The horizon is not so far as we can see, but as far as we can imagine

What Would Be Required For Full Employment

A friend of mine noted that the Fed is supposed to try and achieve both price stability and employment, and thus seems to believe that leaving interest rates low is something the Fed should do.

But monetary policy alone isn’t going to get the US to full employment.  It requires properly done fiscal policy combined with proper financial regulation to encourage lending to the real economy and real investment.

Right now what is happening is that banks have cheap money, but consumers and most businesses have expensive money.  They risk creating another financial bubble, minus the part where some ordinary people manage to get rich off flipping houses because banks aren’t lending their cheap money to companies or people who create any significan numbers of jobs, they’re using that money for leveraged plays, buyouts and so on.

As usual, this was predicted by a number of people this time last year when TARP was formalized.

The Fed, Treasury, FDIC and federal regulators, under the direction of the President (and yes, the Fed does do what the President wants right now, if Bernanke wants to keep his job, which he does) could do a number of things to fix this, but doing so would require telling bankers who they’re going to lend to and what interest rates they’re going to charge, and /that/ would require being willing to threaten them with (and if necessary follow through with) withdrawal of special facilities, real audits, and having the FDIC take over banks who absolutely refuse to play ball.  Which means a willingness to risk having those sweet sweet donation from the financial sector flip back to the Republicans.

The rest of what needs to be done rests in the combined hands of the President and Congress.  For a pittance compared to the full so-called stimulus bill, cash for clunkers produced noticeable growth. If the government wants to pass a real stimulus bill, actually designed to create large numbers of jobs, it could get a lot of bang for only a few hundred billion dollars.

No one, not the Fed, nor Congress, nor the President, is serious about full employment.  If they were they would have done, would be doing, and would be planning on doing different things than they have done.

Employment will probably start picking up again in the spring, but employment as a percentage of America’s population will not recover this economic cycle.  My suspicion is that it won’t recover within 20 years.

That is a policy choice, either deliberately, or through stupidity (I suspect both.)  Fixing it requires all three of the Fed, President and Congress to decide to do the right things for the population as a whole, rather than for their friends, donors and cronies in the financial industry.

I leave it to others to decide how likely that is to occur.


The Catholic Church in DC threatens to not do unto Jesus


JPMorgan Illustrates What Banks Do When They Have Money


  1. Ed

    Is full employment possible without either population reduction, a decrease in automation, or creating a huge number of make-work jobs?

    Are many of the jobs now (yeah including my own) really make work jobs that don’t really add anything to the wealth of the country?

    World population increased from about 4.5 billion in 1975 to 6.5 billion in 2010, about a 40% increase. World economic growth hasn’t been anywhere close to 40% during that time. There is credible evidence that we are running up against the limits to the ability of people to just extract resources from the planet (I’m thinking of peak oil instead of the consequences of dumping too much carbon into the atmosphere, but you can pick either one).

    Private sector jobs in the US were 108 million in 2001 and are 108 million today. But since the Great Depression, the private sector in the US has never come close to creating enough jobs to employ the American workforce, even during the good decades. Government jobs have always taken up the slack.

    I’ll submit that trying to create “full employment” in current conditions is like coming up with schemes to increase the production of the gold mines when the veins have simply run out.

  2. BDBlue

    Ian, did you see this piece, which has a lot in it, including some statistics that back up your employment predictions.

  3. What needs to be done for sustained full employment with price stability and without hindering capital formation is the sixty-four dollar question in political economy. This question is at the forefront of modern monetary theory aka Neo-Chartalists. L. Randall Wray puts forth a popularization of this position in Understanding Modern Money (1998) available on Google Reader here. This position is developed in many others working in this field at The Levy Economics Institute of Bard College. An archive of working papers can be found here. This issue is also addressed in blogs such as Bill Mitchell’s blog (site map here) and Economic Perspectives from Kansas City, to which Wray contributes.

    But the pressing question is about what can be done now. This is really a two part question. The first is, what is the optimum economic solution and the second is, what can actually be accomplished in this political environment. The president is still acting on the advice of neoliberal advisors, whose bias is toward neoliberal monetarism, preservation of capital, and inflation targeting as more important than unemployment. Congress is controlled by conservatives, when Blue Dogs are added to a solid GOP opposition to “Keynesianism ” as “a failed idea that is fiscally irresponsible.”

    Leaving the other economic problems (which are huge) aside, the “Keynesian” diagnosis of an output gap, that is, firms not operating at full capacity, is aggregate demand falling below the capacity of the economy to supply. The solution is therefore for the government to increase aggregate demand as “the purchaser of last resort,” as well as “the lender of last resort.” There are two principle ways that the government provides more funding for the economy, raising spending and lowering taxes, because spending injects funds and taxation take funds out.

    What about government borrowing.? The major purpose of government borrowing is not to fund spending, for a government that is the monopoly issuer of a non-convertible currency in a flexible exchange rate regime is not revenue constrained. Government needs to neither borrow nor tax to obtain revenue or defend its currency in a non-convertible flexible-rate fiat system. The purpose of borrowing is to drain excess reserves created by government spending so that the central bank can control the overnight rates.

    However, there is another side to borrowing. Government borrowing (bonds) creates risk-free interest on savings and this puts funds into the economy. During credit contraction people increase their marginal propensity to save and this withdraws funds from aggregate demand. The government must make up this difference or the output gap will not close, and unemployment will continue. Interest on bonds adds to government spending to inject funds into the economy.

    The problem with neoliberal monetarist policy as a tool is that it has been shown to be ineffective, especially in a liquidity trap at the zero bound of interest rates. Moreover, monetarist policy is a blunt tool that does not permit targeting. Fiscal policy is not only more effective, but it is also a sharper instrument that allows for specific targeting. Spending can be directed to stimulate specific areas, and taxation can be used to withdraw excess in others, such as windfall profits.

    The great advantage of monetary policy lies in its control by the Fed, so it does not need political approval. Spending and taxation require both Congressional action and approval by the president, which may be impractical owing to political considerations.

    However, if political difficulties could be overcome, Randy Wray is calling for a government jobs program to put a floor under the labor market. here. This would address unemployment not only as an economic factor but also as a social one. It is a progressive solution that should be on the table. The situation is bleak looking forward. Even the most optimistic forecasts are projecting a weak recovery and a new normal with unemployment much higher than it has been. The president needs to cut loose from neoliberal policies and the advisors favoring them, and adopt a fresh approach under new advisors.

  4. S Brennan

    So if this is true:

    “World population increased from about 4.5 billion in 1975 to 6.5 billion in 2010, about a 40% increase. World economic growth hasn’t been anywhere close to 40% during that time. There is credible evidence that we are running up against the limits to the ability of people to just extract resources from the planet.”

