Wed Nov 28th, 2012 at 04:34:36 AM EST
In my previous diary, Once more into the fray, taxes, deficits, and MMT, an interesting discussion developed on the social and economic limits to the ability of the government to create full employment. That is a really interesting topic which was only partly addressed in the discussion, and I'd like to invite the ET community to return to that topic for a more focused examination of the topic.
front-paged by afew
Given that I am more the amateur economic provateur than a true master of theory and data, I think it might be best for me to posit a few basic questions that seem to be at the heart of the issue, and to then outline my narrative understanding of the situation.
- In the normal parlance of mainstream economics, "Full Employment" actually means a low unemployment rate - the rate at which there are enough unemployed people looking for work that workers cannot take advantage of their scarcity and bargain for higher wages, thus causing "bad" wage/price inflation. Is a situation of actual full employment, where anyone who wants a job can get one, possible in ordinary (barring Total Mobilization for war, etc.) circumstances?
- Would true full employment cause sufficient economic problems to make it truly undesirable? What would these problems be, and why are they actually bad?
- It is often said that true full employment would cause inflation, but the examples typically cited are in monopolistic sectors with inflexible demand. Would state ownership/severe regulation of such sectors make a substantial difference on the inflationary effects of full employment? What sectors would need to be controlled?
- Employment is not, of course, a generic national statistic, but rather the aggregate of different people having jobs in different places in different sectors of the economy. In what sectors would targeted government spending be able to most easily create employment? Are those actually sectors where unemployment is a severe problem?
- Assuming MMT is correct and budget deficits are necessary for a properly functioning economy, is there any good reason why the government service sector should not be fully funded so as to provide a maximum level of service through widespread employment? That is, is there any good reason why something like the teacher/student ratio should be restricted by available money?
- Following from 5, would maximum levels of government service employment be enough to maintain sufficient levels of economic activity in the rest of the economy to maintain something close to full employment? Would there be specific sectors that need extra help?
- Economic sectors involving national infrastructure networks, particularly those which require regular maintenance for safety and reliability, seem to be continually guilty of employing far too few people to really do proper maintenance. Safety and reliability are not efficient, and are thus the first things cut in any drive to but the budget or improve profitability. Obvious examples are road and rail, electrical distribution networks, and communication networks. The Internet backbone might also fit into this category. How could government funding be best deployed so as to encourage/mandate/force higher levels of employment for regular maintenance and repair in these sectors?
- It has been proposed that many sectors of the rural economy suffer from serious problems finding sufficient workers, because the people with the necessary skills and motivation don't live where the jobs are. Is this a real problem, and what could be done about it?
The way I see it, with there are enough big, unfunded services and national-scale projects that could be pursued which would put a sufficient dent in unemployment rates that, through basic spending multiplier effects, the rest of the economy could be dragged along. Fully funding education (so that, for example, the teacher/student ratio is always at the level considered best for education, and is never budget constrained), healthcare (enough doctors and nurses everywhere to make it cheap and affordable, and health-maintenance add-ons like nutritionists, massage therapists and whatnot to improve the quality of life for everyone), fire and emergency response, and other basic government services would be an obvious start, but that's not all. There are also a variety of ambitious public infrastructure projects that are tossed around but never funded systematically - power transmission infrastructure upgrades, securing the grid against high-level solar flares, high-quality passenger and freight rail, putting together a system to protect the Earth from asteroid strikes, systematically restoring rives and estuaries, and whatnot. Further, expanded funding for science keeps smart people in jobs, and space research and technology could theoretically open up all kinds of doors for future economic activity, while also keeping a whole range of scientific and manufacturing people employed.
But what do I know?