Back To Full Employment, Losing the Demand Thing.

Whatever happened to the goal of Full Employment?  Boston Review has a forum on the topic of Full Employment. It’s kicked off with a lead essay by economist Robert Pollin – Back to Full Employment – which also gives a history of the term and how it has been used.  Contributors are Reihan Salam, James K. Galbraith, Ruy Teixeira, Lane Kenworthy and many others. Highly recommended.

Two additional things.

1. Reihan Salam’s essay – Open the Labor Market – shows the problem of using supply-side arguments to understanding this crisis. Salam doesn’t mention any kind of demand-side concepts, be they monetary or fiscal. Instead Salam wants us to focus on incarceration blocking the supply of labor, which I think is a great idea. A great idea that can work in tandem with advancing the demand front, but a secondary problem to the crisis we now face.  Incarceration doesn’t explain our current crisis – the huge drop in people employed is not the result of aggressive policing starting in 2007:

Unemployment has roughly doubled across every age and education group as well as location. I’m sure if we dug we could find that unemployment among college-educated, white women over 34 is up at least 80%. This is a group whose labor isn’t a function of their interactions with the carceral state.  And as the weakest potential employees are the last to benefit from growth after a recession, the longer we sit in this depressed state the worse it will be for the workers who were struggling the most going into the recession.

2. Jamie Galbraith has a piece – Policies for Today’s World – that includes a history of the 1978 Humphrey-Hawkins Full Employment and Balanced Growth Act as well as arguments on infrastructure which will be relevant for tonight’s State of the Union.

Krugman and others are trying to figure out how demand-arguments are being lost in the opinion-making class.  I’d argue this is a twofold thing.   Conservatives went all-in attacking the notion of demand side politics in the early 1980s, and liberals abandoned it in the 1990s for a different set of language on a pro-government supply side, leaving the demand work up to the Federal Reserve.

Jamie has written a lot during this crisis, but the piece I learned the most from for that debate was actually written in 1996 for The American Prospect, The Surrender of Economic Policy. Here he explained, back when the debate was still being fought during the Clinton years, on how liberals abandoned demand-side arguments in order to try and win over a role for the government in the supply-side arguments:


At the very least, New Keynesian acceptance of the New Classical theoretical structure reduces macroeconomic policy to the fringe role, that of large-scale intervention only in deep and lasting recessions. In all other circumstances, the macro authorities are warned off–as was Clinton himself during his brief Keynesian phase in early 1993.

What then can liberals do? The actual approach of the Clinton administration illustrates: Liberals can favor education, training, adjustment assistance, and other programs that upgrade skills and help workers move from one job to the next. They can support public investments in infrastructure, on the ground that these assist in the international competitiveness of the economy. They can support a combination of research and development assistance to advanced enterprises, alongside efforts to open foreign markets to American products, that help shore up the position of American companies in the world. If they are feeling brave, they can also support a higher minimum wage.

All of these are supply-side measures (except the last, which is a direct intervention in the labor market). Their purpose is to improve the long-term competitive performance of the American economy, on the thought that a more productive economy will generate higher average living standards. The further thought, that these higher averages will trickle down to low-paid production workers, is left as an assumption.

We can all agree that expenditures on education, training, research, development, and infrastructure are generally good things. But a macroeconomic commitment to full employment is the key to translating these investments into higher growth and living standards….

Infrastructure and associated environmental spending is undoubtedly of enormous need and value. But to whom? To the American citizen, as an element in the standard of living. Roads, water, sewer, power, and communications systems are all durable public consumption goods. It is consumers and workers, not the main business shippers, who hit the potholes on the road to work. It is people who breathe the air, drink the water, and boat on the rivers and lakes. All this has little to do with international competitiveness–which is very sad, but true. This explains why business interests are not demanding higher infrastructure spending and why these items were the first to fail in the face of Republican opposition in the Congress.

We are left with the unpleasant conclusion that the liberal mainstream has fallen into a self-deluding trap. The right has taken over the commanding heights of both fiscal and monetary policy, leaving liberals with token sums to spend on supply-side interventions. Education, training, and infrastructure are very important, but not for the reasons usually given. Business won’t support funding them at levels that liberals desire, and it is wishful to argue to business that they should. We must find, instead, a language in which to defend them for the sake of the people themselves, and organize the people around them for the vital direct benefits they bring (as indeed the environmental, consumer protection, and health and safety movements have traditionally done). Otherwise they will continue to lose the budget battles.

And if we want full employment, we need something else–a full employment macroeconomics…

Read more there.  The liberals who built their careers post 1980 understand the tradeoff that was made when liberals took on the government-can-provide-productivity-too arguments, assuming that the Federal Reserve and break-glass-in-case-of-emergency Federal fiscal policy would be there to step in and manage demand when a crisis happened.   Which might help explains why they are so pissed at what is happening to the country right now.

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4 Responses to Back To Full Employment, Losing the Demand Thing.

  1. acontra says:

    great post. the galbraith article nicely explains the danger of promoting ‘competitiveness’: there are many public goods and services that improve quality of life but have nothing to do with helping business.

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  3. MikeJ says:

    RE: Galbraith’s 96 article….

    Dead on. Promoting higher education is just a way for our leadership to pass the buck on actually promoting employment in this country. If we allow a person access to a university education, then it’s that individual’s fault if they’re not “innovative” enough to succeed. Is it any wonder that two of our economy’s biggest drivers have been the financial industry (where workers are put in a position to take other people’s money to gamble with) and the internet (which is relatively cheap and accessible for anyone to access, and doesn’t even require you to sell a tangible good or even a valuable service to be successful)? Not to mention the neat trick American business achieved by offloading the cost of training and educating the workforce to the workers themselves, education attained through accumulating skyrocketing student loan debt.

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