    And we have huge problems and few people/resources devoted to solving* them. How about employing those idle with skills to come up with solutions and those with limited skills to implement them? Two birds one stone? Or give more to the idiot elites and their sycophants?

    *As in making the benefits of modern life available to all, not to be confused with rationing goods and services to the wealthy or re-arranging deck chairs.

  5. @ S. Brennan

    It’s time to pull out and dust off the old Bucky Fuller books. Bucky proposed “design science, to order production to the good of the whole. Design science is based on naval, aeronautic, and now rocket architecture/engineering, all of which must “do more with less,” in Bucky’s words, since resources are limited on ships, planes and spaceships and must therefore be maximized. This involves development of technological solutions that use sustainable resources as much as possible and conserve non-replaceable resources.

    Bucky claimed, in Nine Chains to the Moon, I think it was, that he had calculated the number of available energy units in the world in relation to world population and found that at that time (c. 1948), resources exceeded requirements. Fuller then sought to determine resource commitment. He found that a huge proportion of available resources were directed to military production and use instead of people’s needs. Today, the US military is the largest consumer of energy, and that doesn’t include industrial production for military use. And the level of waste in the US overall is staggering.

    In addition, the neoliberal model of “free enterprise” capitalism is based on profit and rent-seeking — the “bottom line.” This is exaccerbated by Wall Street’s demand for constant quarterly revenue growth. The result is short term thinking that is too often blind-sided to the long term. Moreover, it involves negatives such as human exploitation, resource-depletion, and proliferation of negative externality, all of which undermine the welfare of the system.

    As a result, the system as a whole is not geared for efficiency and effectiveness, either in relation to the nation or the globe. We can do better, but not while the present neoliberal paradigm remains in place, because the incentives are not ordered toward producing a holistic result.

    We need a progressive vision and a new strategy for achieving this. Alternatives are not lacking. We just need to get busy adopting them instead of sabotaging ourselves through misguided neoliberal policy and the militarism required to purse the neo-imperialism and neocolonialism that this policy involves. Unfortunately, this policy still dominates the universe of discourse of US and Western politics, and marginalizes all opposition.

  6. Ian Welsh


    you need to turn energy into a capital good, rather than a resource. It is theoretically possible, and the technology to at least bridge to where it’s practically possible is close enough, imo.

    BDBlue. Had not read it, but am familiar with most of the stats he lists. The most optimistic scenario is extremely unlikely (600,000 a month? Regularly?) Which is why I say employment simply will not recover. This is a more impaired economy than Bush’s and it’s supposed to do better? And even if it does, my prediction would still be correct. Likewise, the fact that tax receipts are down, I agree, indicates how the economy is really doing. (Or take a look at shipping statistics, and how many ships are laid up. Or energy consumption. Etc…)

  7. Bill Mitchell blogged this week on the APEC summit. His comments on what the ministers should have said jointly are relevant to addressing the current uemployment level in the US, as well as long-term employment policy:

    The correct response by the Ministers [gathered for the annual Asia- Pacific Economic Cooperation group summit] would have been along these lines [[instead of calling for stabilization and then reduction of public debt]:

    1. We will carefully monitor our respective economies to ensure that we understand trends in non-government saving so that we can scale our net government spending to ensure we “finance” that saving, We thus aim to ensure public spending fills the gap left by non-government saving (a consolidated position combining the private domestic and foreign sectors) and keeps aggregate demand growing at such a rate that it provides scope for the private savings desires to be realised without compromising our public purpose goal to ensure there is sustained full employment and inclusive income distribution outcomes.

    2. We will resist all calls from vested interest groups to withdraw from this fundamental fiscal role.

    3. We have learned from this crisis that our previous reliance on monetary policy as the basic tool of counterstabilisation and our concentration on inflation targetting has failed to deliver credible outcomes. In the current crisis, we have once again reminded ourselves of the effectiveness of fiscal policy and we will thus downplay monetary policy in the future – concentrating on maintaining a relatively constant overnight rate around zero.

    4. We will also redesign our fiscal policy positions to ensure that the automatic stabilisation mechanisms are sufficient to generate full employment. We understand that the only way this can happen is if we introduce an employment guarantee to ensure there is a buffer stock of accessible jobs fluctuating (inversely) at all times with private demand for labour. In that way, even without any other discretionary policy changes we will guarantee a form of full employment that will at least allow a worker with an employment guarantee position to earn sufficient income to engage fully in the society they live in.

    5. We will thus revisit the question of minimum wages to ensure they provide adequate living outcomes and represent the lowest wage that a private employer has to offer to operate in our nations.

    6. We will continue to publish public data on government accounting but only because researchers in posterity will want a continuous time series. We will discontinue regular releases of budget aggregates and instead provide much more public information about well-being, happiness, and labour market and regional performance.

  8. Celsius 233

    Full employment? What does that mean? Burger King, Taco Bell, service jobs? The U.S. (however you define it) has effectively offshored almost all of its manufacturing capacity. We don’t make much of anything anymore; so, is the tyranny of minimum wage jobs the future of America? Looks that way to me. There is no one, no one, doing anything to rectify the gutting of America as a meaningfully producing nation; a nation that produces real products for value added. Are we to be forced to “fit” into jobs dictated by the state as the opportunity of the future? Increasingly, it seems the future to seek employment will no longer be in the realm of free choice. Full employment is a myth, a fantasy, dreamt up by our keepers. Bullshit!

  9. Celsius 233

    This site doesn’t like it when fascism and our slide into it are mentioned here. By all known definitions of fascism; we fit uncomfortably into many of it’s corners. A corporatist society is a pretty mainstream description. I now yield the soap box.

  10. Ed

    While I generally agree with Celsius’ point, there is a surprising amount of manufacturing in the US. However, its heavily automated. I’ve visited factories and its not like what you would expect from a 1930s movie. Lots of machines with a handful of people monitoring them.

    Agriculture went from something like 80% of the workforce to 2%, largely do to mechanization. Manufacturing is going the same route. Many white collar office tasks that would in the past have been done by secretaries and “clerks” are now done by computers.

    Producing more stuff with less human inputs isn’t necessarily bad, quite the opposite. But we shouldn’t pretend that we will create an equal number of “service” jobs with the wealth to employ everyone who had done the old production jobs (alot of “service” jobs in the US during the “boom” years were pretty much salesmen jobs, we know how that worked out), or that if we can do this we can do this by concentrating the results of all GDP growth in the top 1%, or that we can do this on a global scale while increasing population by 40%.

    Once agriculture was mechanized, the paradigm “if you don’t work you don’t eat” became irrelevant or positively dangerous. Now there is a chance the various environmental crisises heading our way, which few people seem to want to address, may make it relevant again.

  11. Lex

    I have a friend who works at a community college assisting very non-traditional students in getting training, basic education and entering the work force. She tells me that the last is the most difficult. That’s partially because of the job market, but partially because most of them subsist on various government benefits. If they work, they lose the benefits…but finding work that they can actually live on is very difficult.

