All agree that full employment is a desirable and logical goal for the American economy. From an individual perspective, unemployment leads to low income, personal despair and low self-esteem. From the macroeconomic perspective, idle plant and labor means output of goods and services below the nation's potential. The goal of full employment seems like an absolute no-brainer.
Few people today realize that full employment was not an official national goal until 1946. The nation had come through the Great Depression of the 1930s. People needed, and wanted to buy, goods and services but could not because many were unemployed. Those who were employed had very low incomes. The bitter irony was that because they were unemployed, they could not buy goods that could have been bought if they had been employed and producing those goods. It was a viscous downward spiral.
The 1930s were followed by nearly another half decade of the wartime economy. Now people were employed and had money, but they could not buy the goods because production was necessarily devoted exclusively to planes, tanks, guns, ships and all the rest of wartime material.
By 1946, World War II was over. People now had money, including the "forced savings" in the form of war bonds. Long deferred consumption could be satisfied. Worn out industrial plants needed modernization, especially in their conversion to peace time goods. Farmers needed to replace obsolete farm machinery with modern tractors and labor-saving equipment. The demand for automobiles, housing and appliances was ravenous.
The ingredients for rapid economic expansion and prosperity were in place. With this elixir of prosperity, nobody wanted to go back to the dismal days of the pre-war economic depression. It occurred to politicians that making full employment a national goal would be a good idea. President Harry Truman signed the Full Employment Act of 1946, enshrining into law the goal of national full employment.
However, signing into law the goal of full employment did not end controversy on how to achieve it, especially with respect to the role of the federal government. That controversy still rages today.
During the 1930s, the great British economist John Maynard Keynes shook up the economics profession with his influential book, "The General Theory of Employment Interest and Money." Keynes debunked the existing doctrine that full employment was a "natural state" of the economy, automatically achieved, and even during recession, would eventually right itself in the long run. It just required patience to "wring the juice" out of economic excesses.
With that fiction, Keynes famously reminded that "We are all dead in the long run." There are rational actions that we can take to prevent the hardship and terrible waste of economic recession.
Keynes taught that spending was from four sources: Personal consumption, private investment, the excess of exports over imports and government purchase of goods and services. That spending is also income on the other side of those transactions. During periods when spending is insufficient to generate the income with which to purchase a full-employment level of production, the federal government needs to step in to close that gap - that is, increase the level of spending, hence income, to generate increased employment.
What? Federal spending during economic recession is a remedy for getting out of recession? That idea was then, and is still, a contention that drives conservative Republicans crazy. "Keynesian economics has never been proven," they scream.
In fact, it has been proven. Those who deny it deny history.
The modest federal spending programs of FDR during the depression, such as the Civilian Conservation Corps and the Works Progress Administration, helped a lot of people and did a lot of good in providing work to the unemployed. But they were insufficient to get the economy out of the Great Depression.
Dec. 7, 1941, with Japanese bombs falling on Pearl Harbor and all but wiping out the Pacific Fleet in one stroke, changed all that.
The American economy immediately went on a wartime footing. Workers suddenly had jobs. They had money to spend on needed items. But those civilian items were unavailable because production was necessarily oriented to wartime goods. Even with shortages of civilian goods, it is instructive that, thanks to the protection afforded by the Pacific and Atlantic Oceans, the typical American civilian lived far better during wartime than during the Great Depression of the 1930s.
People now had jobs and money where they did not before. In short, the American economy was pulled out of the Great Depression through what amounts to Keynesian economics on steroids. So let's not hear any more of this nonsense that Keynesian economics is unproven, or that government can't create jobs.
How does that apply to today? Do we need full scale war to get out of recession? Of course not.
Every civil engineer in the country reminds us that our roads and bridges are in urgent need of repair; many are unsafe. We Cheeseheads, according to federal surveys, have the third worst state roads in the nation. America's airports are among the dingiest and most inefficient of the so-called developed world. The drinking water in many of our cities is unsafe - if you don't believe it, take a trip to Flint, Michigan, and drink the tap water. I wouldn't. Flint cannot be unique.
We all treasure our wonderful National Park System. These parks urgently need their facilities upgraded.
So it's not as if we have to build bridges to nowhere to constructively spend some federal dollars to employ construction workers, professionals, and technicians of all kinds, and to increase demand for industrial equipment. There is a long list of necessary expenditures.
Many critics insist that "we should operate government more like a business." These expenditures eventually must be made. Let's make them now, during record low interest rates.
And let's get this economy going again.
Next week: Infrastructure issues, continued.
