We can overcome these barriers by going back to basics, i.e. to our definitions. First of all, the bureaucrats are reminded that they are there to serve the public cause (‘res publica’) - and thus they have signed a contract - before they got the job - that they will welcome full employment and raise no anti-POC objections. In the same way, the people on the dole have signed a contract - before they got the benefit - that they will accept a job at a living wage, and will not raise anti-POC objections either.
A final observation is that the power elite, those who determine the SWF, might enjoy unemployment of a section of the population for some strange other reason. They might not care about the increase of income, freedom and welfare from a change towards full employment, but they would prefer the idea of people in helpless positions and the warm gratitude they show for their benefits. A king needs subjects. We resolve this problem by proper formulation of the theorem.
Concepts
Note that we use the symbols of chapter 39 (that forms a unity with this chapter).
Above theorem on the technical possibility of full employment is essentially incomplete. It has not been specified how the tax regime comes about. The tax regime is an expression of the social choice already made, but it has not been explained how a particular choice has been caused. What is required is a power distribution on the b + h + l agents in the economy. In conventional terms the power distribution is expressed as a social welfare function SWF, and the tax regime is the result of the maximisation subject to the state of information I:
maximise SWF(h, H, N, l, L, K, b, B, t; I) (40.1)
Using a SWF serves expository purposes. When turning to practical application we could use the Drissen & Van Winden (1990) approach. But the logic of both approaches is the same.
The introduction of regime indicator t as a separate variable in the SWF means that it stands as a proxy. The economy is not simply a collection of individuals maximizing utility over consumption and labour. There are some institutional aspects too. An example of an institutional influence is that some social security officials might benefit from unemployment, since it keeps them in attractive jobs. All such (Public Choice) phenomena can be collected on their point of relevance: the employment regime t.
Secondly, there is information I. Ever since Keynes and Tinbergen, or even earlier, but for some economists more acutely since Muth and Lucas, economists have given attention to the information sets that guide the activity of agents. This concerns not just plain knowledge, but rather what people believe about the state of the world. The information sets may contain individual and social aspects, like own prices and the (announced) general price level.
Variable I is an aggregate. It represents the state of knowledge of those in power, where ‘having some power’ is a state of nature given by an array or by a distribution. The latter is not further developed here. A basic point however is that if some economist would know how to solve unemployment, but those in power don’t, then the budget set is IB, while I < IB - and those in power apparently prefer not to know. [117]