    Economics is not my strong suit. But from my position of ignorance, i wonder if it’s time to toss the industrial model into the dustbin of history. IIUC, it’s based on resources being relatively cheap and labor being relatively dear; a situation that is not the case anymore.

    Granted, i was raised in a UAW town back when it still meant something (the end of that something, but something) so maybe my view is skewed. It seems logical to me that people with job security and good wages are more likely to contribute their surplus labor value into the greater economy, producing more jobs. The factory rats i was raised amongst spent real money, not debt, on goods and services.

    I simply don’t see how the “service economy” can be anything but a house of cards, especially given that many of those services are the first things to be cut from a family budget when times are tight.

  12. the answer is less employment, not more. and unemployment for some specific people, taking them completely out of the system.

    employment is great, but most of the models for how it works inevitably lead to bad things, for the worker, the environment, etc. the whole premise that arby’s makes fries or whatever is annoying to me. people just uncritically accept it. i don’t know why. maybe people will begin to learn, in this economy of ours in which so many of us seemingly are “idle,” and understand that a requirement that all folk rise each morning and give 8-12 hours of their time in service to making a rich person richer is not an ideal ‘occupation.’

    decoupling from the corporate, consumer economy is going to be tough. one thing we’ll have to do is teach people “you can do things for yourself.” as others were mentioning elsewhere, most americans have no fucking idea what it is that most people around the globe can and must do to survive. i’m not advocating everyone be completely poor and stripped of all consumer luxuries, but i do think it would be better if more people were involved in the project of producing what they consumed. i guess this is a radical idea or something, and i’ll stop now as i’m not fully prepared to defend this model. but i just want to inject the idea that happiness =/= working some job, not always and not for everyone.

  13. @ Celsius233 Full employment? What does that mean?

    Here’s an excerpt from Mark Thoma that explains it:

    Economists define three types of unemployment: frictional, structural, and cyclical.

    Frictional unemployment is defined as the unemployment that occurs because of people moving or changing occupations.

    Structural unemployment is defined as unemployment arising from technical change such as automation, or from changes in the composition of output due to variations in the types of products people demand.

    Cyclical unemployment is defined as workers losing their jobs due to business cycle fluctuations in output, i.e. the normal up and down movements in the economy as it cycles through booms and recessions over time.

    Normal unemployment: Frictional and structural unemployment are considered normal and necessary. When these are the only two types of unemployment that exist, i.e. when cyclical unemployment has been eliminated, the economy is considered to be at full employment.

    The problem is that structural unemployment is rising for a variety of reasons. Some industries are becoming obsolete. Off-shoring. Automation. As a result, some jobs are going away and not coming back. For some of these, there is no alternative employment. In that case, the people affect either can’t find work and join the ranks of the unemployable, or they take a position for which they are over-qualified, or are forced into part-time work. The former leads to structural unemployment and the latter, to underemployment.

  14. @ chicago dyke the answer is less employment, not more. and unemployment for some specific people, taking them completely out of the system.

    This proposal has been out there for a long time, at least since the Seventies. The idea is to provide everyone with a Guaranteed Income instead of a Job Guarantee. See Wikipedia-Guaranteed Minimum IncomeThen people could decide when and how much they wanted to work, since everyone doesn’t have to work in this technological age. Education of all levels would also be government provided so that people would be able to expand their knowledge and skills, equipping them for high-level employment if they so chose.

    Bucky Fuller also proposed creating labs on the order of the original Bell Labs, were a group of a thousand experts would be seeds with all they needed to “play.” Fuller estimated on the basis of the success of Bell Labs that even if only one or two out of hundreds of these groups came up with something transformative, the cost would be paid for many times over.

    There is good thinking already out there. We just need to remove the ignorance that is preventing its implementation. It’s like we are living in the scientific age but the vast majority of the people are still stuck in the age of mythology. We could be living in a utopia if the myths were destroyed. The knowledge is already available. But it’s not “knowledge is power,” but the “the ability to use knowledge is power.”

  15. B Schram

    I am perhaps not the best example, but I sometimes wish I were underemployed . . . if it were not for my wife’s consumerist palate, I would be very happy working half-time, making half what I make, and living much more simply.

    So,if the need for consumerist trash were reduced, then maybe the press for big salary would abate. Then the solution to the unemployment would be to reduce the work of the “overemployed”. If we had national health plan and a few other adjustments (ie no need for full time benefits), I would think some people would be happy with more time for themselves, again-that is if they could remove the need for “stuff”.

  16. @ B. Schram again-that is if they could remove the need for “stuff”.

    And there’s the kicker. The present structure of the economy is based on generating demand for dreck in order to fuel “GDP growth,” which really means providing an ever-increasing bottom line to keep Wall Street happy at any cost.

    Eliminate this manufactured demand and the crap that incentivizes it, and organize the global economy on a truly productive and efficient basis. Everything would fall into place once realistic principles were adopted that take everything into account without distortion. This would require eliminating the puerile neoliberal assumption that general welfare is the aggregate of individual satisfaction. There is no model based on data that can justify this. It is a myth. (See Steve Keen’s Debunking Economics, Chapter 2, “The Calculus of Hedonism.”)

    The idea that the best political system is one based on neoliberal “free enterprise, free market” economics is just a myth. It is based on the ridiculous assumption of a single “representative agent” because that’s the only way they can get their models to work. The idea that the economy can model on the basis of a single consumer acting as a rational agent is a requirement to make neoliberal economics look scientific by dressing it up in complex mathematics that bear no relation to empirical data. It is just a farce that sociologists and psychologists that do actual empirical studies the relationship of individuals and societies laugh at.

    The neoliberal model is not remotely true. Well, maybe remotely. It’s like engineers building a complex structure based only on rules of thumb. It’s no wonder that we had a crisis of this proportion regarding which neoliberal economists say, “No one could have seen it coming.” Just like the engineers using only rules of thumb would say when the structure collapsed.

    These mindless pursuits irrespective of the consequences are distorting the system so that it is functioning extremely inefficiently. This is significant economically, because the bogus but widely accepted claim is that laissez-faire neoliberal capitalism is the most efficient system there is. Not.

  17. Linden

    I don’t see the consumerist model being borne out in practice, however. The cost of consumer items has fallen — it’s the cost of housing, health care, transportation, and education that keeps going up and up. I help people file for bankruptcy, and I’ve filed very few for people who bought too much stuff.

  18. @ Linden

    The problem with the consumer model on which developed economies are organized, especially the US, is that it is not sustainable. A dominant theme of the 21st century is globalization, which is already well underway. The model on which it develops is vital to humanity’s ongoing.

