I think this what Keynes was trying to tell us. The increased income has to get back somehow to those who will increase their spending and thereby increase the income of others. Wealth concentration works against this. It prevents the additional income from getting to those who will increase their spending. Overall income is lower & total capital is lower. But, if you’re a rentier, why should you care what everyone else’s income problems are?

Has anyone ever refuted Keyne’s explanation of how this works or do they just dislike it because it doesn’t serve their purpose? Maybe we need to change the name of the academic study of economics back to moral philosophy and leave the profitable business of economics called economics; like consulting or public relations, not so much an area of study as profit generating business. This way economists would have to choose which side of this divide they want operate on and the public wouldn’t be so confused. We could even have a separate SIC code for the Supply Side BS Industry.

A rise in average wages would be driven not just by scarcity of labour due to low unemployment, but also cost of negotiating for individual wage increases compared to marginal benefit. This may have become especially apparent as more women entered the labour force, with some anecdotal evidence suggesting that lower average wages are due to women simply not trying as hard to obtain wage increases and that they “do not use money to validate themselves.”

Which makes perfect sense given the low marginal utility for money. Addressing unemployment means finding an alternative that is more attractive than, and healthier to the economy than the current idea of predictable income progression: http://pastebin.com/Q86Zhgs9

Furthermore, given that GDP is roughly linear to energy consumption in a given economy, there is no assurance even current median income levels will be sustainable in the future.

This essay presents a brief for no-confidence, in four parts. First, the theoretical case for the natural rate is not compelling. Second, the empirical evidence for a vertical Phillips curve and the associated hypothesis that lowering unemployment past the NAIRU leads to unacceptable acceleration of inflation is weak, and has become much weaker in the past decade. Third, viewed collectively, attempts to estimate the location of the NAIRU have become a professional embarrassment; disagreements remain on too many basic issues. Fourth, adherence to the concept as a guide to policy has major costs and negligible benefits. Conversely, the risks of dropping the natural rate hypothesis are minor, while the benefits from a sustained pursuit of full employment could be substantial.

I’ve always suspected the NAIRU is bullcrap — sure, a theoretical construct that makes sense, but really a self-serving number dreamed up by economists for corporate interests and policy-makers who share an interest in suppressing labor.

Once again: how can it be a “natural rate” when it’s wrong over a 25 year period?

As our natural resource wealth extraction per person has come more in line with European countries, our economies have become more similar. A wise man learns from others’ mistakes; a fool, not from his own.

I would be very interested to hear your thoughts on Dean Baker’s report out today, “Work Sharing: The Quick Road Back to Full Employment.”

http://www.cepr.net/documents/publications/work-sharing-2011-06.pdf

Here is the press release for it:

New Report Suggests Work Sharing as Best Means of Preventing Layoffs and Lowering the Unemployment Rate

For Immediate Release: June 23, 2011
Contact: Alan Barber, (202) 293-5380 x115

Washington D.C. – With the unemployment rate at a painfully high 9.1 percent, the majority of Americans list jobs as their number one economic concern. A new report from the Center from Economic and Policy Research (CEPR) suggests that in the current economic climate work sharing may be the most effective way to avoid many layoffs and quickly return the economy to full employment with little additional spending.

“The labor market in the United States is still suffering the effects of the last recession,” said Dean Baker, co-director of CEPR and author of the report. “With the economy operating well below its full capacity, work sharing could be a significant factor in preventing layoffs and lowering the unemployment rate.”

The report, “Work Sharing: the Quick Route Back to Full Employment,” describes a system of work sharing that would give employers an incentive to keep workers on their payrolls with shorter hours as an alternative to laying them off. This would be attached to the current unemployment insurance system with short-time compensation as an alternative to unemployment compensation.

“We have already seen that work sharing works in the example of Germany,” Baker continued. “While most countries saw their unemployment levels spike during the recession, Germany, which already had a work-sharing system in place, saw its unemployment rate fall 0.4 percentage points below the rate at the start of the downturn.”

Work sharing is a practical, but underutilized, policy option here in the United States. Senator Jack Reed (D-RI) plans to soon reintroduce legislation along these lines to incentivize work sharing domestically.

In addition to most nations in the Organization for Economic Cooperation and Development (OECD) having some experience with work sharing, 21 states in the United States already have work sharing programs in place. While recognizing some implementation issues could be addressed to make it more attractive, the report presents hypothetical take-up rates and the likely impact of work sharing on productivity in the United States.

Perhaps due to a misplaced focus on deficits rather than jobs, the U.S. economy remains weak and growth is tepid at best. With threats of a possible double-dip recession and more rounds of layoffs looming, work sharing may very well be the most economically and politically viable means of lowering the unemployment rate.