Are You Naturally Unemployed?
BROCKWAY, GEORGE P.
The Dismal Science ARE YOU NATURALLY UNEMPLOYED? BY GEORGE P. BROCKWAY At the end of my piece on "The Last Chapter in Keynes" (NL, June 29), I referred to the currently recdved doctrine of the...
...Public works cannot be used to reinvigorate the economy because the increase in employment would violate nairu...
...Stupid, incompetent, lazy, lawless, or grasping people do not compete for existing jobs...
...The expression "the natural rate of unemployment" was apparently coined by Milton Friedman in his presidential address to the American Economic Association on December 29, 1967...
...Nevertheless, I propose to try to think about them here and now...
...They know not what they do...
...It reached 5 or 6 per cent in 1975, after the Federal Reserve Board raised interest rates in its quixotic response to the first opec embargo...
...Let me put it another way: In 1951 the interest bill of American corporations was about one-twelfth of their wage bill, whereas today it is more than a third...
...This being the case, it cannot be denied that our economic system-a system said to depend on the natural rate of unemployment?would self-destruct if it were not fundamentally unjust...
...it is corrupt to raise unfairness to a principle of control...
...The nairu was 3 or 4 per cent at the end of World War II...
...during periods of overproduction and paroxysm, it holds its pretensions in check...
...It is possible in time of war to show citizens, chosen by lot, their duty to risk their lives in defense of the nation that nurtured them...
...This difficulty was overcome when somebody (I'm sorry I don't know who) came up with a name that obscures the implications of the idea and has, moreover, an acronym that soothingly sounds like the name of a languorous South Sea isle...
...Friedman said he used the word "natural" because the idea was comparable to "the natural rate of interest," a notion advanced by the Swedish economist Knut Wicksell in 1898...
...And it appears to be around 5 or 6 per cent today (the current 7.7 per cent rate of unemployment is dismal from any point of view...
...By raising the interest rate (even now it is more than double what it was in 1951), the Federal Reserve Board has contributed to (if not mainly caused) inflation...
...From time to time, demographers publish studies averring that only a percentage (say 10 per cent or 5 per cent or perhaps 1 per cent) are what we used to call lifers and spend their entire lives in the industrial reserve army, or that only some other percentage (say 12 per cent) serves more than 27 weeks at a time, while Horatio Alger and his like are discharged in a matter of days...
...Since whatever is "natural" is ipso facto involuntary, Friedman, too, broke with the classics on this point...
...And so on...
...The nairu people are not the people of Reaganesque anecdotes (if such people there ever were) who flit from job to unemployment insurance to job as spirit moves them...
...There would no doubt be problems with the definition of a family, but I'm sure that, given good will, solutions could be found...
...Despite these answers, improvements are possible...
...Private charity also would have to be rigorously controlled to prevent favoritism and corruption...
...They did not volunteer, and they were not drafted...
...If it is immoral, we should change it...
...And as to Keynes, we need remember particularly that his initial quarrel with the classic economists was that they believed involuntary unemployment was impossible...
...To share the burden of nairu fairly, we might take Marx' metaphor literally and institute a legitimate draft for the industrial reserve army...
...on the other hand, any decrease in unemployment will result in inflation and a recession that will continue until employment returns to its natural rate...
...In the 40 years since 1951, when the Reserve freed itself from its wartime agreement with the Treasury to hold rates down, the percentage of GNP that goes to pay interest on debt of the nonfinancial sector has gone from 4.59 per cent to 20.51 per cent...
...It certainly seems preposterous to me...
...I imagine two or three years would suffice at the present natural rate of unemployment...
...They are victims of crashingly bad luck...
...I cannot understand doing that...
...So nairu not only serves reactionary interests in keeping wages in check...
...The modifier "nonaccelerating" is a modifier of Friedman's original notion and recognizes the fact that, as we know from our experience of the past half century, it is not too difficult to live with inflation if the rate is fairly low and steady...
...For ease of administration, it might be convenient in some cases for families to exchange homes...
...Friedman was clear that what he called the natural rate was not a natural law (like, say, S=1/2 gt2...
...It is unlikely that there would be volunteers, and there should be no exemptions of any kind (except for the unemployable...
...Yet he saw and, I believe, still sees something inexorable in the idea...
...But," cry the governors of the Federal Reserve Board, "we already control inflation by raising the interest rate...
...Every able-bodied family in the nation would pull at least one hitch in the army...
...It is not possible to show anyone a duty to lead a life of squalor in order that others may be free to choose among moderately priced commodities...
...it is the function of nairu people to make holders of existing jobs fear for their positions and so acquiesce in low pay, unsafe or Quayle-approved working conditions, frayed fringe benefits, and nonunion shops...