    The problem with the consumer model is that developed countries are using more more than their share of global resources proportionately, e.g., per capita. Emerging nations are working toward adopting this model. It is the middle-class dream around the world, and it is proliferating in China and India, the two most populated countries. Simply put, there not enough resources to add a billion Chinese and a billion Indians to “the affluent society,” in John Kenneth Galbraith’s words. When he wrote The Affluent Society (1958), Galbraith foresaw pretty well where things were heading for the US. Now the world is headed down the same path.

    Since the current model is based on unlimited growth, which requires unlimited resources or huge technological advances not yet on the horizon, it’s just not possible for the world economy to globalize on the current model. Either the developed nations will have to accept a much lower standard than they now enjoy, or some will have to be excluded. This means greater income disparity, more poverty, and exploitation of labor. Unemployment and underemployment are actually labor exploitation.

    Why are unemployment and underemployment are actually labor exploitation? After all. they are the bedrock on which the neoliberal model is based.

    Poverty, wealth disparity, and unemployment are endemic because of economic myths perpetrated on the lower classes by those of wealth and power. The neoliberal economic system is organized to be perfectly efficient at moving wealth to the top and keeping it there. This is based on ideology, not science.

    Economists have shown that it is possible to reorganize the economy based on fairness and distributive justice by ceasing to give capital its privileged place in economics, which creates a privileged class of capitalists at the expense of workers. The present system treats labor (workers) as a commodity like any other commodity at the service of capital. This is completely unjustifiable on moral grounds, and it also happens to be bad economics and bad political science. This is a subject that requires more space than the scope of this comment permits. It lies at the heart of the progressive agenda. It is also the basis for fashioning of a new vision and a grand strategy for actualizing it.

    Basically, the present system is a scam perpetrated by the privileged on the rest of people. It is based on a mythic ideology, which is promulgated by a compromised educational system whose purpose is to turn out cogs for the machine and a media whose mission is to keep people in line through ignorance and disinformation. For example, it is simply amazing to hear so many people that are suffering clamoring for “fiscal responsibility” when this will just drive up unemployment and keep them chained as debt slaves.

  19. Time to get more specific. Here are some of Bill Mitchell’s observations in his blog post today, Japan grows along with the hysteria, which are applicable to the US and the unemployment situation here. He shows that even liberal economists like Paul Krugman are still under spell of neoliberal mythology when it comes to monetarism. With that kind of thinking, it is hard to get unstuck. Too bad that even Nobel prize-winning liberal champions with a bully pulpit like the NY Times are still making this kind of basic mistake.


    The neo-liberals cannot mount a credible denial that the crisis has categorically demonstrated how effective fiscal policy has been. All these years of preaching introductory mainstream macroeconomics text book assertions that fiscal policy was a futile strategy to increase output and employment and would only generate inflation – well the way economies are responding to the fiscal intervention has fatally undermined these arguments. That they ever got traction is a sad statement about human intelligence levels.

    But at the same time, the schizoids cannot let go of the other parts of the mantra – the crowding out and inflation stories. Both of which are as flawed as the rest of the nonsense but they can still scare the public by appealing to the “dark unknown future”. Bring a few kids into the story who are going to be grossly burdened in later life paying back all our debt (not!) and you have the makings of a real scare campaign….

    All this talk of deficit-phobia also resonates with Paul Krugman’s latest articles in the NYT. In one of two briefs yesterday, Paul Krugman’s Fiscal perspective said:

    “It’s truly amazing, and depressing, how completely deficit-phobia has swept the field in Washington. The economy remains in deeply dire straits … Yet the respectable thing, all of a sudden, is to claim that we can’t possibly afford to spend any more money on job creation …

    “I’d be a little more forgiving of the nonsense if all the people screaming about the deficit were sincere. And some are. But many, if not most, are perfectly happy to incur huge unfunded liabilities for the wars they want to fight, and/or to eliminate inheritance taxes for the heirs of multimillionaires. It’s only deficits incurred to help working Americans that get them all moralistic.

    “Anyway, the point is that the economy desperately needs more help – and yes, we can afford to provide it.”

    One would struggle to disagree with those sentiments…. But when you read his second piece yesterday – It’s the stupidity economy you appreciate how far Krugman is from understanding modern monetary theory (MMT), which means he really doesn’t get the way the fiat monetary system works.

    His first article is a case of stumbling on sense without really seeing the full picture and the full range of opportunities available to the sovereign government.

    His opening gambit in the second article is fine – “bad ideas are acting as serious constraints on policy. ” He then notes that with “interest rates up against the zero bound … conventional monetary policy isn’t sufficient. ”

    His options of how to deal with the ineffectiveness of monetary policy are, in his order of preference:

    • First best: “… credibly commit to higher inflation, so as to reduce real interest rates”. So he is still thinking monetary policy is the best way to proceed.

    • Second best: “… a really big fiscal expansion, sufficient to mostly close the output gap. The economic case for doing that is really clear. But Washington is caught up in deficit phobia, and there doesn’t seem to be any chance of getting a big enough push. ”

    • Third best: “… subsidizing jobs and promoting work-sharing. ”

    This ranking of policy options shows how far Krugman is from being in tune with modern monetary theory (MMT). He still believes that monetary policy is the preferred counter-stabilisation tool despite the evidence that it is relatively ineffective in this regard and relies on difficult to determine distributional assumptions about the spending propensities of creditors and debtors.

    So in this case he wants to tweak monetary policy into action by creating inflation – to move the real interest rate below zero. It is not clear how he would provoke inflation anyway, given the recessed state of the US economy.

    The only way I could see that happening at present would be for his second-best option to be deployed. And, by the time, inflation was becoming an issue and eroding the zero nominal interest rate into negative territory, the real economy would have recovered anyway. This ranking doesn’t make any sense to me.

    His third best option should not be considered separate from the second. What is the most effective way to expand an economy using fiscal policy? If your aim is to promote employment growth then you have to engage in direct public sector job creation. Why bother with job sharing?

    The fiscal capacity of the US government is such that it can generate a job for all those who currently are not able to get employment. If the government introduced a Job Guarantee and unconditionally offered a minimum wage (at a sensible level) to anyone who wanted a job, then the net spending increase would be smaller than if they tried to generate the same number of jobs by generalised expansion.

    A generalised expansion stimulates private spending and output but requires the government to compete at market prices for the resources to be deployed. It also does not provide the government with a nominal inflation anchor. Conversely, offering a minimum wage job to anyone who wants one, does not compete for resources at all unless people start quitting their lousy private job and prefer to work in a public Job Guarantee position. If that is the case, then welfare increases anyway because people’s preferences are being better attended too.

    It is then up to the private employers who lose workers to the Job Guarantee to improve their working conditions and entice the workers back. Dynamic efficiencies would follow from such a process. But this sort of competition cannot be inflationary because the JG wage is fixed.

