Michal Kalecki’s (1943) classic paper, “Political Aspects of Full Employment” remains surprisingly modern, and its message still is worth revising. If you read and/or watch the current debates on economic policy in the mainstream media you would think that public deficits and debt are the main economic problem ahead. Further, if you look at Obama’s budget proposal, with the offer of reducing payments to social security recipients, you would think that entitlement programs are unsustainable and must be overhauled. On the other hand, the mainstream media is not as vocal on the unemployment problem, and in some quarters the current rate of unemployment, 7.6%, is seen as not too high, and only slightly above full employment, which is put by some at 5.5% (the so-called natural rate).
Are you concerned with unemployment and the effects of austerity on the very slow recovery? The Congressional Budget Office (CBO), with the help of mainstream theory, has a solution. Just hike the natural rate of unemployment. Now there are less people involuntarily unemployed, and we are only about 2.2% above ‘full employment.’ If they hike it a bit more we are done, and John Taylor and Martin Feldstein will be correct in pressing the Fed to hike the rate of interest.
In his second inaugural President Obama referred to iconic events in the history of gender, race and gay rights, putting the idea of equality at the center of his agenda. While several pundits were surprised or offended–depending on their political leanings–with the liberalism of Obama’s discourse, and a few noted the momentous effect of pairing gay rights with gender and race, nobody (at least to my knowledge) complained about the conspicuous absence of workers’ rights.
Okay, so maybe citing the notorious Haymarket riot and the martyrs of the Knights of Labor was too much to expect from an American president. In fact, Samuel Gompers and the American Federation of Labor (AFL), as it is well known, never had a positive view of the anarchists associated with more combative labor tactics. In part, that’s why while the whole world, knowingly or not, commemorates the Haymarket affair every May Day, Labor Day in the U.S. is relegated to the first Monday of September. But still a nod to labor would have been essential to really claim that the president is moving in a liberal direction.
In my intermediate macroeconomic classes at the University of Utah I always start by asking students which they think would be a more socially relevant problem: an increase in inflation of 1%, or the same 1% rise in the unemployment rate? The answers vary somewhat according to the current macroeconomic context, yet it is almost always true that the vast majority of my students think that inflation is the real problem.
Matias Vernengo is an Associate Professor of Economics at the University of Utah, and a Research Manager at the Central Bank of Argentina. He has served as a consultant to the International Labour Organization (ILO) on Brazilian labor markets, the United Nations Development Programme (UNDP) on the macroeconomics of poverty reduction, and monetary policies for HIV/AIDS aid-receiving countries for the UNDP Poverty Center. Matias is also serving as a founding co-editor of the Review of Keynesian Economics.