Wednesday, November 20, 2013

Peter Cooper — Unemployment is a Government Policy Choice

A common misconception is that if everybody was prepared to take awful enough jobs, unemployment would be eradicated automatically, at least eventually, irrespective of the government's fiscal stance. Embedded in this argument is a misconception that unemployment, overall, can be eliminated through lower wages or deteriorating working conditions. In a capitalist monetary economy, this is not true. To think otherwise is to succumb to a fallacy of composition.
Neoclassical economists made this claim prior to the contributions of Keynes and Kalecki, but it was shown to be unfounded in the capital debates as well as in later work by neoclassical general equilibrium theorists themselves.
Even intuitively there is little reason to expect that an inverse relationship between wages and aggregate employment would hold. A reduction in the price of anything always means two things simultaneously. It means: (i) somebody has to pay less for something they want; and (ii) somebody else is receiving less for providing that thing. At the aggregate level, it means: (i) all of us, taken as a whole, are paying less for the stuff we want; and (ii) all of us, taken as a whole, are receiving less for providing the same stuff. Why would this have any systematic effect on how much stuff will be produced in the economy? It doesn't, as has been demonstrated formally in the capital debates and later work.
Unemployment is a government policy choice. It occurs when the government fails to maintain demand at a level sufficient to sustain full employment.
Unemployment is a Government Policy Choice
Peter Cooper


Matt Franko said...

Oh... a 'govt policy'.... hmmmm... you mean it is not a result of some sort of "natural rate" or something?

Cue the teleological mainstream: "the economy is trying to employ all people, but...."

How come no MMT people use teleology ???? It looks like all the rage in the mainstream... hmmmmm...

Peter here makes a very simple case that all of this is a result of HUMAN ACTION/INACTION I'd say...


peterc said...

Thanks, Matt. I tried to keep it simple. No doubt with more effort it can be made simpler again.

Thanks also, Tom, for linking to it (and other posts in the past).