  20. Celsius 233

    The current economic model is an abject failure because it fails to acknowledge the long view. Those who embrace the long view have no currency in todays world; we are being led by and follow the short view.
    Human nature being what it is (self destructive); it would appear our salvation rests with a massive global catastrophe either of our own making (which we seem to be doing) or as a result of nature. Cutting to the chase; we’re well on the way to our own destruction one way or another.

  21. Hugh

    Laying aside the various problems with Clintonomics, Clinton created jobs like wildfire, ~237,000/month on average over his Presidency. This is still less than the number in the link above to Ritholtz’s site. The kicker which the Maudling post picks up on, and which I have also written about, is that job creation just to keep up with our increasing population is not factored into our jobs needed. What this means is that we will have to create jobs faster than they were lost. When you consider how large the job losses have been, it is a daunting task.

    To this point we are talking about two sources of job demand but there are actually 4.
    1. The unemployed (U3) currently 15.7 million
    2. The underemployed (U6 – U3) or around 11.3 million
    3. Those who have left the job market (but might return in the future) around 3 million
    4. New workers joining the workforce due to population growth (i.e. the excess between those entering the workforce over those leaving it permanently (or semi-permanently) as through retirement, incarceration, injury, or death) ~120,000/month

    This is a potential pool of 30+ million who want or might want full time employment. This is a vast problem which is why policymakers in general avoid looking at it. They prefer something like the U3. Stipulate that full employment is not full employment but something like a 5% unemployment rate and 15.7 million unemployed becomes 8 million. This is still a lot of people but far fewer than 30+ million. Take a timeframe of 5 years or 60 months, 133,000 jobs/month would be needed to soak up this many workers. Then factor in the 120,000 a month you need just for population growth and voilà you are at 250,000/month, a number bigger than the Clinton average.

    None of this addresses issues like the quality of those jobs, their wages and stability, or if they produce something useful for our society.

  22. Celsius 233

    As long as we stick to the obsolete idea that we’re a nation of “rugged individualists” we’re doomed to remaining a failed society. Change is never easy but it would seem clear; change or die. Ironically it would seem we’ve chosen the latter.

  23. selise


    None of this addresses issues like the quality of those jobs, their wages and stability, or if they produce something useful for our society.</blockquote.

    worse it doesn’t address the fact of how many of them were bubble jobs, not jobs that would last. and even worse yet, they were built on the back of a massive expansion of private sector debt — one of the contributing factors to the fragility of the financial sector going forward.

  24. selise

    thanks tjfxh! i don’t have much time to participate here — too busy tight now trying to put out wildfires of healthcare reform nonsense. but anyway, you do a much better job than i could and i very much enjoy reading your comments and as always for many years now ian’s posts. once the hell of this legislative cycle of heathcare reform is over, i hope to join in more. i have a lot to learn, but at least now i think i might be on an intellectually productive path.

  25. Ian Welsh

    The financialization weakness was evident during Clinton’s reign, actually. (I was writing about it on forums at the time.) It wasn’t the worst economy (in fact, it was the best economy of the last 35 years or so), but it was still a fundamentally plutocratic economy during with income inequality continued to rise and rentiers continued their rise to dominance. There were some good points to it, mind you (for example, it had two years where the poor actually did well).

    Compared to the economy of the 50s or 60s, however, it still sucked.

    Last time I did the math on minimum # of jobs created to keep up with labor force increases it was about 150k a year (very close, 149 something.) Which is one reason why I said that “as a percentage” employment won’t recover this economic cycle, or probably in 20 years.

    The Clinton economy is probably the best economy anyone under 50 has seen in their entire working life, though of course, many will have done well enough at different times.

  26. ian, the results of private sector debt growth and financial deregulation may not have been so visible at the time (to people like me anyway who weren’t paying attention), but looking back now the data are amazing. godley and wray described it in 2000 in, Is Goldilocks Doomed? (an updated version of their figure of financial balances is fig 3 in scott fullwiler’s, The Sector Financial Balances Model of Aggregate Demand — Revised (see the private net savings during the clinton era).

  27. ian, re financialization. i don’t remember if i’ve posted this here before… but the best data i’ve been able to find on that is fig 4.2 in hyun song shin’s paper,”Financial Intermediation and the Post-Crisis Financial System.

    For the financial industry, the key question is to what extent the rapid development of securitization and the market-based system can be regarded as the norm, or along, but ultimately temporary stage in the development of a more sustainable financial system. Figures 4.1 and 4.2 show the growth off our sectors in the United States (non-financial corporate sector, household sector, commercial banking sector and the secuity broker-dealer sector)taken from the Federal Reserve’s Flow of Funds accounts. The series are normalized so that the size in Q1 1954 is set equal to 1. Most sectors grew to roughly 80 times its size in 1954, but the broker dealer sector grew to around 800 times its 1954 level, before collapsing in the current crisis. Figure 4.2 is the same chart, but in log scale. The greater detail afforded by the chart in log scale reveals that the securities sector kept pace with the rest of the economy until around 1980, but then started a growth spurt that outstripped the other sectors. On the eve of the crisis, the securities sector had grown to around ten times its size relative to the other sectors in the economy.

    a bit more here:

    oops. i’ve gone way off topic and now must take off before returning to the topic of employment…. (sorry!)

  28. Ian Welsh

    Yeah, and inequality was already reaching pre-depression levels by about 92, iirc. What has been amazing about this is actually how long it has gone on. Lots of smart people expected (and expect) it to crash out sooner than it did/does.

    The problem is that up to a certain point, politics trumps economics. Works, till it doesn’t. And when it doesn’t, BOOM.

  29. Ideology trumps reality up to a certain point, and then it doesn’t.

    Both politics and economics have two sides, ideology and science. Conservative politics and neoliberal economics are ideologies at odds with fundamental principles of political science and evidenced-based economics. Yes, Bill Clinton was an economic conservative implementing Rubinomics, and so is Obama under people Robert Rubin mentored. The difference between Rubin’s economic conservatism and Milton Friedman’s is that Friedman was a libertarian conservative and Rubin is a moderate one.

    Political science studies the ordering of societies. Modern societies are ordered through law and government. Enough is understood about this field empirically to know roughly what works and what does not work. Economics (political economy) is a subset of political science. It studies the principles of organization with a view toward the general welfare materially.

    Neoliberalism equates politics with neoliberal economic ideology. “What’s good for free markets (aka capital) is good for the country.” It equates national prosperity (general welfare) with GDP growth irrespective of wealth and income distribution. An interesting fact about neoliberal economics that is not well understood is that a fundamental assumption is that general welfare is the outcome of aggregate material satisfaction. Since it is impractical to calculate aggregate preference-based, behavior at the national level, neoliberal economists posit a “representative agent,” i.e., a single consumer that represents everyone as a “rational actor” motivated by self-interest to maximize self-interest. This, of course, is a gross oversimplification required for elegant mathematical models at the expense of empirical corroboration.

