes, at least to my knowledge, it is nonetheless true that at least since World War II, all economic policy has been premised on an ideal of full employment. Now, there is every reason to believe that most policy makers don’t actually want to fully achieve this ideal, as genuine full employment would put too much “upward pressure on wages.” Marx appears to have been right when he argued that a “reserve army of the unemployed” has to exist in order for capitalism to work the way it’s supposed to.7 But it remains true that “More Jobs” is the one political slogan that both Left and Right can always agree on.8 They differ only about the most expedient means to produce the jobs.

Nonetheless, the assumption that government is necessarily top-heavy with featherbedding and unnecessary levels of administrative hierarchy, while the private sector is lean and mean, is by now so firmly lodged in people’s heads that it seems no amount of evidence will dislodge it. No doubt some of this misconception is due to memories of countries such as the Soviet Union, which had a policy of full employment and was therefore obliged to make up jobs for everyone whether a need existed or not. This is how the USSR ended up with shops where customers had to go through three different clerks to buy a loaf of bread, or road crews where, at any given moment, two-thirds of the workers were drinking, playing cards, or dozing off. This is always represented as exactly what would never happen under capitalism.


pages: 476 words: 125,219

Digital Disconnect: How Capitalism Is Turning the Internet Against Democracy by Robert W. McChesney

2013 Report for America's Infrastructure - American Society of Civil Engineers - 19 March 2013, access to a mobile phone, Albert Einstein, American Legislative Exchange Council, American Society of Civil Engineers: Report Card, Automated Insights, barriers to entry, Berlin Wall, business cycle, Cass Sunstein, citizen journalism, cloud computing, collaborative consumption, collective bargaining, creative destruction, crony capitalism, David Brooks, death of newspapers, declining real wages, Double Irish / Dutch Sandwich, Erik Brynjolfsson, failed state, Filter Bubble, full employment, future of journalism, George Gilder, Gini coefficient, Google Earth, income inequality, informal economy, intangible asset, invention of agriculture, invisible hand, Jaron Lanier, Jeff Bezos, jimmy wales, John Markoff, John Maynard Keynes: Economic Possibilities for our Grandchildren, Joseph Schumpeter, Julian Assange, Kickstarter, Mark Zuckerberg, Marshall McLuhan, means of production, Metcalfe’s law, mutually assured destruction, national security letter, Nelson Mandela, Network effects, new economy, New Journalism, Nicholas Carr, Occupy movement, offshore financial centre, patent troll, Peter Thiel, plutocrats, Plutocrats, post scarcity, price mechanism, profit maximization, profit motive, QWERTY keyboard, Ralph Nader, Richard Stallman, road to serfdom, Robert Metcalfe, Saturday Night Live, sentiment analysis, Silicon Valley, single-payer health, Skype, spectrum auction, Steve Jobs, Steve Wozniak, Steven Levy, Steven Pinker, Stewart Brand, Telecommunications Act of 1996, the medium is the message, The Spirit Level, The Structural Transformation of the Public Sphere, The Wealth of Nations by Adam Smith, Thorstein Veblen, too big to fail, transfer pricing, Upton Sinclair, WikiLeaks, winner-take-all economy, yellow journalism

How can the capitalists be so shortsighted, they wonder, as to oppose the use of government to build infrastructure, create jobs, and end stagnation, when other democratic governments have made capitalism operate far more efficiently and effectively? Economists Stiglitz and Robert Pollin each published books in 2012 with reasonable and thoughtful policy prescriptions for a full-employment, high-wage capitalism, but they command almost no support among the wealthy capitalists who subsidize American politicians.36 Can’t these business interests look at the historical record and see that capitalists have done far better and made more profits in the high-wage, high-growth, full-employment economies following the New Deal, arguably even in the social democratic nations of northern Europe? Why do they obsessively cling to the antiquated economic theories that were discredited in the 1930s and 1940s and have led present-day capitalism to crisis, stagnation, and decline?

He cites a classic 1943 essay by the economist Michal Kalecki in which Kalecki argues that if the public realizes that the government has the resources to establish full employment, the realization would undermine the notion that the central duty of government is to create a climate in which business has confidence in the system and therefore eventually invests to create jobs. The “powerful indirect control over government policy” enjoyed by business would end, a prospect discomfiting to business leaders.37 “This sounded a bit extreme to me the first time I read it,” Krugman writes, “but it now seems all too plausible.”38 A successful state generating full employment might logically lead people to question why capitalists have so much economic power and what they provide that could not be better provided by more democratic means.

American Society of Civil Engineers, Infrastructure Report Card, infrastructurereportcard.org. 34. “A Patch on the Road,” The Economist, July 7, 2012, 34. 35. E.J. Dionne, “America Needs a Better Ruling Class,” Washington Herald News, Apr. 17, 2011. heraldnews.com/opinions/columnists/x1225326175/E-J-DIONNE-America-needs-a-better-ruling-class. 36. Stiglitz, Price of Inequality, chap. 12; Robert Pollin, Back to Full Employment (Cambridge, MA: MIT Press, 2012). 37. Michal Kalecki, “Political Aspects of Full Employment,” in Selected Essays on the Dynamics of the Capitalist Economy (Cambridge, UK: Cambridge University Press, 1970), 139. 38. Krugman, End This Depression Now!, 94–95. 39. The great irony for those economists (and activists) who believe capitalism can be reformed and want to reform it along New Deal or social democratic lines is that by swearing a loyalty oath to capitalism, they encourage their own irrelevance.


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Fair Shot: Rethinking Inequality and How We Earn by Chris Hughes

"side hustle", basic income, Donald Trump, effective altruism, Elon Musk, end world poverty, full employment, future of journalism, gig economy, high net worth, income inequality, invisible hand, Jeff Bezos, job automation, knowledge economy, labor-force participation, Lyft, M-Pesa, Mark Zuckerberg, meta analysis, meta-analysis, new economy, oil rush, payday loans, Peter Singer: altruism, Potemkin village, precariat, randomized controlled trial, ride hailing / ride sharing, Ronald Reagan, Second Machine Age, self-driving car, side project, Silicon Valley, TaskRabbit, The Bell Curve by Richard Herrnstein and Charles Murray, traveling salesman, trickle-down economics, uber lyft, universal basic income, winner-take-all economy, working poor, working-age population, zero-sum game

Companies provided a suite of wraparound services that guaranteed stability in their employees’ lives. In 1955, a big corporation like Kodak spent $1,000 per year, roughly $8,000 today, on life insurance, retirement, sick pay, disability benefits, and vacation pay for each employee. Employees with 15 years of service or more received medical care for life, not just for themselves, but also for their dependents. This period of stable jobs and nearly full employment was a brief historical exception, but it has been burnished in our collective psyches as a golden age. The short period came to an end as globalization, rapid technological advancements, and the rise of finance modified the nature of jobs so that they became more precarious and piecemeal. If my parents were ten years younger, my father likely would have lost his paper-selling job and been out of work, thanks to the collapse of small-town printers in the digital transition and the rapid consolidation in the industry powered by finance.

“Creative Citizen, Creative State: The Principled and Pragmatic Case for a Universal Basic Income.” RSA, December 2015. https://www.thersa.org/globalassets/reports/rsa_basic_income_20151216.pdf. Pew Research Center. “Public Trust in Government, 1958-2017.” May 3, 2017. http://www.people-press.org/2017/05/03/public-trust-in-government-1958-2017/). Paul, Mark, William Darity Jr., Darrick Hamilton, and Anne E. Price. “Returning to the Promise of Full Employment: A Federal Job Guarantee in the United States.” Insight Center for Community Economic Development, June 2017. https://insightcced.org/wp-content/uploads/2017/06/insight_fjg_brief_2017.pdf. Pew Charitable Trusts. “Americans’ Financial Security.” Financial Security and Mobility, March 2015. http://www.pewtrusts.org/~/media/assets/2015/02/fsm-poll-results-issue-brief_artfinal_v3.pdf. Picchi, Aimee.

