The new analysis points directly to a policy that will be successful and that will allow a return to full employment under stable prices like in the the 1950s. If exemption is put at subsistence, then jobs can be created at the low end of the labour market, which would save benefits and reduce average taxes, which again would increase incentives. The alternative structure and policy would also be beneficial for inflation. If low productivity labour has a stronger position in the labour market, then the risk of unemployment is spread more evenly, and trend-setting high productivity labour will be cautious about wage claims.
A welfare state is defined as a state that doesn’t let people die and thus provides benefits for the lowly productive anyway. The welfare state can be run more efficiently by using those resources, instead of going into benefits, to instead reduce labour costs and to price the lowly productive into jobs. The analysis on inflation and unemployment thus results into the proposition that, since the present situation is inefficient, an improvement is possible from which everybody can benefit.
This book provides theorems in mathematical economics to prove its points. The central questions in the political economy of employment in the welfare state are: can one solve unemployment, does one know how, and does one want to ? The book presents a model that satisfies the stylized facts and thus serves theoretical and empirical uses.
· The first result is a possibility theorem (can) that there are two regimes of either full employment or unemployment.
· The second theorem explains the choice by know and want causes. Full employment results from conscious choice or chance (while lacking knowledge). Unemployment results from conscious choice or wrong co-ordination (where a Pareto optimising change is blocked only by lack of knowledge - and a lack of knowledge not by the economists but by the incompetent or insensitive policy makers).
The analysis shows mathematically that democratic goals indeed can be blocked by special interests or neglect, for example within the bureaucracy. A policy conclusion is to improve informational (planning) procedures.
The discussion of taxes, unemployment and inflation is basically just a minor point of the book. The major point of the book concerns the co-ordination problem. Western democracies apparently allow long periods like the Great Depression or the Great Stagflation that are detrimental to the economic well-being and security of large sections of their populations. Ideas of economists that point the way to recovery are only slowly accepted. Key examples are the ideas of Tinbergen and Keynes: for them it took World War II before they got listened to. Eventually, the political powers of that time accepted that they had to redesign the structure of economic policy making, and they gave more room to the scientists, but did not dare to give up their ultimate power to meddle with the information. Currently, the world faces the challenge of the growth of the world population from 6 billion people around 2000 to likely around 8 billion people around 2025. To manage this process, mankind would benefit from a structure of economic decision making that is both democratic and that respects the citizen’s right to know.
Literature
EWP references are to the Economics Working Papers Archive at the Washington University at St. Louis: http://econwpa.wustl.edu. See also http://www.dataweb.nl/~cool.
Note: Colignatus is the name of Thomas Cool in science. Some archives may not recognize that name.