Public Service Employment: Full Employment Without Inflation

L. Randall Wray
2000 Social Science Research Network  
The Conservative belief that there is some law of nature which prevents men from being 1 employed, that it is 'rash' to employ men, and that it is financially 'sound' to maintain a tenth of the population in idleness for an indefinite period, is crazily improbable--the sort of thing which no man could believe who had not had his head fuddled with nonsense for years and years.... Our main task, therefore, will be to confirm the reader's instinct that what seems sensible is sensible, and what
more » ... sible, and what seems nonsense is nonsense. We shall try to show him that the conclusion, that if new forms of employment are offered more men will be employed, is as obvious as it sounds and contains no hidden snags; that to set unemployed men to work on useful tasks does what it appears to do, namely, increases the national wealth; and that the notion, that we shall, for intricate reasons, ruin ourselves financially if we use this means to increase our well-being, is what it looks like--a bogy. (Keynes 1972, pp. 90-92) Since WWII, it has been the stated policy of the US government to simultaneously pursue high employment and stable prices. Paradoxically, neither accepted economic theory nor practical experience appears to indicate that high or full employment is even possible with stable prices. As a result, for at least the past two or three decades, monetary policy generally has been geared toward raising the unemployment rate as a means to achieving stable prices; unemployment is perceived as the inevitable cost of price stability. 1 Many, perhaps most, economists doubt that it is even possible to achieve anything close to a 3% unemployment rate without at the same time inducing accelerating inflation. We will argue that stable prices and truly full employment are indeed possible. Indeed, the government can guarantee a zero unemployment rate, defined as all who are ready, willing, and able to work at a socially-established basic wage will be able to find a job. Only those unwilling (or unable) to work at the going wage would be left without work (which are not normally counted as unemployed). At the same time, by setting this basic wage, the government will provide a price anchor that will impart some price stability to the system. We do not claim that this policy would cause any particular price
doi:10.2139/ssrn.1010686 fatcat:7gqu3bsvm5a5jgcjunxfedeebi