Re: uk-policy pop solutions for unemployment
geoff.beacon@virgin.net
Fri, 12 Jun 1998 08:34:45 +0100 (BST)
Portes, Jonathan wrote:
>
> Re Gavin Cameron's discussion below: the Layard/Nickell/Jackman quote is
> just the standard formulation of the NAIRU (non-accelerating inflation
> rate of unemployment) hypothesis. It says that in the long-run there is
> some equilibrium level of unemployment, and only "structural" policies
> can change that.
>
> However, this view is far from economic holy writ; indeed, it is very
> closely related to the view that inflation and/or devaluation cannot
> permanently raise output or reduce unemployment. While this is not a bad
> general rule - one cannot simply inflate out of trouble - is not
> necessarily valid if there are significant hysteresis effects or if the
> economy is for some reason "stuck" at a low level of employment or
> output (or an overvalued currency). Look at the experience of the UK
> since 1992 for an obvious example of a devaluation having real effects.
> In other words, this debate is a classic example of what Keynes meant in
> his famous reference to the "long-run"; he was attacking economists who
> claimed the government couldn't do anything to help because "in
> equilibrium" policy couldn't really change anything.
>
Using NAIRU-type arguments, it is possible to express what Kim Swales
and myself are getting at with employment friendly VAT:
Consider our national economy as two (or more) economies and one for the
high-paid and one for the low paid. We clearly have two economies which
are not "in harmony". One is overheating the other is not.
Our proposals will simulate that part of the ecomomy that isn't
overheating and restrain the part that is.
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