It is useful to indicate in more abstract terms what this book does. Unemployment is not taken as a natural disaster like an earthquake, but regarded as the result of policy. The central questions in the political economy of employment are: can one solve unemployment and poverty, does one know how, and does one want to ?
Next to the budget set and preferences, it appears useful to distinguish information. Government policy making is not guided by prices as markets are. Perceptions play an special role. For example, when policy makers associate tax policy with income distribution policy, and in that manner overlook inefficiencies such as the tax void, then policies are blocked that would otherwise benefit everyone.
Colignatus (1990a) forecasted a revival of institutional economics. We see this happening in the literature indeed. This current book belongs to that development. An Economic Surpreme Court, or the lack of it, is a topic in institutional economics, and thus has a natural position in the proposed new synthesis. [22]
There have been precursors to this approach indeed. Galbraith (1998:199) correctly quotes Michael Kalecki (“Political aspects of full employment”):
“The assumption that a Government will maintain full employment if only it knows how to do it is fallacious.”
8. The record of economics itself
Economics is not a finished science. Hicks (1983) even rejects the notion of ‘science’ itself, and writes a chapter with the title ‘A discipline not a science’. (See also below.) He quotes Keynes:
“The Theory of Economics does not furnish a body of settled conclusions immediately applicable to policy. It is a method rather than a doctrine, a technique of thinking, which helps its possessor to draw correct conclusions.”
A joke is that there are as many theories as economists, and five for Keynes. Krugman (1994ab, 1996a) describes eloquently how Western economies came from full employment and a period of great expectations to a period with unemployment and inflation and a productivity slowdown, and as a result diminished expectations. He is even more eloquent in describing the different fashions in economics and economic policy making. He gives a brilliant discussion of Keynesians, Monetarists, Supply-siders, Business-cyclists, Post-Keynesians, Strategic Policy Adepts. Krugman also makes an apt distinction between serious economists and the policy entrepreneurs who abuse economics for schemes of their own. [23]