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Full employment abandoned: shifting sands and policy failures
by William Mitchell and Joan Muysken | June 2008
The book of the same title (Elgar 2008) is the definitive work on employment from the MMT vantage. This article presents a synopsis.
I always find Coffee’s claims about full employment being abandoned as an objective around 1980 in favour of low inflation to be thoroughly weird. As far as I’m concerned economists were well aware of the trade-off between inflation and unemployment between say 1920 and 1980. As to the idea that no one is concerned about full employment in senior government circles nowadays, that is equally weird.
ReplyDeleteOh, they are "concerned" alright. Just not concerned enough to do anything about it, or else they are clueless about means.
ReplyDeleteBut I believe it is pretty well established that after the 70's stagflation and public dissatisfaction with the rising power of unions, the Keynesian goal of full employment as the major policy objective was abandoned in favor of NAIRU, monetarism, and a Taylor rule, along with legislation to reduce "wage rigidity." That's pretty much where we are still.
The mainstream believes that full employment is incompatible with price stability unless full employment is defined down to include permanent structural unemployment. With monetarists in charge the result has been using a buffer stock of unemployed as a policy tool to meet a policy objective of low inflation.
The argument against increasing the fiscal deficit and therefore the debt is that, first, stimulus doesn't work (Barro's Ricardianism) and, secondly, fear of future inflation (IGBC and "unfunded future obligations"). Neoliberals buy into 1 and 2. They are the deficit hawks. New Keynesians accept only 2. They are the deficit doves.
As a result there is a lot hand-wringing over high unemployment and a policy of fiscal austerity, although the US has taken a more Keynesian approach than the UK or EZ. But the US has been constrained by the power of fiscal conservatives in the legislature, and also the ability of fiscal conservatives to persuade the pubic that fiscal discipline is in their interest.
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ReplyDeleteRalph, a very substantial part of the book focuses on the history of the Phillips Curve debate, and precursors to it.
ReplyDeleteAs Tom's comment mentions, there was a theoretical shift to "full employment" being associated with "natural rate" and "NAIRU" concepts of unemployment, which was later adopted by policymakers. This spirited away the problem of full employment.