A deeply moral and religious man, a member of the Religious Society of Friends (Quakers), William Vickrey was also described as an “economist’s economist.” Winner of the Nobel Prize for Economics , Vickrey made major contributions in the areas of urban economics, transportation planning and costing, taxation, auctions, marginal cost pricing, social choice, game theory and macroeconomics. He was also a committed proponent of full employment. Unfortunately, dying but a few days after winning his Nobel, Vickrey missed his chance to use his international stature to further his goal of “chock-full employment”.
Vickrey developed a theory and plan where any jobless person could “find work at a living wage within 48 hours.” “Unbelievable,“ most would react. But was he persuasive? “Yes, very.”
Claiming that 1926 was the last occasion that an acceptable rate of employment was achieved in the US, during peacetime, Vickrey emphasized the mammoth costs – both social and economic – imposed by joblessness. These included: lower tax revenues, poverty, crime, drug addiction, homelessness, crime, poor prenatal care, racial and ethnic conflict, and so forth. And because unemployment was unevenly distributed, an official rate of unemployment of, let’s say, 5%, might be 10 to 40% among certain social groups, classes, minorities, and the less skilled and educated.
Moreover, Vickrey argued that full employment might also diminish resistance to free trade and technological change, expand income and output, raise the wages and status of less employable workers, stabilize business expectations, and discourage the use of unemployment as a means of curbing or preventing inflation.
This former President of the American Economics Association and author of a dozen books and hundreds of articles in peer-reviewed economics journals rejected the idea of NAIRU (non-accelerating inflation rate of unemployment) and the related proposition that we were doomed to be caught in the trade-off between unemployment and inflation. Until recently, NAIRU was regarded as a sort of “natural rate” of unemployment. It provided the rationale needed by ideological opponents of an increased governmental role in the economy to argue forcefully for laissez-faire policies. In addition, it encouraged a consensus among even more liberal policymakers that inflation might be a greater worry than unemployment.
There were other factors as well. The runaway inflation and the actual appearance of stagflation in the Carter era and the tough, painful macroeconomic policy used during the Reagan Presidency to halt rising prices also made policymakers and economists more cautious about stimulating the economy. America did not want to experience that economy again.
But, by giving up on a rate of full employment where everybody that seeks a job can land a job had its consequences. It led to an implicit, seemingly permanent policy that keeps inflation at bay by drafting our most economically disadvantaged and disempowered citizens for service in what Marx called “the reserve army of the unemployed.” Vickrey called NAIRU “one of the most vicious euphemisms ever coined.”
Without full employment, Vickrey viewed efforts, such as worker retraining, as “a cruel game of musical chairs.” For that and other reasons, he stated that the most important challenges of today were: “unemployment, employment and jobs.” Further, “we have the resources, in terms of idle manpower and idle plants, to do so much, while the preachers of austerity, most of whom are in little danger of themselves suffering any serious consequences, keep telling us to tighten our belts and refrain from using the resources that lie idle all around us.”
Vickrey took a very different view than the mainstream regarding budget deficits, seeing them as worrisome only in certain situations. He liked to quote Alexander Hamilton that “a national debt, if it is not excessive, would be for us a national treasure.” And following the lead of William Jennings Bryan’s famous line that “you shall not crucify mankind upon a cross of gold,” Vickrey stated that “today’s cross is not made of gold, but is concocted of a web of obfuscatory financial rectitude from which human values have been expunged.”
He argued, following Keynes, that today’s capitalism, even in its New Economy guise, has an intrinsic flaw that leads to a “growing gap between private demand and private supply of assets, and that private investment cannot be relied upon to recycle the full employment of savings. According to economist Mathew Forstater, ”unemployment is the real, material evidence of a discrepancy between the desired and actual levels of net nominal savings, for if the desired level was lower, individuals would be spending more, sales would be higher, and firms would be hiring more workers.” Deficit spending is the only way to close this gap.
Net job creation can occur with price stability if government serves as “the employer of last resort” and establishes a system of “buffer stock employment.” Thus, Vickrey’s approach has its own “thermostat.” Guaranteed jobs will be paid around the minimum wage, with a basic benefits package. Based on the classic Keynesian deficit spending strategy, Vickrey’s plan also seeks to avoid moving from deflation to inflation by its built-in feature that prevents over-stimulating the economy. (Vickrey admitted that there would be “a small one time increase in the overall price level” might be expected at the program start-up.)
A great place to begin obtaining a grip on these ideas is Vickrey’s unfinished paper (1996), Fifteen Fatal Fallacies of Financial Fundamentalism: A Disquisition on Demand Side Economics. These fallacies include both old and new “sound” money doctrines along with supply side economics. Vickrey takes to task the New Keynesians, the New Classicists, the Chicago and Austrian schools of monetarists, and deficit hawks of all political persuasions.
A number of so-called “Post-Keynesian” economists, working through the Jerome Levy Economics Institute at Bard College are continuing this work. (See the my next blog article, “Good Jobs – Part Three: Is There a Genuine Solution to Achieving Full Employment with Price Stability?”)
If William Vickrey was right, he has shown us the keys to the kingdom.
For more background, see
- Mathew Forstater, “Saving-Recycling Public Employment: An Assets-based Approach to Full Employment and Price Stability,” Jerome Levy Economics Institute of Bard College: Working Paper No. 273 (July 1999).
- Aaron Warner, Mathew Forstater, and Sumner Rosen, Commitment to Full Employment: The Economics and Social Policy of William S. Vickrey (2000).
- Richard Arnott, Kenneth Arrow, Anthony Atkinson, and Jacques Dreze (editors), Public Economics: Selected Papers by William Vickrey (1994).
- Philip Harvey, Securing the Right to Employment (1989); and L. Randall Wray, Understanding Modern Money: The Key to Full Employment and Price Stability (1999).