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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, 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.
* * *  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.  See Immelt and Chenault (2011).  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.
Utopia or Bust: A Guide to the Present Crisis by Benjamin Kunkel
anti-communist, Bretton Woods, 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.
Brave New World of Work by Ulrich Beck
affirmative action, 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, 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.
3D printing, bank run, banking crisis, Berlin Wall, Big bang: deregulation of the City of London, Bretton Woods, BRICs, British Empire, 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.
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, 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, labour market flexibility, labour mobility, 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 Gordon, Robert Shiller, Robert Shiller, Ronald Reagan, savings glut, secular stagnation, Silicon Valley, sovereign wealth fund, the payments system, 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.
Keynes Hayek: The Clash That Defined Modern Economics by Nicholas Wapshott
airport security, banking crisis, Bretton Woods, British Empire, 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, 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.
Albert Einstein, banking crisis, Berlin Wall, Bretton Woods, business climate, 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.
call centre, collective bargaining, conceptual framework, credit crunch, deindustrialization, deskilling, Downton Abbey, financial independence, full employment, income inequality, 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.
Animal Spirits: How Human Psychology Drives the Economy, and Why It Matters for Global Capitalism by George A. Akerlof, Robert J. Shiller
affirmative action, Andrei Shleifer, asset-backed security, bank run, banking crisis, 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.
The End of Loser Liberalism: Making Markets Progressive by Dean Baker
Asian financial crisis, banking crisis, Bernie Sanders, 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.  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.  This remarkable achievement was not due to superior economic growth.
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, 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, 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.
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, Bretton Woods, 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, 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, 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.
Men Without Work by Nicholas Eberstadt
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, Ronald Reagan, secular stagnation, Simon Kuznets, 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.
End This Depression Now! by Paul Krugman
airline deregulation, Asian financial crisis, asset-backed security, bank run, banking crisis, Bretton Woods, 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, labour market flexibility, labour mobility, 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.
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, 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, lump of labour, 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, 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.
The End of Alchemy: Money, Banking and the Future of the Global Economy by Mervyn King
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, 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, 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, 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.
Buying Time: The Delayed Crisis of Democratic Capitalism by Wolfgang Streeck
activist fund / activist shareholder / activist investor, banking crisis, basic income, Bretton Woods, 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, 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.
Capitalism 4.0: The Birth of a New Economy in the Aftermath of Crisis by Anatole Kaletsky
bank run, banking crisis, Benoit Mandelbrot, Berlin Wall, Black Swan, bonus culture, Bretton Woods, BRICs, 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, laissez-faire capitalism, Long Term Capital Management, mandelbrot fractal, market design, market fundamentalism, Martin Wolf, money market fund, moral hazard, mortgage debt, 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.
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, 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.
The Price of Inequality: How Today's Divided Society Endangers Our Future by Joseph E. Stiglitz
affirmative action, Affordable Care Act / Obamacare, airline deregulation, Andrei Shleifer, banking crisis, barriers to entry, Basel III, battle of ideas, Berlin Wall, 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, labour market flexibility, 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.
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, 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, 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 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, 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, 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.
Meghnad Desai Marxian economic theory by Unknown
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.
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, 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.
back-to-the-land, Bernie Sanders, Black Swan, Bretton Woods, BRICs, British Empire, 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, 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, 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.
1960s counterculture, affirmative action, airline deregulation, anti-communist, Ayatollah Khomeini, barriers to entry, Berlin Wall, blue-collar work, Bretton Woods, 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.
Rethinking Capitalism: Economics and Policy for Sustainable and Inclusive Growth by Michael Jacobs, Mariana Mazzucato
3D printing, balance sheet recession, banking crisis, basic income, Bernie Sanders, Bretton Woods, business climate, 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, 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 . 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?
Bonfire of the Vanities, Bretton Woods, 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, lump of labour, 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.
Aftershock: The Next Economy and America's Future by Robert B. Reich
Berlin Wall, 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.
How Will Capitalism End? by Wolfgang Streeck
accounting loophole / creative accounting, Airbnb, basic income, Ben Bernanke: helicopter money, Bretton Woods, 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, 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.
How Much Is Enough?: Money and the Good Life by Robert Skidelsky, Edward Skidelsky
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, lump of labour, 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.
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, 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.
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, 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.
Money Mischief: Episodes in Monetary History by Milton Friedman
Bretton Woods, British Empire, 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.
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, Kenneth Arrow, Kenneth Rogoff, low skilled workers, manufacturing employment, market fundamentalism, Martin Wolf, microcredit, moral hazard, 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 Lifting the Resource Curse 147 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:' 6 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.
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, Corn Laws, Fractional reserve banking, full employment, German hyperinflation, invisible hand, labour mobility, means of production, minimum wage unemployment, oil shale / tar sands, oil shock, price stability, Ralph Nader, RAND corporation, rent control, road to serfdom, 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.
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, 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.
Austerity: The History of a Dangerous Idea by Mark Blyth
accounting loophole / creative accounting, balance sheet recession, bank run, banking crisis, Black Swan, Bretton Woods, 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.
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, 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.
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, labour mobility, 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?
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 process, butterfly effect, carbon footprint, Carmen Reinhart, clockwork universe, collapse of Lehman Brothers, complexity theory, conceptual framework, credit crunch, 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.
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, 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.
A Brief History of Neoliberalism by David Harvey
affirmative action, Asian financial crisis, Berlin Wall, Bretton Woods, business climate, 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.
World Economy Since the Wars: A Personal View by John Kenneth Galbraith
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.
Why Wages Rise by F. A. Harper
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.
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, 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.
affirmative action, Asian financial crisis, bank run, banking crisis, bilateral investment treaty, borderless world, Bretton Woods, British Empire, 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, labour market flexibility, labour mobility, 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.
Milton Friedman: A Biography by Lanny Ebenstein
affirmative action, banking crisis, Berlin Wall, Bretton Woods, 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, labour market flexibility, 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, 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....
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, 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.
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, 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.
The Man Who Knew: The Life and Times of Alan Greenspan by Sebastian Mallaby
airline deregulation, airport security, Andrei Shleifer, anti-communist, Asian financial crisis, balance sheet recession, bank run, barriers to entry, Benoit Mandelbrot, Bretton Woods, 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, 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.
The Trouble With Billionaires by Linda McQuaig
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, Jacquard loom, Joseph-Marie Jacquard, laissez-faire capitalism, land tenure, 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.
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, 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.
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, 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, 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.
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, 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’.
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, 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, labour mobility, 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.
The Curse of Cash by Kenneth S Rogoff
Andrei Shleifer, Asian financial crisis, bank run, Ben Bernanke: helicopter money, Berlin Wall, bitcoin, blockchain, Bretton Woods, capital controls, Carmen Reinhart, cashless society, central bank independence, cryptocurrency, debt deflation, distributed ledger, Edward Snowden, 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, 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, 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.
barriers to entry, Berlin Wall, Big bang: deregulation of the City of London, blue-collar work, Bretton Woods, 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, invisible hand, Jane Jacobs, Joseph Schumpeter, 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.
accounting loophole / creative accounting, affirmative action, Asian financial crisis, Bretton Woods, 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.
Economics Rules: The Rights and Wrongs of the Dismal Science by Dani Rodrik
airline deregulation, Albert Einstein, bank run, barriers to entry, Bretton Woods, 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.
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, 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.
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."
The Best Business Writing 2013 by Dean Starkman
Asperger Syndrome, bank run, Basel III, call centre, clean water, cloud computing, collateralized debt obligation, Columbine, computer vision, Credit Default Swap, credit default swaps / collateralized debt obligations, crowdsourcing, Erik Brynjolfsson, eurozone crisis, Exxon Valdez, factory automation, fixed income, full employment, Goldman Sachs: Vampire Squid, hiring and firing, hydraulic fracturing, income inequality, jimmy wales, job automation, John Markoff, late fees, London Whale, low skilled workers, Mahatma Gandhi, market clearing, Maui Hawaii, Menlo Park, Occupy movement, oil shale / tar sands, Parag Khanna, Pareto efficiency, price stability, Ray Kurzweil, Silicon Valley, Skype, sovereign wealth fund, stakhanovite, Steve Jobs, Stuxnet, the payments system, too big to fail, Vanguard fund, wage slave, Y2K, zero-sum game
Trade-offs Between Inequality, Productivity, and Employment Interfluidity Steve Waldman has carved out a niche for himself as one of the most original economic thinkers online. His blog, Interfluidity, is always provocative, wonky, and host to extremely high-level discussions. Here, he develops a typically incisive theory of inequality, coming to the conclusion that unless and until we reduce it, we’ll never reach full employment. Waldman doesn’t pander to a broad audience, but if you put some effort into following his argument, he’ll always repay you with insights you can find nowhere else. I think there is a trade-off between inequality and full employment that becomes exacerbated as technological productivity improves. This is driven by the fact that the marginal benefit humans gain from current consumption declines much more rapidly than the benefit we get from retaining claims against an uncertain future. Wealth is about insurance much more than it is about consumption.
Whenever there is risk of overall scarcity, of systemic rather than idiosyncratic catastrophe, there is no possibility of positive-sum mutual-gain insurance. There is only a zero-sum competition for the right to be insured. The very rich live on the very same cruise ship as the very poor, and they understandably want to keep their lifeboat tickets. If insurance were not so valuable, it would be perfectly possible to have very high levels of inequality and have full employment. The very rich might employ endless varieties of servants to cater to their tiniest whims. They’d get little value from the marginal new employee, but the money they’d lose by paying a salary would have very little value to them, so the new hire could be a good deal. But because of the not-so-diminishing insurance value of wealth, the value of hiring someone to scratch yet another trivial itch eventually declines below the insurance value of holding property or claims.
There is a limit to how many people a rich person will employ, directly or indirectly. In “middle-class” societies, wealth is widely distributed and most peoples’ consumption desires are not nearly sated. We constantly trade off a potential loss of insurance against a gain from consumption, and consumption often wins because we have important, unsatisfied wants. So we employ one another to provide the goods and services we wish to consume. This leads to “full employment”—however many we are, we find ways to please our peers, for which they pay us. They in turn please us for pay. There is a circular flow of claims, accompanied by real activity we call “production.” In economically polarized societies, this dynamic breaks down. The very wealthy don’t employ everybody because the marginal consumption value of a new hire falls below the insurance value of retaining wealth.
Last Trains: Dr Beeching and the Death of Rural England by Charles Loft
For all Lennox-Boyd’s talk of commercial freedom during the debates over the Transport Bill in 1952, the greatest restriction on the railways’ commercial freedom in the 1950s was the government’s tendency to treat the nationalised industries, in the Treasury’s words, as the ‘handmaidens of other policies’, by constantly involving itself in their pricing decisions and industrial relations.82 The electoral success of the Conservatives during the 1950s was largely dependent on convincing potential Labour voters that the Conservatives could be trusted to deliver prosperity while maintaining full employment and avoiding confrontation with the unions. This was particularly important in 1951–5, when the Conservatives had only a small parliamentary majority. At the time, railway wages were subject to a complex and almost constant process of annual negotiation, the shortcomings of which were evident in dissatisfaction over pay, poor productivity, difficulty recruiting staff and regular threats of a strike.
When the settlement was followed by the usual application for increased charges, the Cabinet saw an opportunity to demonstrate its determination to break out of the wage-price spiral, using the BTC as an example. Anthony Eden had succeeded Churchill as Prime Minister in April 1955, winning an election with a secure majority the following month. Unwilling to pursue legislative curbs on trade unions, a formal incomes policy or to abandon the commitment to full employment, Eden’s government attempted to create a wage and price ‘plateau’. Ministers could only exhort private sector employers and the trade unions to show restraint and keep wages and prices stable, but they could impose such policies on the nationalised industries (albeit informally through discussion with their chairmen). In March 1956, Brian Robertson was pressured into setting an example by agreeing to a six-month moratorium on some passenger fares and only half of the increase he had wanted in freight charges.
Whatever people’s feelings on international politics, the shock of Suez created a context in which concerns about the nation’s economic performance gave rise to the widespread suspicion that something was fundamentally wrong with Britain and required change, even if it was not always clear what that something was. Macmillan is remembered today for the apparent complacency of his comment – made in a speech some six months after he became Prime Minister – that ‘most of our people have never had it so good’, but the theme of his speech was the danger to that prosperity posed by inflation and the uncertainty over whether it was possible for Britain to combine full employment, stable prices and economic growth.126 Divisions in his government over how to address this problem cost Macmillan his Chancellor and two Treasury ministers at the start of 1958. Even as he appeared to epitomise ‘Old England’ to the satirists who rose in response to the mood of dissatisfaction that typified the turn of the decade, Macmillan was as aware as anyone of the need to modernise and it was the question of how to do this that kept him awake at night.
Sleeping Giant: How the New Working Class Will Transform America by Tamara Draut
affirmative action, Affordable Care Act / Obamacare, always be closing, battle of ideas, big-box store, blue-collar work, collective bargaining, creative destruction, David Brooks, declining real wages, deindustrialization, desegregation, Detroit bankruptcy, Donald Trump, Edward Glaeser, ending welfare as we know it, Ferguson, Missouri, financial deregulation, full employment, immigration reform, income inequality, invisible hand, job satisfaction, knowledge economy, knowledge worker, low skilled workers, mass incarceration, minimum wage unemployment, mortgage tax deduction, new economy, obamacare, occupational segregation, payday loans, pink-collar, Plutocrats, plutocrats, Powell Memorandum, profit motive, race to the bottom, Ralph Nader, rent-seeking, rising living standards, Ronald Reagan, The Bell Curve by Richard Herrnstein and Charles Murray, The Wealth of Nations by Adam Smith, trickle-down economics, union organizing, upwardly mobile, War on Poverty, white flight, women in the workforce, young professional
Working-class union women, particularly in the Amalgamated Clothing Workers of America, led their unions and the AFL-CIO to take up the cause of child care and put it at the top of the agenda.11 Black unionists led by A. Philip Randolph campaigned for a so-called Freedom Budget for All Americans that would provide a government guarantee of full employment, a higher minimum wage, and a basic income for those who couldn’t work, along with major new investments in education and health care. Randolph unveiled the plan at a White House conference in 1966, just three years after the March on Washington for Jobs and Freedom. At the time, arguing for full employment was a strategic way to end the often zero-sum politics between whites and blacks, where a gain for one race was often seen as a loss for the other. As Randolph wrote with great prescience, “The tragedy is that the workings of our economy so often pit the white poor and the black poor against each other at the bottom of society.
A Better Deal for Families • Develop a system to guarantee access to affordable and high-quality child care for infants and toddlers for all working- and middle-class families and high-quality jobs for child-care workers. • Extend elementary school to include two years of preschool for children between the ages of three and five. • Reinvest in state public higher education to achieve debt-free public college for all working- and middle-class students. A Better Deal for Society • Revitalize our nation’s infrastructure, including addressing climate change, to ensure full employment. • Establish a National Truth and Reconciliation Commission on Racial Healing to provide full accounting of our nation’s violent racial history and to address its legacy in residential segregation, occupational segregation, the racial wealth gap, and oppressive criminal justice and policing policies. • Develop comprehensive immigration reform to provide a pathway to citizenship for undocumented immigrants.
Department of Labor, Wage and Hour Division, “Fiscal Year Statistics for WHD, FY 1997-FY2014,” at http://www.dol.gov/whd/statistics/statstables.htm#flsa. 5. Kurtz, “Subway Leads Fast Food Industry.” 6. Annalyn Kurtz, “10 Big Overtime Pay Violators,” CNN Money, August 5, 2014, at http://money.cnn.com/gallery/news/economy/2014/03/13/overtime-violations/?iid=EL. 7. Ibid. 8. Ross Eisenbrey, “Improving the Quality of Jobs Through Better Labor Standards,” Full Employment, April 2, 2014, at http://www.pathtofullemployment.org/wp-content/uploads/2014/04/eisenbrey.pdf. 9. Brady Meixell and Ross Eisenbrey, “An Epidemic of Wage Theft Is Costing Workers Hundreds of Millions of Dollars a Year,” Economic Policy Institute, September 11, 2014, at https://docs.google.com/viewer?url=http://www.epi.org/files/2014/wage-theft.pdf&hl=en_US&embedded=true. 10.
The Haves and the Have-Nots 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.
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, 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.
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.
Affluenza: When Too Much Is Never Enough by Clive Hamilton, Richard Denniss
call centre, delayed gratification, experimental subject, full employment, impulse control, Mahatma Gandhi, McMansion, mega-rich, Naomi Klein, Own Your Own Home, Post-materialism, post-materialism, purchasing power parity, Thorstein Veblen, trickle-down economics, wage slave
In Australia we do not lack the ability to solve poverty; we lack the will. And the richer we become as a society the more unwilling we are to sympathise with those at the bottom of the heap. We have been unable to make the necessary changes to social structures to reduce poverty because of the majority’s preoccupation with protecting their own incomes, a preoccupation nurtured every time a political party declares that its priority is more growth. The goal of full employment has consistently been sacrificed to the interests of higher incomes for the wealthy. In a society where too much is not enough, social justice is an impossible goal. To solve the problem of poverty, real deprivation, we must first solve the problem of affluence, imagined deprivation. Yet that must be done in the face of the formidable pressures applied by consumerism itself, which, having solved poverty materially, must constantly recreate it psychologically.