...It is the stern, impassioned tread of Karl Marx' industrial reserve army...
...BY GEORGE P. BROCKWAY At the end of my piece on "The Last Chapter in Keynes" (NL, June 29), I referred to the currently recdved doctrine of the natural rate of unemployment...
...Perhaps you will now sense another resonance of the natural rate of unemployment...
...Forgive me for raising my voice, but we must see clearly that nairu won't work if unemployment is the result of stupidity, poor training, laziness, lawlessness, or unreasonably high wage demands—if unemployment is, as the classical economists said, voluntary...
...The industrial reserve army," Marx wrote, "during periods of stagnation and average prosperity, weighs down the active labor-army...
...If there really is a natural rate of unemployment for our system, the system is immoral...
...I cannot settle for nairu in any of its forms...
...Since inflation of the costs of production is the issue, why shouldn't we have natri as well as nairu...
...It means that, given our present labor force of some 127 million men and women, about 7 million of them must be unemployed through no fault of their own...
...On the contrary," he said, "many of the market characteristics that determine its level [such as minimum wage laws] are man-made and policy-made...
...The natural rate of unemployment is thus an idea that resonated unexpectedly in many corners of modern economic thought...
...Very likely thin-skinned economists were timid about saying that joblessness could be your patriotic duty...
...Of course, for the army to serve its purpose, recruits must be able to work, but their availability would have to be in accordance with length of service...
...In short, the nasty theory of a natural rate of unemployment is counterproductive as well as immoral...
...But the whole idea of placidly accepting a natural rate of unemployment strikes me as far more preposterous...
...Certainly the houses of wealthy draftees could not be left vacant without inflating the general cost of housing...
...they were in the wrong place at the wrong time, and many of them were simply born wrong, just as Rockefellers and such happened to be born right...
...It wouldn't be fair for me to be enlisted one day and hired by a friend the next...
...It is clever to say that life is unfair...
...The new name is NonAccelerating Inflationary Rate of Unemployment, or nairu...
...Membership in the army probably would be by nuclear families, unless children were put out for adoption while their parents served...
...In its pure form it goes like this: Given the civil laws, customs and institutions of the economy (though Friedman is not now and never has been an institutionalist follower of Thorstein Veblen or John R. Commons), beyond a certain point any increase in the rate of unemployment will result in deflation and a recession that will continue until wages fall to a level to encourage entrepreneurs to start Wring again...
...Why shouldn't we also hold down the rate of interest...
...Perhaps all that strikes you as preposterous...
...Friedman might have put it somewhat more gracefully, but he couldn't agree with it more...
...Let us be sure we understand what a nairu of 5 or 6 per cent means...
...Wicksell is worth reading (though perhaps not on this issue), but for the moment we need note only that he is thought by many to have anticipated Keynes in some ways...
...Food stamps, Aid to Families with Dependent Children, Medicaid, and the like (including Work-fare if finally enacted) would be available...
...If the 1951 ratio still applied, today's costs would be roughly $845 billion less than they actually are, and the price level would be lower by a considerably greater amount...
...I can accept the military draft and have in fact been drafted...
...I hope so...
...I hasten to insist that Friedman is not now and never has been a Keynesian or a neo-Keynesian, and certainly not a Post Keynesian (which, if you must know, is more or less what I am...
...it is a convenient reactionary ploy in other situations...
...Some will say that even with nairu, ours is the best system seen so far, and others will say that nairu applies to all systems...
...Service would consist of living without personal assets or income (including imputed income, as for example, decent food, clothing, and shelter) for a period...
...Now, looking back at the theory of nairu, we note that the general price level is to be controlled by holding down only one of the factors of production (labor...
...How did the soldiers of the industrial reserve army get recruited...
...The implications of the doctrine are such that they don't, as the saying goes, bear thinking about...
...The idea was not immediately embraced by the profession...
...They weren't rounded up by press gangs like those that helped Britannia rule the waves, but their fate has not been dissimilar...
...We may accept these studies, or most of them, at their face value and still observe that those in the industrial reserve army serve as a consequence of crashingly bad luck, and that they serve in our interest and indeed in our stead...
...As we noted here a short while ago ("Where Schumpeter Went Wrong," NL, April 6), Joseph Schumpeter celebrated capitalism as "the civilization of inequality and the family fortune.'' I cannot do that...
...Likewise, although doctrinaire free traders may admit that selective protection might protect or restore as many as 2 million jobs, nairu forbids it...
...It has then restrained the inflation it caused by bringing on recession, which keeps the industrial reserve army in being...
Vol. 75 • August 1992 • No. 10
