Re: Full Employment is what?

[Sven R Larson <larson@xxxxxx>]

Paul Davidson wrote:
> > > As my earlier quote from my 1972 EJ article suggested -- given
> > societies
> > > values , I prefer "cheap money" to encourage private sector
> > increases in
> > > effective demand --.
> > >
> >
> > And that can be done with elr.  The pool will be smaller, that's
> > all.  Maybe even
> > 0, due to enough 'cheap money.'  Fine!  That's not at all an
> > argument against elr.
>
> It is if the alternative is to encourage (or induce) private sector
> spending to assure full employment -- so that no ELR is necessary.

This is one of the true virtues of a voluntary ELR system. People don't
have to save very much for a rainy day, so consumption is kept extremely
high and unemployment is unseen. In my forthcoming book (Ashgate this
fall) I show how a sterling reliable income guarantee (which is what a
truly voluntary ELR is - although I don't discuss ELR at all) preserves
macroeconomic stability and full employment. But the key point I make is
that while levels of income preservation are important, the very
stability of the system as such is at least as important to preserve a
maximum of consumer spending over time. Suppose at some point the
federal government runs into deficit and a fiscally prudent democratic
congress (together with a fiscally prudent democratic president) decides
to balance the budget at precisely the wrong moment. If ELR is a federal
program, and if the very responsible democrats on Capitol Hill join the
president in cutting funds for ELR - then people will learn that the
program is not reliable when you need it the most. When the economy is
(hopefully) out of its recession, people will adapt to their experience
and start saving a fraction more than they did in the last growth
period. Consumption is permanently adjusted downward because of lack of
trust in the ELR program.

I know no proponent of the ELR endorses fiscal prudence. But I also know
that many democratic leaders in the US have made commitments to budget
balancing. So even if those who market ELR as a policy idea can make the
admirable accomplishment of having ELR established as a system, lasting
full employment does not automatically follow. Even if the ELR is
implemented and it helps the US economy run at full employment for a
while, the advocate of ELR may find themselves falling short of what
they really wanted to accomplish. Even if America builds an ELR system,
that does not guarantee full employment over time. Which reminds me of
the following words by a distinguished contemporary American poet:

"We got all the friends that money can buy, so we never have to be alone
We keep getting richer but we can't get our picture
On the cover of the Rolling Stone"

So Keynesian,

/srl

--
Sven R Larson
PhD; Assistant professor of economics
Department of Social Sciences, Bldg. 22.2
Roskilde University
Pb 260
DK-4000 Roskilde, Denmark
Phone: (+45) 4674 2910