CHAPTER 11 1 Lambesis Agency 2004, L Style Report, 9th edn, <http://www.lstylereport.com> [11 January 2005]. 209 INDEX Abbott, Tony, 133 advertising, 4, 28, 36–40, 41, 43, 55, 61, 101, 109, 120, 126,172, 187 and neuroscience, 41–2 fake memories in, 46 children and, 47, 50–51 of breakfast cereals, 48–50, 150–1 of cars, 10, 45 of junk food, 51 of margarine, 43 of tobacco, 51–2, 125 of vitamins, 94 restrictions on, 188 use of nagging, 53–4 affluenza, defined, 3, 7 alcohol, 115–17, 180 annual leave see holiday leave anorexia, 16 appliances, 22–3, 37, 38 attention deficit hyperactivity disorder, 55 Aussie battler, 3, 133–4, 136, 139, 151, 180, see also politics Australian Labor Party, 3, 137–9, 151, 191 bankruptcy, 72–3, 175 banks, 12, 75–6, 77–80 barbecues, 23–4 210 INDEX Blair, Tony, 191 botox, 37, 128 brands, 23, 34, 38–40, 41–33, 45, 53, 55, 56, 110, 187 brand loyalty, 39, 55, 189 brand disloyalty, 190 see also advertising; marketing Bray, Robert, 66 Buddhism, 17 caesareans, 34 Calvinism, 16, 17 cars, 10, 13, 45 4WDs, 44–5, 188 see also advertising celebrity, need for, 56–7 children, 21 advertising and, 47–57, 150 and clothes, 33–4 as fashion accessories, 33 behavioural problems of, 55 financial calculus of having, 34–5, 142–5, impact of materialism on, 149–50 sexualisation of, 57 tinys, 52–3 tweens, 55–7 see also downshifting choice, alleged benefits of, 40–1 clothes, 13, 45, 166 see also children Coalition Government, 136–9 see also Liberal Party community, 95, 119, 146, 148, 183 compulsive shopping, 15, 61 see also oniomania conscious consumption, 166, 186–90 conspicuous consumption, 8, 88, 96 cosmetic surgery, 10, 57, 127–9, see also botox cosmetics, 37 Costello, Peter, 35, 141 credit cards, 10–2, 19, 72–81, 102, 103 see also debt debt, 71 passim, 137, 179 attitudes to, 74, 75 Debtors Anonymous, 61, 80–1 foreign debt truck, 82 home equity loans, 79–80 marketing of, 71, 75–7 national debt, 81–4 211 AFFLUENZA deferred happiness syndrome, 89–2, 98, 169 deferrers, 175–6 see also deferred happiness syndrome democratisation of luxury, 26 depression, 16, 38, 93, 114 deprivation, 3, 66, 192, see also poverty, hardship disease-mongering, 120–7 doorbuster sales, 78 downshifters characteristics of, 154–6 motivations of, 156–7, 158 passim new lifestyle of, 165–7 regrets of, 173 downshifting, 17, 152, 153 passim, 180 children and, 156, 159, 160, 166–7 defined, 153 for dogs, 33 politics of, 175, 183–6 reactions to, 176–70 drugs, 114–16, 118 Easterlin, Richard, 6 Eckersley, Richard, 148 economic growth, 3, 4–5, 62–3, 114, 118, 136, 141, 159, 185, 190, 193 environment, 111, 112, 157, 179, 190, 193, 194 evangelical Christianity, 182–3 family size, 20–1 federal election 2004, 3, 136–8 female sexual dysfunction, 121–3 feminism, 27 flexible work hours see work hours Frank, Robert, 9 Frey, Bruno, 63 full employment, 192 gratifiers, 175 growth fetishism, viii, 18, 142, 193 Guevara, Che, 28 happiness, 58, 63–4, 113, 118, 127, 146, 152, 175–6 hardship imagined, 64 genuine, 66 212 INDEX Hayek, Friedrich, 186 health, 113, 156, 157, 164, 166, 179, 193 see also work hours hedonic treadmill, 6, 58, 184 holiday leave, 87, 88, 93 Hood, Robin, 190 houses, 13, 20, 60, 101 size of, 20, 21–2, 37 prices of, 20, 21–2, 134, 137, 179 Howard, John, 82, 138, 141, 142 Idell, Cheryl, 53 identity, 13–4, 45 imports, 73, 83–4 incomes, 4, 58–9, 112 Indigenous Australians, 113 intermittent husband syndrome, 91 karoshi, 92 Kasser, Tim, 14 Klein, Naomi, 38 Latham, Mark, 137, 138 Liberal Party, 136, 138, 139, 151 Luis Vuitton, 9, 28 luxury fever, 8–10, 12, 19, 135, 143, 178 luxury goods, 9–10, 13, 16, 19, 21, 26, 127, 170 Mandelson, Peter, 191 marketing, 13, 28, 37–8, 42, 45, 47, 53, 104, 110–1, 118, 120, 126, 179 see also advertising materialism, 14–5, 17, 47, 55, 89, 119, 154, 184 and values, 146–52 meningococcal disease, 120 middle class, 8–9, 59, 74, 136 middle-class welfare, 139-42, 180 Mill, John Stuart, 138, 186 money, 5, 7, 11, 16–7, 19, 58, 63, 67–8, 80, 97, 98–9, 103, 107, 112, 120, 139, 143–4, 148, 152, 159, 166, 171, 175–7, 178, 187 hunger for, 6, 17, 18, 137, 146, 180, 183–4 see also debt money coma, 80 Moynihan, Ray, 121, 123 213 AFFLUENZA needs, 4, 7, 29, 59–63, 65, 66, 100, 147, 148 neoliberalism, 7, 17, 36, 39–40, 79, 138 as new form of oppression, 186 of relationships, 182 of tax cuts, 136, 139 of the Aussie battler, 133–5, 151 of welfare, 139, 140, 141, 180 of wellbeing, 193–4 progressive, 181, 182 pornography, 151 post-materialism, 4, 155, 157, 184 poverty, 18, 181, 190–2 poverty line, 66–7 presenteeism, 94 privatisation, 40 psychology, role in marketing, 36–41, 46, 51, 53–4, 61 obesity, 118 obsolescence, 110 oniomania, 15–6 see also compulsive shopping Olsen twins, 57 O’Neill, Jessie, 7 ovens, 22–3 overconsumption, 7, 19 passim, 72, 96, 122, 178 overwork see work hours Pavlov, Ivan, 41, 47 plastic bag levy, 103 pets, 28–33 humanisation of, 30, 33 pharmaceutical companies, 120–1, 126 Pocock, Barbara, 98 politics, 60–1, 66, 119, 183 conservative, 144, 181, 190 of choice, 168, 172 relationships, 14, 81, 97, 179, 193, 194 relationship debts, 175 see also work hours retail therapy, 16, 100–1 retirement anxiety, 92, 173–4 right-hand ring, 27 Ritalin, 118 Roberts, Kevin, 39 saving, 71, 82 see also debt 214 INDEX Schor, Juliet, 48 sea change, 153, 155 see also downshifting self-storage industry, 25, 102 social anxiety disorder, 124–6 status, 170 Stutzer, Alois, 63 suffering rich, 63 sunglasses, 25–6 television, 9, 21, 22, 60, 183, 188 lifestyle programs, 37 sales, 24–5 Trapaga, Monica, 49–50 trickle down theory, 191 twin deficits theory, 83 values, 180–3 see also materialism Veblen, Thorstein, 8 Vidal, Gore, 6 voluntary simplicity, 154, 187 see also downshifting wasteful consumption, 100 passim, 179, 190, 194 and guilt, 106–8, 112 wealth, 81–2 whitegoods, 23 see also appliances wellbeing, 14, 40, 54, 58, 113, 115, 118, 142, 163, 190 wellbeing manifesto, 193, 217–24 work hours, 81, 91, 95–6, 158, 161, 163, 174, 179 and children, 90–1 excessive, 85–9, 158 impact on communities, 95–7 impact on health, 90–4, 122 impact on relationships, 85, 90, 91, 97–9, 122, 149 working class, 8–9 workophiles, 87 215 A political manifesto for wellbeing Preamble Australians are three times richer than their parents and grandparents were in the 1950s, but they are not happier.
In short, fulfilling work is essential if we 219 A POLITICAL MANIFESTO FOR WELLBEING are to flourish. Workplaces that provide secure, rewarding jobs should be encouraged. Workplace flexibility, including quality part-time jobs, should operate in the interests of employees as well as employers. Unemployment is more damaging than just the loss of income, and disparaging unemployed people serves only to increase their anxiety and sense of exclusion. Pursuing full employment is essential to a wellbeing economy, as is ensuring decent minimum workplace standards. Satisfying work can be found inside and outside the home. Work in the household is essential to the health and wellbeing of families and communities but, because it is outside the economy, it is ignored. Governments should value this work, and employers need to adapt to the realities of family life. Maternity leave, paternity leave, carers’ leave and sick leave are not costs to be avoided: they are rights.
Rethinking Islamism: The Ideology of the New Terror by Meghnad Desai
Ayatollah Khomeini, battle of ideas, Berlin Wall, full employment, global village, illegal immigration, income per capita, invisible hand, liberal capitalism, liberation theology, Mahatma Gandhi, Martin Wolf, means of production, oil shock, purchasing power parity, Ronald Reagan, structural adjustment programs, The Wealth of Nations by Adam Smith, Yom Kippur War
Still,onbalance,theSecondifnottheFirst World War was fought against an inherently evil philosophy of fascism in its German, Japanese and Italian variants. There was somejustiﬁcationintheAlliesclaiming,astheydidintheAtlantic Charter that they were ﬁghting the battle for the four freedoms. Thebattlewon,thedemocraciesfoughttoachievefullemployment andmassprosperitywhileconductingacoldwaragainsttheCommunistempire.TheexperienceoftheHolocausttaughttheWest thehorriblecostsofintoleranceandanti-Semitism.Whathappened in Germany was the extreme end of a long history of Christian anti-SemitismwhichprevailedintheAlliedcountriesrightupto ifnotbeyond.WhatiscalledJudeo-Christianculturewasa deliberateconstructionoutofthisharshlessonintheneedtoavoid intolerance.
. Technological developments in information processing, telecommunications and transport at thesametimehadmadetravelandcommunicationscheapbeyond imagination.TheWorldWideWebarrivedinthesandgave eventhemostisolatedindividualaccesstoinformationaboutthe meansofterrorandenabledcontactwithfriendsinanypartofthe world. The oil shock also accelerated international migration, which hadsloweddownaftertheFirstWorldWarandresumedafter but was still limited. Full employment in the West had created a need for unskilled labour which the periphery of the British, DutchandFrenchempireswasquitewillingtoprovide.Adiaspora wasslowlygrowingintheWestofpeoplefromtheThirdWorld. After,theoil-exportingcountriesimportedlabourfromSouth and Southeast Asia and North Africa. The deregulation of capital markets and the increasing liberalisation of trade for the rich countriesalsocreatedaneedforskilledimmigrantlabour.
. What the young people saw was that theirownsystemintheWest,wartsandall,wasbetterthanthe alternative. Thebiggestbattlewasintheeconomicsphere,ofcourse.Communismhadthedeclaredambitionofovertakingcapitalisminthe materialproductionofgoodsandservices.Itcriticisedcapitalism foritswasteandinefﬁciencies,itsunemploymentandtradecycles, its inequalities of income and poverty amidst plenty, and so on. Ultimately, through years of Keynesian full employment and growth, and despite the stagﬂation caused by the oil price rise, theWesterndemocraciescamethroughwiththeireconomiesmore productiveandraisinglivingstandardsfasterthancouldtheSoviet Union.44 Today the challenge of Communism in the economic sphere hasmutatedintothemovementagainstglobalisation.Manyofthe themes recur – the inefﬁciencies and inequities of free markets, the wastefulness of unemployment, the asymmetry of economic power of the rich nations against the poor ones. Of course Communism is no longer backed by the military power which made itsosinisterforitsowncitizens.
Affordable Care Act / Obamacare, bank run, banking crisis, Bernie Madoff, clean water, collateralized debt obligation, correlation does not imply causation, Credit Default Swap, credit default swaps / collateralized debt obligations, crony capitalism, disintermediation, fiat currency, financial innovation, Fractional reserve banking, full employment, high net worth, housing crisis, invisible hand, life extension, low skilled workers, market bubble, market clearing, minimum wage unemployment, money market fund, moral hazard, negative equity, obamacare, Paul Samuelson, price mechanism, price stability, profit maximization, quantitative easing, race to the bottom, reserve currency, risk/return, Robert Shiller, Robert Shiller, The Bell Curve by Richard Herrnstein and Charles Murray, too big to fail, transaction costs, yield curve, zero-sum game
Free minds are necessary to raise our standard of living and to create jobs. 18 The Cure for the Banking Industry: Systematically Move Toward Pure Capitalism THE FUNDAMENTAL ISSUE UNDERLYING THE BOOM-AND-BUST CYCLE in the financial industry is the lack of sound money. Unfortunately, the Fed is constantly manipulating the value of the dollar. The Fed is charged with two goals, controlling the price level and maintaining full employment. In practice, the full-employment goal almost always has priority. This is because the Fed is a political institution (despite its theoretical independence), and because Congress cares more about full employment than about price levels. (Ironically, a debased dollar will ultimately undermine the Fed’s full-employment policy goal.) The most fundamental cure for this crisis and future financial crises would be to eliminate the Federal Reserve. The United States has already had two failed central banks. Between 1870 and 1913, the United States experienced the greatest economic boom in history without a central bank.
Postcapitalism: A Guide to Our Future by Paul Mason
Alfred Russel Wallace, bank run, banking crisis, banks create money, Basel III, basic income, Bernie Madoff, Bill Gates: Altair 8800, bitcoin, Branko Milanovic, Bretton Woods, BRICs, British Empire, business process, butterfly effect, call centre, capital controls, Cesare Marchetti: Marchetti’s constant, Claude Shannon: information theory, collaborative economy, collective bargaining, Corn Laws, corporate social responsibility, creative destruction, credit crunch, currency manipulation / currency intervention, currency peg, David Graeber, deglobalization, deindustrialization, deskilling, discovery of the americas, Downton Abbey, drone strike, en.wikipedia.org, energy security, eurozone crisis, factory automation, financial repression, Firefox, Fractional reserve banking, Frederick Winslow Taylor, full employment, future of work, game design, income inequality, inflation targeting, informal economy, information asymmetry, intangible asset, Intergovernmental Panel on Climate Change (IPCC), Internet of things, job automation, John Maynard Keynes: Economic Possibilities for our Grandchildren, Joseph Schumpeter, Kenneth Arrow, Kevin Kelly, knowledge economy, knowledge worker, late capitalism, low skilled workers, market clearing, means of production, Metcalfe's law, money: store of value / unit of account / medium of exchange, mortgage debt, Network effects, new economy, Norbert Wiener, Occupy movement, oil shale / tar sands, oil shock, Paul Samuelson, payday loans, Pearl River Delta, post-industrial society, precariat, price mechanism, profit motive, quantitative easing, race to the bottom, RAND corporation, rent-seeking, reserve currency, RFID, Richard Stallman, Robert Gordon, Robert Metcalfe, secular stagnation, sharing economy, Stewart Brand, structural adjustment programs, supply-chain management, The Future of Employment, the scientific method, The Wealth of Nations by Adam Smith, Transnistria, union organizing, universal basic income, urban decay, urban planning, Vilfredo Pareto, wages for housework, women in the workforce
Somewhere else, out of the limelight, you will come across people picking up the pieces: food banks run by churches and charities; Citizens’ Advice Bureaux whose main business has become advising those swamped by debt. Just one generation earlier these streets were home to thriving real businesses. I remember the main street of my home town, Leigh, in northwest England, in the 1970s, thronged on Saturday mornings with prosperous working-class families. There was full employment, high wages and high productivity. There were numerous street-corner banks. It was a world of work, saving and great social solidarity. Smashing that solidarity, forcing wages down, destroying the social fabric of these towns was done – originally – to clear the ground for the free-market system. For the first decade, the result was simply crime, unemployment, urban decay and a massive deterioration in public health.
For the entire period between 1870 and 1950 it had averaged 1.3 per cent.5 Real incomes soared: in the USA, the majority of households saw their real incomes rise by more than 90 per cent between 1947 and 1975;6 in Japan the average real income increased a staggering 700 per cent.7 Across the developed world, the new techno-economic paradigm was clear – even if each country had its own version. Standardized mass production – with wages high enough to drive consumption of what the factories produced – was unleashed across society. There was male full employment and, subject to cultural variations, increased employment of teenagers and women once the reconstruction phase was over. In the developed world, people moved from the land to the factories in large numbers: between 1950 and 1970 the agricultural workforce in Europe declined from 66 million to 40 million; in the USA it collapsed from 16 per cent of the population to just 4 per cent.8 The most frenetic period of growth in human history was bound to produce glitches.
But the upswing ended once investment could no longer increase productivity at the previous rate. There are clear signs of a productivity slowdown in the pre-1973 data, and of a fall in the ratio of output to capital invested.25 Productivity, as a counter-tendency to the downward pressure on profits, ran out of steam. But as conditions tightened, the sheer strength of working-class bargaining power in countries with full employment and no will to break the post-war social contract made wage cuts a non-starter. Rather, managers were forced to increase wages and non-wage benefits, while reducing working hours. As a result, a ‘profit squeeze’ kicked in. Comparing profit rates for America, Europe and Japan in 1973 to their respective peak years during the boom, Andrew Glyn found that in each case they had fallen by one-third.
The Darwin Economy: Liberty, Competition, and the Common Good by Robert H. Frank
carbon footprint, carried interest, Cass Sunstein, clean water, congestion charging, corporate governance, deliberate practice, full employment, income inequality, Intergovernmental Panel on Climate Change (IPCC), invisible hand, Paul Samuelson, Plutocrats, plutocrats, positional goods, profit motive, Ralph Nader, rent control, Richard Thaler, Ronald Coase, Ronald Reagan, sealed-bid auction, smart grid, The Nature of the Firm, The Wealth of Nations by Adam Smith, Thomas Malthus, transaction costs, trickle-down economics, ultimatum game, winner-take-all economy
PUTTING THE POSITIONAL CONSUMPTION BEAST ON A DIET 83 An added attraction of Seidman’s proposal is that it would create a temporary spending boom for a sluggish economy that could really use it. The key step would be to pass the surtax right away, but delay its implementation until the economy was once again operating near full employment. Mere announcement that the tax was coming would spur a flood of additional high-end spending as wealthy families rushed to build mansion additions and stage lavish parties before the tax took effect. Granted, that might not be the best way to stimulate additional spending. But it would clearly be better than standing idly by while total spending remains far too low to support full employment. In the long run, a progressive consumption tax would gradually shift the composition of final spending away from consumption toward investment, causing productivity to grow more rapidly. In the event of an economic downturn, a temporary suspension or reduction of the tax would be a powerful stimulus tool, since consumers would benefit only if they increased their spending right away.
Taxing harmful activities is the best way to raise the revenue essential for reducing deficits. Only someone who thinks that people have a right to PARALYSIS 15 cause undue harm to others could object that such taxes violate anyone’s rights. And because such taxes make the national economic pie bigger, it makes little sense to object that we can’t afford them. The new taxes should be phased in only after the economy is back at full employment. But even with federal taxes at their lowest level since the 1950s, we’re unlikely to summon the political will to take that step until leaders stop insisting that all taxes are evil. Shifting tax policy in this way would place additional resources at our disposal. Without having to sacrifice anything we value, we could generate more than enough revenue to eliminate government debt and refurbish long-neglected public infrastructure.
And since most people don’t want to impoverish their grandchildren, the discussion ends there. But prudent public investment does not impoverish our grandchildren at all. On the contrary, when the government borrows money at 4 percent and invests it in a project that yields 18 percent during an economic downturn, the effect is not only to put people to work who otherwise would have been sitting idle but also to enrich our grandchildren. In an economy at full employment, it would of course be even better to pay for such investments with tax revenue rather than with borrowed money. But antitax rhetoric has apparently ruled out that option, even for residents who would directly benefit from the specific government investments being paid for. Thus, as Wall Street Journal reporter Lauren Etter notes, many of the North Dakota residents who complain most bitterly about the deteriorating quality of their roads seem disinclined to consider the obvious remedy: “In June, Stutsman County residents rejected a measure that would have generated more money for roads by increasing property and sales taxes.
Unequal Britain: Equalities in Britain Since 1945 by Pat Thane
Ayatollah Khomeini, British Empire, call centre, collective bargaining, equal pay for equal work, full employment, gender pay gap, mass immigration, moral panic, Neil Kinnock, old-boy network, pensions crisis, sexual politics, Stephen Hawking, unpaid internship, women in the workforce
Age 65 in 1970: ● Born 1905, when there were still high levels of poverty ● Left school aged 12–14, in the midst of the Depression ● University attended by 1.8 per cent of age group, but this opportunity was 80 per cent lower if female ● If male, probably fought in World War II; if female, fewer pregnancies than for previous generations and a falling birth rate ● Gained in later life from post-war full employment, NHS, improved housing (probably rented), pensions, better opportunities for children, more leisure, perhaps first holidays abroad ● Average life expectancy at age 65: men 77 years, women, 81 years. Age 65 in 2000: ● Born 1935 ● Early years dominated by economic Depression and war then, postwar, full employment, improved education and health ● Left school aged 15 or older; 5.4 per cent attended university (female opportunity to attend university still 75 per cent lower) ● Married and had children in early 20s; increased risk of divorce, triggering poverty for women ● Increased opportunity for home ownership ● More likely than previous generations to be in service industry than heavy industrial employment; possibly unemployed during 1980s ● Average life expectancy at age 65: men 81 years, women 84 years. 24 U N E Q UA L B R I TA I N Age 65 in 2040: ● Born 1975 ● Possibly experienced family unemployment in early years ● Left full-time education aged 16–21; 40 per cent attended university, 50 per cent of students female ● Married/partnered/and had children (if any) in 30s ● High mortgage, student debt, unlike previous generations ● Probably skilled white-collar job.
