someone mentioned the following letter over pen-l:
by Paul Davidson:
January 17, 1995
Letters to the Editor Department
The New York Times
229 West 43 Street
New York New York 10036
To the Editor:
Russell Baker's perceptive column "Those Vital Paupers" [NY
Times, January 17] displays the transparent vacuousness of the
Economists' "New Clothes" acronym NAIRU (the Non Accelerating
Inflation Rate of Unemployment) concept just as the youngster,
uninstructed in the worldly wisdom of his elders, correctly noted
that the "Emperor is Naked" in the famous fable of "The Emperor's
New Clothes".
The NAIRU cognoscenti who run our Federal Reserve and advise
our policy makers believe it is bad for our society if self-
interested businessmen want to hire most of the unemployed. By
reducing the ranks of the unemployed (Baker's "Vital Paupers") in
response to possible profit opportunities, businessmen will cause
the economy to "overheat".
Consequently, the NAIRU seers argue that the Federal Reserve
must destroy potential profit opportunities by raising interest
rates whenever the existence of profitable markets induce
entrepreneurs to hire sufficient numbers of workers to reduce the
unemployment rate below that embedded in the NAIRU concept. It is
apparently better to keep approximately 5.8% of American workers,
who are willing to work, unemployed than to hire them and in so
doing make them productive, income-earning, tax-paying members of
society.
If some perpetual proportion of Americans are required to be
unemployed, then they must either starve to death or live as
"parasites" off of government entitlements and/or private charity.
If we end welfare as we know it and private charities do not
replace these entitlement payments dollar for dollar, then only
three dreadful scenarios are possible.
First, unable to obtain any form of income maintenance, the
unemployed will slowly starve to death. As they die, the rate of
unemployment among the surviving members of American society will
fall below the critical NAIRU value. To prevent inflationary
overheating, the Federal Reserve will then be forced to destroy
additional profit opportunities so that businessmen, facing slack
markets, will fire enough previously employed workers to refill the
unemployment ranks to the amount necessary to maintain NAIRU. Under
this scenario of "starving the unemployed", additional employed
survivors must be continually sacrificed to maintain the NAIRU.
Then, as Keynes noted in a slightly different context, "in the long
run we'll all be dead".
Second, the unemployed can attempt to compete with the
employed by lowering their wage requirements and/or improving their
skills. If, however, the system always requires a significant
portion of the population to be unemployed to prevent overheating,
the newly employed will gain their jobs at the expense of the
previously employed. Job search will merely be a game of musical
chairs where the Federal Reserve undertakes, as its responsibility,
to assure there are always fewer chairs than players.
Third, those who are cast upon the trash-heap of the
unemployed without entitlements, may decide that it is in their
self-interest to create an illegal entitlements system, i.e., to
steal from the employed, rather than to quietly starve to death.
If as the crime rate increases, society's response is to
incarcerate these criminals, then the result will be more
spending on entitlements for food, clothing, and shelter via
prisons and orphanages. If instead society decides to expand the
death penalty rather than locking up such criminals, and if we are
successful in catching them, then the result will be to reduce the
rankings of these unemployed more rapidly than under the first
"starving the unemployed" scenario. This will force the Federal
Reserve to raise interest rates all the more rapidly to replenish
the unemployment rate.
Surely, a civilized society can figure a way out of this NAIRU
nonsense. Some economists including John Maynard Keynes, who never
were ensnared in the glossy gossamer of the NAIRU garment, have
advocated policies that do not require a permanent army of
unemployed paupers to achieve a prosperous inflation-free economy.
But before such policies can be discussed in public forums we must
all recognize the transparency of the Economists's new clothes and
demand that the Federal Reserve discard these garments.
Sincerely,
Paul Davidson
Editor
Journal of Post Keynesian Economics
in pen-l solidarity,
Jim Devine
[EMAIL PROTECTED] or [EMAIL PROTECTED]
Econ. Dept., Loyola Marymount Univ., Los Angeles, CA 90045-2699 USA
310/338-2948 (daytime, during workweek); FAX: 310/338-1950
"Segui il tuo corso, e lascia dir le genti."
(Go your own way and let people talk.) -- K. Marx, paraphrasing
Dante.
