Full Employment and Inflation

From the Appendix to Every Willing Hand, Shamcher’s book advocating full employment for all which is particularly relevant today.

A concluding word about inflation. If full employment were, as so often alleged, bound to generate inflation, amending the Employment Act to give it real teeth might have little point. But two recent developments have brought that gloomy thesis into the most serious question — first, the ample demonstration that inflation now tends to occur even without full employment, and second, the not unrelated shift of informed public opinion into favoring an incomes policy of some kind to help maintain price stability. Thus full employment need no longer carry such burdens as do not, properly speaking, belong to it.

More than that, however, it is here submitted that a program of guaranteed full employment along the lines suggested would not only not feed inflation but actually be the best cure for inflation. This is asserted for two reasons in combination. First, the ceilings on employment and on consumer spending that would be imposed under this approach would choke off upward demand spirals almost entirely. That is the built-in “mechanical” aspect. It would limit “demand pull” directly, as already emphasized, and indirectly it would also moderate the wage-demand side of the “cost push” by holding down the prices that make up the worker’s cost of living. Second, there is the psychological point that cannot be proved but that should appeal to common sense-a point that would arise from the very fact of the government’s readiness to commit itself in this unprecedented way. An agreement on the part of the government to assure a total market adequate for business prosperity, and to assure continuous full employment for labor, should be enough to persuade business and labor leaders to agree to abide by some reasonable set of price and wage guidelines.

Those who blame inflation on the incurable wickedness of Big Business or Big Labor or both often seem unaware of how far the behavior of both has been caused by the malfunctioning of our economy — its cyclical instability combined with secular weakness — the inevitability of which is precisely what needs to be denied. Once the government stood ready to assure continuously adequate total demand for products and for workers, (1) all businesses would have more chance to spread their overhead costs and hold prices down; (2) management in areas of administered pricing could logically give up planning for extra profits in boom times to cushion losses in future slumps; and (3) union leaders would feel less pressure to demand extreme hourly wage rates on the one hand, or annual pay guarantees on the other, to fortify their members against the return of unemployment.

To put this in context — as these words are being written, the country is deep in President Nixon’s economic Phase II. Whether this experiment with a Wage Board and a Price Commission will, be followed soon by selective permanent legal controls or by some other incomes policy is impossible to say. But what the government commitments proposed in this article would in any case contribute, when it comes to resolving the ultimate hard-core part of the “cost push” phenomenon, is to open the door as wide as possible to achieving essential results by voluntary cooperation.

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