The chapters that follow should be read in the context of key aspects of change in Britain since 1945: 4 ● ● ● ● ● U N E Q UA L B R I TA I N Population — 1945 to early 1970s: high birth rate compared with the periods immediately before and after; falling death rate; high marriage rate and low divorce and ‘illegitimacy’ rates; rising immigration, first from Europe then from the Commonwealth — early 1970s to the present: falling birth rate; falling marriage rate; rising divorce and ‘illegitimacy’ rates; increasing life and health expectancy; substantial immigration from the Commonwealth, then increasingly from other European countries and from crisishit countries worldwide. Work — 1945 to 1970s: full employment (for men); high but falling levels of industrial employment; increasing female employment, a large proportion of it part-time — mid-1970s to present: decline of heavy industry; increased service employment, on a spectrum ranging from low-paid (such as fast-food and call-centre industries) to high-paid work (such as financial services) — early 1980s to mid-1990s: high unemployment, particularly among men, older workers and some minority ethnic groups — 1980s to present: increased hours of work and of reported stress at work, but not the extreme shift away from the ‘job for life’ towards short-term contracts often assumed, except in a few sectors;1 steadily expanding range of employment open to women (although much of it still part-time) and members of some minority ethnic groups, but still with inadequate pay, promotion and training opportunities; unemployment rising again in 2008–9.
Issues of particular interest to women, such as work–life balance, equal pay, maternity and paternity leave, child care, and domestic violence have become more central to political debate, championed by senior Labour women such as Tessa Jowell, Margaret Hodge, Harriet Harman and Patricia Hewitt. CONCLUSION 69 The changed position of men in the workplace and the home since the 1940s has influenced gender roles and relationships. Broadly, from the late 1940s to the 1970s, male full employment, high marriage rates and the tendency of married women to take time out of the workplace to care for children, followed by part-time employment, reinforced the already strict gender division of labour in and outside the home. The restructuring of the labour market in the 1980s polarized male (and full-time female) workplace experiences between unemployment and ‘over-employment’, with increasing hours and workplace stress, while in some areas more women than men could find paid employment.
The Future of Money by Bernard Lietaer
agricultural Revolution, banks create money, barriers to entry, Bretton Woods, clean water, complexity theory, corporate raider, dematerialisation, discounted cash flows, diversification, fiat currency, financial deregulation, financial innovation, floating exchange rates, full employment, George Gilder, German hyperinflation, global reserve currency, Golden Gate Park, Howard Rheingold, informal economy, invention of the telephone, invention of writing, Lao Tzu, Mahatma Gandhi, means of production, microcredit, money: store of value / unit of account / medium of exchange, Norbert Wiener, North Sea oil, offshore financial centre, pattern recognition, post-industrial society, price stability, reserve currency, Ronald Reagan, seigniorage, Silicon Valley, South Sea Bubble, The Future of Employment, the market place, the payments system, trade route, transaction costs, trickle-down economics, working poor
For instance, identical activities (someone taking care of a sick child) would be classified as 'employed’ and part of the GNP - or not - simply because in one case the carer was paid for the service in national currency and in the other she wasn't. This amounted to a straight denial of the reality of the actual service rendered for free. 'The old measures of GNP were still confusing crude growth with smart and wise growth. The Information Age objective of 'Full Potential" has now replaced the Industrial Age idea of “ full Employment". 'Full Potential" refers to the use of someone's leaning capacity end the opportunity fully to develop one’s gifts. Just as was the case with Full Employment, one can never reach 100% of the Full Potential for a population. 'In retrospect, it was only by liberating me extraordinary potential of human creativity, of all humans, that then was any hope for Planet Earth. Human creativity " something, which in past generations was the privilege of only a tiny minority: a few artists, scientists and some other members or the intelligentsia.
The euro quandary While important positive reasons existed to introduce the euro now, there is one significant negative in doing it at this time: it coincides with a high level of unemployment as described in Chapter 5. Such levels of unemployment are unprecedented since the Treaty of Rome created the European Common Market in 1958. For several countries including Germany the current level is even the highest since the Depression of the 1930s. Furthermore, there is a growing consensus that this unemployment situation will not be solved through economic growth. 'Full employment can no longer be taken for granted as the automatic outcome of growth-creating economic policies' concludes a European green paper. A French study showed that even the high post-war rates of growth of 5% resulted in an annual employment increase of just 0.2%, and that this trend for jobless growth is getting stronger over time. The introduction of the euro will further reduce the room of manoeuvre for participating countries to decrease their unemployment levels in three converging ways. 1.
The introduction of the euro will further reduce the room of manoeuvre for participating countries to decrease their unemployment levels in three converging ways. 1. Each government participating in the EMU is giving the levers of control over the euro money supply to the European Central Bank. The ECB will by definition be less responsive to the requirements of any one country's unemployment situation. 2. The Maastricht Treaty gives the ECB a single objective: to ensure price stability. Full employment is specifically not one of its official priorities. 3. Finally, the only other traditional tool available - the fiscal one has similarly been put under severe constraints. The maximum limit of 3% of government deficit financing is supposed to be a permanent one and most governments are adopting the euro with their spending at or dose to this straitjacket target limit. In practice this means again that little room for manoeuvre exists to reduce unemployment via the fiscal tools.
Rethinking the Economics of Land and Housing by Josh Ryan-Collins, Toby Lloyd, Laurie Macfarlane, John Muellbauer
agricultural Revolution, asset-backed security, balance sheet recession, bank run, banking crisis, barriers to entry, basic income, Bretton Woods, Capital in the Twenty-First Century by Thomas Piketty, collective bargaining, Corn Laws, correlation does not imply causation, creative destruction, credit crunch, debt deflation, deindustrialization, falling living standards, financial deregulation, financial innovation, Financial Instability Hypothesis, financial intermediation, full employment, garden city movement, George Akerlof, ghettoisation, Gini coefficient, Hernando de Soto, housing crisis, Hyman Minsky, income inequality, information asymmetry, knowledge worker, labour market flexibility, labour mobility, land reform, land tenure, land value tax, Landlord’s Game, low skilled workers, market bubble, market clearing, Martin Wolf, means of production, money market fund, mortgage debt, negative equity, Network effects, new economy, New Urbanism, Northern Rock, offshore financial centre, Pareto efficiency, place-making, price stability, profit maximization, quantitative easing, rent control, rent-seeking, Richard Florida, Right to Buy, rising living standards, risk tolerance, Second Machine Age, secular stagnation, shareholder value, the built environment, The Great Moderation, The Market for Lemons, The Spirit Level, The Wealth of Nations by Adam Smith, Thomas Malthus, transaction costs, universal basic income, urban planning, urban sprawl, working poor, working-age population
During the Great Depression of the 1930s, existing economic theory was unable either to explain the causes of the severe worldwide economic collapse or to provide an adequate public policy solution to jump-start production and employment. The prevailing idea that free markets would automatically adjust and provide full employment had failed. The main plank of Keynes’s theory is the assertion that aggregate demand ‒ measured as the sum of spending by households, businesses and the government ‒ is the most important driving force in an economy. Moreover, prices, and especially wages, respond slowly to changes in supply and demand, resulting in periodic shortages and surpluses, especially of labour. Keynes asserted that free markets have no self-balancing mechanisms to counter this and achieve full employment, and therefore justified government intervention through public policies that aim to achieve full employment and price stability. Keynes’ ideas became widely accepted after the Second World War and provided the main inspiration for economic policy makers in Western industrialised countries.
Figure 4.1 New houses built by tenure (United Kingdom) (source: Office for National Statistics, 2016a) Figure 4.2 Trends in tenure type from 1918 to 2013 (Great Britain) (%) (source: Office for National Statistics, 2016b; figures for 1918 and 1939 are for England and Wales only) Post-war Britain – along with much of the developed world – enjoyed high levels of economic growth, moderate rates of inflation and full employment. Economic policy making was dominated by Keynesian thought (see Box 4.3) and the pursuit of bold social reforms such as the establishment of the welfare state, the nationalisation of the railways and the creation of the National Health Service. This period is often described as the ‘Golden Age of Capitalism’, and lasted until the collapse of the Bretton Woods fixed exchange rate regime in 1971.3 In the mixed economy of the Keynesian era, state-sponsored house building by councils coexisted with development by private firms, and to a much lesser extent by non-profit housing associations.
How to Change the World: Reflections on Marx and Marxism by Eric Hobsbawm
anti-communist, banking crisis, battle of ideas, Berlin Wall, British Empire, continuation of politics by other means, creative destruction, currency manipulation / currency intervention, deindustrialization, discovery of the americas, experimental subject, Fall of the Berlin Wall, full employment, Gunnar Myrdal, labour market flexibility, liberal capitalism, market fundamentalism, mass immigration, means of production, new economy, Simon Kuznets, Thorstein Veblen, Upton Sinclair, upwardly mobile, Vilfredo Pareto, zero-sum game
The advance of both during and after the Second World War seemed, at least in Europe, to require from governments and employers alike a counter-policy of full employment and systematic social security. 412 Marx and Labour: the Long Century But the USSR no longer exists, and with the fall of the Berlin Wall capitalism could forget how to be frightened, and therefore lost interest in people unlikely to own shares. In any case, even the spells of mass unemployment in the 1980s and 1990s seemed to have lost the old power of radicalising their victims. However, it was not only politics but also the economy that proved to require reformism and especially full employment after 1945 – as both Keynes and the Swedish economists of Scandinavian social democracy had predicted. This was to be the third foundation of reformism.
Between the wars communist parties enjoyed mass support in only three of the states in which they were legal, and even there they remained weaker than social democracy: Germany, France and Czechoslovakia. Had the CP been legal in Finland there might have been four. Elsewhere communist parties between the wars scored a maximum of 6% of votes (Belgium, Norway, Sweden), and even that only briefly. After the Second World War the symbiosis was pursued more systematically as part of a policy of structural reform of Western capitalism by means of the deliberate policy of full employment and what became the welfare state, and on the basis of the massive advances of the capitalist economies in the post-1945 decades (1947–73). Would this conscious attempt to integrate labour have emerged without the traumatic experiences of the great inter-war depression and the rise of Hitler’s Germany? How much of it was due to the fear of communism, whose forces had dramatically increased during the years of anti-fascist resistance?
Even before World War One the policies of the ruling classes, faced with growing political democratisation (accelerated by pressure from the new labour parties), had begun to shift 408 Marx and Labour: the Long Century towards social reform. In the non-fascist countries this process was accelerated between the wars, but it did not become systematic until after the Second World War, under the slogans ‘full employment’ and ‘the welfare state’. Even before 1914 democratisation and economic growth encouraged an open recognition of the value of moderate labour movements, though imperial Germany remained a major exception. In consequence, labour movements and parties became in practice identified with their nation-states. This became only too manifest at the outbreak of war in 1914. The end of that war saw a spectacular rise in the numbers and power of the organised working class.
accounting loophole / creative accounting, affirmative action, Asian financial crisis, barriers to entry, borderless world, Branko Milanovic, Bretton Woods, capital controls, corporate governance, corporate raider, correlation coefficient, credit crunch, deindustrialization, dematerialisation, deskilling, ending welfare as we know it, feminist movement, full employment, gender pay gap, George Gilder, glass ceiling, Gordon Gekko, greed is good, half of the world's population has never made a phone call, income inequality, indoor plumbing, intangible asset, Internet Archive, job satisfaction, joint-stock company, Kevin Kelly, labor-force participation, liquidationism / Banker’s doctrine / the Treasury view, manufacturing employment, means of production, minimum wage unemployment, Naomi Klein, new economy, occupational segregation, pets.com, profit maximization, purchasing power parity, race to the bottom, Ralph Nader, Robert Gordon, Robert Shiller, Robert Shiller, Ronald Reagan, shareholder value, Silicon Valley, Simon Kuznets, statistical model, structural adjustment programs, Telecommunications Act of 1996, telemarketer, The Bell Curve by Richard Herrnstein and Charles Murray, The Wealth of Nations by Adam Smith, total factor productivity, union organizing, War on Poverty, women in the workforce, working poor, Y2K, zero-sum game
The lead designers of the fixed exchange rate system, John Maynard Keynes firom Britain and Harry Dexter White from the United States, thought it important to insulate countries fi-om the pressures of international capital markets. Quaintly, the 220 After the New Economy point of national economic policy was thought to be the encouragement of full employment, and, in the eyes of Keynes and White, free international capital movements would undermine such poUcies. To financiers, the full employment policies are frequently equated with inflation, and any country pursuing such poUcies in a world of HberaHzed finance would be punished with capital flight. There was intellectual opposition to the system from the free-market right, which hated the idea of state-specified exchange rates taking precedence over market-determined ones, and some grumbHng from Wall Street and the City of London, but those forces were pretty marginal in the 1950s and early 1960s.
Stocks did better; returns on a portfolio mimicking the S&P 500 stayed positive through the 206 After the New Economy 1970s, but still turned in the third worst performance of any decade since 1820 (exceeded in badness only by the 1910s and 1930s). What had changed structurally, aside from permanent war mobilization, was the growth of the welfare state and sustained low unemployment rates. In his classic paper, Michal Kalecki (1943) explored the reasons why economic policymakers would never tolerate an unemployment rate approaching zero for long: Indeed, under a regime of permanent 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. That would mean the loss of "discipline in the factories" and would put "poHtical stabiHty" at risk—which explains a good bit of the 1970s, not only in the domestic U.S. economy, but worldwide: a loss of discipline in the whole social factory.
American Made: Why Making Things Will Return Us to Greatness by Dan Dimicco
2013 Report for America's Infrastructure - American Society of Civil Engineers - 19 March 2013, 3D printing, Affordable Care Act / Obamacare, American energy revolution, American Society of Civil Engineers: Report Card, Bakken shale, barriers to entry, Bernie Madoff, carbon footprint, clean water, crony capitalism, currency manipulation / currency intervention, David Ricardo: comparative advantage, decarbonisation, fear of failure, full employment, Google Glasses, hydraulic fracturing, invisible hand, job automation, knowledge economy, laissez-faire capitalism, Loma Prieta earthquake, manufacturing employment, oil shale / tar sands, Ponzi scheme, profit motive, Report Card for America’s Infrastructure, Ronald Reagan, Silicon Valley, smart grid, smart meter, sovereign wealth fund, The Wealth of Nations by Adam Smith, too big to fail, uranium enrichment, Washington Consensus, Works Progress Administration
But he doesn’t believe it’s feasible to “decarbonize” the U.S. economy anytime soon. Government can encourage all of this without picking winners and losers or taxing less-favored sources of energy out of existence. Spurring energy development must go hand in hand with revitalizing American manufacturing. As DiMicco explains in chapter 10, creating real wealth is the only path back to full employment. There are some signs of a manufacturing renaissance in the United States, owing to a growing disenchantment with China and the natural gas boom here at home. But it’s early yet. In order for that nascent renaissance to reach full flower, DiMicco says state and federal governments must unburden business and manufacturing from the regulations and permitting hurdles that have been pouring down on them for years.
As a wise man once said, we cannot escape history. I know many Americans who’ve lost hope. I know people who look at the economic landscape and say, “Well, that’s it. Game over.” That kind of fatalism isn’t helpful. No problem is unsolvable. It’s time to de-emphasize the extremes and return to the fundamentals of creating, innovating, making, and building things. It’s the only road that leads back to full employment in the United States, and it’s the path Nucor has been following for almost 50 years. Nucor and companies like ours have created real wealth, not phony bubble wealth. Accelerating a Manufacturing Renaissance If the United States is going to escape the cycle of bubbles and resolve its systemic economic problems, the nation must choose to close the national infrastructure deficit and cultivate an energy revolution with natural gas as the road to travel.
