Moshe Adler: Obfuscating Unemployment
[Moshe Adler teaches economics at Columbia University and at the Harry Van Arsdale Center for Labor Studies at Empire State College. He is the author of “Economics for the Rest of Us: Debunking the Science That Makes Life Dismal.”]
...During the Great Depression, high rates of unemployment prevailed for 11 years and declined only when the U.S. entered World War II. The experience of seeing a free market system drive itself into a rut that it cannot pull itself out of is nothing new. And thanks to John Maynard Keynes’ explanation of how a market system actually works, we also know what the solution is.
As Keynes explained it, a market system must have a high level of investors’ optimism to boost the demand for goods and services to the full-employment level; the high-tech bubble of the Clinton years and the housing bubble of the Bush years are two recent examples. But when private investment is sluggish, it is the duty of the government to invest. President Dwight Eisenhower’s National Defense Education Act and National Defense Highway Act are examples of what the government can do not only to keep employment high, but to create things that people actually need. Of course, the top marginal tax rate during Eisenhower’s two terms in office was 91 percent, which explains how he could do it without creating an unfathomable deficit. The highest deficit during the Eisenhower years was 2.6 percent of GDP, whereas in 2010 it was 10.6 percent....
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...During the Great Depression, high rates of unemployment prevailed for 11 years and declined only when the U.S. entered World War II. The experience of seeing a free market system drive itself into a rut that it cannot pull itself out of is nothing new. And thanks to John Maynard Keynes’ explanation of how a market system actually works, we also know what the solution is.
As Keynes explained it, a market system must have a high level of investors’ optimism to boost the demand for goods and services to the full-employment level; the high-tech bubble of the Clinton years and the housing bubble of the Bush years are two recent examples. But when private investment is sluggish, it is the duty of the government to invest. President Dwight Eisenhower’s National Defense Education Act and National Defense Highway Act are examples of what the government can do not only to keep employment high, but to create things that people actually need. Of course, the top marginal tax rate during Eisenhower’s two terms in office was 91 percent, which explains how he could do it without creating an unfathomable deficit. The highest deficit during the Eisenhower years was 2.6 percent of GDP, whereas in 2010 it was 10.6 percent....