I use the term “one percent” broadly to describe the wealthiest Americans, households with assets of more than $10 million or incomes of $250k or higher. 40 the average doctor in my hometown last year made $189,000: Salary.com, “North Carolina Physician-Generalist Salaries.” 40 CEOs at S&P 500 companies who today, on average, are paid 347 times more: American Federation of Labor and Congress of Industrial Organizations, “Highest-Paid CEOs”; Mishel and Schieder, “CEOs Make 276 Times More than Typical Workers.” 40 96 percent of the ultra-wealthy one percent are white: Moore, “America’s Financial Divide.” 41 the Waltons, all of whom inherited their wealth from the Walmart empire, now controls as much wealth as the bottom 43 percent of the country combined: New America, “Monopoly and Inequality.” 41 The chasm between the rich and the poor has not been so wide since 1929: Saez and Zucman, “Wealth Inequality in the United States Since 1913.” 42 Before the second half of the twentieth century, work was more likely to be at home on the farm or in a short-term stint somewhere: Lebergott, “Annual Estimates of Unemployment in the United States, 1900–1954.” 44 Employees with 15 years of service or more received medical care for life: Wartzman, End of Loyalty, 105–107. 44 This period of stable jobs and nearly full employment was a brief historical exception: I think this is largely because the people who write our collective narratives and histories tend to be white men, the exact demographic best served by the labor market of this period. See Wartzman, “Populists Want to Bring Back the Blue-Collar Golden Age”; and Oxfam America and Economic Policy Institute, “Few Rewards.” 45 “For workers, the American corporation used to act as a shock absorber”: Wartzman, End of Loyalty, 5. 46 the numbers show it isn’t just millennials doing contingent work: Baab-Muguira, “Millennials Are Obsessed with Side Hustles.” 46 A quarter of the working-age population in the United States and Europe engage in some type of independently paid gig: Manyika et al., “Independent Work.” 46 the number of people working in contingent jobs balloons to over 40 percent of all American workers: Pofeldt, “Shocker: 40% of Workers Now Have ‘Contingent’ Jobs.” 46 of all the jobs created between 2005 and 2015, 94 percent of them were contract or temporary: Katz and Krueger, “Rise and Nature of Alternative Work Arrangements.” 46 Many of these jobs of the new economy pay poorly: Dews, “Charts of the Week”; Vo and Zumbrun, “Just How Good (or Bad) Are All the Jobs Added?”


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The Conservative Nanny State: How the Wealthy Use the Government to Stay Rich and Get Richer by Dean Baker

accounting loophole / creative accounting, affirmative action, Asian financial crisis, Bretton Woods, business cycle, corporate governance, declining real wages, full employment, index fund, Jeff Bezos, medical malpractice, medical residency, money market fund, offshore financial centre, price discrimination, risk tolerance, spread of share-ownership

There is no economic theory whatsoever that says that protection for cars and clothes is harmful to the economy, while protection for doctors and lawyers is harmless. The economic damage caused by protectionist measures depends primarily on how much they raise prices. The measures that sustain high wages for doctors, lawyers, and accountants have far more economic impact and do far more harm to the economy than most of the protectionist measures that have been proposed for textiles, steel, or other manufactured goods. Full-employment monetary policy from the Fed should also be front and center on our policy agenda. It is not acceptable to tell millions of people that they must go jobless just because some inflation fighting Fed chair wants to stage a pre-emptive strike against potential inflation. Inflation can pose a problem, but unemployment definitely does pose a problem, especially when the burden of higher unemployment is disproportionately borne by those at the bottom of the social-economic ladder.

On the other hand, in a climate of rising wages and general prosperity, there is less objection to diverting a portion of this prosperity towards meeting public needs. This means that if the economy is producing real gains for the bulk of the population, it will be much easier to obtain the revenue needed to address deep-seated social problems. Moving Beyond the Conservative Nanny State Framing The three policies described above – a trade policy focused on opening trade in high-end professional services, a full employment monetary policy, and national health care insurance – would go far towards reversing the growth in inequality in the United States over the last quarter century and insuring a decent standard of living for the entire population. Many of the other policies discussed in prior chapters could also go far toward both increasing economic growth and reducing inequality. However, the specific policies put forward in this book are less important than the framework for understanding policy.

[http://www.newschool.edu/cepa/publications/workingpapers/archive/c epa200404.pdf] Bebchuk, L. and Y. Grinstein. 2005. “The Growth of Executive Pay,” Oxford Economic Papers, 21, no. 2: 283-303. Belman, D., E. Groshen, J. Lane, and D. Stevens. 1998. Small Consolation: The Dubious Benefit of Small Business for Job Growth and Wages, Washington, DC: Economic Policy Institute. Bernstein, J. and D. Baker. 2004. The Benefits of Full Employment, Washington, DC: The Economic Policy Institute. Blackford, M. 1998. The Rise of Modern Business in Great Britain, the United States, and Japan, Chapel Hill, NC: University of North Carolina Press:. 38-40. Burke, T. 2002. Lawyers, Lawsuits, and Legal Rights: The Battle Over Litigation in American Society, Berkeley, CA: University of California Press. Calem, P. and L. Mester. 1995. “Consumer Behavior and the Stickiness of Credit-Card Interest Rates,” American Economic Review, 85, no. 5: 1327-1336.


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War and Gold: A Five-Hundred-Year History of Empires, Adventures, and Debt by Kwasi Kwarteng

accounting loophole / creative accounting, anti-communist, Asian financial crisis, asset-backed security, Atahualpa, balance sheet recession, bank run, banking crisis, Big bang: deregulation of the City of London, Bretton Woods, British Empire, business cycle, California gold rush, capital controls, Carmen Reinhart, central bank independence, centre right, collapse of Lehman Brothers, collateralized debt obligation, credit crunch, currency manipulation / currency intervention, Deng Xiaoping, discovery of the americas, Etonian, eurozone crisis, fiat currency, financial innovation, fixed income, floating exchange rates, Francisco Pizarro, full employment, German hyperinflation, hiring and firing, income inequality, invisible hand, Isaac Newton, John Maynard Keynes: Economic Possibilities for our Grandchildren, joint-stock company, joint-stock limited liability company, Joseph Schumpeter, Kenneth Rogoff, labour market flexibility, liberal capitalism, market bubble, money: store of value / unit of account / medium of exchange, moral hazard, new economy, oil shock, plutocrats, Plutocrats, Ponzi scheme, price mechanism, quantitative easing, rolodex, Ronald Reagan, South Sea Bubble, The inhabitant of London could order by telephone, sipping his morning tea in bed, the various products of the whole earth, the market place, The Wealth of Nations by Adam Smith, too big to fail, War on Poverty, Yom Kippur War

It seemed to some that the ‘whole system of private enterprise is now on trial to demonstrate its capacity to provide a tolerably high level of employment’.18 This shift of emphasis was ‘traceable mainly to the empirical experience of the thirties, but a scientific or intellectual rationale for it has been provided by the doctrines of J. M. Keynes and Alvin H. Hansen’.19 In this new world, monetary policy would be downplayed and the idea of full employment now held sway. The Full Employment Act passed by Congress in 1945 enshrined the idea that it was ‘the duty of government to underwrite a stable high level of employment, using deficit spending as a major instrument if necessary’. The debt mountain faced by the United States seemed, at the beginning of the Cold War in 1946, enormous. ‘With an interest-bearing public debt already approximating 275 billion dollars, the interest charges alone at present rates will exceed the total budget of the federal government in any peacetime year with the exception of the deficit-financing period of the thirties’.

This meant that domestic policies would be lead partner in the dance; foreign exchange values would respond to domestic policies and not the other way round. Keynes observed in his speech that times had changed. ‘Public opinion is now converted to a new model . . . of domestic policy.’ Bretton Woods reflected this shift of opinion. It is ‘above all as providing an international framework for the new ideas and the new techniques associated with the policy of full employment that these proposals are not least to be welcomed’, he added. Of course, he was being uncharacteristically modest. The ‘new ideas and the new techniques’ he referred to had come largely from his own inspiration and hard work.18 Keynes was right to emphasize the very restrictive discipline imposed by the old gold standard. Yet the new standard was still dependent on the dollar’s connection to gold.

In 1946 the American economist Ralph Blodgett spoke gloomily of the likely prospect that ‘we shall find ourselves living in a planned and controlled economy long after the war has been officially declared to be at an end’. He painted a picture of creeping socialism. ‘To be sure, not many people are advocating a controlled economy as such.’ Instead, Americans ‘are asked to approve such attractive and innocent-sounding things as full employment guaranteed or underwritten by the government; [or] a system of social security, popularly known as the “cradle-to-the-grave” variety’. Blodgett, a professor at the University of Illinois, spoke apocalyptically about the ‘destruction’ of ‘the capitalistic or free enterprise system’ as a result of post-war developments which would, in his words, ‘ensure the future existence of a controlled and planned economy’.