Myers, 173 Carnegie, Andrew, 7, 74–75, 78 Carter, Jimmy, 54, 58 Caterpillar, 59, 70, 95 China accountability and, 117–19 “Buy American” and, 136–37 currency manipulation, 101, 107 economic growth, 63–72, 99–100 environment and, 195, 198, 209–10 free trade and, 13, 96, 99–107, 135 impact on international trade, 30, 63–74, 88, 117, 192–93, 213–18, 220–21 infrastructure and, 162, 166, 170 innovation and, 114, 116–17 intellectual property and, 117 Kyoto Protocol and, 195 labor costs and, 64 manufacturing and, 17, 158, 205–6 regulation and, 147–49 skills gap and, 122, 125 space program, 52 steel industry and, 109 U.S. stimulus and, 95, 135–37, 145 WTO and, 216–18 Clean Air Act, 174, 209 Clean Water Act, 174, 209 Clinton, Bill, 65–67, 140 Cold War, 45, 63 construction sector, 2, 15, 33–34, 72, 75, 85, 89, 102, 104, 131–36, 155, 157, 169, 171–74, 178, 197, 202, 221 Consumer Electronics Association, 114 copyright, 119, 213 counterfeiting, 214 Dana, Charles, 4 Datong, 118 DiMicco, Dan, 3–19 direct reduced iron (DRI), 154, 156, 158, 186, 192–93, 222 Dodd, Chris, 180 Duke, Mike, 22 Durbin, Dick, 36 Eagle Ford shale formation, 197 economic crisis Americans leaving labor force, 26 importants statistics, 25–33 lessons learned, 39–41 overview, 21–25 path to full employment, 28 political leadership and, 35–39 real unemployment rate, 29 sectors that need jobs, 33–35 youth unemployment and student debt, 31 education author and, 5 Bush and, 23 career and, 30 Eisenhower and, 45 government spending and, 93, 124, 196, 212, 227 Kennedy and, 48 manufacturing and, 212 National Defense Education Act, 45 skills and, 14, 48, 79, 124–32 U.S. public schools, 14, 45, 48, 79 see also student debt Eisenhower, Dwight, 45, 47, 164 Emanuel, Rahm, 23, 140 energy resources “all of the above” strategy, 169, 190–95 costs and benefits, 196–99 domestic production of, 87, 89 government policy and, 17–18, 39 green energy, 143–47, 157 job creation and, 157 natural gas production, 90, 184 overview, 183–90 steel and, 103 trade deficit and, 87 U.S. oil production, 185 Enron, 12, 77 Environmental Protection Agency (EPA), 152–53, 156 Evans, Don, 110–11 Farouk Systems, 214 federal budget deficit, 11, 21–22, 83, 133 Feinstein, Dianne, 36–37 fiscal cliff deal, 40, 83, 88, 141, 226 Forbes, 9, 83, 197 Ford, Gerald, 54, 58 Ford, Henry, 4 Ford Motor Company, 97, 130 free trade, myth of impacts of China’s currency manipulation, 101 need for government-to-government solutions, 109–12 overview, 93–95 standing up to cheaters, 107–8 why free trade doesn’t work, 96–107 General Agreement on Tariffs and Trade, 102, 106 General Electric, 26, 46, 49, 59, 95, 114, 146 General Motors, 37, 130 Gospel of Wealth, The (Carnegie), 74–75 Great Depression, 47, 55, 134, 164 Great Recession areas hardest hit by, 122 causes of, 203 effect on US economy, 1–2 global impact of, 11 Nucor and, 8 Obama and, 2, 22–23, 191–92 green energy, 143–47 see also energy resources Greenpeace, 191 Hagel, Chuck, 180 Hazeltine, Barrett, 48–49 health care, 22–23, 34, 140–41, 181, 196 Hoover Dam, 164 housing bubble, 12, 76, 121, 132, 203 Hutchison, Kay Bailey, 180–81 I-Bank, 180 see also infrastructure Immelt, Jeffrey, 114 infrastructure China and, 162, 166, 170 expediting spending on, 72–74 global competitiveness of US, 165 job creation and, 169 national infrastructure bank, 178–81 needs, 168–71 overview, 161–68 paying for improvements, 175–78 return on spending, 163 state vs. federal spending on, 176 innovation, myth of areas hit hardest by Great Recession, 122 education and training, 124–32 jobs in innovative industries compared to manufacturing, 115 Kindle’s impact on US trade deficit, 118 overview, 113–19 skills gap myth, 120–23 irrational defeatism overview, 81–88 realism vs. mythology, 88–91 Iverson, Ken, 7, 9, 62, 78, 222, 223–25 Jarrett, Valerie, 22 Jindal, Bobby, 155–56 job-training programs, 123, 130 John Deere, 95, 130 Jordan, Jim, 151 Kaiser, Henry, 4 Kellogg-Briand nonaggression pact of 1928, 106 Kennedy, John F., 44–48, 52 Kerry, John, 38, 180 Keystone XL pipeline, 192 Kindle, 117–18 see also Amazon Kozlowski, Dennis, 76 Krywko, Mark, 213 Kyoto Protocol, 148, 195 Lay, Ken, 76 layoffs, League of Nations, 106 Lehman Brothers, 43, 76 liquefied natural gas (LNG), 187–88 Locke, Gary, 114 Madoff, Bernie, 76 manufacturing sector accelerating a manufacturing renaissance, 204–7 accountability and, 219–20 anti-dumping initiations since 1999, 217 economic multiplier of, 202 fostering innovation in, 220–23 overview, 201–4 relationship between government and business, 208–12 risk and, 223–27 signs of renaissance, 212–18 tax rates by country, 211 Mars, 43–44, 52 see also NASA; space exploration Marshall Plan, 54, 56, 134 McCain, John, 143, 167 McDonald’s, 84 McKinsey, 84, 121 Medicare, 21 mercantilistic policies, 14, 65, 68, 99–102, 107, 198, 217 Mexico, 17, 66, 95, 190, 198 multiplier effect, 137–38, 190, 202, 207, 216 myths that distract us American industrial policy, 156–59 “Buy American,” 136–37 federal spending, 133–35, 140–42 infrastructure, 138–40 Nucor’s experience in Louisiana, 153–56 overview, 133–40 regulation, 147–53 stimulus and green jobs, 143–47 see also free trade, myth of; innovation, myth of NASA, 5, 44, 46, 49–52 see also Mars; space exploration National Defense Education Act, 45 Nissan, 54 Nixon, Richard, 54, 58 North American Free Trade Agreement (NAFTA), 66 Nucor, 3–10, 15, 18, 51, 54, 61–63, 77–80, 82, 84, 103, 110–12, 127–30, 134, 145, 151, 153–56, 158, 165, 186, 189, 192–93, 204, 209, 219, 221–27 Obama, Barack attempts to fix US economy, 22–26, 38, 143, 150 China and, 106–7 conflict with business leaders, 150 economic stimulus, 15, 93, 134–35, 172 education and, 127 energy exports and, 187–88 exports under, 40 Great Recession and, 2, 22–23, 191–92 green energy and, 145–46, 191 infrastructure projects and, 172, 174, 180–81 innovation and, 114 international trade and, 95, 106–7 Keystone XL pipeline and, 192 NASA and, 51–52 private industry and, 219–20 regulation and, 157 skills gap and, 120 unemployment numbers and, 26, 39–40, 93, 114 OECD, 211 O’Neill, Paul, 110 O’Neill, Tip, 59 Palin, Sarah, 167 patents, 117, 119, 213 Plaza Accord, 58–63, 108 Procter & Gamble, 105 Reagan, Ronald, 47, 59–60, 63–65, 108 Reid, Harry, 36 Republican Party “Buy American” and, 95 economy and, 38–39, 86, 141, 144 government spending and, 11, 133 infrastructure and, 167, 181 national debt and, 11, 35–36 regulation and, 151 stimulus and, 86, 91, 93, 95 Rockefeller, John D., 74 Rocketdyne, 46 Romney, Mitt, 88, 107, 120, 191 Russia, 45, 47, 51, 95, 102, 116, 135, 147 Schultz, Howard, 22 Schumer, Chuck, 36–37 Schwarzenegger, Arnold, 136, 143 Seidenberg, Ivan, 22 September 11, 2001, 23–24 sequester, 40 service industry, 10, 12, 15, 18, 33–37, 51, 76, 89, 127, 203 shale, 17, 39, 157–58, 183–85, 189, 191, 194, 196–97, 199 Shami, Farouk, 214 Shapiro, Gary, 114 Sharan, Sunil, 146 Sierra Club, 191, 193 Sleek Audio, 213 Smith, Adam, 65, 101–2 Social Security, 24, 32 space exploration Apollo program, 46 Cold War and, 45 history of, 43–47 inspiring a generation, 48–52 Kennedy and, 44–46 Obama and, 51–52 public-private partnerships and, 46–47 Soviet Union and, 45–46 see also Mars; NASA Sputnik crisis, 45, 116 Stahl, Leslie, 94–95 Starbucks, 22 steel industry “Buy American” and, 135–36 Carnegie and, 7, 74 China and, 102–4, 118, 218 energy and, 186–88, 192 flat-rolled, 9 infrastructure and, 90, 139 innovation and, 221 international trade and, 14, 58, 95–97, 102–4, 109, 218–19 irrational defeatism and, 84–85 Nucor and, 3–10, 51, 62–63, 82, 145, 153–56, 186, 221–24, 226 Plaza Accord and, 62 regulation and, 145, 149, 153–54 Republic Steel, 5, 50 skills gap and, 125, 128–30 stimulus and, 135–36, 139 U.S. manufacturing and, 3, 6, 109–12 Vulcraft and, 7 WTO and, 219 Yamato Steel, 221 stimulus “Buy American” and, 94–95, 135–37 China and, 95, 135–37, 145 failures, 15, 134–35 green initiatives and, 35, 143–47 infrastructure and, 93–95, 166, 172 passage of, 15 politics of, 91, 134 Republican Party and, 86, 91, 93, 95 subsidies, 35 taxes and, 94–95, 135, 137–38 unemployment and, 93–94, 146 student debt, 30–32 Summers, Larry, 114 tariffs, 60, 63, 67, 96, 98, 102, 106, 111, 206 taxes Bush and, 23 environmental issues and, 145, 148–50 federal government and, 73–74 fiscal cliff deal and, 226 free trade and, 96 gas tax, 176–77 Great Recession and, 83 infrastructure and, 90–91, 163, 173–76 innovation and, 86, 180, 220–21 international trade and, 68–69, 71, 96, 100, 102, 117, 205 manufacturing sector and, 68–69, 86, 204, 210–12, 220 politics and, 36, 93 public-private partnerships and, 46–47 revenue from, 19, 40, 46, 140, 155, 183, 196–99 stimulus and, 94–95, 135, 137–38 tax credits, 86, 145, 221 tax cuts, 23, 36, 93 tax rates by country, 211 Tianrui, 118 Toyota, 37, 54, 60 Trumka, Richard, 135 unemployment age and, 30–32 construction sector and, 2 decline in, 2, 27 education and, 30–31, 127 energy sector and, 196 Great Recession and, 3, 22, 25–30, 36, 93–94, 122 innovation and, 114 measuring, 25–27 politics and, 39, 212 real unemployment rate, 29, 39 skills and, 85, 205 stimulus and, 93–94, 146 student debt and, 30–31 see also job creation United Nations, 106, 198 U.S. foreign trade adult conversation, 56–58 changes in global manufacturing and, 57 China’s impact on, 63–72 competitive advantages, 72–74 growth of financial sector, 75 low labor costs and, 64 Plaza Accord, 58–63 public view of, 53–54 real wealth and its opposite, 74–80 US foreign aid and, 55–56 U.S.
The Last Days of Disco by David F. Ross
Salvation had arrived in the distinctive form of Jimmy Stevenson: newly out of prison and one of the more than three million unemployed, but, tonight, riding to the rescue in a beige 1972 Volkswagen Campervan. 18TH FEBRUARY 1982 INTERVIEW FOR THAMES TELEVISION’S TV EYE Llew Gardner, journalist for Thames TV ‘Prime Minister, can I ask you something? Will we ever return to full employment, Prime Minister? What was known as full employment?’ Mrs Margaret Thatcher, the Prime Minister ‘I don’t know. It depends on your definition of full employment.’ THE THREE BEFORE EIGHT TEN MONTHS EARLIER … Jimmy Stevenson was there on the night Bobby Cassidy’s dreams of being a DJ were born. Having had his musical interest ignited by punk, Bobby found a true home in the Mod revival of the late ’70s. For Bobby – who also harboured a secret desire to be Rod Stewart – punk rock had always had that short-burning fuse feel about it.
The Next Decade: Where We've Been . . . And Where We're Going by George Friedman
airport security, Ayatollah Khomeini, Berlin Wall, British Empire, continuation of politics by other means, creative destruction, Deng Xiaoping, facts on the ground, Fall of the Berlin Wall, full employment, hydraulic fracturing, illegal immigration, Monroe Doctrine, Ronald Reagan, South China Sea
Like the Chinese, the Japanese had to avoid unemployment, but for different reasons. In Japan, the reluctance to downsize was based on the social contract whereby a worker committed himself to one company for life and the company reciprocated. The Japanese honored the tradition by maintaining near full employment while allowing the growth rate to slip to almost nothing. Western economists dubbed the twenty years during which the Japanese economy stagnated the “lost decades,” but this is a misunderstanding of Japanese objectives, or rather the imposition of a Western point of view on Japanese values. Sacrificing growth in order to maintain full employment was for this highly cohesive society not to lose a decade but to retain a core interest. At the same time, Japan’s birthrate dropped well below the 2.1 children per woman needed to maintain its population. Now, with each generation smaller than the one before, the economy can no longer support retirees.
Now, with each generation smaller than the one before, the economy can no longer support retirees. In this way, debt and demography have created an enormous crisis for Japan. During the next ten years, the Japanese will no longer be able to maintain full employment by exorbitantly increasing their debt, both public and private. Like the Chinese, they will have to shift economic models. But the Japanese have one overwhelming advantage: they do not have a billion people living in poverty. Unlike the Chinese, they can absorb austerity, should it be required, without inviting instability. Japan’s fundamental weakness remains its lack of natural resources for industry, from oil to rubber to iron ore. To remain an industrial power, Japan has to buy and sell globally, and if it loses access to the sea-lanes, it loses everything.
Respectable: The Experience of Class by Lynsey Hanley
Berlin Wall, cuban missile crisis, David Brooks, delayed gratification, Etonian, full employment, housing crisis, illegal immigration, invisible hand, liberation theology, low skilled workers, mutually assured destruction, Neil Kinnock, Norman Mailer, Own Your Own Home, Right to Buy, Ronald Reagan, strikebreaker, upwardly mobile, Winter of Discontent
Sixth-form students told the House of Commons Education Committee that the EMA provided not only practical help to stay on in education, but gave them a sense that the government recognized and cared about those from low-income backgrounds, which in itself had a ‘massive’ impact on their motivation.4 (The EMA was abolished in 2011.) Periods of economic growth and recession have respectively widened and narrowed job opportunities. Government policy has also meant that, at some times more than others, it has been easier to achieve mobility through the mechanisms of well-resourced state education, full employment and universal goods such as the NHS. (I make this observation as someone who believes that a strong welfare state supports, rather than infantilizes, people.) Significantly, though, if you were of working age in the fifties and sixties, you had a chance to escape the poverty associated with being working class, without necessarily having to leave behind the people and culture of that class.
Instead, in common with most British people whose living standards and (to a lesser degree) social status improved in the twenty-five years after war ended, they didn’t get much beyond elementary or secondary modern schooling. What actually helped people the most – the mechanism by which most escaped dire poverty in the postwar period – was not the reorganization of compulsory education, since academic excellence was still deemed possible only for the ‘brightest’. It was a combination of factors, the most obvious being full employment, which gave workers better pay, greater choice and more chances for advancement (because they didn’t have to remain stuck in a bad job for fear of not being able to find another one). There was also the continued popularity of night school and other forms of non-compulsory education, such as the Workers’ Educational Association and university extra-mural departments; and the fact that the basic security provided by the welfare state allowed parents to relieve their children of the grinding poverty of their own childhoods.
In their study ‘Living Inferiority’, Simon Charlesworth, the sociologist Paul Gilfillan and the epidemiologist Richard Wilkinson argue that the quality of social relations in working-class areas has deteriorated with the decline of industry there, and that relationships between atomized, unemployed or insecurely employed men are now characterized by violence or the threat of it.14 They argue that, during the postwar era of virtually full employment, the dignity of having work gave men better opportunity to develop a sense of fairness, solidarity and honour. I’m only partially convinced that having work – any work – automatically made men’s lives better before that point, or that irresponsibility and nihilism among young working-class men did not exist. The poet and novelist John Burnside testified to his experience of growing up in the sixties and seventies with his violent father, a steelworker migrant from Scotland to England: ‘He’d discouraged me in everything I wanted to do, because of the climate of fear he lived in.
Sacred Economics: Money, Gift, and Society in the Age of Transition by Charles Eisenstein
Albert Einstein, back-to-the-land, bank run, Bernie Madoff, big-box store, Bretton Woods, capital controls, clean water, collateralized debt obligation, commoditize, corporate raider, credit crunch, David Ricardo: comparative advantage, debt deflation, deindustrialization, delayed gratification, disintermediation, diversification, fiat currency, financial independence, financial intermediation, fixed income, floating exchange rates, Fractional reserve banking, full employment, global supply chain, God and Mammon, happiness index / gross national happiness, hydraulic fracturing, informal economy, invisible hand, Jane Jacobs, land tenure, land value tax, Lao Tzu, liquidity trap, lump of labour, McMansion, means of production, money: store of value / unit of account / medium of exchange, moral hazard, mortgage debt, new economy, off grid, oil shale / tar sands, Own Your Own Home, Paul Samuelson, peak oil, phenotype, Ponzi scheme, profit motive, quantitative easing, race to the bottom, Scramble for Africa, special drawing rights, spinning jenny, technoutopianism, the built environment, Thomas Malthus, too big to fail
The condition of the planet now urgently demands that we turn our attention away from “growing the cake.” THE OBSOLESCENCE OF “JOBS” Ever since the dawn of the industrial era, we have borne an ever-present anxiety that we will be replaced by machines. And indeed this has come to pass for many, as machines take over functions once performed by humans. The only way to maintain full employment has been through growth, and yet here I am calling for an end to growth and an end to full employment (for money) as well. So, given that our age-old anxiety is upon us, let us examine what, exactly, it means for our labor to be replaced by a machine. To be taken over by a machine, the job one is doing must have been mechanical to begin with. As society as a whole became more mechanized, more and more jobs took on the machine’s characteristics of uniformity, routine, and standardization.
In the old thinking, monetary policy was intended to spur economic growth or to restrain it to a sustainable level. In the new thinking, monetary policy strives to match the base interest rate to the economic growth (or degrowth) rate. Keynes estimated that it should be “roughly equal to the excess of the money-rate of interest over the marginal efficiency of capital corresponding to a rate of new investment compatible with full employment.” This formula would need to be modified if, as I suggest in Chapter 14, we should no longer and can no longer seek full paid employment as a positive social good (this is a necessary consequence of steady-state economics and not so scary in the presence of a social dividend). Essentially, though, what Keynes is suggesting is that the liquidity tax be set at a level to compensate for the excess of interest over the average return on investment in productive capital.
The system I have described offers an alternative to this future of bigger, better, and more followed by catastrophic collapse. Negative interest allows productive investment to continue, and money to circulate, even when the marginal return on capital is zero or less, while a commons-backed currency frees work to go toward nonconsumptive purposes. Next I will describe a third thread in the tapestry: the social dividend, which frees the purchasing power of workers from the need for full employment in the money economy. 1. GDP is likely to contract more quickly and less smoothly than population, perhaps by 1 to 2 percent per year, or about one-half per generation. This is on a global scale. In some countries growth will persist longer than in others. 2. Yong, “Fertility Rates Climb Back Up.” 3. Caron, “Abundance Creates Utility but Destroys Exchange Value.” 4. To be sure, there are things at which technological medicine excels.
How Markets Fail: The Logic of Economic Calamities by John Cassidy
Albert Einstein, Andrei Shleifer, anti-communist, asset allocation, asset-backed security, availability heuristic, bank run, banking crisis, Benoit Mandelbrot, Berlin Wall, Bernie Madoff, Black-Scholes formula, Bretton Woods, British Empire, capital asset pricing model, centralized clearinghouse, collateralized debt obligation, Columbine, conceptual framework, Corn Laws, corporate raider, correlation coefficient, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, crony capitalism, Daniel Kahneman / Amos Tversky, debt deflation, diversification, Elliott wave, Eugene Fama: efficient market hypothesis, financial deregulation, financial innovation, Financial Instability Hypothesis, financial intermediation, full employment, George Akerlof, global supply chain, Gunnar Myrdal, Haight Ashbury, hiring and firing, Hyman Minsky, income per capita, incomplete markets, index fund, information asymmetry, Intergovernmental Panel on Climate Change (IPCC), invisible hand, John Nash: game theory, John von Neumann, Joseph Schumpeter, Kenneth Arrow, laissez-faire capitalism, Landlord’s Game, liquidity trap, London Interbank Offered Rate, Long Term Capital Management, Louis Bachelier, mandelbrot fractal, margin call, market bubble, market clearing, mental accounting, Mikhail Gorbachev, money market fund, Mont Pelerin Society, moral hazard, mortgage debt, Myron Scholes, Naomi Klein, negative equity, Network effects, Nick Leeson, Northern Rock, paradox of thrift, Pareto efficiency, Paul Samuelson, Ponzi scheme, price discrimination, price stability, principal–agent problem, profit maximization, quantitative trading / quantitative ﬁnance, race to the bottom, Ralph Nader, RAND corporation, random walk, Renaissance Technologies, rent control, Richard Thaler, risk tolerance, risk-adjusted returns, road to serfdom, Robert Shiller, Robert Shiller, Ronald Coase, Ronald Reagan, shareholder value, short selling, Silicon Valley, South Sea Bubble, sovereign wealth fund, statistical model, technology bubble, The Chicago School, The Great Moderation, The Market for Lemons, The Wealth of Nations by Adam Smith, too big to fail, transaction costs, unorthodox policies, value at risk, Vanguard fund, Vilfredo Pareto, wealth creators, zero-sum game
As with his intellectual heroes Smith and Mill, Hayek’s support for laissez-faire extended far beyond a belief in its economic utility: he viewed the free market as the only effective guarantor of individual freedom, and he reacted viscerally to what he saw happening around him in Great Britain. During World War II, Sir William Beveridge, a former colleague of Hayek’s at LSE, published two influential papers—“Report on Social Insurance and Allied Services” and “Full Employment in a Free Society”—that laid the intellectual basis for the postwar welfare state. Like Keynes, Beveridge was a member of the Liberal Party rather than a socialist. He agreed with Keynes that capitalism needed adult supervision: left untended, it had produced a worldwide slump and, ultimately, fascism. Hayek never accepted the argument that fascism was a capitalist phenomenon. He saw Stalin and Hitler as two suits in the same closet, and the closet was marked “collectivism.”
“It’s very academic, very mathematical, and it really doesn’t—I want to choose my words carefully here: it is nothing like as useful to the business community as it could be.” The Columbia economist Joseph Stiglitz, who was acting as chairman of the White House Council of Economic Advisers, said, “It’s very clear that new classical economics is irrelevant. You can’t begin with the assumption of full employment when the President is worried about jobs—not only this President but any President.” I would like to report that my article changed economics: it didn’t. I got some letters from (mostly elderly) economists complimenting me for pointing out the emperor’s naked state, but the reaction of the profession as a whole was one of denial. The following year, at its annual meeting, the American Economic Association held a series of panel discussions highlighting the relevance and practicality of economics.