- John Waelti of Monroe, a retired professor of economics, can be reached at jjwaelti1@tds.net. His column appears Fridays in The Monroe Times.
Few people today realize that full employment was not an official national goal until 1946. The nation had come through the Great Depression of the 1930s. People needed, and wanted to buy, goods and services but could not because many were unemployed. Those who were employed had very low incomes. The bitter irony was that because they were unemployed, they could not buy goods that could have been bought if they had been employed and producing those goods. It was a viscous downward spiral.
The 1930s were followed by nearly another half decade of the wartime economy. Now people were employed and had money, but they could not buy the goods because production was necessarily devoted exclusively to planes, tanks, guns, ships and all the rest of wartime material.
By 1946, World War II was over. People now had money, including the "forced savings" in the form of war bonds. Long deferred consumption could be satisfied. Worn out industrial plants needed modernization, especially in their conversion to peace time goods. Farmers needed to replace obsolete farm machinery with modern tractors and labor-saving equipment. The demand for automobiles, housing and appliances was ravenous.
The ingredients for rapid economic expansion and prosperity were in place. With this elixir of prosperity, nobody wanted to go back to the dismal days of the pre-war economic depression. It occurred to politicians that making full employment a national goal would be a good idea. President Harry Truman signed the Full Employment Act of 1946, enshrining into law the goal of national full employment.
However, signing into law the goal of full employment did not end controversy on how to achieve it, especially with respect to the role of the federal government. That controversy still rages today.
During the 1930s, the great British economist John Maynard Keynes shook up the economics profession with his influential book, "The General Theory of Employment Interest and Money." Keynes debunked the existing doctrine that full employment was a "natural state" of the economy, automatically achieved, and even during recession, would eventually right itself in the long run. It just required patience to "wring the juice" out of economic excesses.
With that fiction, Keynes famously reminded that "We are all dead in the long run." There are rational actions that we can take to prevent the hardship and terrible waste of economic recession.
Keynes taught that spending was from four sources: Personal consumption, private investment, the excess of exports over imports and government purchase of goods and services. That spending is also income on the other side of those transactions. During periods when spending is insufficient to generate the income with which to purchase a full-employment level of production, the federal government needs to step in to close that gap - that is, increase the level of spending, hence income, to generate increased employment.
What? Federal spending during economic recession is a remedy for getting out of recession? That idea was then, and is still, a contention that drives conservative Republicans crazy. "Keynesian economics has never been proven," they scream.
In fact, it has been proven. Those who deny it deny history.
The modest federal spending programs of FDR during the depression, such as the Civilian Conservation Corps and the Works Progress Administration, helped a lot of people and did a lot of good in providing work to the unemployed. But they were insufficient to get the economy out of the Great Depression.
Dec. 7, 1941, with Japanese bombs falling on Pearl Harbor and all but wiping out the Pacific Fleet in one stroke, changed all that.
The American economy immediately went on a wartime footing. Workers suddenly had jobs. They had money to spend on needed items. But those civilian items were unavailable because production was necessarily oriented to wartime goods. Even with shortages of civilian goods, it is instructive that, thanks to the protection afforded by the Pacific and Atlantic Oceans, the typical American civilian lived far better during wartime than during the Great Depression of the 1930s.
People now had jobs and money where they did not before. In short, the American economy was pulled out of the Great Depression through what amounts to Keynesian economics on steroids. So let's not hear any more of this nonsense that Keynesian economics is unproven, or that government can't create jobs.
How does that apply to today? Do we need full scale war to get out of recession? Of course not.
Every civil engineer in the country reminds us that our roads and bridges are in urgent need of repair; many are unsafe. We Cheeseheads, according to federal surveys, have the third worst state roads in the nation. America's airports are among the dingiest and most inefficient of the so-called developed world. The drinking water in many of our cities is unsafe - if you don't believe it, take a trip to Flint, Michigan, and drink the tap water. I wouldn't. Flint cannot be unique.
We all treasure our wonderful National Park System. These parks urgently need their facilities upgraded.
So it's not as if we have to build bridges to nowhere to constructively spend some federal dollars to employ construction workers, professionals, and technicians of all kinds, and to increase demand for industrial equipment. There is a long list of necessary expenditures.
Many critics insist that "we should operate government more like a business." These expenditures eventually must be made. Let's make them now, during record low interest rates.
And let's get this economy going again.
Next week: Infrastructure issues, continued.
- John Waelti of Monroe, a retired professor of economics, can be reached at jjwaelti1@tds.net. His column appears Fridays in The Monroe Times.
