The bias against full employment and what could be done about it. September 19th, 2014 at 1:16 pm Over at PostEverything. Share the post "The bias against full employment and what could be done about it." FacebookTwitterShare… Categories: Full Employment, New Posts, Politics | 8 Comments »
I would argue that the institutional bias against full employment is the 2 percent inflation target. You don’t get to specify both unemployment and inflation as policy variable values, you aim for one and see what you get for the other. By aiming for 2 percent inflation the FMOC has proved over the last decade or more that you don’t get full employment, hence this value is too low. Perhaps the unemployment policy variable should be the rate of real wage growth, which nominally should be the rate of productivity growth. We could aim for 2 percent real wage growth and see what rate of inflation we get, which will certainly be more than 2%, probably something like 4%.
The fed has performed drastic action (despite what PK claims, setting interest rates at a level never before attempted by mankind is drastic), but has had only middling results. The question is: should one increase fed action to uber drastic levels -OR- is the drastic action poisonous to a recovery. How do we figure it out? Easy. Japan has performed that experiment, with BOTH uber drastic fiscal and uber drastic monetary policy. The results (-7% GDP) support my poison hypothesis.
“The answer, I believe, is that America lacks a substantial political movement in support of progressive macroeconomics.”
While I’m all for progressive macroeconomics, our real problem is a world dominance by the radical delusional macroeconomics of deficit obsession, expansionary austerity, and Free Market worship.
The broader problem is that progressive haven’t put forth a comprehensive plan that could create a “substantial political movement”.
Four mainstream very strongly bipartisan supported solutions are:
1. Rebuilding our infrastructure.
2. Universal health care.
3. Shoring up Social Security.
4. Raising the minimum wage.
America has no lack of good paying manual labor jobs in infrastructure work, just the political will to pay for it. The $3.5 trillion in infrastructure needs estimated by the American Society of Civil Engineers could add 2% to our GDP or more for a decade and dramatically reduce unemployment. A 0.1% FTT could provide around $100 billion a year for dedicated infrastructure funding. A carbon tax and an increased gas tax should also be dedicated for infrastructure spending and for programs to reduce our carbon footprint.
Universal health care and the cost saving that come with it would eliminate our long term deficit problem.
Eliminating the cap on income subject to the Social Security tax would extend the life of the Social Security trust fund for generations to forever depending on growth rates.
Raising the minimum wage is the cheapest, most effective anti-poverty program.
Republicans took control with their “Contract with America”. The mainstream majority won’t become a viable movement unless some one puts out a comprehensive plan.
Other items are paid family leave, eliminating political corruption by eliminating all tax expenditures, revising our disability program to reflect the modern concept of disability, constitutional amendments to give full rights to women and the GLBT community, ending corporate personhood, prison reform, sentencing reform, standardizing voting requirements, ending gerrymandering, legalizing marijuana and treating drug addiction as an illness, not a crime.
If progressive put out a ten point plan to revitalize and modernize America, political support would follow.
1. Public works doesn’t add to GDP, at least in the long term. You first must tax money (private sector GDP) out of the economy to spend it on public works.
2. A tax on production (carbon tax) will decrease production (ie GDP)
3.Cost Estimates for govt healthcare programs (ie medicare) have always been shocking, amazingly incorrect (and way too low), how do you expect universal healthcare to be different?
4. In American Samoa, raising the MW created massive poverty. We already see youth unemployment to be proportional to the minimum wage.
5. You will never, NEVER, eliminate political corruption.
6. Ending gerrymandering will result in amassive decline in minority representatives. Are you really for that?
1.) Public works have created a substantial share of GDP throughout our history. How can anyone argue this? From the Erie Canal to the Interstate Highway system there are many examples of projects with very high multipliers.
2.) All taxes distort flows in the huge parameter space of economic flows, and thus a statement like this is just plain ignorant. A carbon tax might decrease consumption of carbon based fuels (which today have a substantial consumption of real natural production embedded in them) and increase the production of everything from bicycles to in-ground heat exchange heat pumps. To make a claim that one can predict the outcome is clearly wrong.
3.) Pretty much every other developed country provides health care through a system which involves more government management than the US. On balance they provide better health coverage at a cost that is ca. 50% to 70% of the US there is no rational way to argue for the US system. If we don’t want the Canadian or British system, why don’t we just subcontract health care to the Swiss system. Cover everyone, using a government regulated private system which is ca. 30% cheaper than the US, and still allow the wealthy to receive preferential treatment?
4.) If trivial anecdotal cherry picked evidence is a valid argument then there is no point in public education. This level of thinking still results in a failing grade to pass 6th grade here in Colorado. It’s hard to reason with less than 6th grade level thinking.
5.) Especially true for our system. It’s so odd that we have a two-party system which is designed orthogonally to an efficient democratic market based system. It’s hard to conceive of a worse system of government from a control theory point of view.
6.) Gerrymandering works both ways at different times. To claim that it reduces minority representation currently is just appealing to the less than 6th grade thinking level. The statistics between large aggregation (e.g. state wide, Senate and Presidential) and small scale aggregation (semi-arbitary districts, the House) are irrefutable (to anyone who has a college level understanding of statistics) that current gerrymandering biases the House away from the more uniform sampling of the general electorate.
These are simple things to understand. Can one be a high school graduate and not understand this?
Of course we’d have to have a national political party which supports investment in Americans…
When have Democrats in the last two decades en masse, loudly, promoted the need for “full employment”? If they don’t stand for that, what do they stand for? The same things on economics as Republicans, while not being as retrograde on social issues?
When have Democrats promoted anything loudly? This cycle seems to be more of the same: conceding the House in advance, hoping to hold onto the Senate by the fingernails by making local candidates, with the lure of money, pretend they are not Democrats?
Until Democrats figure out a way to stand for something — namely “full employment” as the cornerstone value — they will continue to limp along unable to accomplish much of anything.