The only financial assets the model admits are money and risk-free government bonds. This excludes many areas where potential instabilities arise, such as the stock market, the commodities market, and the mortgage market. The mainstream model reduced Keynesian economics to a special case of the free market model in which, for some unexplained reason, prices and wages don’t adjust to ensure full employment. But Keynes, as he stressed in his 1937 paper, was primarily concerned not with wage rigidity, which he used mainly as an analytical device, but with how the economy operates in an environment of irreducible uncertainty about the future, populated by individuals who don’t know very much and are, therefore, susceptible to peer pressure and other inchoate factors such as psychology. As every economics major knows, and as George Akerlof and Robert Shiller have recently reminded us, Keynes said that “animal spirits,” or the “spontaneous urge to action rather than inaction,” play an important role in economic behavior.
Wealth and Poverty: A New Edition for the Twenty-First Century by George Gilder
affirmative action, Albert Einstein, Bernie Madoff, British Empire, capital controls, cleantech, cloud computing, collateralized debt obligation, creative destruction, Credit Default Swap, credit default swaps / collateralized debt obligations, crony capitalism, deindustrialization, diversified portfolio, Donald Trump, equal pay for equal work, floating exchange rates, full employment, George Gilder, Gunnar Myrdal, Home mortgage interest deduction, Howard Zinn, income inequality, invisible hand, Jane Jacobs, Jeff Bezos, job automation, job-hopping, Joseph Schumpeter, knowledge economy, labor-force participation, margin call, Mark Zuckerberg, means of production, medical malpractice, minimum wage unemployment, money market fund, money: store of value / unit of account / medium of exchange, Mont Pelerin Society, moral hazard, mortgage debt, non-fiction novel, North Sea oil, paradox of thrift, Paul Samuelson, Plutocrats, plutocrats, Ponzi scheme, post-industrial society, price stability, Ralph Nader, rent control, Robert Gordon, Ronald Reagan, Silicon Valley, Simon Kuznets, skunkworks, Steve Jobs, The Wealth of Nations by Adam Smith, Thomas L Friedman, upwardly mobile, urban renewal, volatility arbitrage, War on Poverty, women in the workforce, working poor, working-age population, yield curve, zero-sum game
Eltis and the Keynesians,” Lloyds Bank Review, no. 124 [April 1977], pp. 1–13), Kahn wrote that Keynes was much less concerned with hiking government spending to increase employment than with lowering interest rates to stimulate private investment. Kahn derided as “vulgar Keynesianism” the conventional formula that consumption, investment, and government spending together can be managed to achieve full employment. “There is no such thing as a definite level of full employment,” he wrote. 8 Keynes, The General Theory, p. 155. 9 Keynes (in The General Theory, pp. 297–298) writes, with explicit reference to his own mathematical models included in The General Theory: “It is a great fault of symbolic pseudo-mathematical methods...that they expressly assume strict independence between the factors involved and lose all their cogency and authority if this hypothesis is disallowed; whereas in ordinary discourse, where we are not blindly manipulating but know all the time what we are doing and what the words mean, we can keep ‘at the back of our heads’ the necessary reserves and qualifications and the adjustments we shall have to make later on, in a way in which we cannot keep complicated partial differentials ‘at the back’ of several pages of algebra which assume that they all vanish.
Thus, according to the argument, capitalism creates poverty. Beyond the familiar appeals for “social change” and the “radical restructuring” of this and that, this concept of the sources of poverty is seen to dictate two lines of policy: for the primary market, it is a renewed emphasis on anti-discrimination suits and pressures, with quotas where necessary to break down entrenched patterns of de facto bias; and for the secondary market, it is full employment—a government-primed expansion of aggregate demand that improves the bargaining power of low-income workers and lifts increasing numbers of jobs into the primary sector. For observers more jaded about the magic of aggregate demand, Nathan Glazer offered a similar, though more sophisticated, analysis and a more sensible program. He urged measures to “reform work, not welfare”; to make secondary jobs more attractive by surrounding them with government fringes, such as medical care, child allowances, unemployment pay, and other benefits that are now more easily gained through non-work (welfare) than through secondary jobs.3 Glazer’s approach has the advantage of not expecting small struggling firms themselves to develop big corporate fringes.
It is the capitalist gift of giving, in the mere expectation of return, transformed into the public gift of giving the money of others, in the virtual assurance of eventual profit from the taxpayer. The activity is the same: a vision of opportunity to serve, a mobilization of capital and support, an organization of labor, and a marketing of product, but without, most of the time, any real sense of a bottom line or public demand. The ironic result is to destroy jobs and capital. The government boom in the name of full employment, in the vision of job entitlement and insurance, will end by reducing the availability of real work at inviting levels of pay. No matter how secure each bemused and pensioned government worker may feel, his future remains in the hands of the creators of wealth and the absorbers of risk. Production is the source of all demand, and as supplies of marketable products decline, so does the worth of the specious job contracts and blue-sky pensions of the public sector.
Albert Einstein, anti-communist, banking crisis, Berlin Wall, British Empire, central bank independence, centre right, collective bargaining, falling living standards, fiat currency, fixed income, full employment, German hyperinflation, housing crisis, Internet Archive, Johann Wolfgang von Goethe, mittelstand, offshore financial centre, Plutocrats, plutocrats, quantitative easing, rent control, risk/return, strikebreaker, trade route, zero-sum game
This was a crucial step-up for the working class, part of the process of learning how to run things and thereby building a new future for a democratic Germany under difficult post-war circumstances. The capitalists had been tamed, and their undoubted managerial skills could now be pushed in socially useful directions. Total and immediate socialisation would risk throwing the babies of efficiency and full employment out with the capitalist bathwater. Or so the story went.6 The Stinnes-Legien deal certainly contributed, alongside Ebert’s bargain with the military, to stemming the tide of extreme radicalism, of turning the movement of 9 November 1918 into the ‘reined-in revolution’ (gebremste Revolution). The employers got to save their businesses, and the trade unionists got better hours, better pay and the employers’ promise to give returning soldiers their jobs back.
Britain after the Second World War, for instance, had to deal with a vast accumulation of debt, mainly owed to America. However, under the strong and on the whole efficient Labour government that succeeded Churchill’s wartime coalition, she nonetheless managed to keep up payments on her debt, while at the same time creating a welfare state and a free national healthcare system, and maintaining full employment. At the same time the British middle classes, though generally feeling somewhat shabby and impoverished during the post-war era, were not wholly ruined by the process. In fact, they survived sufficiently well to flourish again in the 1950s, once the phase of socialist austerity was over. Something similar to the British solution following the Second World War might, theoretically, have worked for Germany after 1918, if there had been a similar sense of national solidarity as was found among all classes in Britain in 1945; if, as in post-war Britain, the government had enjoyed a clear mandate for its policies; if the increasingly weak governments that ruled Germany after 1920 had not been hampered by their disunity and by an extreme, not to say violent, right-wing opposition.
Drunkenness, incest and violence were endemic.24 In the big tenement blocks that housed ordinary families in the industrial cities, most notoriously Berlin, the courtyards and inner tenements (the infamous Hinterhöfe) were arranged like Chinese boxes, with the most expensive flats on the outside, where there was light and air, and the cheapest, darkest and dampest making up the gloomy heart of the building. Combined with post-war shortages of affordable good quality food, and real wages that rarely rose up near the pre-war level and were usually much less, deteriorating living conditions also meant that diseases associated with deprivation and poverty rose sharply in the post-war inflation even during conditions of apparently full employment. The incidence in infants of rickets, caused by lack of vitamin D, a result of dietary insufficiencies but also of simple lack of access to sunlight, was estimated in 1921 for those under six months at 27.8 per cent, between six months and a year at 41.1 per cent, between a year and eighteen months at 40.2 per cent, for those between eighteen months and two at 32.4 per cent, and for those infants over two years old at 59 per cent.
The Inequality Puzzle: European and US Leaders Discuss Rising Income Inequality by Roland Berger, David Grusky, Tobias Raffel, Geoffrey Samuels, Chris Wimer
Branko Milanovic, Celtic Tiger, collective bargaining, corporate governance, corporate social responsibility, double entry bookkeeping, equal pay for equal work, fear of failure, financial innovation, full employment, Gini coefficient, hiring and firing, illegal immigration, income inequality, invisible hand, labour market flexibility, labour mobility, Long Term Capital Management, microcredit, offshore financial centre, principal–agent problem, profit maximization, rent-seeking, shareholder value, Silicon Valley, Silicon Valley startup, time value of money, very high income
Because my philosophy of life has been that a job, employment, doing something, is the core of self-confidence, of initiative, of everything. Neither society nor the individual can afford to be on the outside, to be excluded. To have a high employment level is the secret. The Scandinavian model has the advantage of a very big public sector. Yes, we pay a lot taxes. But on the other hand, you cannot have close to full employment in a society without having a very strong public sector, and you can’t have a 100 P.N. Rasmussen very strong public sector without having full employment. So full employment and the welfare state go hand-in-hand. What are your views about CEO compensation? Not only cleaners, taxi drivers, and unskilled workers have rights and duties; this also applies to CEOs, the bankers, and hedge fund managers. We should introduce new ethics based on rights and duties, which leads me to financial regulation, and remuneration and bonuses systems.
affirmative action, anti-communist, Ayatollah Khomeini, Berlin Wall, British Empire, carbon footprint, centre right, collective bargaining, energy security, full employment, Gunnar Myrdal, illegal immigration, immigration reform, low skilled workers, mass immigration, Mikhail Gorbachev, Naomi Klein, North Sea oil, open economy, postnationalism / post nation state, Potemkin village, Ronald Reagan, World Values Survey
In theory, any European law contrary to the values and objectives identified by the charter can now be declared null and void by the European Court of Justice. For example, the Court may force a rewriting of national laws regarding social and economic policy such as strikes, collective bargaining, and working hours. The Lisbon agreement added new social objectives to the charter, including full employment, eradication of poverty, and rights preventing social exclusion and discrimination. Two countries refused to sign the Charter of Fundamental Rights. Britain cited concerns over its ability to control social and economic policy and Poland was suspicious that its Catholicinspired moral and family policies would be open to challenge. The EU’s many different institutions and processes are designed to strengthen the sense of belonging of individual states to Europe’s community of nations.
In the West, agriculture had been fully mechanized and the rural population was in rapid decline. In the east, a remarkably high proportion of the population—40 percent in some countries—still worked on the land in the late 1980s. Western European governments were beginning to address the problem of environmental degradation, while those in the east were concerned primarily with maintaining the fiction of a full employment economy in which environmental regulations had no place. The communist economies had reached a breaking point. By the late 1980s, they faced the conundrum “damned if you do, damned if you don’t.” In the 1970s, people’s incomes in eastern Europe had increased, but then what we may call “Huntington’s law” kicked in. Named after political scientist Samuel Huntington, who had earlier written on convergence between 36 Chapter 1 the Cold War blocs, then on the new wave of democratization beginning in the late 1970s, and was later to write on the clash of civilizations, this “law” established a correlation between economic development and democratization.
It was particularly aimed at Germany’s Nazi experience, which habitually functioned as the European Community’s “Other.” By contrast, European social democracy was wrong-footed by its need to establish credentials as defender of the nation-state, thereby distinguishing itself from its leftist brethren in the internationalist camp spearheaded by the communists. Social democracy supported Christian democracy’s conceptualization of the social state and extended it farther with advocacy of full employment, welfarism, and social inclusion. As we discussed in the first chapter, communism’s collapse added further momentum for European enlargement and integration. In France, “many intellectuals—with the decline of Marxism, of universalism and of general ideologies promising a future paradise on earth—came back to a more realistic cause, and a democratic one: Europe.”45 After 1989, Europe became a democratic horizon for “the other Europe.”
The Cost of Inequality: Why Economic Equality Is Essential for Recovery by Stewart Lansley
banking crisis, Basel III, Big bang: deregulation of the City of London, Bonfire of the Vanities, borderless world, Branko Milanovic, Bretton Woods, British Empire, business process, call centre, capital controls, collective bargaining, corporate governance, corporate raider, correlation does not imply causation, creative destruction, credit crunch, Credit Default Swap, crony capitalism, David Ricardo: comparative advantage, deindustrialization, Edward Glaeser, falling living standards, financial deregulation, financial innovation, Financial Instability Hypothesis, floating exchange rates, full employment, Goldman Sachs: Vampire Squid, high net worth, hiring and firing, Hyman Minsky, income inequality, James Dyson, Jeff Bezos, job automation, John Meriwether, Joseph Schumpeter, Kenneth Rogoff, knowledge economy, laissez-faire capitalism, light touch regulation, Long Term Capital Management, low skilled workers, manufacturing employment, market bubble, Martin Wolf, mittelstand, mobile money, Mont Pelerin Society, Myron Scholes, new economy, Nick Leeson, North Sea oil, Northern Rock, offshore financial centre, oil shock, Plutocrats, plutocrats, Plutonomy: Buying Luxury, Explaining Global Imbalances, Right to Buy, rising living standards, Robert Shiller, Robert Shiller, Ronald Reagan, savings glut, shareholder value, The Great Moderation, The Spirit Level, The Wealth of Nations by Adam Smith, Thomas Malthus, too big to fail, Tyler Cowen: Great Stagnation, Washington Consensus, Winter of Discontent, working-age population
Committed to these radical ideas, the British Prime Minister and the American President subjected their economies to an all-embracing economic and social experiment. At the heart of this economic leap-in-the-dark was a switch in economic and political philosophy from the ‘managed capitalism’ of the post-war era to what might be called ‘market capitalism’. Central to the new philosophy was a belief in efficient and self-regulating markets. In the UK from the early 1980s, the commitments of managed capitalism to full employment, progressive taxation and inclusive welfare were dropped. Of course, the effect of this process was not a return to the much more laissez faire capitalism of the 1920s. Even by the mid-1990s, the state retained a major role in the running of the economy, with higher levels of public spending as a share of output than in the 1950s and 1960s. Nevertheless, most elements of the post-war ideological settlement—and its belief in economic fine-tuning, greater equality and a strong state—were scaled back.
Though the British and American economies did ultimately recover from the Great Depression—one of the deepest and longest in modern history—recovery was slow and too weak to prevent the persistence of widespread unemployment. Keynes argued strongly in 1933 that the stimulus packages eventually applied to boost purchasing power through public works in the United States and the United Kingdom were inadequate.300 As a result, full employment was not achieved until the end of the decade with the start of significant war spending. There is now a strong body of opinion that attributes a good deal of the blame for the Wall Street Crash and the Great Depression that followed on the mal-distribution of income. The 1920s was a time of low wages and irregular employment for many Americans, while the middle class represented only a small group in society.
In both periods, leading commentators believed the elusive secret of permanent prosperity had finally been found. There are also strong parallels between the dominant economic doctrines of the two periods, and their central belief in laissez-faire and the self-regulating nature of markets, without the need for government intervention or adequate wages to tackle shortfalls of demand. According to today’s market theorists, full employment can be secured by allowing wages to fall until equilibrium and stability is restored. This is remarkably similar to the ideas that helped to intensify the recessionary pressures that stemmed from the 1929 crash. There is also one final and particularly striking parallel. What Galbraith described as the ‘inordinate desire to get rich quickly’ of the 1920s returned in the decade leading to 2008-2009, bringing a range of business strategies that simultaneously undermined the foundations of the real economy.320 Notes 292 C Brown, ‘Does Income Distribution Matter for Effective Demand?’
Losing Control: The Emerging Threats to Western Prosperity by Stephen D. King
Admiral Zheng, asset-backed security, barriers to entry, Berlin Wall, Bernie Madoff, Bretton Woods, BRICs, British Empire, capital controls, Celtic Tiger, central bank independence, collateralized debt obligation, corporate governance, credit crunch, crony capitalism, currency manipulation / currency intervention, currency peg, David Ricardo: comparative advantage, demographic dividend, demographic transition, Deng Xiaoping, Diane Coyle, Fall of the Berlin Wall, financial deregulation, financial innovation, fixed income, Francis Fukuyama: the end of history, full employment, George Akerlof, German hyperinflation, Gini coefficient, hiring and firing, income inequality, income per capita, inflation targeting, invisible hand, Isaac Newton, knowledge economy, labour market flexibility, labour mobility, liberal capitalism, low skilled workers, market clearing, Martin Wolf, mass immigration, Mexican peso crisis / tequila crisis, Naomi Klein, new economy, old age dependency ratio, Paul Samuelson, Ponzi scheme, price mechanism, price stability, purchasing power parity, rent-seeking, reserve currency, rising living standards, Ronald Reagan, savings glut, Silicon Valley, Simon Kuznets, sovereign wealth fund, spice trade, statistical model, technology bubble, 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 Market for Lemons, The Wealth of Nations by Adam Smith, Thomas Malthus, trade route, transaction costs, Washington Consensus, women in the workforce, working-age population, Y2K, Yom Kippur War
Meanwhile, those on fixed monetary incomes – most obviously, pensioners – were often robbed of their savings through ever-bigger price increases. While the desire to control inflation is now a central tenet of monetary policy, the shift during the 1970s towards a focus on inflation rather than unemployment as the main macroeconomic policy objective represented a remarkable change of view compared with the 1960s, when most policymakers believed in the pursuit of full employment and didn’t worry too much about inflation. The best economic ideas tend, eventually, to go out of fashion, upstaged by unexpected or irregular economic developments. The shift in stance is summed up nicely in two well-known quotes. The first, ‘we are all Keynesians now’, is commonly attributed to US President Richard Nixon in 1971, although the original source was a tongue-in-cheek Milton Friedman in a 1965 edition of Time magazine, lamenting the dominance at the time of the intellectual ideas stemming from John Maynard Keynes’s General Theory of Employment, Interest and Money.2 The conventional wisdom held that Keynesian demand-management policies – changes in tax and public-spending levels to foster a desired level of economic activity – would bring about full employment.
The first, ‘we are all Keynesians now’, is commonly attributed to US President Richard Nixon in 1971, although the original source was a tongue-in-cheek Milton Friedman in a 1965 edition of Time magazine, lamenting the dominance at the time of the intellectual ideas stemming from John Maynard Keynes’s General Theory of Employment, Interest and Money.2 The conventional wisdom held that Keynesian demand-management policies – changes in tax and public-spending levels to foster a desired level of economic activity – would bring about full employment. These policies were to be actively used at all times to avoid a repeat of the economic calamities of the 1930s Depression. A handful of years later, with the onset of the excessive inflation of the 1970s, this view of the world was gradually rejected. Jim Callaghan, the UK prime minister at the time, administered the coup de grâce for Keynesian demand-management policies, at least from a British point of view, at the Labour Party conference in 1976: We used to think that you could spend your way out of a recession and increase employment by cutting taxes and boosting government spending.
