Re: CJE 2001 critical review of trade theory and policy

["Leigh Harkness" <Leigh@xxxxxxxxxxx>]

John and Bruce

Sorry for the confusion in authorship.

John wrote:

>  but the macro level of employment is the sum of
> the micro employments. Provide a change to the macro
> environment [i.e. -- Change variable costs of production to
> fixed costs of production.] in a way that causes the micro
> employer to lower his asking price to obtain greater profit
> and he will hire the extra people to produce that greater
> production. As explained in the full analysis, because this
> effect would, if left as the only change, cause an increase
> in the value of the currency relative to all the things now
> becoming lower in price

John

You have just argued for a devaluation of the currency (lowering relative
prices of domestic goods and services relative to import prices) and for an
increase in the money supply (the real value of money has increased while
the total nominal money supply has remained the same implying a real
increase in the money supply).

If these are the solutions to reducing unemployment, we must ask ourselves
why our current macro-economic systems are producing the wrong outcomes.

As proponents economic policy, we cannot rely on direct intervention in the
market to achieve our economic goals.  This approach is too slow and subject
to all types of political intervention.  We need to establish stable
macro-economic economic systems that achieve the desired outcomes despite
the numerous and varied interventions (such as changes to the tax system).

So:
1.    why doesn't the floating exchange rate system ensure that the exchange
rate (the relative price domestic products and imports) is appropriate to
generate full employment; and

2.    why, despite the vast amount of money that our banks create each year,
it is never enough to generate sufficient demand to provide full employment?

Regards

Leigh