Among economists outside the Johnson administration, the Neoclassical Synthesis received its most influential exposition from such lions of the economics profession as Samuelson, John R. In classical economics, long periods of mass unemployment had been regarded as impossible, because such a condition represented a gross, sustained disequilibrium in the labor market, and normal economic changes, especially reductions in the real wage rate, would tend to restore an equilibrium in which the amount of labor services that workers wished to supply equaled the amount that employers wished to demand, and hence no involuntary unemployment of labor would exist.
Keynes and his followers insisted, however, that in modern economies, wages and prices were not as flexible as they were assumed to be in classical economics. Real wage rates might not fall or might not fall enough , notwithstanding extraordinarily great unemployment of labor. In this view, the only way to reduce such sustained mass unemployment was by increasing the demand for products, thereby increasing the quantity of labor services employers demanded even at the given, rigid level of real wages.
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Consumers, whose incomes would be diminished by the lost earnings occasioned by mass unemployment, could play only a passive role. In this situation, aggregate demand could be raised sufficiently only from a third source, namely, increased government spending for newly produced goods and services, financed by government borrowing. In the s, few economists disputed this general framework of analysis.
In the s, few macroeconomists looked to monetary policy changes as important means of pushing an economy out of what they viewed as a mass-unemployment equilibrium. Keynesians recognized that using fiscal policy to alleviate mass unemployment might be overdone, however, raising aggregate demand so high that the main effect of increasing it further would be not so much a further increase in employment as an increase in the rate of overall consumer price inflation.
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To analyze this problem, they developed what became known as the Phillips Curve, an empirically derived, inverse relationship between the rate of unemployment and the rate of inflation. They also made numerous attempts to estimate statistically the precise parameters of this curve. Above all, they assumed its stability over time. If indeed it was stable, it offered policy makers a menu of choices from which to select: combinations of the rate of unemployment and the corresponding rate of inflation.
If they were willing to tolerate a higher rate of inflation, for example, they could use increases in deficit-financed government spending to push the rate of unemployment down further. However, as economist Edmund S. Still, the economy was already growing and the rate of unemployment declining when LBJ took office in November , and macroeconomic conditions continued to improve throughout his presidency, although the rate of inflation began to edge up after , reaching almost 5 percent during his final year. In truth, fine-tuned fiscal policy was impossible in the context of the U.
Even more than Calvin Coolidge, Johnson was simply lucky in the coincidence of his economic policies and the robust performance of the economy. Of course, the administration proposed, enacted, and implemented a plethora of bills aimed in one way or another at reducing poverty. Indeed, for many observers, the Great Society is virtually synonymous with the War on Poverty. In general, however, nearly all of the anti-poverty measures, to the extent that they met with any success at all, had only a small effect on the national poverty rate, which fell from Some of them, such as the urban renewal programs, were probably counterproductive; most of them were probably neither fish nor fowl, but only more taxpayer money spent with nothing much to show for their display of good intentions.
Throwing money at the problem has neither reduced poverty nor made the poor self-sufficient. Instead, government programs have torn at the social fabric of the country and been a significant factor in increasing out-of-wedlock births with all of their attendant problems. They have weakened the work ethic and contributed to rising crime rates. Most tragically of all, the pathologies they engender have been passed on from parent to child, from generation to generation.
Regulation & the Economy
In fact, the whole theory underlying our welfare programs is wrong-headed. We focus far too much on making poverty more comfortable, and not enough on creating the prosperity that will get people out of poverty. The Great Society at least did not bring economic growth to a halt, and therefore it did not preclude a continuation of the long-term reduction in the proportion of Americans living in poverty. The Great Society programs, whether for macroeconomic fine tuning, microeconomic remedy of alleged market failures, or redistributions of income and wealth to reduce the incidence of poverty had an important element in common: the presumption that technocrats possessed the knowledge and capacity to identify what needed to be done, to design appropriate remedial measures, and to implement those measures successfully.
A Critique over Two Centuries
That is, government could directly or indirectly alleviate any distress. All too many of the programs fell short of even this species of defectiveness, amounting to little more than garden-variety efforts to divert taxpayer money in the service of purely personal and political gain for the insiders who designed, operated, and received benefits from the programs.
For example, the community action program, unforgettably lampooned by Tom Wolfe in his story Mau-Mauing the Flak Catchers , combined ample components of white middle-class guilt, minority shakedowns, and money thrown around basically to appease the menacing claimants who, having been invited to snatch the money, resorted to whatever form of intimidation would get it for them quickest. Level-headed analysts could scarcely have been shocked by this outcome. The economics of the Great Society, whether we consider it from the perspective of economic theory, economic policies, or the consequences of those policies, offers much to criticize and little to praise.
Although this body of analysis might sometimes arrive at constructive proposals by accident, as it did when it helped to push through the tax cut, in general it fostered unconstructive or even counterproductive policies whose common element was increased government intervention in the market system. Many, however, were worse than wastes; they actually caused harm.
Of course, the politicians who joined in this carnival of folly, for the most part, did not care one way or another about intellectual presumptions or positions; they simply saw an inviting opportunity to feather the nests of their supporters, while accruing wealth, public acclaim, and power for themselves. After , as the civil rights revolution dissolved into urban riots and violent splinter groups and as the growing U.
Although Richard M. Nixon was elected in , many elements of the Great Society lived on, and some were extended and made ever more expensive, especially the food stamp program, Medicaid, and Medicare. Indeed, the currently looming fiscal train wreck associated primarily with the federal medical-care programs attests that in fundamental ways, the U. Boston: Twayne Publishers, , p.
Dee, , pp. Vane Northampton, Mass. Indianapolis: Liberty Fund, , p.
Solow New York: Basic Books, , pp. Proctor, and Jessica C. As Conkin notes, Each of [the] Great Society commitments promised benefits to a targeted and often an increasingly self-conscious interest group blacks, the aged, the educationally deprived, the poor, the unemployed, urban ghetto dwellers, consumers, nature enthusiasts. Conclusion The economics of the Great Society, whether we consider it from the perspective of economic theory, economic policies, or the consequences of those policies, offers much to criticize and little to praise.
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Regulation and economic analysis : A critique over two centuries
Taking a Stand. Crisis and Leviathan 25th Anniversary Edition. Annotated Bibliography. Average Review.
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