Jim Callaghan, the UK prime minister at the time, administered the coup de grâce for Keynesian demand-management policies, at least from a British point of view, at the Labour Party conference in 1976: We used to think that you could 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 in so far 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.3 Put another way, if everyone knew a government was prepared to guarantee full employment through demand-management policies, it no longer mattered how far individual prices and wages rose. With everyone thinking along similar lines, inflation was bound to take off. Meanwhile, if some prices and wages rose faster than others, there would be an arbitrary and unfair redistribution of income and wealth. Those on fixed incomes – savers, pensioners – would lose out. Others – debtors, unionized workers able to demand annual wage increases – would gain.
anti-communist, battle of ideas, business climate, corporate governance, en.wikipedia.org, full employment, income inequality, invisible hand, liquidationism / Banker’s doctrine / the Treasury view, minimum wage unemployment, Mont Pelerin Society, new economy, old-boy network, popular capitalism, Powell Memorandum, price mechanism, profit motive, Ralph Nader, rent control, risk/return, road to serfdom, Ronald Reagan, school vouchers, shareholder value, spread of share-ownership, structural adjustment programs, The Chicago School, the market place, The Wealth of Nations by Adam Smith, Thomas L Friedman, Torches of Freedom, trade liberalization, traveling salesman, trickle-down economics, Upton Sinclair, Washington Consensus, wealth creators, young professional
Everyone knows that we are subject today to a high degree of governmental control, but too many may come to believe that the efﬁciency being displayed by industry derives from this wartime incident of centralized planning and administration, rather than the qualities inherent within industry itself. 45 In the immediate post-war period, key business organizations were concerned about government intervention and controls on the one hand, and union activity on the other – Big Government and Big Labour. Proposals for further government intervention included price controls, a rising minimum wage, expanded unemployment insurance and tax reforms. Unions were active and in some cases demanding not just improved pay and conditions, income security and full employment through government spending, but also a say in corporate decisions 24 FREE MARKET MISSIONARIES in areas such as pricing and investment. They were advocating social planning and expansion of the welfare state.46 The way in which business in the US used its power and resources to oppose unionism was unique in scale and comprehensiveness. In Britain unions were seen as necessary to containing radicalism and class struggle.
Although most people were in favour of private ownership and thought well of large corporations, a majority also thought that most businessmen did not have the good of the nation in mind when they made their decisions and therefore government oversight was necessary. Many believed that businesses made huge proﬁts and, business leaders felt, few understood the relationship between proﬁts and investment. Surveys showed that some 70 per cent of workers believed that the government should guarantee full employment. Many workers did not trust their employers and were not convinced of the value of free enterprise. A substantial number of workers, in fact, supported government ownership or control of the economy.52 PROMOTING BUSINESS VALUES 25 Business sought to deal with these threats by selling free enterprise on the basis that ‘if you control public opinion you have the government in your hand and labor behind the eight ball’.53 Public relations consultants, eager for business, promoted the need for their services.
Even those in full-time jobs were often paid less than what was needed to support a family. ‘The diseases of poverty – TB, rickets, and others – returned.’22 Those forced into unemployment found that welfare had also been subjected to fundamentalist policies that included reduced entitlements and other ‘incentives’ to ensure the unemployed would accept any job that was offered, no matter how poorly paid. The government goal of full employment that had been thought to be necessary for social stability and cohesion was abandoned in the name of Friedman’s theory of a natural rate of unemployment (see Chapter 7).23 Free market policies were bad enough for afﬂuent nations like Britain. Imposing such conditions on poor nations was devastating. Yet they were imposed on the most vulnerable nations by the multilateral development banks and the IMF, beginning with Mexico in 1982 when the Mexican government threatened to default on its $80 billion debt.
Running Money by Andy Kessler
Andy Kessler, Apple II, bioinformatics, Bob Noyce, British Empire, business intelligence, buy low sell high, call centre, Corn Laws, Douglas Engelbart, family office, full employment, George Gilder, happiness index / gross national happiness, interest rate swap, invisible hand, James Hargreaves, James Watt: steam engine, joint-stock company, joint-stock limited liability company, knowledge worker, Leonard Kleinrock, Long Term Capital Management, mail merge, Marc Andreessen, margin call, market bubble, Maui Hawaii, Menlo Park, Metcalfe’s law, Network effects, packet switching, pattern recognition, pets.com, railway mania, risk tolerance, Robert Metcalfe, Sand Hill Road, Silicon Valley, South China Sea, spinning jenny, Steve Jobs, Steve Wozniak, Toyota Production System, zero-sum game
It’s like living in 18th- and 19th-century England and knowing ahead of time how the whole Industrial Revolution ends up. You guys have to sit in Silicon Valley and try to ﬁgure out what the world is going to look like in 20 years. Good luck. Around here, I’ve seen this movie already. I get to cheat. I know how it ends.” “Isn’t it maturing faster than the West did?” “You’d think. But they do all the same stupid things—bad laws, protectionist policies, full employment instead of quality employment. When I do ﬁnd someone making money, I’ve got to worry about banks in the country overlending.” “Why does that matter?” I asked. “The U.S. trade deﬁcit means dollars pile up around here. If the banks lend too much, foreign money pulls out, the currency starts dropping, interest rates go up to keep money in the country and my little moneymaker gets sucked into a nasty depression and becomes worthless.”
Instead, steam ﬁlled the cylinder, which was then doused with cold water to rapidly cool it. When the steam turned to water, it created a vacuum, hopefully a strong enough vacuum to suck the piston down. This action then raised a rod that lifted a plunger of sorts, which tried to suck water up out of the mine. Ingenious for 1706, it huffed and puffed and barely had the power comparable to a horse or two. Since the engine broke down all the time, ﬁxing it was a full employment act for technicians like James Watt. Plus, someone constantly had to seal the cylinder to make a strong vacuum and prevent steam from leaking out of the craggy-edged cylinder. Wet hemp, Jamaica’s ﬁnest, was the sealant of the day. The professor in charge of Watt at Glasgow University, Dr. Joseph Black, was teaching courses, theorizing about a concept known as latent heat, starting back in 1761.
The mighty economies of Japan and Korea and Thailand are not taking over. Their output of cars and laptops and VCRs and DVD players and memory chips and computer monitors and sneakers is booming, but something’s wrong. They have giant factories with lots of lower-wage workers who wind wire, screw screws, bolt bolts, wrap plastic and stick in power cords. But that’s not what anyone pays for anymore. Their economies achieve full employment, sure, but these countries are not economic powerhouses. Not anymore. We were investing in companies with no more than 50–100 workers, most of them highly paid programmers and engineers, whose occupational hazard is coming down off a caffeine buzz and an occasional late night Nerf gun injury. Yet even after the market bubble burst in 2000, these companies would still be worth more than Ssangyong, a company a hundred or a thousand times their size.
Affordable Care Act / Obamacare, Air France Flight 447, air freight, airport security, Asian financial crisis, asset-backed security, bank run, banking crisis, break the buck, Bretton Woods, capital controls, central bank independence, cloud computing, collateralized debt obligation, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, currency peg, Daniel Kahneman / Amos Tversky, diversified portfolio, double helix, endowment effect, Exxon Valdez, financial deregulation, financial innovation, Financial Instability Hypothesis, floating exchange rates, full employment, global supply chain, hindsight bias, Hyman Minsky, Joseph Schumpeter, Kenneth Rogoff, London Whale, Long Term Capital Management, market bubble, money market fund, moral hazard, Myron Scholes, Network effects, new economy, offshore financial centre, paradox of thrift, pets.com, Ponzi scheme, quantitative easing, Ralph Nader, Richard Thaler, risk tolerance, Ronald Reagan, savings glut, technology bubble, The Great Moderation, too big to fail, transaction costs, union organizing, Unsafe at Any Speed, value at risk, William Langewiesche, zero-sum game
Economists had no overarching theory of how the broad economy worked—what we now call macroeconomics. Alfred Marshall had showed how individual markets worked, what we now call microeconomics. If demand for some commodity was perturbed, its price would fall until demand was restored, a condition called “equilibrium.” The overall economy was presumed to behave the same way: if the demand for labor suddenly shrank, wages would decline until full employment was restored. Prolonged periods of involuntary unemployment weren’t possible. Since the economy was largely self-regulating, there wasn’t much need for the federal government to intervene to right the ship, which is just as well since the government was tiny. In the 1930s, though, the Great Depression demonstrated that economies did not self-equilibrate. Government could make things much better, or much worse.
Individuals might rationally save more to protect their own financial security, but if everyone saved more and spent less, everyone’s income would go down, no one would be better off, and the economy would stay depressed. Keynes called this the “paradox of thrift.” It meant the economy could end up in a bad equilibrium rather than a good one. Thus was born a role for the government: if private individuals and businesses would not borrow and spend, the government would have to, and thereby push the economy back to “full employment,” which meant that everyone who wanted a job could find one. Between them, Fisher and Keynes provided an intellectual framework through which government could steer an economy away from both booms and depressions. Politically, the time was ripe; the economic devastation of the Great Depression made the public more amenable to activist government. Franklin Roosevelt didn’t just expand the government’s responsibility for the economy: he also extended its oversight of nature.
The economist’s term was “moral hazard”: the notion that when you protected people from the consequences of risky behavior, they take more risks. The upshot was that every well-intended effort to make us safer had unintended consequences that did the opposite. Macroeconomic engineering faced a similar critique. Keynes’s disciples figured they could use the levers of monetary policy (i.e., interest rates) and fiscal policy (i.e., the budget) to stimulate demand and hiring, and keep the economy at full employment. And for a while, it worked. But eventually, this strategy began to drive up inflation. In 1967 Milton Friedman predicted that as workers got used to higher inflation, they would demand higher wages—negating any additional demand for labor. By the 1970s, he was proved right as both unemployment and inflation rose, and recessions worsened. Friedrich Hayek’s star rose as Margaret Thatcher, Ronald Reagan, and other conservatives embraced his deep suspicion of government meddling.
When the Money Runs Out: The End of Western Affluence by Stephen D. King
Albert Einstein, Asian financial crisis, asset-backed security, banking crisis, Basel III, Berlin Wall, Bernie Madoff, British Empire, capital controls, central bank independence, collapse of Lehman Brothers, collateralized debt obligation, congestion charging, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, crony capitalism, cross-subsidies, debt deflation, Deng Xiaoping, Diane Coyle, endowment effect, eurozone crisis, Fall of the Berlin Wall, financial innovation, financial repression, fixed income, floating exchange rates, full employment, George Akerlof, German hyperinflation, Hyman Minsky, income inequality, income per capita, inflation targeting, invisible hand, John Maynard Keynes: Economic Possibilities for our Grandchildren, joint-stock company, liquidationism / Banker’s doctrine / the Treasury view, liquidity trap, London Interbank Offered Rate, loss aversion, market clearing, mass immigration, moral hazard, mortgage debt, new economy, New Urbanism, Nick Leeson, Northern Rock, Occupy movement, oil shale / tar sands, oil shock, old age dependency ratio, price mechanism, price stability, quantitative easing, railway mania, rent-seeking, reserve currency, rising living standards, South Sea Bubble, sovereign wealth fund, technology bubble, The Market for Lemons, The Spirit Level, The Wealth of Nations by Adam Smith, Thomas Malthus, Tobin tax, too big to fail, trade route, trickle-down economics, Washington Consensus, women in the workforce, working-age population
In 1943, Arthur Pigou (1877–1959) argued that, even allowing for the possibility of deficient demand, it need not persist: he suggested that, with falling prices and wages, the real value of money balances would rise and, hence, people would eventually spend more, thereby returning the economy back to full employment.3 Michael Kalecki (1899–1970) countered that, in a world of falling prices and wages, real debt levels would also rise, leading to wave upon wave of bankruptcies, thereby making the real balance effect largely irrelevant.4 Others suggested that, in the real world, wages and prices were typically ‘sticky’ and thus couldn’t fall far enough to deliver the adjustment that might otherwise have returned an economy to full employment. And, much later, Milton Friedman (1912–2006) and Anna Schwartz (born 1915) argued that the Great Depression was less a failure of the private sector but, instead, a failure on behalf of the Federal Reserve to offer enough liquidity to a system desperately short of money: Friedman’s monetarism is nowadays typically associated with the painful austerity established in the early 1980s by Margaret Thatcher in the UK and Paul Volcker in the US in a bid to bring inflation back to heel.
John Maynard Keynes offered a more attractive argument, at least from the policy-maker’s perspective. Like Karl Marx before him, he thought capitalism was unstable. Unlike von Mises, he didn’t think markets could easily heal. Instead, he came up with the idea of ‘deficient demand’, whereby the private sector, left to its own devices, could settle at a level of activity woefully too low to support full employment. This provided an automatic justification for policy activism. Keynes devised the ‘multiplier’, where an initial monetary or fiscal stimulus would lead to a much bigger overall effect on aggregate 57 4099.indd 57 29/03/13 2:23 PM When the Money Runs Out demand. For example, an increase in government spending funded by a larger budget deficit would create new jobs that, in turn, would boost aggregate household incomes, some of which would be spent on consumer goods, boosting company profits and, hence, triggering a new wave of job creation: the process would repeat itself, with each incremental increase in demand dependent on the extent of any increase in income spent rather than saved (the so-called marginal propensity to consume).
Brit-Myth: Who Do the British Think They Are? by Chris Rojek
Bob Geldof, British Empire, business climate, colonial rule, deindustrialization, demand response, full employment, Gordon Gekko, Isaac Newton, Khartoum Gordon, Live Aid, Mahatma Gandhi, mass immigration, means of production, post-industrial society, Red Clydeside, sceptred isle, Stephen Hawking, the market place, urban planning, Winter of Discontent
It is only with this war that the public associated Blair with outright fraudulence and the perpetration of blatant myths of intention. This perception cast a shadow over the conduct of Blair’s tenure at Downing Street. This obscured the progressive policies conducted under his leadership, such as the devolution of power to Scotland, Northern Ireland and Wales; the granting of independence to the Bank of England; the reform of the House of Lords; the creation of a stable economy; the achievement of near-full employment; the reduction of child poverty; the rise in benefit for one-parent families; the halving of the number of pensioners living under the poverty line; and substantial investment in central public services. Blair came to office with high ideals, a modern Hercules ready to cleanse the Augean stable of the Conservative era. It is the perception that he was too ready to abandon and compromise these ideals for the imperatives of realpolitik – particularly in preserving ‘the special relationship’ between Britain and the usa in respect of the unlawful invasion of Iraq – that tarnished his popularity and credibility.
The British feel squeezed between the omnipotent, arrogant American state, with which it shares its language and has many customs and traditions in common, and the European Union, the principal countries of which have a long history of intrigue against the British and speak different tongues to boot. At the same time, globalization, multiculturalism and multi-ethnicity have changed the pattern and appearance of erstwhile domestic institutions and ways of living. Building the welfare state required an influx of new labour from the Commonwealth. In 1945, the architects of new Britain may have looked forward to a future of roast beef on Sunday, warm beer, full employment for all and the chance for everyone to develop their talent. What actually happened was that architecture, cuisine, fashion, language and education were redefined through the complex adaptation between Anglo-Saxon/Celtic customs and traditions and the influx of multi-ethnic and multicultural influences. Many British citizens look at this and see the positive benefits of immigration in spreading cultural diversity, encourag177 EMPIRE AND PHOENIX ing creativity and developing an atmosphere of mutual tolerance.
The Extreme Centre: A Warning by Tariq Ali
Affordable Care Act / Obamacare, Berlin Wall, bonus culture, BRICs, British Empire, centre right, deindustrialization, Edward Snowden, Fall of the Berlin Wall, financial deregulation, first-past-the-post, full employment, labour market flexibility, land reform, light touch regulation, means of production, Mikhail Gorbachev, Monroe Doctrine, mortgage debt, negative equity, Neil Kinnock, North Sea oil, obamacare, offshore financial centre, popular capitalism, reserve currency, Ronald Reagan, South China Sea, The Chicago School, The Wealth of Nations by Adam Smith, trade route, trickle-down economics, Washington Consensus, Westphalian system, Wolfgang Streeck
But we live in a volatile world, and passivity is not an option. Sifting fact from fiction is not easy today, especially in the West; but even the apologists of the system are finding it increasingly difficult to portray the capitalist societies that emerged from the ruins of the Communist system, or those that renewed themselves in the post-Communist era, as exemplars of economic stability, full employment, continuous growth, social equality, or individual freedom in any meaningful sense of the word. Having defeated its old enemy ideologically and economically, the triumphant West is now living though the twilight of democracy. The ruling elites in the US and Europe, which so vigorously and shamelessly promoted their political system to win over the peoples of Eastern Europe, are now quietly disencumbering themselves of that very system.
These were: the existence of the Soviet Union (still seen at the time by millions across the globe as a viable anti-capitalist alternative), the growing polarization between fascism and the parties of the left in Europe, and the radicalization and unionization of American labour (which reached a peak with the workers’ occupation of the motor plants in Flint, Michigan in 1936, creating a new mood for change). These were the factors that delivered a set of Keynesian, social democratic reforms. The popularity of this outcome can be judged by the three successive terms awarded to the New Deal president Franklin Roosevelt. Greatly helped by the war economy, the system created and sustained a long postwar boom that enabled rising wages, full employment and the welfare state. This boom ended in 1970. The series of defeats inflicted on the US and Western European labour movements in the decade that followed were the prelude to the era of neoliberal globalization. This was followed by the collapse of the Soviet Union and the decision of the capitalist-roaders in the Chinese politburo to take another great leap forward. The tectonic plates had moved.
affirmative action, Affordable Care Act / Obamacare, Albert Einstein, anti-communist, back-to-the-land, Bernie Sanders, Bretton Woods, capital controls, centre right, collapse of Lehman Brothers, deindustrialization, desegregation, Donald Trump, eurozone crisis, financial deregulation, first-past-the-post, fixed income, full employment, ghettoisation, glass ceiling, hiring and firing, illegal immigration, immigration reform, income inequality, invisible hand, laissez-faire capitalism, mass immigration, means of production, neoliberal agenda, obamacare, Occupy movement, open borders, Plutocrats, plutocrats, Post-materialism, post-materialism, rolodex, Ronald Reagan, Silicon Valley, War on Poverty, We are the 99%, white flight, Winter of Discontent
Podemos, like Syriza, was an anti-austerity party contesting the EU’s rules and the Spanish government’s capitulation to them. Iglesias described Podemos’s goal as “post-neoliberalism.” Its program that first year called for ending evictions, creating a government-funded guaranteed annual income, auditing Spain’s debt with a view to not paying what was “illegitimate,” making the Stability and Growth Pact “flexible” and making it include “full employment” in its objectives, democratization of Brussels and rejection of the Lisbon Treaty, repeal of Spain’s balanced budget law, and a 35-hour workweek. Together, these demands established a divide between it and the government and main political parties, as well as between the Spanish people and Brussels. By their own admission, Podemos’s leaders thought that in order to extricate Spain fully from the Eurocrisis, Spain would eventually have to abandon the Euro itself, but they were aware that Spain’s voters, who had earlier prospered under the Euro, were unwilling to contemplate breaking with the EU.
The European Union and the Eurozone were built with the best of intentions, but many Europeans have not seen their benefits, particularly those who live in the less prosperous nations within the Eurozone. The case against the Euro is not new. It was stated clearly by economist Wynne Godley in the London Review of Books in 1992: What happens if a whole country—a potential ‘region’ in a fully integrated community—suffers a structural setback? So long as it is a sovereign state, it can devalue its currency. It can then trade successfully at full employment provided its people accept the necessary cut in their real incomes. With an economic and monetary union, this recourse is obviously barred, and its prospect is grave indeed unless federal budgeting arrangements are made which fulfill a redistributive role. And of course, no federal budgeting arrangements were made. Fiscal policy, and the revenues on which it is based have remained in national hands, and to make matters worse, the Stability and Growth Pact—and its 2012 successor, the Stability Pact—have drastically limited the use of deficit spending to ease unemployment.
