Do We Need Full Employment?
January 2, 2006
With Responses From
Jan 2, 2006
4 Min read time
We must expand our focus to the limits of neoliberal economics.
This is a particularly bleak moment for those who share a progressive vision of American society. A just economic and social order seems increasingly remote. Citizens are less and less able to realize their personal aspirations, let alone their true potential as human beings. As individuals and as a nation, we are beset by continual economic anxiety.
It is also a moment of great disappointment. After eight years of a conservative Republican administration that rejected any social vision—and almost 30 years of policy guided by a neoliberal philosophy of the market as template for all social and economic activity, and of human motivation understood as narrow individual self-interest—we elected a president whose campaign rhetoric seemed to articulate a progressive vision and whose policy program pointed to ways of achieving it. But in office President Obama has failed to provide the leadership that his campaign promised. Indeed the gap between the rhetoric of the campaign and his conduct in office leads one to wonder whether he actually shares that vision at all, or has any faith in the possibility of realizing it through public policy. Thus it is particularly important at this moment to reassert such a vision, linked to a program of action. Robert Pollin’s proposal is a welcome contribution to this effort.
The major lesson of the crisis lies not in the causes and possible cures of unemployment, but rather in the limits of the framework of neoliberal economics.
Pollin’s focus on employment is critical. Unemployment’s impact extends well beyond the nearly 10 percent of the population counted as out of work and is probably the chief motor of anxiety in society as a whole.
Nonetheless, one has to wonder whether unemployment is the right target—and full employment the right goal—on which to center a progressive agenda.
Will an understanding of its causes and cures teach the right lessons about public policy?
Until the current crisis, unemployment had not been the major problem. In the 1990s, and again in the last decade, the economy was able to reach and sustain levels of unemployment relatively low by historical standards. The problem was not the quantity but the quality of the employment opportunities—in particular the deterioration of working conditions at the bottom of the labor market, the increasing inequality of income, and the stagnation of wages in spite of productivity gains.
There is, moreover, no consensus even among progressives about why the economy is not returning to full employment in the recovery. High unemployment appears connected to the crisis, but it’s not clear how. The first of two common explanations suggests that it is a hangover of the crisis itself. Historically, every financial crisis of the magnitude the United States experienced in 2007 and 2008 seems to have produced in its wake persistently depressed conditions in the productive economy. Under these circumstances, government spending to make up for the deficit in demand is a crude policy. As a substitute for diagnosing the underlying causes of limited recovery and designing a set of policies to address them, it is basically a confession of ignorance.
The alternative explanation is that structural factors prevent a return to full employment: bottlenecks in the labor market, or, more plausibly, long-term trends in trade and technology that were obscured by the booms but are now playing themselves out. In this view, job opportunities, which would otherwise be created in the recovery, are instead going abroad or, in effect, being replaced by capital investment. Little evidence supports this interpretation, but the argument is reasonable. Here, too, the government-led job creation that Pollin proposes is not a substitute for understanding the effects of trade and technology or for policies that moderate their impact, if they are indeed unemployment’s root causes.
The major lesson of the crisis is not, I think, to be found through an exploration of the causes and possible cures of unemployment. It lies rather in the limits of the framework of neoliberal economics in which policy has been formulated over the course of the last 30 years and that apparently dominates the policy considerations of even the current administration. From this point of view, it is a mistake to focus on unemployed labor. There is widespread unemployment of all productive resources—labor, to be sure, but also of physical capital, the housing stock, and finance.
Standard economics is a science that defines itself in terms of problems posed by scarce resources in the face of unlimited desires. To say that a high proportion of productive resources are unemployed is to say that they are essentially free. This fact justifies deficit spending—the government is not diverting resources from other uses, it is absorbing resources that otherwise would not be used at all.
But while direct government intervention is called for today, we will eventually return to full or near-full employment and, with it, the economics of scarcity. Social and economic welfare will then be once again dependent upon the functioning of the private economy. If we do not use the failures of standard economics, which the crisis has revealed, to develop a broader understanding of that economy—one that recognizes a wider range of human motivation and forms of social organization aside from the market—we will remain prisoners of the neoliberal framework and the policies it produces. However important the job-creation agenda is at the moment, it can only be a start toward a new approach to social and economic policy.
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January 02, 2006
4 Min read time