    The important point to notice here is not just that this is a gratuitous and bogus assumption, but also a collective approach to economics that neoliberals decry in collectivists, who make the same assumption that everyone’s interest is identical. The assumption that general welfare is the aggregate of a replicated identical representative agent turns the conception of human society into that of an anthill or beehive, which is the antithesis of the neoliberal agenda, which is fundamentally libertarian. Thus, both laissez-faire economics and the libertarianism on which it is based reduces to the extreme of communism and the collectivism on which it is based.

    Both fail because people in society are much more complicated than this simplistic assumption allows as an ordering principle. Governing on the basis of this erroneous principle just doesn’t accord with reality and the society eventually breaks down. Couple this with treating labor as commodity on the level of other commodities, and the wheels are eventually going to come off, as they are beginning to in the US.

    The major problem affecting the US is money in politics. Legalized bribery keeps the prevailing ideology is place, and it will be difficult to dislodge it without either ending it, which is pretty much impossible political because of the bribery, or a major shock to the system intervening, which is on the way.

    A principle problem affecting economics is the lock that neoliberalism has on academia. The vested interests are so powerful they can easily maintain dominance by marginalizing all opposition. It is estimated that there are only about thirty economists who are publishing about modern monetary theory based on Neo-Chartalism. They are considered heterodox and marginalized, with the result that the mistaken analogy between household and government finance is impeding implementation of effective policy through the influential fiscal responsibility meme that is based on ignorance of how the monetary and fiscal systems actually work at present. As a result, economists, politicians, and the public are calling for deficit reduction at a time when it will exacerbate the situation.

    False narratives based on erroneous ideologies eventually run up against reality. This is an ironclad law for which history provides abundant evidence. Generally revolutions that replace obsolete paradigms arise from some shock, either external or internal — what economics call exogenous and endogenous. Yet, the new order does not emerge from nowhere. It has usually been building for some time beneath the surface.

    A transformation in the making has been building in the US since the Sixties. In the Sixties and Seventies there was a lot of thought directed at this transformation, sparked in no small measure by the shock of Vietnam and the existence of the draft at that time. It is no accident that the powers that be decided to end the draft and replace the conscript military with a professional force supplemented by contractors. If the US were drafting people to fight in Afghanistan and Iraq, these wars would have been over some time ago, or students would be in the streets.

    The general level of discourse in the opposition was remarkably high intellectually in the Sixties and Seventies, since a lot of the protest was student-based with considerable faculty participation. Most people were quite familiar with the thinkers of the day, Even SCOTUS Justice Douglas was an intellectual and moral pillar supporting the left at the time. Surprisingly, given the level of communications advancement, the general level of discourse on the left is considerably lower now and the so is the intensity . Things just aren’t that bleak yet for most people.

    While some see the status quo squeaking by again, albeit with a lackluster recovery, I’m not so sure. The US is a long way from being out of the woods yet, and there are some heavy shoes yet to drop. Even if the status quo does sneak through this time, the lack of real reform, the further consolidation at the top, and the potential for shock, e.g., derivatives blowing up, or oil spiking, are setting the economy up for a bigger fall down the line. The raucous debate over financial, health care, and energy reform is bringing the power and influence of big money into sharper focus. As a result, the momentum is downward even if the economy does squeak by for a time.

    Change is often only possible when the system receives a great enough shock to dislodge the momentum of the status quo. Then, people start looking for alternatives and they will pick up the most promising solution that is already lying around. Progressives need to make sure that they have the best and most convincing solution on the table, the the solution that gets picked up may be a leap backward, as happened in Germany.

    The need for a fleshed out progressive vision and grand strategy for actualizing it is now quickly becoming an imperative. In an era of digitally distributed networking, this is going to be a group project as never before. Let the best ideas win.

  30. I don’t think it is possible to address unemployment adequately independently of a new vision without being sucked into the existing paradigm, which posits a certain level of unemployment as a stock of labor for capital to draw upon. That treats workers as a commodity on the level of other commodities. (Not that progressives should not be lobbying hard to relieve the suffering that unemployment is causing now.)

    Unless the role of labor is prioritized in relation to human values instead of purely economics ones, real reform is impossible. Recovery will simply mean returning the to old system, in which break downs regularly occur and a certain level of unemployment is built in. Economists are already talking about a “new normal” with 7 to 10 percent unemployment.

    The world has entered the Global Age. Therefore, the fundamental principle of a new vision suitable for the 21st century has to be “one plant, one people.” (At least until space is colonized, anyway.)

    Some key fundamentals of a progressive vision on this global model would be:

    Global interdependence

    Human rights, including rights to environmental protection, employment with a living wage, access to health care, and access to education.

    Subsidiarity. The principle of subsidiarily holds that political decisions be made by the people as close to the level of the people affected as possible. This entails multi-tiered organization with maximum decentralization of decision-making. “We don’t want no stinkin’ world gob’ment tellin’ us what to do and what not to do.”

    Environmental economics based on sustainability. Prices to reflect true cost, including externality.

    Money and banking as a public utility. Monetary and fiscal policy oriented toward human rights and global prosperity as general welfare rather than toward capital formation, profit-making, and rent-seeking.

    Public office as public service isolated from influence.

    You get the idea.

  31. hi ian, I miss your posts over at the lake, anyway I left this downstairs by mistake, it belongs up here;

    A friend of mine noted that the Fed is supposed to try and achieve both price stability and employment, and thus seems to believe that leaving interest rates low is something the Fed should do.

    this isn’t quite right, or rather that might be what they are supposed to do but not what they try to do;

    they really want labor cost stability, they do not care about how low wages go and they do care about how high they go

    the fed adjusts rates to make loans hard when there’s upward pressure on wage, the make loans easy when there’s no pressure or downward pressure on wage

    that’s why the fed isn’t raising rates now, there is downward pressure on wage

    that’s been the philosphy and practice since greenspan, I do not believe that was the philosophy before alan

    he actually believed what was good for business was good for an economy, he said that before berny sanders

    here’s what most people don’t understand;

    there is really no such thing as “supply and demand” pressure on price, the pressure on price is simply “demand”, supply has nothing to do with it

    supply can cause demand but it has nothing to do with price demand does

    here’s an example;

    I can buy all the nike’s I want and they cost just a few dollars to manufacture overseas

    yet they still cost over 100 dollars even though there is an abundance of supply

    demand drives price, not the cost of a product, not the price of a product

    alan’s goal was to stabalise and cause downward pressure on wage, not to keep prices down

  32. perris there is really no such thing as “supply and demand” pressure on price, the pressure on price is simply “demand”, supply has nothing to do with it

    Not sure this is right.