A Classless Society: Britain in the 1990s by Alwyn W. Turner
Berlin Wall, Bob Geldof, British Empire, call centre, centre right, deindustrialization, demand response, Desert Island Discs, endogenous growth, Etonian, eurozone crisis, facts on the ground, Fall of the Berlin Wall, falling living standards, first-past-the-post, Francis Fukuyama: the end of history, friendly fire, full employment, global village, greed is good, inflation targeting, means of production, millennium bug, minimum wage unemployment, moral panic, negative equity, Neil Kinnock, offshore financial centre, old-boy network, period drama, Ronald Reagan, sexual politics, South Sea Bubble, Stephen Hawking, upwardly mobile, Winter of Discontent, women in the workforce
The social upheavals of the 1960s, when a cultural revolution began to challenge the legitimacy of the established order, were followed by the economic and industrial travails of the 1970s. Between them, they destroyed the post-war consensus, which had always been a typically British muddled compromise of a mixed economy and a shared Christian heritage, held together by the fantasy of growing prosperity. That came to an end in September 1976, with James Callaghan’s speech to the Labour Party conference. ‘The cosy world we were told would go on for ever, where full employment would be guaranteed by a stroke of the chancellor’s pen,’ he said; ‘that cosy world is gone.’ The story of these three volumes is essentially the tale of the building of a new consensus. It’s not as cosy. A sizeable minority of the population has been effectively excluded from mainstream society, historically terrifying levels of unemployment – however the figures are disguised – have become entrenched, and the concept of a job for life has long since vanished.
Part of the problem was that the price of that recession had been so painful, as Major admitted: ‘Unemployment rose from 1.75 million on the day I became prime minister to a peak of just under three million.’ This was the price that had apparently been worth paying for getting inflation under control, and, in this respect at least, it had been a success; although there was no prospect of a return to full employment, the high rates of inflation, once so familiar, had been vanquished and did not reappear. Keeping inflation at bay during the subsequent recovery was seen by some as a tribute to the work of Kenneth Clarke as chancellor of the exchequer – the combination of growth and low inflation had last been achieved under Roy Jenkins back in the 1960s – but it brought its own problems. Annual wage increases were smaller and, though this merely reflected low price rises, the illusion of a fast-growing pay packet wasn’t in evidence to help build what was known in the jargon of the time as ‘the feelgood factor’.
It was, wrote Jack Straw, ‘one of the most explicit statements of Marxist-Leninist values of any left-wing party in western Europe’. Though never pushed to its logical conclusion, this philosophy had inspired both the great reforming government of Clement Attlee in 1945 and, subsequently, some of the more radical thinkers on the left. It had come under threat, however, during the leadership of Hugh Gaitskell in the late 1950s, with an attempt to rewrite the clause. ‘The changing character of labour, full employment, new housing and the new way of living based on the telly, the fridge, the car and the glossy magazines – all these have had their effects on our political strength,’ argued Gaitskell. ‘We have to show we are a modern, mid-twentieth century party, looking to the future not to the past.’ But his attempt to rewrite the party’s aims was defeated at the 1959 conference, and thereafter the relevant passage from Clause IV was printed on every membership card as a token of a covenant.
activist fund / activist shareholder / activist investor, Albert Einstein, Asian financial crisis, banks create money, Bretton Woods, British Empire, capital controls, currency manipulation / currency intervention, currency peg, deindustrialization, European colonialism, facts on the ground, fiat currency, financial independence, floating exchange rates, full employment, global reserve currency, imperial preference, invisible hand, Isaac Newton, John Maynard Keynes: Economic Possibilities for our Grandchildren, Joseph Schumpeter, Kenneth Rogoff, margin call, means of production, money: store of value / unit of account / medium of exchange, Monroe Doctrine, New Journalism, open economy, Paul Samuelson, Potemkin village, price mechanism, price stability, psychological pricing, reserve currency, road to serfdom, seigniorage, South China Sea, special drawing rights, The Great Moderation, the market place, trade liberalization, Works Progress Administration
If the simple basic ideas can become familiar and acceptable, time and experience and the collaboration of a number of minds will discover the best way of expressing them.”87 The central argument of the book was revolutionary (at least to economists): the economy had no natural tendency toward full employment. High unemployment could persist indefinitely if governments did not intervene forcefully to boost consumption demand. Cheap money provided by the central bank was not enough. This was wholly contrary to classical economics, which held that protracted involuntary unemployment was a result of some interference in the workings of the price mechanism. Classical economics showed that full employment required flexible wages; Keynes showed why, with different assumptions, falling wages could actually worsen unemployment. These different assumptions were related to the nature of money, human psychology, and conventions of contemporary society.
This owes to the fact that “the mere circumstance of creation of one product immediately opens a vent for other products”; the creator supplies because he demands.91 Keynes argued that Say’s Law had everything the wrong way around; in fact, it was “expenditure [that] creates its own income.”92 It was demand, not supply, that determined the level of economic activity. It was investment that called forth the requisite savings, through its boosting of income; not the other way around. The result, in Keynes’s theoretical apparatus, was that demand, given the psychological factors that tended to depress it, could at any given time be insufficient to ensure full employment. Classical economics was wrong on this central issue, with terrible consequences when its prescriptions were followed. It was “a peculiarity of Keynes’s work,” FDR economic adviser Lauchlin Currie wrote in a review of The General Theory, “that he appears always to think of an increase in income as being generated by an increase in investment and never by an increase in consumption.” Currie thought it “would make it more acceptable” to the president, however, if he placed the emphasis on consumption rather than investment, while still branding his analysis “Keynesian.”
He saw deflation and unemployment as wholly unnecessary evils that were only perpetuated by human attachment to outworn or patently false economic doctrines. In the interests of preventing deflationary pressures, capital outflows, which were central to the automatic adjustment mechanism of the gold standard, needed to be subject to tight national controls (a position he began advocating as early as 1924). Governments needed to keep interest rates low enough to maintain full employment (a position he first articulated in his 1930 Treatise on Money), and not allow them to rise beyond this by dint of impersonal forces such as gold sales. Keynes set out to spend several days starting Wednesday, September 3, cloistered in Tilton drafting, as he explained to his mother, “a heavy memorandum on post-war international currency plans.” This was interrupted by a summons to London to meet with Bank of England governor Montagu Norman on Friday the fifth, at which he was asked to join the bank’s board of directors.
Capitalism and Freedom by Milton Friedman
affirmative action, Berlin Wall, central bank independence, Corn Laws, Deng Xiaoping, floating exchange rates, Fractional reserve banking, full employment, invisible hand, Joseph Schumpeter, liquidity trap, market friction, minimum wage unemployment, price discrimination, rent control, road to serfdom, Ronald Reagan, secular stagnation, Simon Kuznets, the market place, The Wealth of Nations by Adam Smith, union organizing
National parks, as noted above. 13. The legal prohibition on the carrying of mail for profit. 14. Publicly owned and operated toll roads, as noted above. This list is far from comprehensive. 1 A. V. Dicey, Lectures on the Relation between Law and Public Opinion in England during the Nineteenth Century (2d. ed.; London: Macmillan & Co., 1914), p.li Chapter III The Control of Money “FULL EMPLOYMENT” and “economic growth” have in the past few decades become primary excuses for widening the extent of government intervention in economic affairs. A private free-enterprise economy, it is said, is inherently unstable. Left to itself, it will produce recurrent cycles of boom and bust. The government must therefore step in to keep things on an even keel. These arguments were particularly potent during and after the Great Depression of the 1930’s, and were a major element giving rise to the New Deal in this country and comparable extensions of governmental intervention in others.
Even during the so-called great days of the gold standard in the nineteenth century, when the Bank of England was supposedly running the gold standard skilfully, the monetary system was far from a fully automatic gold standard. Even then it was a highly managed standard. And certainly the situation is now more extreme as a result of the adoption by country after country of the view that government has responsibility for “full employment.” My conclusion is that an automatic commodity standard is neither a feasible nor a desirable solution to the problem of establishing monetary arrangements for a free society. It is not desirable because it would involve a large cost in the form of resources used to produce the monetary commodity. It is not feasible because the mythology and beliefs required to make it effective do not exist.
Nickel and Dimed: On (Not) Getting by in America by Barbara Ehrenreich
business process, full employment, housing crisis, income inequality, McMansion, place-making, sexual politics, telemarketer, union organizing, wage slave, women in the workforce, working poor, zero day
During the heyday of downsizing in the Reagan years, it very often was, and it still is for many inner-city residents who have no way of getting to the proliferating entry-level jobs on urban peripheries. When unemployment causes poverty, we know how to state the problem—typically, “the economy isn't growing fast enough”—and we know what the traditional liberal solution is—“full employment.” But when we have full or nearly full employment, when jobs are available to any job seeker who can get to them, then the problem goes deeper and begins to cut into that web of expectations that make up the “social contract.” According to a recent poll conducted by jobs for the Future, a Boston-based employment research firm, 94 percent of Americans agree that “people who work fulltime should be able to earn enough to keep their families out of poverty.” I grew up hearing over and over, to the point of tedium, that “hard work” was the secret of success: “Work hard and you'll get ahead” or “It's hard work that got us where we are.”
Andrei Shleifer, asset-backed security, balance sheet recession, bank run, banking crisis, Ben Bernanke: helicopter money, break the buck, Carmen Reinhart, collapse of Lehman Brothers, creative destruction, debt deflation, Edward Glaeser, en.wikipedia.org, financial innovation, full employment, high net worth, Home mortgage interest deduction, housing crisis, Joseph Schumpeter, Kenneth Rogoff, liquidity trap, Long Term Capital Management, market bubble, Martin Wolf, money market fund, moral hazard, mortgage debt, negative equity, paradox of thrift, quantitative easing, Robert Shiller, Robert Shiller, school choice, shareholder value, the payments system, the scientific method, tulip mania, young professional, zero-sum game
If they cannot lower costs by lowering wages, they will fire workers. Fired autoworkers will try to get hired at the barbershop, but the inability of wages to decline will prevent them from getting a job. As a result, workers on Creditor Island become unemployed even though they never had any debt at all. This simple example assumes wage rigidity to prevent the reallocation needed to maintain full employment. Debtor Island workers need to switch from barbershops to the auto industry, and Creditor Island workers need to switch from the auto industry to barbershops. When a local economy suffers a demand shock, workers need to be reallocated from sectors catering to local demand to sectors catering to external demand. Flexible wages would allow this reallocation to occur, while rigid wages prevent it.
Using a few technical assumptions, we estimate that 4 million jobs were lost between March 2007 and March 2009 because of levered losses, which represents 65 percent of all jobs lost in our sample.3 Frictions, Frictions As mentioned in the last chapter, according to the fundamentals view, there shouldn’t be such widespread unemployment. Instead, the economy has mechanisms that should make it flexible and maintain full employment, even in the face of a large negative demand shock. For example, in the sectors and locations hardest hit, wages should decline. In the Central Valley in California, the sharp decline in demand should have lowered wages in restaurants, retail outlets, and other jobs catering to local demand. Lower wages should have encouraged retail establishments to keep workers rather than firing them. And as some workers left these industries in search of better wages, this should have lowered wages in the exporting sector of the economy.
Airbnb, bank run, banks create money, Bernie Madoff, bitcoin, Bretton Woods, Carmen Reinhart, corporate raider, correlation does not imply causation, creative destruction, Credit Default Swap, crony capitalism, crowdsourcing, Donald Trump, Downton Abbey, fiat currency, financial innovation, Fractional reserve banking, full employment, George Gilder, Home mortgage interest deduction, Jeff Bezos, job automation, Joseph Schumpeter, Kenneth Rogoff, Kickstarter, liquidity trap, Mark Zuckerberg, market bubble, money market fund, moral hazard, mortgage tax deduction, NetJets, offshore financial centre, oil shock, peak oil, Peter Thiel, price stability, profit motive, quantitative easing, race to the bottom, Ronald Reagan, self-driving car, sharing economy, Silicon Valley, Silicon Valley startup, Steve Jobs, The Wealth of Nations by Adam Smith, too big to fail, Uber for X, War on Poverty, yield curve
We’d be a Wall Street laughingstock.”5 Security Pacific ultimately secured a loan from First Boston worth $1 billion in order to continue operating without Fed support. What Smith’s story illustrates is that the Fed is now a lender of last resort only for banks that cannot secure private funding. Therefore, this function of the Fed must be shut down with the banking system and overall economy in mind. Through a congressional mandate (aka the Humphrey-Hawkins Full Employment Act), the Fed is required to balance unemployment with inflation. But as the previous chapter made plain, the two have nothing to do with one another. It’s also hard to control what one doesn’t understand. To the Fed, inflation is caused by prosperity, at which point it strives to fiddle with interest rates and money supply in order to limit the economy’s ability to grow. Yet prosperity is the enemy of rising prices, while money supply is a function of production.
See federal government Gray, Freddie, 135 Grazer, Brian, 22–23, 24–25, 26 Great Depression, 106, 141–43, 147, 168 The Greatest Trade Ever (Zuckerman), 45, 120 Greenspan, Alan, 119, 120, 164 Greider, William, 121 Griffin, Ken, 41 Guest, Christopher, 22 Guillies, Wendy, 175 Hamm, Harold, 73 Hanks, Tom, 22 Hannah, Daryl, 23 Harbaugh, Jim, 16–18, 20, 21, 79, 103, 127 hard assets, 118 Harford, Tim, 32, 64–65 Hartnett, Josh, 24 Hastert, Dennis, 52 Hawaiian Airlines, 34–35 Hawn, Goldie, 24 Hayward, Steven, 49, 50 Hazlitt, Henry, 22, 64, 74, 113, 163, 176 Heaven Can Wait (film), 23 hedge-fund managers, 48 Heller, Walter, 54 Hemingway, Ernest, 91 Hendrickson, Mark, 80 high-yield “junk bonds,” 37–40, 126 Hilsenrath, Jon, 147, 148 Hoffman, Dustin, 23 Hoke, Brady, 16, 20–21, 78–79, 103, 115, 127, 128, 148 Hollywood Shuffle (film), 109 Hoover, Herbert, 142, 168 Hoover Institution, 102 housing booms and “easy credit,” 113–22 and value of the dollar, 116–22 housing market and mortgage-backed securities, 150–52 Howard, Ron, 22–23 How We Got Here (Frum), 118 Human Action (von Mises), 20 Humphrey-Hawkins Full Employment Act, 165 hyperinflation in post-WWII Germany, 90–91 IBM, 53 Imagine Entertainment, 22–23 inflation Friedman’s view of, 136 inability of Fed to control, 159–61, 165 and value of the dollar, 43 inherited wealth, 29–30 initial public offering (IPO), 29, 124 innovation and definitions of success or failure, 29–30 and entrepreneurs, 66 and failure, 57–58 The Innovators (Isaacson), 31 insider trading, 38 Inside the Nixon Administration (Burns), 170 Intel, 143 intellectual property rights, 9–10 interest rates and the cost of credit, 1–3, 13–14, 47–48, 147 and the Fed on inflation as source of economic growth, 156–61, 165–66 housing boom and “easy credit,” 113–16, 120–22 and quantitative easing (QE) program, 149–51 Internet banking, 108, 111 Internet “bubble,” 57–58 Internet job creation, 178–79 investment banking, 123 Iron Man (films), 25 Ishtar (film), 23 Jagger, Mick, 25 James, LeBron, 137–38 Japan after World War II, 128 Bank of Japan and Nikkei index, 152, 159 job creation and robots, 176–80 Jobs, Steve, 30–31 Johnson, Lyndon B., 49, 53 Johnson, Mark, 153 Jones, Jesse, 167 “junk bonds,” 37–40, 126 Kalanick, Travis, 12, 13 Karlgaard, Rich, 160 Kashgar, 138 Kauffman Foundation, 175 Keaton, Diane, 24 Kelly, Jason, 126 Kennedy, John F., 49–50, 169 Kennedy, Robert F., 34 Keynesian economics, 78–82, 88, 93–96, 140–41 Keynes, John Maynard, 78, 147 Kickstarter, 110 Kiffin, Lane, 20 Kinski, Nastassja, 24 Knowledge and Power (Gilder), 57 Kohli, Shweta, 107 Kohn, Donald, 156 Kornbluth, Walter, 22 labor as credit, 15–21 Laffer, Arthur, 55, 137, 157, 158 Laffer curves, 50, 54–55 Lawrence, Jennifer, 37–38 Lee, Spike, 109, 110 Lending Club, 107–8 Leubsdorf, Ben, 156 Levy, Eugene, 22 Lewis, Nathan, 72, 137, 141–42, 144 LewRockwell.com website, 94 Lisa computer, 30 Lombard Street (Bagehot), 46 Luck, Andrew, 16–17 McAdams, Hall, 89–90, 104 McConnell, Mitch, 51 Mack, John J., 123, 130 Madoff, Bernard, 163 Mann, Windsor, 78 Margolis, Eric, 94, 96 market “bubbles,” 56–63 market forces and government spending, 59–60 price of goods versus price of dollars, 1–2 von Mises on, 20, 152 market intervention and the Fed, 159–61 Mazursky, Paul, 24 Medicare, 53, 78, 174 Merrill Lynch, 120 Metro public transit, 10–11 Meyer, Urban, 17–18 Microsoft, 30–31, 125, 143, 155 Milken, Michael, 38–40, 114, 126 Mill, John Stuart, 76 Mindich, Eric, 45–46 Mission Asset Fund, 107 mobile phones, 53–54 monetarism, 135–36, 138 money and Chinese economy, 135–36, 137 and economic activity, 3, 136–37, 140, 143 and gold standard, 68 and the Great Depression, 141–43, 147, 168 market monetarism, 138–39 as measure of wealth, 67–68 monetarism, 135–36, 138 “money multipliers” and “fractional lending,” 87–90 private money supplies, 144–45 and stable currency, 137, 144 Money and Foreign Exchange After 1914 (Cassel), 119 Moore, Gordon, 31 Moore, Stephen, 50–51 Morgan, J.
Walk Away by Douglas E. French
Elliott wave, forensic accounting, full employment, Home mortgage interest deduction, loss aversion, McMansion, mental accounting, mortgage debt, mortgage tax deduction, negative equity, New Journalism, Own Your Own Home, Richard Thaler, Robert Shiller, Robert Shiller, the market place, transaction costs, unbiased observer, wealth creators
When Federal Reserve Chairman Ben Bernanke was questioned in 2005 about whether house prices might be getting ahead of the fundamentals, he replied: Well, I guess I don’t buy your premise. It’s a pretty unlikely possibility. We’ve never had a decline in house prices on a nationwide basis. So what I think is more likely is that house prices will slow, maybe stabilize: might slow consumption spending a bit. I don’t think it’s going to drive the economy too far from its full employment path, though. The same year Bernanke was testifying that housing prices wouldn’t go down, “economists estimated that roughly half of all economic activity was tied to housing,” wrote Peter S. Goodman in Past Due: The End of Easy Money and the Renewal of the American Economy, “either through home-building, the purchase of housing-related goods like furniture and appliances, or spending unleashed by people borrowing against the increased value of their homes.”
