For several years now I have been involved in a project investigating the theoretical and practical possibilities of promoting full employment and price stability in an economy using state money through a government-sponsored job guarantee and management of the national budget based on the principles of functional finance. Discussion and debate on any or all aspects of this work is therefore very welcome.
On the face of it, Malcolm Sawyer, author of a recent article in this journal on the subject (2003), would seem to be an ideal commentator. A leading Post Keynesian economist at one of the premiere heterodox graduate programs in England (Leeds University), he has also been very close to the project from its inception. Sawyer was a resident scholar at the Levy Economics Institute of Bard College when L. Randall Wray, Stephanie Bell, and I arrived there in the fall of 1997 to begin working on the project. Both Stephanie Bell and I presented papers on various aspects of the project at two of the Leeds University Business School postgraduate conferences, organized by Sawyer's graduate students and attended by Sawyer. Both papers were published in the conference proceedings, also edited by Sawyer's graduate students (see Forstater 1997a; Bell 1998b). Sawyer has been in attendance at many of the conferences where this work has been presented, including one or more of the Post Keynesian summer workshops, the Centre of Full Employment and Equity (CofFEE) conferences at the University of Newcastle, and various Association for Evolutionary Economics (AFEE) and Eastern Economic Association (EEA) meetings, as well as a conference held at Notre Dame. Sawyer also visited the University of Missouri--Kansas City (UMKC) for an extended period more recently.
The editor of the Journal of Economic Issues and I have agreed that I will concentrate on one or two issues in this note rather than Sawyer's entire article (2003). The primary issue I want to address is the claim by Sawyer that the employer of last resort (ELR) addresses only one barrier to high levels of employment, insufficient aggregate demand, and ignores all others. I will also address the related point raised by Sawyer that functional finance--by itself and as formulated by Abba Lerner--is incapable of achieving true full employment because it is only effective for dealing with unemployment due to lack of effective demand. Finally, by way of a conclusion, I will briefly address Sawyer's claim that ELR employment is "underemployment or unemployment by another name."
Does the ELR Only Address Keynesian Unemployment?
In his article, Sawyer argued that the ELR approach addresses only unemployment that is caused by deficiencies in aggregate demand:
One of the barriers to the achievement of a high level of employment is undoubtedly a lack of sufficient aggregate demand. The provision of sufficient aggregate demand is a necessary though not sufficient condition for the achievement of high levels of employment. As I have argued elsewher ... there are other barriers to high employment, notably lack of productive capacity, inflation barriers, and balance of trade constraints, as well as political and intellectual constraints. The ELR only addresses the issue of insufficient aggregate demand and not the other limitations. (Sawyer 2003, 904, emphasis added) Sawyer cited the important work of Wendell Gordon, whose (1997) note in the Journal of Economic Issues proposed an ELR job guarantee. Inspired by Gordon's note, I wrote another on "Institutionalist Approaches to Full Employment Policies" that was published in the JEI (Forstater 1998c). In that note, I cited the work of two institutionalists not mentioned by Gordon-Hyman Minsky and Adolph Lowe-who supported the ELR approach. The main point of the note is that these two recipients of the Veblen-Commons award arrived at their conclusions from very different starting points and that important lessons can be learned from that fact:
Lowe's work primarily focused on challenges to attaining and maintaining full employment in the face of ongoing structural and technological change, while Minsky's emphasis was on unemployment of the deficient aggregate demand variety, rooted more in monetary factors and financial crises. A brief review of the proposals of Lowe and Minsky may therefore supplement Gordon's note and indicate some of the ways in which institutionalist analyses of the contemporary political economy might integrate monetary and financial factors with issues relating to structural and technological change. (1135) Following a brief review of the approach of the two authors, I reiterated that:
As Lowe's analysis demonstrates, however, involuntary unemployment is not simply an "aggregate" problem. The obstacles to full employment also include issues of sectoral proportionality and balance, and the bottlenecks that characterize the technological structure of production of a dynamic modern capitalist system running at high levels of capacity utilization. Taken together, then, the proposals of Minsky and Lowe address the appropriateness of the ELR approach for dealing with unemployment of the "Keynesian" and "technological-structural" varieties, respectively. Thus, an institutionalist framework may be possible that incorporates both technological and monetary factors and that brings concerns regarding both effective demand and structural change into the analysis, formulation, and implementation of full employment policies. (1138-39) This same message was also expressed in my paper presented at the Leeds Undergraduate Business School Post Graduate Conference in 1997, attended by Sawyer, and published in the proceedings edited by his graduate students (Forstater 1997a). The same point was the subject of a number of other papers of mine, many of them published and many presented at conferences at which Sawyer was present (see, e.g., Forstater 1997b, 1998a, 1998b, 1999a, 1999d, 2001, 2002b, 2003a, 2003b, 2003c, among others).
Perhaps if only I had written a paper called "Full Employment Policies Must Consider Effective Demand and Structural and Technological Change" it would have helped. In fact, I did, and it was presented at the Sixth Post Keynesian Summer Workshop in Knoxville, Tennessee, in June 2000, on a panel with Malcolm Sawyer (see http:// www.cfeps.org/events/Program%202000.doc, session 10). It is also C-FEPS Working Paper #14, available for several years now on our website (see http://www.cfeps.org/ pubs/wp/wp14/) and was published in the conference volume edited by Paul Davidson (Forstater 2002a). In the paper, "[a] full employment policy that can address both the effective demand concern and the structural change concern is proposed" (197):
A full employment policy must thus address both involuntary Unemployment of the Keynesian variety, that is, unemployment due to the inherent demand-constrained tendency of capitalist economies...