    Prices can rise because of both supply and demand. Leaving aside trade, prices can rise from the side of supply if wage costs increases. This characteristically occurs, in some sectors at least, when the economy approaches full capacity/full employment and there is strong competition for skilled workers. Prices can also rise from the side of supply if material costs increase, e.g., oil should producers decide to raise prices by curtailing supply, or some supply source is disrupted, for example, by drought.

    Prices rise from the side of demand if an increase in the money supply exceeds the rise in real output. This is generally only felt across the board approaching full capacity. This is the monetarist definition of inflation proposed by Milton Friedman, namely, “Inflation as always and everywhere a monetary phenomenon.” The second way that a price increase can occur from the demand side is if government competes with the private sector for scarce goods and services. Again, this generally would only occur near full capacity.

    We are a long way from full capacity and full employment at the moment. Worrying about price stability is silly. That is not to say, however, that what the Fed and Treasury are doing may not affect different sectors unequally. Right now, for instance, the powers that be need to start being concerned with new bubbles they are blowing as they try to preserve capital as it disintegrates en masse. Instead of helping them out by lending, the financial sector is using the increased liquidity and low rates to engage their old trick of high-risk leveraged speculation in asset and credit markets, relying the TBTF (to big to fail) doctrine to bail them out again if they blow up.

    L Randalll Wray’s Understanding Modern Money is subtitled “The Key to Full Employment and Price Stability.” He shows how this is possible through a correct understanding of how government finance, fiscal and monetary, actually works. It is available at Google Books here.

    Wray shows that interest rates have virtually nothing to do with full employment and price stability. That is a myth of neoliberal monetarism. Of course, Wray is not alone in having done this, but his book is a good popular summary that is accessible to most people with a basic understanding of Econ 101.

  33. Hugh

    Yes, I wasn’t trying to defend Clintonomics but trying to show that even Clinton era job creation (by mechanisms however flawed) would be needed, or perhaps a little more, to address the subset of our employment problems encapsulated in the U3.

    I agree with Ian. I am always surprised how long a bubble will last even after it is fully mature. IIRC, home building peaked in 2005, the housing market in 2006, and it took until August of 2008 for it all to go splat. The current bubbles in stocks and commodities have been fully mature for a couple of months now. Bad holiday shopping numbers could finally burst them, but maybe not. A mature bubble is like Wylie Coyote. It isn’t until Wylie Coyote realizes he has run over the cliff that he actually starts falling. That lag is about psychology not physics. But its very irrationality makes it hard to predict. We know there will be a fall but its exact timing is iffy.

    tjfxh, you are missing the brilliance of the economic mind in action. All we have to do to solve the unemployment problem is define it out of existence. If 10% is the new base unemployment rate, problem solved! We are at 10.2% and the difference between the two comes out to something like 300,000 jobs. That is a really neat trick to reduce our employment problems down to 1% of its initial size simply by a few flourishes of a pen. Curiously, most economists don’t associate this kind of thinking with the opinion most people currently have of them and their profession.

  34. Hugh

    Oops I meant to write “August of 2007” for when the housing bubble burst.

  35. Bill Mitchell takes deficit-dove progressive economists to school over their erroneous views about how to deal with unemployment, and Dean Baker specifically, on his blog in today’s post, The enemies within.

  36. Hugh tjfxh, you are missing the brilliance of the economic mind in action. All we have to do to solve the unemployment problem is define it out of existence. If 10% is the new base unemployment rate, problem solved!

    Sigh. Economists are already calling it “the new normal.”

    Why oh why can’t we have a decent economics profession?

  37. Marshall Auerbach posted at New Deal 2.0 on a job guarantee today.

    Navigating the Jobs Crisis: Time to Try Government as Employer of Last Resort

  38. perris
    there is really no such thing as “supply and demand” pressure on price, the pressure on price is simply “demand”, supply has nothing to do with it

    Not sure this is right.

    it is right

    Prices can rise because of both supply and demand.

    no, supply might affect demand but demand sits price, supply doesn’t always affect demand;

    I can have the most unique piece of quartze you will ever find, I might get 25 cents for it if I’m lucky though it’s unique nature should predict it would be worth millions

    or a more practical example, as I said before, a pair of nikes, far more supply then demand yet they command prices that far exceed their production cost ratio

    supply can easily affect demand but the two do not go hand in hand, supply has nothing to do with the extraordinate price of “true religion” jeans, nor the inordinate price of the equal quality calvin klien, wrangler, levi strauss

    supply has nothing to do with the price any product, it is demand only

    now don’t get me wrong, I understand that lack of supply can create added demand, just as added supply can create lower demand, but demand sets the price

    another example

    you are parched and must have water aftre an exhaustive match, none is available in the near vacinity, the person who has water to sell has enough for the entire season

    you will pay more for that water then when you don’t need it…demand not supply

    let’s go further

    there are only a few cans of sugared soda, it normally sells for 2 dollars, you hate sugared soda…myself, I would not but it even though I am parched, however if it was only 25 cents I would buy it, take a swig and throw the rest out

    demand, not supply

  39. Perris, The question is one of causality. Is the factor determining the price of a transaction primarily coming from the buy side or the sell side of the market? In this sense cost-push and demand pull have significance. For example, is a seller gouging when taking advantage of a temporary shortage in a vital commodity like gasoline or heating oil if buyers pay the asking price?

    A lot of the reason for prices rising secularly is the increase in energy cost per unit, which affects just about everything that is grown, manufactured, or transported. Will government eventually have to ration energy to control costs, instead of letting the market work to price the poor out? It’s pretty clear, for instance, that the spiking price of gasoline was a catalyst involved in pushing the teetering economy over the edge by sucking out so much from consumers relatively suddenly. A big fear of the administration and economists in general is that oil will spike again, smothering hope of recovery and wrecking more havoc.

    It is true that the buyer can always refuse to meet an offer that is unacceptable. But this, too, has limits in the case of vital necessities, where the buyers are effectively forced to accept any price that they have the ability to pay just to stay alive. If fact, under such circumstances, sellers will do their best to determine what the buyer has, e.g., for a seat on the last train out of Paris with the German army approaching.

    The normal rules regulating the coincidence of supply and demand don’t work in imperfect markets. Very few markets today are perfect, when prices are controlled by largely oligopolies. This is at the basis of the distinction between legitimate profit as a reasonable return on investment in light of risk, and rent-seeking — or outright exploitation.

    This is particularly significant in discussions about employment since employer do all they can to gain leverage over workers in discovering the price of labor in the market for employment. Where is the demand here and where the supply? The worker demands a job (which the employer supplies) at the highest price, while the employer demands a worker (for work the worker supplies) at the lowest cost. It really depends on how you look at this transaction. Yet, it is the employer who has the money and the workers who need it.