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Economics Rules: The Rights and Wrongs of the Dismal Science by Dani Rodrik

airline deregulation, Albert Einstein, bank run, barriers to entry, Bretton Woods, business cycle, butterfly effect, capital controls, Carmen Reinhart, central bank independence, collective bargaining, Daniel Kahneman / Amos Tversky, David Ricardo: comparative advantage, distributed generation, Donald Davies, Edward Glaeser, endogenous growth, Eugene Fama: efficient market hypothesis, Everything should be made as simple as possible, Fellow of the Royal Society, financial deregulation, financial innovation, floating exchange rates, fudge factor, full employment, George Akerlof, Gini coefficient, Growth in a Time of Debt, income inequality, inflation targeting, informal economy, information asymmetry, invisible hand, Jean Tirole, Joseph Schumpeter, Kenneth Arrow, Kenneth Rogoff, labor-force participation, liquidity trap, loss aversion, low skilled workers, market design, market fundamentalism, minimum wage unemployment, oil shock, open economy, Pareto efficiency, Paul Samuelson, price stability, prisoner's dilemma, profit maximization, quantitative easing, randomized controlled trial, rent control, rent-seeking, Richard Thaler, risk/return, Robert Shiller, Robert Shiller, school vouchers, South Sea Bubble, spectrum auction, The Market for Lemons, the scientific method, The Wealth of Nations by Adam Smith, Thomas Kuhn: the structure of scientific revolutions, Thomas Malthus, trade liberalization, trade route, ultimatum game, University of East Anglia, unorthodox policies, Vilfredo Pareto, Washington Consensus, white flight

This approach, popularized by the economist Steven Levitt, has been used to shed light on diverse social phenomena, ranging from the practices of sumo wrestlers to cheating by public school teachers, using careful empirical analysis and incentive-based reasoning.2 Some critics suggest that this line of work trivializes economics. It eschews the big questions of the field—when do markets work and fail, what makes economies grow, how can full employment and price stability be reconciled, and so on—in favor of mundane, everyday applications. In this book I focus squarely on these bigger questions and how economic models help us answer them. We cannot look to economics for universal explanations or prescriptions that apply regardless of context. The possibilities of social life are too diverse to be squeezed into unique frameworks. But each economic model is like a partial map that illuminates a fragment of the terrain.

Fiscal stimulus would only lead to crowding out—cutbacks in spending on the part of the private sector. What made the “new classical approach,” as it came to be called, a winner—at least in academia—was not its empirical validation. The real-world fit of the model was heavily contested, as was the realism of some of the key ingredients. But shortly after the arrival of the new theory, in the mid-1980s the US economy entered a period of economic growth, full employment, and price stability. The business cycle looked to be conquered in this era of “great moderation.” As a result, the descriptive and predictive realism of the new classical approach seemed, from a practical perspective, not to matter a whole lot. The great appeal of the theory lay in the model itself. The microfoundations, the math, the new techniques, the close links to game theory, econometrics, and other highly regarded fields within economics—all these made the new macroeconomics appear light-years ahead of Keynesian models.

A substantial part of that upward trend, in turn, derived from capital income (returns on stocks and bonds) rather than wages. These concerns made it unlikely that SBTC on its own could account for what was happening with inequality. A third, catchall category of explanations focused on the wide range of policy and attitudinal changes that had taken place from the late 1970s on. Macroeconomic policy became more concerned about price stability and less focused on full employment. Trade unions shrank, workers lost bargaining power, and the minimum wage was allowed to lag behind prices. Workplace norms that precluded large wage dispersion—the gap between the highest and lowest paid employees—became weaker. Deregulation and the vast expansion of the finance sector enabled the amassing of fortunes that would have been unthinkable decades ago.21 In the end, it was clear that no single theory could fully explain the story of US inequality since the 1970s.


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A Little History of Economics by Niall Kishtainy

"Robert Solow", Alvin Roth, British Empire, Capital in the Twenty-First Century by Thomas Piketty, car-free, central bank independence, clean water, Corn Laws, creative destruction, credit crunch, Daniel Kahneman / Amos Tversky, David Ricardo: comparative advantage, Eugene Fama: efficient market hypothesis, first-price auction, floating exchange rates, follow your passion, full employment, George Akerlof, greed is good, Hyman Minsky, inflation targeting, invisible hand, John Nash: game theory, John von Neumann, Joseph Schumpeter, Kenneth Arrow, loss aversion, market clearing, market design, means of production, moral hazard, Nash equilibrium, new economy, Occupy movement, Pareto efficiency, Paul Samuelson, prisoner's dilemma, RAND corporation, rent-seeking, Richard Thaler, rising living standards, road to serfdom, Robert Shiller, Robert Shiller, Ronald Reagan, sealed-bid auction, second-price auction, The Chicago School, The Great Moderation, The Market for Lemons, The Wealth of Nations by Adam Smith, Thomas Malthus, Thorstein Veblen, trade route, Vickrey auction, Vilfredo Pareto, washing machines reduced drudgery, wealth creators, Winter of Discontent

The conventional economic thinking, which Keynesian economics replaced, said that attempts by the government to keep the economy moving, whether through fiscal or monetary policy, would be useless. The economy would find its own way back from a recession to ‘full employment’, the situation in which all the workers and factories were employed. How would it? Wages would fall, encouraging firms to hire more workers, and so would prices, encouraging people to buy up unsold goods. The Keynesians didn’t claim that the classical theory was totally wrong, just that it only applied in a situation of full employment. Keynes had looked at what happens when the economy is in a recession, at less than full employment. He said that prices and wages wouldn’t fall easily – they’ve already been agreed upon by firms and workers – so they don’t help goods to get sold and unemployed workers to get hired.

Suppose the economy is in a recession; factories and workers lie idle. The government spends more or cuts taxes, which boosts demand in the economy. Firms produce more and hire more workers. Because there are so many unemployed workers, the extra demand can be satisfied without prices going up. This is the Keynesian economy. Later, all the factories are running and everyone is employed. This is the classical economy of full employment that you eventually get to in the long run. What happens if the government tries to boost demand? Because the economy is running at full capacity, it can’t make any more goods and the extra demand simply pushes up prices. The point of Keynesian economics was that before we get to the long run, governments must step in to help. ‘In the long run we’re all dead,’ Keynes said. In reality, the shift from the Keynesian to the classical economy is gradual.

