A question about Keynesian Economics ?

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One clear method to solve unemployment is to abolish the NAIRU from policymakers' playbooks. The whole idea of NAIRU must die. No more "the economy is overheating!" when unemployment falls below a pre-determined level.

In a dynamic economy where the demand for labor is elastic there is a natural rate of unemployment. It is the unemployment of those who leave one job to seek a better job.

We can never have 0% unemployment unless the government drafts the labor force and compels everyone to work under penalty of law.

ruveyn

That has nothing to do with the NAIRU. NAIRU is about deliberately causing unemployment so as to not fall below a targeted level and this has been policy in Western countries since 1979 or so. They claim that lower unemployment than these levels cause "accelerating inflation" (NAIRU is Non Accelerating Inflation Rate of Unemployment) even though Milton Friedman, inventor of this quack theory, knew full well that there was unemployment rates far below his arbitrary levels in the '50s and '60s with very little inflation at all, let alone "accelerating inflation".

I kind of question the idea that monetary policy really works to create employment in the long term. It makes a lot of sense to lower interest rates and print more money when the economy is slipping into recession. It helps put a stop to the deflationary feedback loop that causes recessions to grow. Monetary stimulus isn't a linear effect but an impulse effect that works best short-term. It won't create jobs in the long run if the underlying problem is a structural imbalance and stagnant/slow growth like we have now. Inflation might help some by reducing private debt though. I think inflation might be inevitable if financial institutions aren't willing to restructure/forgive the unmanageable level of private debt that's been created.

Whatever NAIRU is it's definitely not a constant. So-called transient unemployment is going to be much higher in times of economic transition where people have to learn new skills to gain employment in a new sector at the expense of an old sector. But it seems the problem now is worse than that. The few new jobs there are aren't things anyone can easily be qualified for. Government can lower unemployment simply by acting as an employer of last resort, which is essentially what happened during WWII. Of course it helped that there was tons of industry and high demand for American exports immediately after the war so the debt was able to be payed down.

Unemployment did return to pre-depression levels during WW2 but at the expense of basic consumer goods. Production was geared in the direction of war munitions. If you were employed you couldn't buy much. OTOH, people could actually live quite well during the Depression if their livelihood hadn't been destroyed. Even people who had lost their jobs could live comfortably on savings. This despite the greater number of idle factories and workers than in WW2. The economic goal should never be to reduce unemployment at any cost but to achieve greater productivity. The more goods that are produced with fewer inputs, the more plentiful the goods become. Goods become less scarce and workers become more productive. They can demand more goods with less money. If we want to lower unemployment we need to examine what is hampering supply.

That's abject nonsense. Nothing is hampering supply. You don't have to look very hard to see that there's no scarcity of goods in the US. If anything the people who still have money are consuming excessively. Productivity is also as high as it's ever been. The only places in the world your argument could even remotely apply would be some third world sub-Saharan African nations.

I'd say the goal to reduce unemployment is a moral one. Productivity is meaningless if simultaneously you have people struggling to find enough income to pay for food and rent due to a lack of jobs.

Are you saying it is O.K. for people to sit on their arses waiting to be fed?

ruveyn

Obviously not. That's why the goal should be to reduce unemployment.

I misunderstood. Sorry about that.

ruveyn

If nothing is hampering supply, why is there a lack of jobs?

There's a lack of jobs because less people are needed.

Because there's not enough consumer demand in the economy.

While the Chinese Middle Class are a major block of consumers in the world economy, I still think de-valuing the US dollar would go a long way in balancing the net trade situation even if China puts tariffs on US exports, but I can see how currency machinations could get in the way (if Chinese gov't tries to prop up the dollar while the US gov't is trying to prop it down).

Yes, you're right. It's the result of an economy that is over-consuming and under-producing, made possible by foreign countries buying into the dollar when they shouldn't be. Why do you disagree with the Austrians, again?

That explanation is circular - unemployment persists due to weak consumer demand, and consumer demand is weak because unemployment is high. Maybe remove barriers to private job creation?

In a fluid dynamic economy (which the U.S. economy is NOT at this moment) the growth of employment would be mostly in the service industries. Machines and computers (mostly) are what make material goods. There are some goods that require a lot of hand work, but they are a small fraction of the goods produced. So the real growth path, if it is there, must be in services.

ruveyn