Re: Full Employment is what?

["Per Gunnar Berglund" <pgberglund@xxxxxxxxxxx>]

Dear Mat,

You wrote:
> As Vickrey pointed out, what are of concern are unexpected changes in the
rate
> of inflation, up or down (although he also argued that fears of inflation
are
> overstated, unemployment is the worse evil, and the greatest dangers
associated
> with inflation are the measures usually taken to control it
[unemployment]).  It
> is very unlikely that unexpected changes in the rate of inflation will be
due to
> wage-related factors under a regime where elr workers are paid a fixed
> government-set program wage.  A one time increase in the price level?

Per says:
I don't think the big issue is whether a job-guarantee (JG) or
employer-of-last-resort (ELR) programme will be inflationary or not. The
core question is whether it will secure full employment. I am not against a
JG/ELR programme provided it is designed in a reasonable way. But the claims
that the institution of a JG/ELR programme will secure full employment are
in my humble opinion preposterous.

What the JG/ELR proponents appear to be saying is that once a JG/ELR
programme is in place, 'involuntary unemployment' will cease to exist. The
argument underpinning this proposition amounts to a tautology: the line
between 'involuntary' and 'voluntary' unemployment is drawn in terms of
refusal to take a JG/ELR job.

So one ends up with the platitude that if we have a JG/ELR programme,
anybody who is not employed on the regular job market or in a JG/ELR job
will be considered 'voluntarily' unemployed (or simply out of the work
force). Thus the Keynesian problem of 'involuntary unemployment' is neatly
defined away! (George Orwell would have loved this one.)

I must say that Paul Davidson had a point when he said that the JG/ELR
policy looks like the 'natural rate of unemployment with a human face'. What
he meant, I take it, is that the JG/ELR policy programme rests on a notion
that the general macroeconomic policies (monetary and fiscal) should secure
price stability by keeping the regular job market sufficiently slack, at the
'natural rate' that is, and then the JG/ELR programme would step in and mop
up the leftovers from the regular job market.

The issue whether JG/ELR is inflationary or not amounts to whether it
increases or decreases this 'natural rate' of open-market unemployment (or
the 'natural size' of the buffer stock of JG/ELR workers).

For my own part, I regard a JG/ELR programme as a kind of social policy, or
perhaps active labour-market policy. Such policies should in my opinion be
used to *supplement* generally expansionary monetary and fiscal policies --
to help the marginal 2 or 3 percent of people who can't get a regular job
even in a tight labour market.

But that is not what the JG/ELR crowd are proposing. They are proposing that
the JG/ELR programme should *replace* generally expansionary fiscal and
monetary policies.

I am absolutely against that idea. It puts the cart before the horse.
Similar schemes have been tried on a large scale (in Sweden) and failed
miserably. (I notice that still today, the JG/ELR proponents avoid relating
to the Swedish experience, which is the natural place to look for an actual
historical example of something quite similar. How come?)

Whatever the JG/ELR policy programme is -- and I am surprised that such a
simple proposition remains so foggy after several years -- it is certainly
not a matter of securing full employment in the Keynesian sense. Which is
what I care for -- and this brings me to my last point:

You keep citing William Vickrey, and sometimes also refer to Robert Eisner.
They are both dead so cannot speak for themselves. I knew Eisner personally
but unfortunately never met Vickrey. But I think both of them would have had
very similar feelings about the JG/ELR proposition to those I have expressed
above.

Vickrey and Eisner were Keynesian economists. When Vickrey spoke of
'chock-full employment', he certainly did not have any JG/ELR or workfare
programme in mind. What he meant by 'full employment' was a very tight
*regular* labour market, bringing open unemployment rates down below 2
percent. Robert Eisner was not quite as radical, but he would advocate that
unemployment in the U.S. should be brought down to perhaps 3 percent by
means of standard expansionary monetary and fiscal policies.

Neither Eisner nor Vickrey ever said a word about any JG/ELR programme and I
am certain that they would have strongly opposed any propositions involving
the slightest flavour of workfare or natural-rate economics. Both attacked
ferociously the notion of a 'natural rate' of unemployment. Vickrey, for
example, called the NAIRU 'one of the most vicious euphemisms ever coined'.

Eisner and Vickrey were economists of great distinction and I think their
work and ideas deserve something better than this sort of mindless
exploitation for political purposes they would scarcely have supported.

Best,
Per

_____________________________________________
Per Gunnar Berglund
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