absolute poverty (i) acid rain (i) adaptive expectations (i) adverse selection (i) advertising (i) agriculture (i), (ii), (iii) aid (i) Akerlof, George (i) alienation (i) Ambrose, St (i) animal spirits (i), (ii), (iii) antitrust policies (i) Apple (i) Aquinas, St Thomas (i), (ii) Aristotle (i) Arrow, Kenneth (i) ascending auction (i) Asian Tigers (i), (ii) Atkinson, Anthony (i), (ii) auction theory (i) auctions (i) Augustine of Hippo, St (i) austerity (i) balance of trade (i) banks and entrepreneurs (i) and interest rates (i) and loans (i) and monopoly capitalism (i), (ii) and speculation (i) see also Britain, Bank of England; central banks; independent central banks; World Bank battle of the methods (i) Becker, Gary (i) behavioural economics (i) benevolent patriarch (i) Beveridge, William (i) big push (i) Black Wednesday (i) bonds (i) bourgeoisie (i), (ii), (iii) brand image (i) Britain Bank of England (i) inflation (i) pegged currency (i) Second World War (i) war with China (i) war with South Africa (i) bubbles (i), (ii) Buchanan, James (i) budget deficit (i) Burke, Edmund (i) capabilities (i) capital (i) and growth (i) Marx on (i) Capital (Marx) (i) Capital in the Twenty-First Century (Piketty) (i) capitalism (i), (ii), (iii) and entrepreneurs (i) and governments (i) and the Great Depression (i) and the Great Recession (i) historical law of (i) Marx on (i) world (i) see also communism Capitalism and Freedom (Friedman) (i) Capitalism, Socialism and Democracy (Schumpeter) (i) capitalists (i), (ii), (iii), (iv) and imperialism (i), (ii), (iii) Marx on (i), (ii), (iii), (iv), (v) carbon tax (i) carbon trading permits (i) Carlyle, Thomas (i), (ii) Castro, Fidel (i), (ii) central banks (i), (ii), (iii), (iv), (v) central planning (i), (ii) chaebols (i) chain of being (i), (ii) Chamberlin, Edward (i) Chaplin, Charlie (i) Chicago Boys (i) Chicago school (i), (ii), (iii), (iv) China, war with Britain (i) Christianity, views on money (i) Churchill, Winston (i) classical dichotomy (i) classical economics (i), (ii), (iii), (iv), (v) coins (i), (ii) Colbert, Jean-Baptiste (i) colonies/colonialism (i), (ii), (iii), (iv) American (i) Ghana (i), (ii) commerce (i), (ii), (iii), (iv) communism (i) and the Soviet Union (i) Communist Manifesto, The (Engels and Marx) (i), (ii) comparative advantage (i), (ii) competition (i), (ii), (iii), (iv) Condorcet, Marquis de (i) Confessions of an Economic Heretic (Hobson) (i) conspicuous consumption (i) constitution (rules) (i) consumers (i), (ii), (iii), (iv) contagion, economic (i) core (i) Corn Laws (i), (ii) Cortés, Hernan (i) cost (i) creative destruction (i) Credit Crunch (i) crime, economic theory of (i) Cuba (i) currency (i), (ii) see also coins currency markets (i), (ii) currency reserves (i) Debreu, Gérard (i) demand law of (i) see also supply and demand demand curve (i) democracy (i), (ii) Democratic Republic of the Congo (i) dependency theory (i) Depression (Great) (i), (ii), (iii), (iv), (v), (vi), (vii) and economic growth (i) and the US central bank (i) descending auction (i) developing/underdeveloped countries (i), (ii) development economics (i) Development of Underdevelopment, The (Frank) (i) diminishing marginal utility (i), (ii) diminishing return to capital (i) discretion (i) discrimination coefficient (i) distribution of income (i), (ii) diversification (i), (ii) dividends (i) division of labour (i) doomsday machines (i) Drake, Sir Francis (i) Drew, Daniel (i) dual economy (i) economic value (i), (ii), (iii), (iv) economics defined (i) normative (i) Economics of Imperfect Competition (Robinson) (i) economies of scale (i) economists (i), (ii), (iii) efficient markets hypothesis (i), (ii), (iii), (iv) efficient/inefficient economic outcome (i) see also pareto efficiency; pareto improvement Elizabeth I (i) Elizabeth II (i) employment, full (i) Engels, Friedrich (i) England’s Treasure by Forraign Trade (Mun) (i) entitlement (i), (ii) entrepreneurs (i), (ii) equilibrium (i), (ii), (iii), (iv), (v) exchange of goods (i), (ii) exchange rates (i) expectations, adaptive/rational (i), (ii), (iii), (iv) exploitation (i), (ii), (iii), (iv), (v) exports (i) and poor countries (i), (ii), (iii) externalities (i), (ii), (iii), (iv) Extraordinary Popular Delusions and the Madness of Crowds (MacKay) (i) failure, market (i), (ii), (iii), (iv) Fama, Eugene (i) famine (i), (ii), (iii), (iv) feminist economics (i) feudalism (i), (ii), (iii), (iv) financial systems (i), (ii) Finer, Herman (i) first price auction (i), (ii) First Welfare Theorem (i), (ii) First World War (i) fiscal policy (i), (ii) floating exchange rate (i) Florence (i) Folbre, Nancy (i) Fourier, Charles (i) framing (i), (ii) France agriculture (i) economic models (i), (ii) revolution (i), (ii), (iii), (iv) and taxation (i) Frank, Andre Gunder (i) free choice (i), (ii) free-market economics (i), (ii), (iii), (iv) free trade (i), (ii), (iii) Friedman, Milton (i), (ii), (iii) full employment (i) game theory (i), (ii), (iii) general equilibrium (i), (ii), (iii), (iv) General Theory of Employment, Interest and Money, The (Keynes) (i) Germany, infant industries (i) Ghana (i), (ii) Gilded Age (i) Global Financial Crisis (i), (ii) global warming (i) Goethe, Johann Wolfgang (i) gold (i), (ii) Golden Age (i) goods and services (i) government, and economies (i), (ii), (iii), (iv), (v), (vi), (vii) Great Moderation (i), (ii) Great Recession (i) Greece (i), (ii), (iii) gross domestic product (i) growth (i) and dependency theory (i) of government (i) and the Great Moderation (i) and Pakistan (i) and population (i) theory (i) Guevara, Ernesto ‘Che’ (i), (ii) guilds (i) Hamilton, Alexander (i) Hansen, Alvin (i) harmony, system of (i) Hayek, Friedrich (i), (ii) hedge funds (i) herds (i) Hicks, John (i) historical law of capitalism (i) HIV/AIDS (i) Hobson, John (i) Homobonus, St (i) human capital (i) human development (i), (ii) Human Development Index (i) imperfect competition (i), (ii) imperialism (i) Imperialism: The Highest Stage of Capitalism (Lenin) (i) imports (i), (ii), (iii) income (i), (ii) and bank loans (i) and capitalism (i) and communism (i) distribution of (i), (ii) and growth (i), (ii) national (i), (ii), (iii), (iv), (v) income per person (i), (ii) independent central banks (i) Industrial Revolution (i), (ii), (iii), (iv), (v) inequality (i), (ii) infant industries (i) inflation (i), (ii), (iii), (iv), (v) information economics (i), (ii), (iii) injection of spending (i) innovations (i), (ii) insurance (i), (ii) interest rates (i) British (i) and monetary policy (i) and recession (i) and usury (i) International Monetary Fund (i) investment (i) and the big push (i) and recession (i), (ii) invisible hand (i), (ii), (iii), (iv), (v) iron law of wages (i) Irrational Exuberance (Shiller) (i) Jefferson, Thomas (i) Jevons, William (i) just price (i) Kahneman, Daniel (i), (ii) Kennedy, John F.


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The Trouble With Billionaires by Linda McQuaig

"Robert Solow", battle of ideas, Bernie Madoff, Big bang: deregulation of the City of London, British Empire, Build a better mousetrap, carried interest, collateralized debt obligation, computer age, corporate governance, Credit Default Swap, credit default swaps / collateralized debt obligations, Douglas Engelbart, Douglas Engelbart, employer provided health coverage, financial deregulation, fixed income, full employment, George Akerlof, Gini coefficient, income inequality, Intergovernmental Panel on Climate Change (IPCC), invention of the telephone, invention of the wheel, invisible hand, Isaac Newton, Jacquard loom, Joseph-Marie Jacquard, laissez-faire capitalism, land tenure, lateral thinking, Mark Zuckerberg, market bubble, Martin Wolf, mega-rich, minimum wage unemployment, Mont Pelerin Society, Naomi Klein, neoliberal agenda, Northern Rock, offshore financial centre, Paul Samuelson, plutocrats, Plutocrats, Ponzi scheme, pre–internet, price mechanism, purchasing power parity, RAND corporation, rent-seeking, rising living standards, road to serfdom, Ronald Reagan, The Chicago School, The Spirit Level, The Wealth of Nations by Adam Smith, Tobin tax, too big to fail, trickle-down economics, Vanguard fund, very high income, wealth creators, women in the workforce

He described five giants that needed slaying: Want, Disease, Ignorance, Squalor and Idleness. The task would require collective efforts, and co-operation between citizens and government. The key elements of his plan were: universal family allowances, a national public health service and a government commitment to maintaining full employment. Given that unemployment had hovered above a million – at times reaching three million – for most of the previous twenty years, the notion of a government commitment to full employment was nothing short of audacious. In devising his scheme, Beveridge had consulted extensively with Keynes, who supported it and whose theories were central to the notion that it was affordable. But, apart from Keynes, Beveridge had worked largely on his own, with little input or consultation with bureaucrats or members of cabinet, some of whom distrusted Beveridge as unduly independent-minded.

As long as the economy was flat, investors wouldn’t invest, and as long as they wouldn’t invest, the economy stayed flat. And so the slump continued, and even became worse. If this analysis sounded fairly straightforward, in fact it was an attack on one of the most basic premises of classical economics: the belief that the economy was self-correcting. Classical theory held that the economy would naturally achieve full employment. Once wages dropped low enough, employers would start hiring again. Keynes disputed this, arguing that as long as there was no demand for their products, employers wouldn’t start hiring, no matter how low wages fell. The classical theory failed to account for a crucial element: human psychology, particularly human reticence and fear. The nature of capitalism involved people taking risks with their money.

It showed how an injection of seed money from government could have a ripple effect far beyond its initial value, bringing a revived private sector back into play. And all this could be accomplished without setting off inflation, according to Keynes. It was a basic tenet of classical thinking that pumping extra money into the economy would simply set off inflation, leaving no one further ahead in the long run. Keynes agreed that that was true – under conditions of full employment. But he argued that when so many resources were idle, there was little prospect of inflation; the extra money circulating would not push prices up but would mostly have the effect of creating more employment. So, according to Keynes, one of the key concerns of classical economics – that government deficits would set off inflation – did not apply during a recession, when there was substantial idle capacity to absorb the extra money pumped into the economy.


