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RohanGreySecondPaper 9 - 28 May 2012 - Main.RohanGrey
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Money and Unemployment | | |
The term “Functional Finance” was first coined by Abba Lerner during World War II to describe a macroeconomic policy whereby a state would use its complementary privileges of money creation and taxation to control the flow of money into the economy and achieve full employment, price stability, and socially desirable goals. He likened this to the driver of a car using the gas and brake pedals to keep a constant speed while changing direction with the steering wheel. For Lerner, the idea of being unable to secure “financing” (gas) for the government was a non-issue, since it could always spend new dollars as necessary. The real macroeconomic concerns, in his view, were price stability (the speed of the car) and the productivity of jobs and investments created through money creation (the direction). The numerical size of the government’s deficit or surplus was considered a mere accounting afterthought, reflecting rather than dictating the conditions of the real economy. | |
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< | Lerner’s approach heavily influenced macroeconomic policy in the post-war era before losing popularity in the wake of the oil-driven stagflation of the 1970’s. Since then, mainstream economic discourse has mostly abandoned the lofty goal of true full employment amidst irrational fears of budget deficits and deceptive household budget analogies that ignore the fundamental difference between a currency issuer and a currency user. Gone is any sense of deep outrage at the irredeemable social waste, human suffering and death caused by unemployment. In its place is a fear of “running out of money,” which implies that the defining economic issue of the present era is the risk of running out of electricity to power the computer at the Federal Reserve that purchases treasuries with reserves using keystrokes. In response to our alleged "budget crisis," politicians across the political spectrum have pushed for “shared sacrifice” in order for us to return to “living within our means.” Anyone familiar with the paradox of thrift would and did find this idea laughable even before the rank hypocrisy that was “Too Big To Fail.” Together, these policies of austerity and banking subsidy are, to borrow Lerner’s analogy, akin to the driver of the car taking his or her foot off the gas, stepping on the brake, and handing the steering wheel over to the person who had caused the car to stall only moments ago. | >
> | Lerner’s approach heavily influenced macroeconomic policy in the post-war era before losing popularity in the wake of the oil-driven stagflation of the 1970’s. Since then, mainstream economic discourse has mostly abandoned the lofty goal of true full employment amidst irrational fears of budget deficits and deceptive household budget analogies that ignore the fundamental difference between a currency issuer and a currency user. Gone is any sense of deep outrage at the irredeemable social waste, human suffering and death caused by unemployment. In its place is a fear of “running out of money,” which implies that the defining economic issue of the present era is the risk of running out of electricity to power the computer at the Federal Reserve that purchases treasuries with reserves using keystrokes. In response to our alleged "budget crisis," politicians across the political spectrum have pushed for “shared sacrifice” in order for us to return to “living within our means.” Anyone familiar with the paradox of thrift would and did find this approach laughable even before the rank hypocrisy that was “Too Big To Fail.” Together, these policies of austerity and banking subsidy are, to borrow Lerner’s analogy, akin to the driver of the car taking his or her foot off the gas, stepping on the brake, and handing the steering wheel over to the person who had caused the car to stall only moments ago. | | | There are some pockets of mainstream resistance advocating for greater government intervention, but even they tend to cast such action as extraordinary, and recommend rolling back stimulus as the economy returns to an allegedly “natural” rate of unemployment. Overall, with a few refreshing exceptions, supporters of capitalism appear resigned to the inevitability of involuntary unemployment. |
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