Review:
Getting Back to Full Employment, by Dean Baker & Jared Bernstein
| Publisher: |
CEPR |
| Copyright: |
2013 |
| ISBN: |
0-615-91836-0 |
| Format: |
Kindle |
| Pages: |
116 |
Getting Back to Full Employment is more of a policy paper than a
book. The authors both work for economic think tanks; one of those, the
Center for Economic and Policy research (co-founded by Baker), is the
publisher of this book. It's also free on the Kindle, another sign that
the purpose is more about educating and convincing the public than about
selling a non-fiction analysis.
I found out about this through
Paul Krugman, and if you're a
regular reader of Krugman's columns and blog, not much here will be a
surprise. Baker and Bernstein are advocating what I would call
conventional-liberal economic policy by US standards (which means that
it's not really that liberal). The short version is that full employment
is vital for improving the economic position of the average person,
inflation is nowhere near as much of a risk as people claim, and the best
economic action the US government can take at present is to aggressively
pursue a full employment strategy without worrying excessively about
inflation.
If you're at all familiar with this debate, you probably already have an
opinion about everything in that summary. I certainly do. If you follow
economics at all, this debate has been raging ever since the 2008
financial crisis (and earlier versions of the debate were raging before
then). Since I'm a regular Krugman reader, you probably know my opinion:
the people who have been crying wolf about the dangers of inflation have
been systematically wrong about everything for seven years solid, and it's
amazing that anyone is still giving them the time of day. Baker and
Bernstein make a similar argument at greater length, and with a more
academic tone.
The risk of any policy paper like this is that reactions will be almost
entirely decided by one's pre-existing opinion about the political actions
that each economic policy implies. If you (like me) have already decided
that government intervention in the economy is useful to prevent
concentration of wealth in the hands of a few and provide support for the
most vulnerable, everything Baker and Bernstein say here is going to sound
quite convincing. If you've already decided that government intervention
in the economy almost always leads to tears, and that a large government
with the ability to take economic action is far more dangerous than any of
the effects of economic downturns and unemployment, it would surprise me
if Baker and Bernstein will change your mind. In other words, I'm
skeptical that policy papers like this accomplish much.
That said, there are a lot of facts and data here, which at least help
ground this ongoing argument in more specifics. The authors show you the
math: the evidence for moderate inflation not leading to any serious
impact for economies, the very strong correlations between low
unemployment rates and rising median wages, the theoretical basis for
lower bounds on unemployment rates and our extensive past history of
assuming that lower bound is much higher than it actually is, and some
pointed comparisons to countries like Germany that have taken many of the
specific policy recommendations included here and have a far healthier
labor market as a result. All the statistics, charts, and discussion of
analysis techniques is fairly dry, but I think the data is compelling. Of
course, I was already convinced by earlier reading.
There are a few bits here that I hadn't seen before, or at least hadn't
internalized. One is a subtle but very important statistical limitation:
any uncertainty in measuring the inflation rate will lead to incorrect
statistical findings that inflation slows growth. The explanation for
this takes several pages and is somewhat technical: the short and somewhat
inaccurate version is that growth is measured in
inflation-adjusted
GDP, so if you get inflation wrong, you magnify the correlation between
GDP and inflation. An inaccurately-high measure of inflation rate
simultaneously leads to underestimating GDP growth for that country; an
inflation rate that's inaccurate on the low side leads to overestimating
GDP growth. This is inherent in how this comparison is done, and it's
hard to see how to avoid it. It's therefore worth taking any analysis of
the growth impact from higher inflation with a grain of salt. (Please
note here that we're talking about moderate inflation the typical rates
between 1% and 8% that you see in developed economics.)
Another bit that was new to me was the analysis of the connection between
trade deficits and full employment. I typically dismiss any international
trade analysis in macroeconomic policy for the US since international
trade is a much smaller part of our economy than most people think it is,
and because protectionism has been rightfully discarded as a policy
approach. But Baker and Bernstein make an interesting argument here about
the effects of a strong currency on increasing unemployment; even with the
relatively small amount of trade, reducing the deficit would have a
noticeable effect. (Increasing the volume of trade but not changing the
balance would not.) The authors certainly don't recommend protectionism;
they do recommend being willing to let the value of the dollar drop
against other currencies as a good way to reduce the deficit, and to be
aware that other central banks have intentional policies of propping up
the dollar that we're largely ignoring. They also mention that this is a
zero-sum game for the world economy as a whole, although I would have
preferred a bit more emphasis on that. You can't get very far via
beggar-thy-neighbor economic policy. But it's a good reminder that the
obsession in some parts with not "devaluing the currency" is economic
nonsense and directly hurts employment.
The end of the book discusses a variety of sensible policy
recommendations ranging from international currency policy to Germany's
work-sharing program where the government subsidies reduction of worker
hours the same way that we already subsidize unemployment. They all
seemed reasonable to me, although, sadly, I have little faith that the
dysfunctional US government will consider any of them seriously,
particularly more direct approaches such as government taking on the role
of employer of last resort. But they're fun to read about and imagine a
US in which the government actually did sensible things like that.
Getting Back to Full Employment is pretty dry, and it's hard to
shake the feeling that writing things like this is basically pointless, so
I'm not sure I can really recommend it. But if you like reading Krugman's
columns and are interested in similar material from different people at a
longer length, that's basically what this is.
Rating: 6 out of 10