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The Bitcoin Standard: The Decentralized Alternative to Central Banking by Saifedean Ammous

Airbnb, altcoin, bank run, banks create money, bitcoin, Black Swan, blockchain, Bretton Woods, British Empire, business cycle, capital controls, central bank independence, conceptual framework, creative destruction, cryptocurrency, currency manipulation / currency intervention, currency peg, delayed gratification, disintermediation, distributed ledger, Ethereum, ethereum blockchain, fiat currency, fixed income, floating exchange rates, Fractional reserve banking, full employment, George Gilder, global reserve currency, high net worth, invention of the telegraph, Isaac Newton, iterative process, jimmy wales, Joseph Schumpeter, market bubble, market clearing, means of production, money: store of value / unit of account / medium of exchange, moral hazard, Network effects, Paul Samuelson, peer-to-peer, Peter Thiel, price mechanism, price stability, profit motive, QR code, ransomware, reserve currency, Richard Feynman, risk tolerance, Satoshi Nakamoto, secular stagnation, smart contracts, special drawing rights, Stanford marshmallow experiment, The Nature of the Firm, the payments system, too big to fail, transaction costs, Walter Mischel, zero-sum game

Only 26% of that increase was due to increases in gold holdings, meaning that the rest was driven by the government, banks, and the Federal Reserve. This was the central cause of the 1920 depression, but this, too, goes unmentioned. Most curiously, however, is how they completely ignore the recovery from the depression of 1920–21, which was termed the “last natural recovery to full employment” by economist Benjamin Anderson, where taxes and government expenditures were reduced and wages were left to adjust freely, leading to a swift return to full employment in less than a year.14 The 1920 depression saw one of the fastest contractions of output in American history (9% drop in a 10‐month period from September 1920 to July 1921), and also the fastest recovery. In other depressions, with Keynesians and Monetarists injecting liquidity, increasing the money supply, and increasing government spending, the recovery was slower.

Source: George Hall, “Exchange Rates and Casualties During the First World War,” Journal of Monetary Economics. 5 Friedrich Hayek, Monetary Nationalism and International Stability (Fairfield, NJ: Augustus Kelley, 1989 [1937]). 6 A thorough accounting of Hoover's interventionist policies can be found in Murray Rothbard's America's Great Depression. 7 Quoted in Henry Hazlitt, The Failure of the New Economics. p. 277. 8 Otto Mallery, Economic Union and Durable Peace (Harper and Brothers, 1943), p. 10. 9 Robert Higgs, “World War II and the Triumph of Keynesianism” (2001), Independent Institute research article. Available at http://www.independent.org/publications/article.asp?id=317 10 Paul Samuelson, “Full Employment after the War,” in Seymour Harris, Postwar Economic Problems (New York: McGraw‐Hill, 1943). 11 After being investigated and testifying in front of Congress, White suffered two heart attacks and died from an overdose of medication, which may have been suicide. A good treatment of this episode can be found in Benn Steil's The Battle of Bretton Woods, which pushes the view that White was a Soviet spy.

Keynes was a failed investor and statistician who never studied economics but was so well‐connected with the ruling class in Britain that the embarrassing drivel he wrote in his most famous book, The General Theory of Employment, Money, and Interest, was immediately elevated into the status of founding truths of macroeconomics. His theory begins with the (completely unfounded and unwarranted) assumption that the most important metric in determining the state of the economy is the level of aggregate spending across society. When society collectively spends a lot, the spending incentivizes producers to create more products, thus employing more workers and reaching full‐employment equilibrium. If spending rises too much, beyond the capacity of producers to keep up, it would lead to inflation and a rise in the overall price level. On the other hand, when society spends too little, producers reduce their production, firing workers and increasing unemployment, resulting in a recession. Recessions, for Keynes, are caused by abrupt reductions in the aggregate level of spending.


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The End of Work by Jeremy Rifkin

banking crisis, Bertrand Russell: In Praise of Idleness, blue-collar work, cashless society, collective bargaining, computer age, deskilling, Dissolution of the Soviet Union, employer provided health coverage, Erik Brynjolfsson, full employment, future of work, general-purpose programming language, George Gilder, global village, hiring and firing, informal economy, interchangeable parts, invention of the telegraph, Jacques de Vaucanson, job automation, John Maynard Keynes: technological unemployment, knowledge economy, knowledge worker, land reform, low skilled workers, means of production, new economy, New Urbanism, Paul Samuelson, pink-collar, post-industrial society, Productivity paradox, Richard Florida, Ronald Reagan, Silicon Valley, speech recognition, strikebreaker, technoutopianism, Thorstein Veblen, Toyota Production System, trade route, trickle-down economics, women in the workforce, working poor, working-age population, Works Progress Administration

In the first three years of the 1990S, unemployment has averaged 6.6 percent. 26 As the percentage of unemployed workers edged ever higher over the postwar period, economists have changed their assumptions of what constitutes full employment. In the 1950s, 3 percent unemployment was widely regarded as full employment. By the 1960s, the Kennedy and Johnson administrations were touting 4 percent as a full employment goal. In the 1980s, many mainstream economists considered 5 or even 5.5 percent unemployment as near full employment.27 Now, in the mid-1ggos, a growing number of economists and business leaders are once again revising their ideas on what they regard as "natural levels" of unemployment. While they are reluctant to use the term "full employment," many Wall Street analysts argue that The End of Work 11 unemployment levels should not dip below 6 percent, lest the economy risk a new era of inflation.28 The steady upward climb in unemployment, in each decade, becomes even more troubling when we add the growing number of part-time workers who are in search of full-time employment and the number of discouraged workers who are no longer looking for ajob.

Proponents of the social income theory-also known as the guaranteed annual income-included W. H. Ferry of the Center for the Study of Democratic Institutions, liberal economists Robert Theobald and Robert Heilbroner, and J. Robert Oppenheimer, the director of the Institute for Advanced Study at Princeton. As discussed in chapter 6, they disagreed with the prevailing economic orthodoxy that technical innovation and rising productivity would guarantee a full-employment economy. On the contrary, the computer revolution, they contended, would increase productivity, but at the expense of replacing more and more workers with machines, leaving millions unemployed and under- 260 THE DAWN OF THE POST-MARKET ERA employed, and without sufficient purchasing power to buy the increased output of goods and services being produced by the new automated production technologies.

Congress, House Committee on Education and Labor, Subcommittee on Labor Standards, Hearings on H.R. 1784: To Revise the Overtime Compensation Requirement of the Fair Labor Standards Act of 1938, 96th Congress, 1st Session, Oc- 324 Notes tober 23-25, 1979. See also Conyers, John, "Have a Four-day Workweek? Yes." American Legion, April 1980, p. 26. Quote from a personal letter by Conyers to Members of the House of Representatives, photocopy with the author, dated February 15, 1979, in Hunnicutt, p. 311. 30. Congressman Lucien Blackwell, U.S. Congress, House of Representatives, H.R. 3267, The Full Employment Act of 1994, March 23, 1994. 31. McCarthy, Eugene, and McGaughey, William, Non-Financial Economics: The Case for Shorter Hours of Work (New York: Praeger, 1989), p. 43. 32. Interview, May 6, 1994. Michael Hammer argues that "if you're going to reduce work hours and reduce compensation along with it, that's basically asking people to have a more communitarian approach to their incomes, which you mayor may not be able to do."