Andrei Shleifer, asset-backed security, bank run, banking crisis, Benoit Mandelbrot, Berlin Wall, Bernie Madoff, Big bang: deregulation of the City of London, Bretton Woods, capital controls, carbon footprint, Carmen Reinhart, Cass Sunstein, centre right, choice architecture, cloud computing, collective bargaining, conceptual framework, Corn Laws, corporate governance, creative destruction, credit crunch, Credit Default Swap, debt deflation, decarbonisation, Deng Xiaoping, discovery of DNA, discovery of the americas, discrete time, diversification, double helix, Edward Glaeser, financial deregulation, financial innovation, financial intermediation, first-past-the-post, floating exchange rates, Francis Fukuyama: the end of history, Frank Levy and Richard Murnane: The New Division of Labor, full employment, George Akerlof, Gini coefficient, global supply chain, Growth in a Time of Debt, Hyman Minsky, I think there is a world market for maybe five computers, income inequality, inflation targeting, interest rate swap, invisible hand, Isaac Newton, James Dyson, James Watt: steam engine, joint-stock company, Joseph Schumpeter, Kenneth Rogoff, knowledge economy, knowledge worker, labour market flexibility, liberal capitalism, light touch regulation, Long Term Capital Management, Louis Pasteur, low-wage service sector, mandelbrot fractal, margin call, market fundamentalism, Martin Wolf, mass immigration, means of production, Mikhail Gorbachev, millennium bug, money market fund, moral hazard, moral panic, mortgage debt, Myron Scholes, Neil Kinnock, new economy, Northern Rock, offshore financial centre, open economy, Plutocrats, plutocrats, price discrimination, private sector deleveraging, purchasing power parity, quantitative easing, race to the bottom, railway mania, random walk, rent-seeking, reserve currency, Richard Thaler, Right to Buy, rising living standards, Robert Shiller, Robert Shiller, Ronald Reagan, Rory Sutherland, Satyajit Das, shareholder value, short selling, Silicon Valley, Skype, South Sea Bubble, Steve Jobs, The Market for Lemons, the market place, The Myth of the Rational Market, the payments system, the scientific method, The Wealth of Nations by Adam Smith, too big to fail, unpaid internship, value at risk, Vilfredo Pareto, Washington Consensus, wealth creators, working poor, zero-sum game, éminence grise
Between 1945 and the early 1970s governments could change their public borrowing upwards and downwards with reliable and predictable impacts on growth and employment. But over the 1960s the relationships began to weaken. Deficits delivered more inflation and less growth. Firms tended to raise their prices and trade unions their members’ wages, confident that governments would want to maintain the level of demand. Economies had reached full employment, and firms and unions had wised up to the opportunities that fiscal policy created – in essence, they used it to extract benefits from seemingly helpless governments. Consequently, a new market-fundamentalist consensus emerged. It declared that governments would simply generate inflation if they tried to boost employment above its natural level. Moreover, it claimed that incomes policies and other statist interventions that tried to preserve the effectiveness of fiscal policy could not work.
The Institute for Fiscal Studies estimates that it would raise a net 2 per cent of national output in revenue.18 One overwhelmingly fair way to create more revenue and reduce current spending is for the baby boomers to share a dis-proportionate share of the burden. They have done well over the last five or six decades; it is now their children who are dispro-portionately suffering – and the equation should be inverted. As David Willetts argues in his intriguing book The Pinch, written before he became Universities and Skills Minister, the generation born in the 1950s and 1960s has been extraordinarily blessed by largely full employment and booming house prices.19 They are the gilded pig moving through the British benefit and welfare python. Willetts estimates that they have received 118 per cent more in benefits than they have contributed. They have benefited from free university education. The majority of them will receive a generous pension on retirement. A third of the £3.5 trillion value of all UK pension benefits is held by those aged 55 to 64, while those aged between 45 and 54 hold a further quarter.
Jamie Doward, ‘Eastern European Immigration “Has Hit Low-Paid Britons”’, Observer, 17 January 2010, at http://www.guardian.co.uk/uk/2010/jan/17/eastern-european-immigration-hits-wages. 41 Ruth Sunderland, ‘Cameron’s Right about Marriage, but Wrong on How to Support It’, Observer, 10 January 2010, at http://www.guardian.co.uk/ commentisfree/2010/jan/10/ruth-sunderland-marriage-tory-policy. See also Nik Theodore (2009) ‘New Labour at Work: Long-Term Unemployment and the Geography of Opportunity’, Cambridge Journal of Economics 31: 927–39; Robert Rowthorn (2000) ‘Kalecki Centenary Lecture: The Political Economy of Full Employment in Modern Britain’, Oxford Bulletin of Economics and Statistics 62: 139–73; and Ioannis Kaplanis (2007) ‘The Geography of Employment Polarisation in Britain’, report, IPPR. 42 Steven Durlauf, ‘Groups, Social Influences and Inequality’, in Samuel Bowles, Steven Durlauf and Karla Hoff (2006) Poverty Traps, Princeton University Press. See also Jonathan Gruber (ed.) (2001) Risky Behavior among Youths, University of Chicago Press; and BIS (2008) ‘Foresight Project on Mental Capital and Wellbeing’, report. 43 Sutton Trust and the Department for Business, Innovation and Skills (2009) ‘Applications, Offers and Admissions to Research Led Universities’, joint report. 44 Simon Briscoe, ‘Exam Ability No Key to Oxbridge’, Financial Times,18 September 2007, at http://www.ft.com/cms/s/0/dbf5d3ba-6610-11dc-9fbb-0000779fd2ac.html. 45 Cabinet Office (2009) Unleashing Aspiration: The Final Report of the Panel on Fair Access to the Professions, HMSO. 46 Richard Murphy, (2008) ‘The Missing Billions: The UK Tax Gap’, TUC Touchstone Pamphlet No. 1. 47 Ibid. 48 Jacob Hacker (2006) The Great Risk Shift: The Assault on American Jobs, Families, Health Care and Retirement and How You Can Fight Back, Oxford University Press. 49 European Commission Flash Barometer (2007) ‘Entrepreneurship Survey of the EU (25 Member States) United States, Iceland and Norway’, analytical report, Flash Eurobarometer No. 192. 50 Robert Shiller (2004) The New Financial Order: Risk in the 21st Century, Princeton University Press. 51 Daron Acemoglu and Robert Shimer (1999) ‘Efficient Unemployment Insurance’, Journal of Political Economy [University of Chicago] 107 (5): 893–928. 52 Lans Bovenberg and Ton Wilthagen (2008) On the Road to Flexicurity, Tilburg University.
The Divided Nation: A History of Germany, 1918-1990 by Mary Fulbrook
Albert Einstein, banking crisis, Berlin Wall, centre right, collective bargaining, deindustrialization, Fall of the Berlin Wall, feminist movement, first-past-the-post, fixed income, full employment, joint-stock company, land reform, means of production, Mikhail Gorbachev, open borders, Peace of Westphalia, Sinatra Doctrine, union organizing, unorthodox policies
While autobahns would later be highly useful for the rapid movement of troops, they could also serve more immediate ideological ends, symbolizing the rebuilding of the community and the integration of its different parts into one future-oriented national whole. 13 Schacht's New Plan of 1934 marked the first stage in the planned development of autarky, (although Schacht himself was an opponent of out-and-out autarky) with bilateral trade agreements between pairs of countries not relying on certain international foreign currency exchanges. Page 84 By 1935, however, it was becoming clear that, despite the return towards full employment, Germany's economic problems were by no means resolved. With a shortage of foreign exchange reserves, a choice had to be made between the import of raw materials for the rearmament programme or of foodstuffs for consumers. Moreover, there were splits within industry: while some industries, most notably the great chemical combine I. G. Farben, supported the manufacture of synthetic materials and an economy of autarky, others, more export-oriented, were opposed to such policies.
Although the older orthodox Marxist interpretation of fascism as the last ditch stand of a capitalist state in crisis is untenable, it is by no means clear either that a pure 'primacy of politics' was achieved. Some industries benefited from close collaboration with the state; others attempted to resist interference; and while the Nazis attempted to control the direction of economic policy, they were by no means always successful; nor could they be, given their own partly mutually contradictory aims. Moreover, the successes of economic recovery and a return to full employment by 1936 had by 1939 generated a shortage of skilled labour, necessitating the conscription of workers into compulsory labour service on certain projects. There were also conflicts between aspects of Nazi ideology and the demands of reality: women, for example, despite Nazi views of their proper place being in the home, in fact participated in increasing numbers in paid employment outside the home, even before the more acute shortages of (iterally) manpower in wartime years.
There were also conflicts between aspects of Nazi ideology and the demands of reality: women, for example, despite Nazi views of their proper place being in the home, in fact participated in increasing numbers in paid employment outside the home, even before the more acute shortages of (iterally) manpower in wartime years. What is quite clear is that, far from achieving a social revolution, the effects of Nazi economic policies on society represented in large measure a continuation and perhaps exacerbation of previous socio-economic trends. Realities under Nazi rule by no means corresponded with pre-1933 election promises. While the return to full employment did mean jobs and a steady income for many, the associated withdrawal of trade union rights and collective bargaining, as well as the very variable rates of pay and conditions, rendered the experience at best an ambiguous one. Despite attempts by the All-German Federation of Trade Unions (ADGB) to reach a compromise with the new regime in April 1933, autonomous trade unions had been unequivocally smashed; and although many workers were prepared somewhat cynically to enjoy any holidays or outings Page 86 offered to them by organizations such as Strength through Joy, few really swallowed much of the propaganda about the 'harmonious factory community' and the like.
Hard Times: The Divisive Toll of the Economic Slump by Tom Clark, Anthony Heath
Affordable Care Act / Obamacare, British Empire, Carmen Reinhart, credit crunch, Daniel Kahneman / Amos Tversky, debt deflation, deindustrialization, Etonian, eurozone crisis, falling living standards, full employment, Gini coefficient, hiring and firing, income inequality, interest rate swap, invisible hand, John Maynard Keynes: Economic Possibilities for our Grandchildren, Kenneth Rogoff, labour market flexibility, low skilled workers, mortgage debt, new economy, Northern Rock, obamacare, oil shock, Plutocrats, plutocrats, price stability, quantitative easing, Right to Buy, Ronald Reagan, science of happiness, statistical model, The Wealth of Nations by Adam Smith, unconventional monetary instruments, War on Poverty, We are the 99%, women in the workforce, working poor
And, looking further ahead, will the bitter experiences of today's jobless fathers be visited on their children, too? The last time the storm hit this hard, Roosevelt in the US (and later, Beveridge in Britain) responded with a bold agenda that did not merely clear up the immediate disaster, but also sought to ensure that no future gale could bring the same misery. Alongside the aim of creating a full-employment economy to provide decent jobs, the ambition then was to build a comprehensive welfare state that would provide shared shelter whenever the economy faltered. Although policy has followed somewhat different paths in London and Washington this time, the recent record of both – upon which Chapter 8 concentrates – could reasonably be caricatured as knocking down storm defences. Chapter 9 asks why, and looks for signs of opinions polarising along faultlines that have been sharpened by the slump.
For the UK, the data is from the same 1958 cohort study (the National Child Development Survey) that we used in the analysis of scarring in civic life; for the US, however, we exploit a different, nationwide sample of people born a few years later, in the early 1960s, from the National Longitudinal Survey of Youth. While these Britons and Americans were all born into the very different post-war world of full employment, the young women of this generation had their early experience of work in the decidedly ‘hard times’ context of the early 1980s labour market. Taking the UK data first, British girls raised in ‘workless homes’69 spent on average 14% more of their total time as young adults without a job than did their peers from working homes; between the ages of 16 and 29 that adds up to a difference of about 1 year 10 months.
Just listen to Roosevelt's second inaugural – ‘we refused to leave the problems of our common welfare to be solved by the winds of chance and the hurricanes of disaster’ – and you can hear how the New Deal was deliberately rooted in this sort of argument.4 The same logic animated Britain's post-war reconstruction. The ‘all in it together’ pitch supported not only social insurance and labour market protections, but also the macroeconomic commitment to full employment, which became a settled objective for governments in both the UK and the US until it was dislodged by alarm over the great inflation of the 1970s. Just as with taxes and spending, macroeconomic choices over interest rates and so on will create winners and losers, and the balance of political power between them will bear upon the direction of policy.5 But monetary policy in the Great Recession has been nothing like as controversial as during the Depression: this time reflationists have carried the day with relative ease in Britain and America, if not continental Europe.
Crisis and Leviathan: Critical Episodes in the Growth of American Government by Robert Higgs, Arthur A. Ekirch, Jr.
Alistair Cooke, clean water, collective bargaining, creative destruction, credit crunch, declining real wages, endowment effect, fiat currency, fixed income, full employment, hiring and firing, income per capita, Joseph Schumpeter, laissez-faire capitalism, manufacturing employment, means of production, minimum wage unemployment, Plutocrats, plutocrats, post-industrial society, price discrimination, profit motive, rent control, rent-seeking, Richard Thaler, road to serfdom, Ronald Reagan, Simon Kuznets, strikebreaker, The Wealth of Nations by Adam Smith, total factor productivity, transaction costs, transcontinental railway, union organizing, Upton Sinclair, War on Poverty, Works Progress Administration
Some price controls continued until late 1946; some "wartime" subsidies were paid until the summer of 1947; rent controls persisted even longer. 76 The war had taught the American people many lessons, some true, some false. Of the latter sort, a leading example was the Keynesian illusion, the belief that the federal government's management of the economy, primarily by its fiscal policies, can prevent business declines and stabilize the economy as it grows. Herbert Stein has noted that "[t]he great weight assigned to full employment as a postwar goal certainly resulted from the achievement of full employment during the war against the background of ten years of depression." But the notion that wartime "full employment" had resulted from the huge federal deficits was false. Quite simply, unemployment fell mainly because of the buildup of the armed forces. Between 1940 and 1945 the number of persons classified as unemployed fell by about seven million, while the number of persons in the armed forces rose by more than eleven million (see Table 9.1).
Then, of course, there is the impact of the Underground system in wartime (see Chapter 14). Of course everyone thinks of the Second World War, but, as this book shows, the Underground was even used briefly for shelter in the First. Another little-told story is how in the 1950s London Transport changed the demography of the capital by recruiting directly in the Caribbean and Africa for cheap labour to run the Underground and the buses at a time of full employment among the British population (see Chapter 15). Taking this all together, it is no exaggeration to say that the Underground helped build the London we know today more than any other institution. This book is an attempt to do justice to the achievement of the Underground pioneers not only for having produced a transport system which, for a time, was unparalleled anywhere in the world, but also for having helped create and transform the city.
In 1948, when LT came under the wing of the British Transport Commission, there were 720 million passengers5 annually, a number that would not be bettered until the late 1980s. Between 1950 and 1965 the number of cars registered in London quadrupled, from under 500,000 to nearly 2 million and, as Ashfield had predicted, this had a major impact on the Underground. In the 1950s, the annual passenger totals on the Underground hovered around 670 million, as those taking to their cars were replaced by new workers since London was enjoying virtually full employment. Then, despite the advent of the new Victoria line, numbers went into a decline – partly because TV ownership was becoming universal and proving more of an attraction than the cinema or theatre which often involved a trip up to town on the Underground. The other social factor which affected the Underground was a tremendous labour shortage caused by the huge upsurge of jobs in the peripheral areas of the capital, notably on the Great West Road and the North Circular, as well as Heathrow Airport.
Employing immigrants from the Commonwealth was encouraged by the Tory government in the 1950s – a fact which seems extraordinary in these days of obsession with the problems caused by ‘asylum seekers’ – and London Transport was to play a key role in attracting immigrants, leading the way by opening an office in Barbados. LT’s motives were hardly altruistic. With the post-war boom in full flow there was full employment, which meant that bus and Underground staff were in desperately short supply because of the low wages. This had been partly alleviated by the employment of women, who had started being taken on as bus conductors – but not drivers – at equal wages from 1951, but there was still a shortage and London Transport begun to cast widely for staff first within Britain, then Ireland and eventually the West Indies.
The Blockchain Alternative: Rethinking Macroeconomic Policy and Economic Theory by Kariappa Bheemaiah
accounting loophole / creative accounting, Ada Lovelace, Airbnb, algorithmic trading, asset allocation, autonomous vehicles, balance sheet recession, bank run, banks create money, Basel III, basic income, Ben Bernanke: helicopter money, bitcoin, blockchain, Bretton Woods, business process, call centre, capital controls, Capital in the Twenty-First Century by Thomas Piketty, cashless society, cellular automata, central bank independence, Claude Shannon: information theory, cloud computing, cognitive dissonance, collateralized debt obligation, commoditize, complexity theory, constrained optimization, corporate governance, creative destruction, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, crowdsourcing, cryptocurrency, David Graeber, deskilling, Diane Coyle, discrete time, distributed ledger, diversification, double entry bookkeeping, ethereum blockchain, fiat currency, financial innovation, financial intermediation, Flash crash, floating exchange rates, Fractional reserve banking, full employment, George Akerlof, illegal immigration, income inequality, income per capita, inflation targeting, information asymmetry, interest rate derivative, inventory management, invisible hand, John Maynard Keynes: technological unemployment, John von Neumann, joint-stock company, Joseph Schumpeter, Kenneth Arrow, Kenneth Rogoff, Kevin Kelly, knowledge economy, labour market flexibility, large denomination, liquidity trap, London Whale, low skilled workers, M-Pesa, Marc Andreessen, market bubble, market fundamentalism, Mexican peso crisis / tequila crisis, money market fund, money: store of value / unit of account / medium of exchange, mortgage debt, natural language processing, Network effects, new economy, Nikolai Kondratiev, offshore financial centre, packet switching, Pareto efficiency, pattern recognition, peer-to-peer lending, Ponzi scheme, precariat, pre–internet, price mechanism, price stability, private sector deleveraging, profit maximization, QR code, quantitative easing, quantitative trading / quantitative ﬁnance, Ray Kurzweil, Real Time Gross Settlement, rent control, rent-seeking, Satoshi Nakamoto, Satyajit Das, savings glut, seigniorage, Silicon Valley, Skype, smart contracts, software as a service, software is eating the world, speech recognition, statistical model, Stephen Hawking, supply-chain management, technology bubble, The Chicago School, The Future of Employment, The Great Moderation, the market place, The Nature of the Firm, the payments system, the scientific method, The Wealth of Nations by Adam Smith, Thomas Kuhn: the structure of scientific revolutions, too big to fail, trade liberalization, transaction costs, Turing machine, Turing test, universal basic income, Von Neumann architecture, Washington Consensus
(See: Smets and Wouters, ‘An estimated dynamic stochastic general equilibrium model of the euro area’, Journal of the European Economic Association, Volume 1, Issue 5, September 2003, Pages 1123-1175). 14 These constraints include: budget constraints, labor demand constraints, wage constraints (Calvo constraint on the frequency of wage adjustment), capital constraints, etc… (Slanicay, 2014). 15 The Taylor rule is a set of guidelines for how central banks should alter interest rates in response to changes in economic conditions. The rule, introduced by economist John Taylor, was established to adjust and set prudent rates for the short-term stabilization of the economy, while still maintaining long-term growth. The rule is based on three factors: (i) Targeted versus actual inflation levels; (ii) Full employment versus actual employment levels; (iii) The short-term interest rate appropriately consistent with full employment (Investopedia). Its mathematical interpretation is: r = p + 0.5y + 0.5(p - 2) + 2. Where, r = the federal funds rate, p = the rate of inflation, y = the percent deviation of real GDP from a target (Bernanke, 2015). 13 168 Chapter 4 ■ Complexity Economics: A New Way to Witness Capitalism The origins of these models can be traced back to the 1940’s, following the publication of Keynes’ General Theory (1936).
In their words, “… fiscal expansion can raise demand without worsening private sector balance sheets; indeed, government deficit spending actually improves private sector finances by providing income and safe government liabilities to accumulate in portfolios.... governments with monetary sovereignty are not financially constrained: they spend as they issue their own IOU’s [currency]. They can use this capacity to buy real resources, and in doing so to promote full employment.” We began this chapter by asking ourselves what is the definition of capitalism in the context of markets, regulation, and policy. As we have seen, these three pillars of capitalism are in a state of change and the current definitions and ideologies on which they function are being challenged. Moreover, it is increasingly evident that, as the pace and impact of technological change continues to accelerate, any new definition will have to be one that is adaptable to the future ramifications.
accounting loophole / creative accounting, Asian financial crisis, bank run, Bretton Woods, capital controls, collapse of Lehman Brothers, collateralized debt obligation, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, desegregation, disintermediation, diversified portfolio, Donald Trump, financial deregulation, fixed income, floating exchange rates, Frederick Winslow Taylor, full employment, George Akerlof, Hyman Minsky, income inequality, index fund, inflation targeting, inventory management, invisible hand, John Meriwether, Kitchen Debate, laissez-faire capitalism,