Permanent On-The-Spot Job Creation—The Missing Keynes Plan for Full Employment and Economic Transformation

Abstract

The paper rejects the conventional view that Keynes had an aggregate demand approach to full employment. Instead, it proposes that he advocated a very specific labor demand targeting approach that would be implemented both in recessions and expansions. Modern policies, which aim to “close the demand gap” between current and potential output are inconsistent with Keynes's work on theoretical and methodological grounds. There is considerable evidence to suggest that a permanent program for direct or (in his words) “on-the-spot” job creation is the missing Keynes Plan for full employment and economic transformation. The current crisis presents the social economist with a unique opportunity to set fiscal policy straight along the original Keynesian lines. The paper suggests what specific form such a policy might take.

Keywords:

• Keynesian fiscal policy
• output gap analysis
• aggregate demand management
• direct job creation
• full employment

Notes

The first Keynes Plan is the proposal for an international clearing union for the management of international currencies after the Second World War.

The definitions of full employment by progressive economists cited in this survey range from a condition where the official unemployment rate is 4% to one between 1% and 2% (Goldberg et al. 2007). As this paper will show later, Keynes himself had a much tighter definition consistent with less than 1% unemployment rate (more below).

This claim does not minimize the importance of unpaid work or prioritize one over the other. Rather, it reflects that paid work is a necessary condition for social provisioning in a money-using capitalist economy. For a detailed discussion on the social meaning of work, both paid and unpaid, see Figart and Mutari (2007).

One must wonder what kind of book the General Theory would have been, were it not for Roy Harrod's insistence that Keynes considerably revise and reorganize it.

See his correspondence with Meade (Keynes 1980: 318–323). This would rule out most modern tax rebates, consumption subsidies, transfer payments, as well as various proposals for social dividends or basic income guarantees.

Keynes himself recognized that the final version of the General Theory did not produce a precise statement of his preferred policy proposals: “I am afraid that the readers … will not get a very clear impression of what I say or of what I advocate even in the last chapter of my book” (Keynes 1979: 232, original emphasis).

Keynes's discussion of how to close an inflationary gap is beyond the scope of this paper, but he was very clear that the solution rested on increasing thrift (potentially through schemes for partial deferment of payments) rather than layoffs.

Note that Arthur Okun himself cautioned about the week relationship between the two variables.