Termites of the State: Why Complexity Leads to Inequality by Vito Tanzi

"Robert Solow", accounting loophole / creative accounting, Affordable Care Act / Obamacare, Andrei Shleifer, Andrew Keen, Asian financial crisis, asset allocation, barriers to entry, basic income, bitcoin, Black Swan, Bretton Woods, business cycle, Capital in the Twenty-First Century by Thomas Piketty, Carmen Reinhart, Cass Sunstein, central bank independence, centre right, clean water, crony capitalism, David Graeber, David Ricardo: comparative advantage, deindustrialization, Donald Trump, Double Irish / Dutch Sandwich, experimental economics, financial repression, full employment, George Akerlof, Gini coefficient, Gunnar Myrdal, high net worth, hiring and firing, illegal immigration, income inequality, indoor plumbing, information asymmetry, Intergovernmental Panel on Climate Change (IPCC), invisible hand, Jean Tirole, John Maynard Keynes: Economic Possibilities for our Grandchildren, Kenneth Arrow, Kenneth Rogoff, knowledge economy, labor-force participation, libertarian paternalism, Long Term Capital Management, market fundamentalism, means of production, moral hazard, Naomi Klein, New Urbanism, obamacare, offshore financial centre, open economy, Pareto efficiency, Paul Samuelson, price stability, principal–agent problem, profit maximization, pushing on a string, quantitative easing, rent control, rent-seeking, Richard Thaler, road to serfdom, Robert Shiller, Robert Shiller, Ronald Coase, Ronald Reagan, Second Machine Age, secular stagnation, self-driving car, Silicon Valley, Simon Kuznets, The Chicago School, The Great Moderation, The Market for Lemons, The Rise and Fall of American Growth, The Wealth of Nations by Adam Smith, too big to fail, transaction costs, transfer pricing, Tyler Cowen: Great Stagnation, universal basic income, unorthodox policies, urban planning, very high income, Vilfredo Pareto, War on Poverty, Washington Consensus, women in the workforce

Having been introduced in an important and politically influential country, as was the United Kingdom, these programs – which created “a taxpayer-funded welfare state and full employment as a national goal” – would be imitated by several other countries (see Wapshott, 2011, p. 227). Keynes, who at the time of the preparation of the Beveridge Report had been spending much of his time on the other side of the Atlantic, thinking about and helping to create the Bretton Woods institutions, had not been directly involved with the recommendations contained in the Beveridge Report (see Marcuzzo, 2010). Those recommendations were not directly connected with the Keynesian Revolution, which dealt with the objective of stabilization and full employment and not directly with social reform. The available evidence indicates that “Keynes was not a passionate social reformer” (Skidelsky, 2000, p. 265) and that he would not have welcomed a welfare state that would require a high level of taxation (see Clark, 1964).

There was also no mention of how the performance of the US economy might be affected, in the short and in the long run, by the creation of the promised programs. The classic economic problem, which had always worried economists, namely the existence of too many needs and too few resources, was not acknowledged, or it was downplayed. The assumptions must have been that the promises could be met with a better and more equitable use of resources. Full employment, which Keynesian policies promised could be achieved and maintained, would contribute to the needed resources. Perhaps, the implicit assumption was that the large public spending, which at that time was being used to fight the war, could be redirected toward more desirable and peaceful uses, once Welfare Policies 45 the war was over. The introduction of these welfare policies would also guarantee that the aggregate demand would not fall after the end of the war and once military spending was sharply reduced, which could have plunged the country back into the feared depression.

The introduction of these welfare policies would also guarantee that the aggregate demand would not fall after the end of the war and once military spending was sharply reduced, which could have plunged the country back into the feared depression. This was a great fear of many Keynesian economists and also of many citizens at that time. A constant in some of the promises of the kind made by President Roosevelt in 1944, at least in peaceful times, has been that the economic problem could be dealt with, or at least alleviated, by making the economy operate at full employment and increasing the tax burden on the rich, while using efficiently the resources so obtained to pay for well-designed and efficiently delivered social programs. Regardless of whether the rich should or should not be taxed more, an issue to which we shall return later, the resources that could be obtained from taxing only the rich would not be likely to be sufficient to cover the costs of all the ambitious programs mentioned by President Roosevelt, unless those programs were delivered at a low, basic, or minimal level.


pages: 239 words: 62,311

The Next Factory of the World: How Chinese Investment Is Reshaping Africa by Irene Yuan Sun

barriers to entry, Bretton Woods, capital controls, clean water, Computer Numeric Control, deindustrialization, demographic dividend, Deng Xiaoping, Donald Trump, European colonialism, floating exchange rates, full employment, global supply chain, invisible hand, job automation, low skilled workers, M-Pesa, manufacturing employment, means of production, mobile money, post-industrial society, profit motive, purchasing power parity, race to the bottom, RAND corporation, Ronald Reagan, Shenzhen was a fishing village, Silicon Valley, Skype, special economic zone, structural adjustment programs, Triangle Shirtwaist Factory, union organizing, Washington Consensus, working-age population

These are daring undertakings in which entrepreneurs risk their life savings—and sometimes their lives—in foreign lands where they barely speak the language or understand the culture. The entrepreneurs I met are tough, gritty, unglamorous people living out adventure stories—a reminder that the boldest forms of entrepreneurship exist far from the air-conditioned offices of Silicon Valley. Part two explores the possibilities that industrialization is bringing to Africa: full employment, a new crop of homegrown factory owners, a more effective set of institutions, a path to prosperity for the marginalized. These are actualities that other regions of the world have achieved through industrialization. For Africa, at this early date, there are no assurances yet, but there are already many beginnings. From these beginnings, we can sense that development is not linear, clean, or predictable.

As we walked through the plant together, Ahmed spoke to the workers in Hausa, a language from northern Nigeria not normally spoken in the central part of the country where the factory is located. It turns out that they were speaking Hausa because the workers weren’t from the surrounding area. Ahmed had literally brought his village to work. This is perhaps the most tantalizing possibility that becoming the next Factory of the World holds for Africa: full employment for its hitherto chronically underemployed but burgeoning population. The hope is that factories can provide jobs not just for rare remarkable individuals like Ahmed, but as in this case, for entire villages. Yet, as we shall see, this possibility feels deeply uncertain, even to some of those closest to the transformation. Throughout Africa, Chinese bosses complain about their African workers; even those who grew up working in factories themselves tend to forget how hard it is to get used to factory work.

Indeed, other well-educated British commentators fretted about the laziness of workers, who whiled away entire days with little urgency: “[T]he hand-loom went to the slow chant of Plen-ty of Time, Plen-ty of Time” and few resisted the “temptation to lie in an extra hour in the morning.”32 Apparently, English workers not only were lazy on the job but also missed entire days of work; Mondays in particular were popular for not showing up. The great labor historian E. P. Thompson noted, “There are few trades which are not described as honouring Saint Monday: shoemakers, tailors, colliers, printing workers, potters, weavers, hosiery workers, cutlers, all Cockneys. Despite the full employment of many London trades during the Napoleonic Wars, a witness complained that ‘we see Saint Monday so religiously kept in this great city … in general followed by a Saint Tuesday also.’”33 But this antagonistic adolescent phase of British industrialization soon passed, as English workers became the first to figure out how to mold themselves to machine rhythms en masse. As soon as they did so, they became the envy of industrialists elsewhere in Europe.


pages: 614 words: 174,226

The Economists' Hour: How the False Prophets of Free Markets Fractured Our Society by Binyamin Appelbaum

"Robert Solow", airline deregulation, Alvin Roth, Andrei Shleifer, anti-communist, battle of ideas, Benoit Mandelbrot, Big bang: deregulation of the City of London, Bretton Woods, British Empire, business cycle, capital controls, Carmen Reinhart, Cass Sunstein, Celtic Tiger, central bank independence, clean water, collective bargaining, Corn Laws, correlation does not imply causation, Credit Default Swap, currency manipulation / currency intervention, David Ricardo: comparative advantage, deindustrialization, Deng Xiaoping, desegregation, Diane Coyle, Donald Trump, ending welfare as we know it, financial deregulation, financial innovation, fixed income, floating exchange rates, full employment, George Akerlof, George Gilder, Gini coefficient, greed is good, Growth in a Time of Debt, income inequality, income per capita, index fund, inflation targeting, invisible hand, Isaac Newton, Jean Tirole, John Markoff, Kenneth Arrow, Kenneth Rogoff, land reform, Long Term Capital Management, low cost airline, manufacturing employment, means of production, Menlo Park, minimum wage unemployment, Mohammed Bouazizi, money market fund, Mont Pelerin Society, Network effects, new economy, oil shock, Paul Samuelson, Philip Mirowski, plutocrats, Plutocrats, price stability, profit motive, Ralph Nader, RAND corporation, rent control, rent-seeking, Richard Thaler, road to serfdom, Robert Bork, Robert Gordon, Ronald Coase, Ronald Reagan, Sam Peltzman, Silicon Valley, Simon Kuznets, starchitect, Steve Jobs, supply-chain management, The Chicago School, The Great Moderation, The Myth of the Rational Market, The Wealth of Nations by Adam Smith, Thomas Kuhn: the structure of scientific revolutions, transaction costs, trickle-down economics, ultimatum game, Unsafe at Any Speed, urban renewal, War on Poverty, Washington Consensus

He must be a mathematician rather than a political economist.”6 The U.S. unemployment rate was still 17 percent at the onset of World War II.7 Keynes, who died in 1946, had regarded his work as an effort to salvage capitalism as a viable alternative to communism — to show that the market economy needed help, but that it did not need to be replaced. After World War II, that project gained new urgency for the Western democracies as they confronted the rise of the Soviet Union. In Britain, both major parties wrote full employment into their platforms after the war. The Conservative Party’s 1950 manifesto declared, “We regard the maintenance of full employment as the first aim of a Conservative Government.”8 In the United States, Democrats pushed a landmark law through Congress in 1946 that instructed federal policy makers “to promote maximum employment, production, and purchasing power.” The law also established a special role for economists, creating the White House Council of Economic Advisers: three economists at the president’s elbow.9 But conservatives — then a substantial congregation in both parties — never fully signed on.