    I agree there is no doubt that price is discovered when the buyer with the money accepts a seller’s offer at a specified amount. That’s how contracts work legally. So in this sense, demand rules in transactions to establish price. The seller has to agree to sell at a particular price before the buyer can commit to the contract. When the buyer commits to the conditions, including the price (legally, consideration), the buyer is held to this contract legally.

    Keynes is correct in saying that aggregate demand is determinative, rather than Say’s Law, as neoliberals believe. This is particularly true when private saving increases, dropping aggregate demand, which results in an output gap and rising unemployment. According to Keynes, government needs to step in and spend in order to increase aggregate demand that saving drew down so as to close the output gap and thereby restore full employment.

    This is not to say that Say’s Law is stupid. There is truth in the saying, “Build it and they will come.” That’s how an economy grows and deepens. Apple Computer is a good illustration of the power of innovation to increase demand or produce it where there was none.

    Supply and demand are two factors involved in the equilibrium of a free that market that determines price based on their meeting point in transactions. Affecting one often affects the other, but not in the simplistic straight line relationship taught in most Econ 101 textbooks. That’s just a basic illustration of a principle (incorrectly attributed to Adam Smith’s invisible hand). It is misleading if taken literally and pushed too far. It is also a bad meme in describing today’s economy as “free market.”

    This all started with a discussion of Greenspan’s choice of how to view inflation, namely as wage-based cost-push. I agree with that analysis of his thinking and agree it was foolish.

  40. Interesting post today from Bill Mitchell on employment guarantees and how to tell the good from the not so good.

    Employment guarantees in vogue – well not really

  41. tjfxh

    Affecting one often affects the other, but not in the simplistic straight line relationship taught in most Econ 101 textbooks. That’s just a basic illustration of a principle (incorrectly attributed to Adam Smith’s invisible hand). It is misleading if taken literally and pushed too far. It is also a bad meme in describing today’s economy as “free market.”

    I agree, affecting one often affects another, that was my point, however supply vs demand does not nor did it ever exist as two, it is demand not attached to supply that determins price, though as you say, supply often affects demand

    ny examples stand

    as far as “a free marekt” there is no such thing, there never will be, there never can be, there never has been, the concept was a marketing scheme thought up by corporatists to promote their propaganda

    the very concept of ownership is a set of regulations, the very concept of a monetary system is a set of regulations, the concept of a sanctity of contracts are a set of regulations

    there can never ever be a free market, what a “free marketeer” or an “economic libertarian” means when they claim they endorse a “free market” is;

    “I don’t want to pay my bills and I have found some marketing propaganda to make believe regulations are bad”

    whenever you see someone endorse “a free market” translate that to mean “we don’t want to pay our bills and we don’t want to honor our obligations”

    that will set you straight every time

  42. perris, two points.

    1. “Free market” in neoliberal economic lingo means no government intervention in the operation of markets other than what is necessary legally to protect property rights, e.g., enforcing contracts, sanctioning crimes like fraud, forgery, and counterfeiting, and establishing uniform standards, e.g., of measurement. This kind of market pretty much doesn’t exist in modern economies because of the complexity of the issues involved that require some degree of control for establishing and maintaining good order. And, of course, as economies grow in centralization, special interests influence markets by shaping government policy. A so-called free market might still exist in a Middle Eastern bazaar somewhere, but there’s likely not all that much protection of property rights in those places either, and you’d better bring your own scales as a check, because it’s caveat emptor.

    2. The problem I have with your simple examples and others like them is that they can easily be misleading. Almost every Econ 101 text written by neoliberals begins the discussion of market and price discovery through supply and demand with a Robinson Crusoe or island of several primitive bands model of a simple economy. From this they derive the basic principles of microeconomics, like supply and demand and elasticity, that seem intuitively obvious. But as Steve Keen points out in Debunking Economics, chapters 2 and 3, these simplistic models grossly misrepresent both history and how market actually work in complex modern economies. Of course, professional eocnomists know this. But since most people don’t go on to further study in economics, they are stuck for life with the simplistic memes of Econ 101 that misrepresent the actual situation. These memes are also repeated add nauseam in the barely conscious media, deeply reinforcing them over time.

    The result is mass economic illiteracy and misunderstanding, which the folks in charge capitalize on to push an agenda favorable to their interests in the name of “freedom” “fiscal responsibility,” “mother,” and “apple pie.” Take the present populist movement. It is properly enraged over the financial crisis and Wall Street bailouts, but the people demonstrating have no idea of what is actually going on or how it could be fixed. As a result, they are flailing about and creating a danger to themselves and others, when they aren’t looking foolish. And the media just adds to the spectacle by ginning it up for the cameras.

  43. David

    Yes, I too was surprised how long it took before the US economy crashed because of financialization. I became aware of it after reading an article around 1987 titled “The Casino Economy”. I think it appeared in Harpers or The Atlantic. I recall there was also a book that appeared in the late 80’s called “America, What Went Wrong”. Does anyone remember that book ?

    If 10% is now the “baseline” U3 unemployment figure, the question then becomes what happens to unemployment in the next recession. Does it become 15% with the U6 unemployment figure being something like 30%. I can’t but think that the political situation would become very ugly.

  44. tjfxh

    1. “Free market” in neoliberal economic lingo means no government intervention in the operation of markets other than what is necessary legally to protect property rights, e.g., enforcing contracts, sanctioning crimes like fraud, forgery, and counterfeiting, and establishing uniform standards, e.g., of measurement

    that’s simply convenience, of COURSE the corporatist wants the regualations that allow them to shed their expenses and obligations

    when they get what they want, I will simly bemoan the regulations that got them my stuff and say we need a free market and deregulate them so I can get my stuff back

    it’s nothing but propaganda, defined in their terms even though their own terms are rediculous at the face of it

    the simple fact is there cannot possibly be a free market under anyone’s definition, there will always be regulations that some people think address the issues and others are certain do not

    Almost every Econ 101 text written by neoliberals begins the discussion of market and price discovery through supply and demand with a Robinson Crusoe or island of several primitive bands model of a simple economy. From this they derive the basic principles of microeconomics,

    and there is my very point, the texts are clearly wrong and their results are deliberative, self serving, destructive and incorrect, which is why we need to dispell the clear inacuracy of the formulations derived from principles that simply do not exist

    demand drives price, it always did, regardless of supply, demand sets the bar

    just as weather affects demand, does that mean we need to add weather to the equation?

    of course not, we leave it out, everyting demand, we don’t pick one of the things that effects demand and make the leap of claim that the two are instrinsicly attached, they clearly are not

    a great discussion but there is a new thread after all

  45. I want to add to the free marketeers rediculous definintion of what a “free market” is;

    “if I want to enter a boxing ring, I want my rules where your arms and legs are tied but my arms and legs are not tied”

    that’s an identical analogy for what they are trying to do re-establishing what a government is and is not for

    off to the next thread

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