Economics in Two Lessons: Chapter 14

by John Quiggin on June 30, 2018

My long-running book-in-progress, Economics in Two Lessons is nearly done. I have a nearly complete manuscript, and am hoping for news from the publisher soon. Thanks to everyone who commented on the first 13 chapters.

Here’s a draft of Chapter 14: Policy for full employment. Two more chapters to come after this

Comments, criticism and praise are welcome.

Earlier draft chapters are available. These aren’t final versions, as I am now editing the entire manuscript, but you can read them to see where the book is coming from.

Table of Contents
Introduction.
Chapter 1: What is opportunity cost?
Chapter 2: Markets, opportunity cost and equilibrium
Chapter 3:Time, information and uncertainty
Chapter 4:Lesson 1: Applications.
Chapter 5: Lesson 1 and economic policy.
Chapter 6: The opportunity cost of destruction
Chapter 7: Property rights, and income distribution
Chapter 8:Unemployment
Chapter 9: Market Failure
Chapter 10: Market failure -Externalities and pollution.

Chapter 11: Market failure: Information, uncertainty and financial markets

Chapter 12 on Predistribution

Chapter 13 on Redistribution

Feel free to make further comments on these chapters if you wish.

{ 5 comments }

1

nastywoman 06.30.18 at 6:42 am

In the 21th century in the Rich Mans Economy booms will be more common than recessions, and are very, very enjoyable while they last. However, the financial bubbles created by booms often burst, leading to recessions which only will be felt by the Poor Mans Economy while for the Rich Mans Economy the busts are not more than ‘’minor speed bumps to greater Riches’’.

Moreover, using monetary policy (lower interest rates) as a response to unemployment carries a risk of Speculators causing bubbles – which when bust are really, really hurting everybody, who can’t treat these busts just as ‘’minor speed bumps to more Riches’’.

In the words of the great philosopher ‘’Protect Me From What I Want’’ all economical theory which wants ‘’full employment’’ without wanting ‘’good’’ employment –(aka: ‘’decent non service jobs which pay living wages’’)
are a sign of a ‘degenerating research of reality’. Indeed, it’s now clear that economical theory nearly completely ignores reality. The years since the crisis have seen an intellectual collapse among all non-realistic economists
in the US.

14.6 Summary
In market economics, ‘’good’’ paid work is a necessity to maintain more than a basic standard of
good health and living for everybody in the Poor Mans Economy. ‘’Bad’’ Employment is therefore one of the most important ways in which markets regularly fail to match the need of the Poor Mans economy.

The experience of the 20th century shows that, with a combination of political will and self-destructing
economic policy, unemployment can be reduced easily by self-destructing employment.

The experience of the 21st century shows how much economists are currently ”behind the curve’’. The failure to understand the difference between ‘’good’’ and ‘’bad’’ employment and policies which further any kind of speculation and gambling leads to ‘’greater and greater economic wealth in the Rich Mans economy’’, and ultimately to Trumps.

2

Mark Brady 07.01.18 at 12:06 am

I recommend that at some point, earlier rather than later, you distinguish between the fiscal multiplier and the money multiplier. Once you’ve done that, perhaps it’s okay to talk about the multiplier in the context of fiscal policy.

3

Robert 07.02.18 at 1:53 pm

Can you mention the Humphrey-Hawkins act, perhaps in the context of monetary policy, as well as the 1946 full employment act?

I think Abba Lerner is the one who drew the implication from Keynes that countercyclical fiscal policy was a good idea. I question the idea that economists in the 1960s ever thought fine tuning could be very precise.

I think some think government spending, rather than tax cuts, is a more effective means of Keynesian stimulus. And that investment reacts only slightly to Fed cuts in interest rate.

It might be too much detail, but I think many might not understand the distinction between demand-side and supply-side tax cuts. Would this chapter be a place where one might go into this?

4

Diodotos 07.02.18 at 4:54 pm

On the confidence of economists about fine tuning in the 1960’s: when I showed up for grad school at Princeton in summer ’73 I tried to chat a bit with a 2d or 3d year econ grad student. I brought up the question of where we might be in the business cycle. He told me there weren’t going to be any more business cycles, they had that figured out — in the summer of 1973. So at least some economists’ grad students believed in very precise tuning.

5

Peter T 07.03.18 at 3:57 am

JQ:

I don’t think the comparison of economics to literature will do you any favours. Some might then ask whether your opinions are simply aesthetic judgements, while others will be righteously indignant.

Perhaps sociology? We know some things, many others are contingent and much is unknown.

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