Instead he advocated economic growth as the cure for inflation.30 The following month, just a few weeks before the election, Carter placed an order from the Samuelson-Solow menu, pledging to reduce unemployment to 4 percent and inflation below 4 percent by the end of his first term.31 Once in office, Carter backed up his rhetoric about unemployment by replacing Burns as Fed chairman with a handsome, pleasant manufacturing executive named G. William Miller, who sometimes laughed so hard at his own jokes that he couldn’t get to the punch line, and who passionately expressed a determination to stimulate job creation, particularly for minorities.32 Democrats also sought to write Keynesian economics more firmly into law by passing the Humphrey-Hawkins Full Employment Act in 1978, which enshrined “full employment” and “reasonable price stability” as the goals of fiscal and monetary policy. For proponents of activist economics, it seemed like a second sunrise, and they confidently predicted an economic revival. Instead it was the final act of the Keynesian era. Inflation rose inexorably during Carter’s first two years. Then the Iranian revolution sparked a second oil crisis and prices rose faster.

But Friedman and other conservative economists firmly opposed any move to cut taxes, and Mundell did not have Nixon’s ear.6 Frustrated and convinced of the wisdom of his own advice, he paid ten thousand dollars for a run-down palazzo outside Siena, Italy, in 1969, reasoning that inflation was inevitable, and property would be a good hedge.7 The conference in Bologna two years later, and about one hundred miles from Mundell’s palazzo, gave him the opportunity to try again. His main target was the Keynesian view that the Federal Reserve could stimulate economic growth by holding down interest rates — basically accepting more inflation as the price of more jobs. Mundell, like Friedman, argued that inflation “is neither necessary for, nor conducive to, full employment.”8 Indeed, he argued inflation could increase unemployment. But Mundell also opposed the monetarist view that the cure for inflation was to sharply restrict the growth of the money supply, driving the economy into a recession. He noted dryly that if the monetarists were right about the cure for inflation, the American people might reasonably prefer to live with the disease. Instead, Mundell described his third way: a tax cut to spur economic activity, combined with higher interest rates.


pages: 426 words: 115,150

Your Money or Your Life: 9 Steps to Transforming Your Relationship With Money and Achieving Financial Independence: Revised and Updated for the 21st Century by Vicki Robin, Joe Dominguez, Monique Tilford

asset allocation, Buckminster Fuller, buy low sell high, credit crunch, disintermediation, diversification, diversified portfolio, fiat currency, financial independence, fixed income, fudge factor, full employment, Gordon Gekko, high net worth, index card, index fund, job satisfaction, Menlo Park, money market fund, Parkinson's law, passive income, passive investing, profit motive, Ralph Waldo Emerson, Richard Bolles, risk tolerance, Ronald Reagan, Silicon Valley, software patent, strikebreaker, Thorstein Veblen, Vanguard fund, zero-coupon bond

Workers were educated to consider employment, not free time, to be their right as citizens (life, liberty and the pursuit of the paycheck?). Benjamin Kline Hunnicutt, in Work Without End, illuminates the doctrine of “Full Employment”:Since the Depression, few Americans have thought of work reduction as a natural, continuous, and positive result of economic growth and increased productivity. Instead, additional leisure has been seen as a drain on the economy, a liability on wages, and the abandonment of economic progress.10 The myths of “growth is good” and “full employment” established themselves as key values. These dovetailed nicely with the gospel of “full consumption,” which preached that leisure is a “commodity” to be consumed rather than free time to be enjoyed. For the last half century full employment has meant more consumers with more “disposable income.” This means increased profits, which means business expansion, which means more jobs, which means more consumers with more disposable income.

Consumption keeps the wheels of progress moving, as we saw in Chapter 1. So we see that our concept (as a society) of leisure has changed radically. From being considered a desirable and civilizing component of day-to-day life it has become something to be feared, a reminder of unemployment during the years of the Depression. As the value of leisure has dropped, the value of work has risen. The push for full employment, along with the growth of advertising, has created a populace increasingly oriented toward work and toward earning more money in order to consume more resources. This is no more evident than in our relationship to our automobiles. Once vehicles of leisure, they are now office extensions. We wear our wireless headsets to maneuver traffic while we make deals on our cell phones. There are even devices that make the passenger seat into an office.

debt denial about getting out of levels of consumer and national See also liabilities Debtors Anonymous decompression, daily Depression, The diet analogy Diets Don’t Work (Schwartz) discernment discount buying discrimination vs. recrimination disintermediation do it yourself investment management job expenditures and learn basic living skills Dominguez, Joe Dovey, Catherine Downshifting: Reinventing Success on a Slower Track (Saltzman) dreams durability, in purchases earnings. See income earth. See planet earth Ebay Ecks, Fred Ecological Footprint economic growth consumerism and full employment doctrine and limits to as recipe for well-being education, college Ehrlich, Paul emergencies, cushion for emotional/psychological perspective of money employment full, doctrine of paid part-time unpaid See also work empowerment end-of-month balancing enjoyment of material world enough components of concept of for everyone and then some entertainment environment. See planet earth escape entertainment evil, money as excess (clutter) expenses categories of daily money log emergency cushion evaluating inflation and job-related monthly tabulation projecting unconscious spending using Three Questions to reduce See also saving money; wall charts family.


pages: 322 words: 87,181

Straight Talk on Trade: Ideas for a Sane World Economy by Dani Rodrik

3D printing, airline deregulation, Asian financial crisis, bank run, barriers to entry, Berlin Wall, Bernie Sanders, blue-collar work, Bretton Woods, BRICs, business cycle, call centre, capital controls, Capital in the Twenty-First Century by Thomas Piketty, Carmen Reinhart, carried interest, central bank independence, centre right, collective bargaining, conceptual framework, continuous integration, corporate governance, corporate social responsibility, currency manipulation / currency intervention, David Ricardo: comparative advantage, deindustrialization, Donald Trump, endogenous growth, Eugene Fama: efficient market hypothesis, eurozone crisis, failed state, financial deregulation, financial innovation, financial intermediation, financial repression, floating exchange rates, full employment, future of work, George Akerlof, global value chain, income inequality, inflation targeting, information asymmetry, investor state dispute settlement, invisible hand, Jean Tirole, Kenneth Rogoff, low skilled workers, manufacturing employment, market clearing, market fundamentalism, meta analysis, meta-analysis, moral hazard, Nelson Mandela, new economy, offshore financial centre, open borders, open economy, Pareto efficiency, postindustrial economy, price stability, pushing on a string, race to the bottom, randomized controlled trial, regulatory arbitrage, rent control, rent-seeking, Richard Thaler, Robert Gordon, Robert Shiller, Robert Shiller, Ronald Reagan, Sam Peltzman, Silicon Valley, special economic zone, spectrum auction, Steven Pinker, The Rise and Fall of American Growth, the scientific method, The Wealth of Nations by Adam Smith, Thomas L Friedman, too big to fail, total factor productivity, trade liberalization, transaction costs, unorthodox policies, Washington Consensus, World Values Survey, zero-sum game, éminence grise

This is certainly a concern with issues that truly concern the global commons, such as climate change or pandemics. But in most economic areas—taxes, trade policy, financial stability, fiscal and monetary management—what makes sense from a global perspective also makes sense from a domestic perspective. Economics teaches that countries should maintain open economic borders, sound prudential regulation, and full-employment policies, not because these are good for other countries but because they serve to enlarge the domestic economic pie. Of course, policy failures—for example, protectionism—do occur in all of these areas. But these reflect poor domestic governance, not a lack of cosmopolitanism. They result either from policy elites’ inability to convince domestic constituencies of the benefits of the alternative, or from their unwillingness to make adjustments to ensure that everyone does indeed benefit.

The Harvard economist Greg Mankiw listed some of them in 2009.2 The following propositions garnered support from at least 90 percent of economists: import tariffs and quotas reduce general economic welfare; rent controls reduce the supply of housing; floating exchange rates provide an effective international monetary system; the United States should not restrict employers from outsourcing work to foreign countries; and fiscal policy stimulates the economy when there is less than full employment. This consensus about so many important issues contrasts rather starkly with the general perception that economists rarely agree on anything. “If all the economists were laid end to end,” George Bernard Shaw famously quipped, “they would not reach a conclusion.” Frustrated by the conflicting and hedged advice that he was receiving from his advisers, President Dwight Eisenhower is said to have asked once for a “one-handed economist.”

As Larry Mishel, president of the Economic Policy Institute, puts it, “ignoring the losers was deliberate.” In 1981, the “trade adjustment assistance (TAA) program was one of the first things Reagan attacked, cutting its weekly compensation payments.”5 The damage continued under subsequent, Democratic administrations. In the words of Mishel, “if free-traders had actually cared about the working class they could have supported a full range of policies to support robust wage growth: full employment, collective bargaining, high labor standards, a robust minimum wage, and so on.” And all of this could have been done “before administering ‘shocks’ by expanding trade with low-wage countries.” Could the United States now reverse course and follow the newly emergent conventional wisdom? As late as 2007, political scientist Ken Scheve and economist Matt Slaughter called for “a New Deal for globalization” in the United States, which would link “engagement with the world economy to a substantial redistribution of income.”6 In the United States, they argued, this would mean adopting a much more progressive federal tax system.


pages: 251 words: 69,245

The Haves and the Have-Nots: A Brief and Idiosyncratic History of Global Inequality by Branko Milanovic

Berlin Wall, Branko Milanovic, colonial rule, crony capitalism, David Ricardo: comparative advantage, deglobalization, Deng Xiaoping, endogenous growth, Fall of the Berlin Wall, financial deregulation, full employment, Gini coefficient, high net worth, illegal immigration, income inequality, income per capita, Joseph Schumpeter, means of production, open borders, Pareto efficiency, plutocrats, Plutocrats, purchasing power parity, Simon Kuznets, very high income, Vilfredo Pareto, Washington Consensus, zero-sum game

Personal wealth serves, as we know, as a bulwark against government arbitrariness and provides the means to exert personal freedom. 6 But if you have no accumulated wealth and all your income and perks are job related, the incentives are really very strong not to create waves. Another proequality instrument, guaranteed and compulsory full employment, should also be seen in its political context. Similarly to what we just saw, it was used as a political control mechanism. Its origins lay in two interconnected claims: Socialism will eliminate economic cycles (so there would be full employment throughout); and socialism, being a societywide project, requires the participation of all—hence, everybody was supposed to work (and not to idle about) and contribute to the creation of a new society. But some governments, especially the Soviets, used the idea of full employment in a very creative way: A dissident would be fired from his or her job, not given any other, and then imprisoned for what was called “vagrancy” or “parasitism”—that is, unwillingness to contribute to “socialist construction.”7 Although empirical studies invariably find inequality to have been low in socialism, the perception of many people who lived under that regime, and of many Western observers, is that inequalities between the top and the “rest” were huge.

First, nationalization of the means of production and of land (or the agrarian reform in several countries) obliterated the large industrial and landowning fortunes. This was particularly the case in countries like Russia (after the revolution in 1917) and Hungary and Poland (after 1947) where large landholdings still existed. Private industrialists in all countries disappeared, their assets were nationalized, and stock markets were closed. Resource wealth was nationalized as well. Thus, top incomes were severely reduced. Second, full employment cut the bottom of the income distribution as nationalization cut the top. Everybody had a job, and however small the pay (since many of such make-believe jobs were quite unproductive), it was better than not having a job at all. Third, generalized compulsory and free education increased the overall education level of the population, and explicit policies introduced to limit wage spreads between intellectual and physical laborers as well as between the more and less skilled workers reduced the educational premium.


pages: 586 words: 159,901

Wall Street: How It Works And for Whom by Doug Henwood

accounting loophole / creative accounting, activist fund / activist shareholder / activist investor, affirmative action, Andrei Shleifer, asset allocation, asset-backed security, bank run, banking crisis, barriers to entry, borderless world, Bretton Woods, British Empire, business cycle, capital asset pricing model, capital controls, central bank independence, computerized trading, corporate governance, corporate raider, correlation coefficient, correlation does not imply causation, credit crunch, currency manipulation / currency intervention, David Ricardo: comparative advantage, debt deflation, declining real wages, deindustrialization, dematerialisation, diversification, diversified portfolio, Donald Trump, equity premium, Eugene Fama: efficient market hypothesis, experimental subject, facts on the ground, financial deregulation, financial innovation, Financial Instability Hypothesis, floating exchange rates, full employment, George Akerlof, George Gilder, hiring and firing, Hyman Minsky, implied volatility, index arbitrage, index fund, information asymmetry, interest rate swap, Internet Archive, invisible hand, Irwin Jacobs, Isaac Newton, joint-stock company, Joseph Schumpeter, kremlinology, labor-force participation, late capitalism, law of one price, liberal capitalism, liquidationism / Banker’s doctrine / the Treasury view, London Interbank Offered Rate, Louis Bachelier, market bubble, Mexican peso crisis / tequila crisis, microcredit, minimum wage unemployment, money market fund, moral hazard, mortgage debt, mortgage tax deduction, Myron Scholes, oil shock, Paul Samuelson, payday loans, pension reform, plutocrats, Plutocrats, price mechanism, price stability, prisoner's dilemma, profit maximization, publication bias, Ralph Nader, random walk, reserve currency, Richard Thaler, risk tolerance, Robert Gordon, Robert Shiller, Robert Shiller, selection bias, shareholder value, short selling, Slavoj Žižek, South Sea Bubble, The inhabitant of London could order by telephone, sipping his morning tea in bed, the various products of the whole earth, The Market for Lemons, The Nature of the Firm, The Predators' Ball, The Wealth of Nations by Adam Smith, transaction costs, transcontinental railway, women in the workforce, yield curve, zero-coupon bond

Or, as George Shackle put it in his elegant summary of Keynes's General Theory: "To buy the means.. .of producing goods is to gamble on the eventual sale of those goods. From time to time businessmen lose their nerve and refuse this gamble, preferring to keep their wealth in money rather than embark it in the products of employment" (quoted in Moore 1988b, p. 249). The classicals were wrong; an economy will not necessarily come to rest with the full employment of capital and labor. To Keynes, the most crucial problem of a modern capitalist economy was evoking a sufficiently high level of investment to assure full employment, and it's here that uncertainty and the comforts of money work their devilment. Entrepreneurs will only invest if they expect the new investment to yield a greater income over its life than it will cost them to finance the asset; in Keynes's jargon, the marginal efficiency of capital (MEC) must be greater than the interest rate they pay their bankers.^ While this may not seem like an extraordinarily original idea at first, there are at least two points of interest in the formulation.

The General Theory banished all notions of the interest rate balancing savings and investment (or, put another way, balancing the supply of and demand for savings), cut it free of any intimate relation with profit rates, and discarded the concept of a natural rate of interest. If the natural rate is defined as the one that maintains the status quo, there can be many natural rates of interest, each associated with a different level of employment — "and, in general, we have no predominant interest in the status quo."^ RENEGADES If there is any rate of interest that deserves special status, Keynes argued, it's the one associated with full employment (CWVll, p. 243). One of the goals of economic analysis and policy should be to discover and attain that optimum rate. Interest rates are a function of the generosity or tightness of the central bank and the demand for money, which Keynes called the state of liquidity preference. Liquidity preference depended on three things in 77?^ General Theory (CW VII, pp. 168-174) — the transactions motive, the need for cash to cover personal and business expenses; the precautionary motive, the desire for a cash cushion in the face of future uncertainty; and the speculative motive, cash kept like dr>' powder, for taking quick advantage of market mis-valuations (like buying a stock that has been hammered down).

Capital could be made plentiful in the physical sense, but a system of production organized for money profits — which Keynes acknowledged capitalism to be — will have none of it. Rentiers, while they may be socially functionless, are nonetheless the owners of the productive capital stock, and the creditors of its hired managers. They would never concede to their "euthanasia," since they have never thought their condition terminal, at least since the mid-1930s. Nor would employers ever consent to a regime of full employment; it would be the death of work discipline. One gets the sense, reading Keynes, that the driving force behind capitalism is sentiment, the bullish or bearish state of expectations, and that social reality is important only insofar as it changes expectations through surprise, pleasant or unpleasant. This is consonant with Keynes's highly aestheticized view of the world, his rebellion against what he called the extraordinary contraption of the Benthamite School, by which all possible consequences of alternative courses of action were supposed to have attached to them, first a number expressing their comparative advantage, and secondly another number expressing the probability of their following from the course of action in question; so that multiplying together the numbers attached to all the possible consequences of a given action and adding the results, we could discover what to do.


pages: 514 words: 152,903