Mosler and Vickrey: Two Essays. Last week I read two essays from the net: Full Employment AND Price Stability (http://www.gate.net/~mosler/essay1.htm) and 15 Fatal Fallacies of Financial Fundamentalism (http://www.rain.org/~jjgelles/vickrey15.htm) See also We Need a Bigger Deficit (http://www.rain.org/~jjgelles/vickrey.htm) In his, Warren Mosler claims that a balanced budget is not only not necessary, it is the cause of unemployment. By running a constant deficit, the federal government can eliminate unemployment! I was about to dismiss Mosler as a loony, when I noticed that William Vickrey claims the same thing. But he has a Nobel Prize in economics. So while this idea may be wrong, it cannot be dismissed so easily. VICKREY Vickrey doesn't say much about WHAT the government should DO with the extra money it spends (above revenue); just spending it is good enough. Also, he seems to think that saving money is a bad thing for the economy, and that inflation is CAUSED by increases in prices, rather than the reverse. Fallacy 14 makes some references to the US Social Security System. He recognizes it as a "Ponzi Scheme" but seems to think that it can work since it is compulsory, and there will "always be succeeding cohorts to foot the bill". He does not attempt to deal with falling birth rates, ever longer life spans, and ever more expensive medical costs. No hint that these will have an impact on SS. (There is a technical error in paragraph 5 of Fallacy 14 that jumps back to Fallacy 11 paragraph 9). He does recognize that the corporate income tax should be eliminated, but even with that positive, I find his ideas to be less convincing that those of Mosler MOSLER This essay at least provides a reason to have a deficit: it would be used to pay the (otherwise) unemployed. The federal government would become the Employer of Last Resort (ELR). No more welfare or unemployment Compensation. Can't find a job? Work for Uncle Sam! The details of just what those people would do is not spelled out, but images of WPA come to mind. With this, there would be no need for a minimum wage law: what the government pays as the ELR would become the effective minimum wage: people would work for less only if there was an advantage to ( to gain experience, or because of location, or conditions, etc). It seems to me that this idea could be blended into a wage subsidy/EITC: if the government didn't have specific ideas about what to do with some unemployed, they could supplement their wages up to the ELR level while they worked at a job they found on their own. Mosler claims that this can be done without causing inflation. Is Economics a Science? I used to think so, but now doubt it. There is "general agreement" among people trained in any science about what the basic rules/laws are. You would not find any professors of chemistry (let alone Nobel laureates!) who doubt the validity of the Laws of Thermodynamics, or physicists who question conservation of momentum. On rare occasions, and as the result of new data (typically gathered by new instruments), there is a change in the basic theory. As for example in Geology in the 1960's when data from the magnetic properties of the sea floor lead the acceptance of "continental drift", an idea that had been proposed long before but generally rejected. I thought such agreement existed in economics, at least on such basic topics as "supply and demand" and such. But if Vickrey thinks saving is BAD and a federal deficit is GOOD, (not just during a recession as proposed by Keynes, but in general) then perhaps the there is no agreement on even the fundamentals. Last summer I read Myth and Measurement by David Card. His claim is that there is no "law of supply and demand". (at least not as applied to either the minimum wage or fast food) He claims that raising the minimum wage does not reduce employment below what it would have been otherwise, and that when a fast food restaurant charges MORE for their food, they do not sell any less (and may even sell MORE) than if they were to charge less. (I hope to find the time to review the Card book sometime.) ,,,,,,, _______________ooo___(_O O_)___ooo_______________ (_) jim blair (jeblair@facstaff.wisc.edu) Madison Wisconsin USA. This message was brought to you using biodegradable binary bits, and 100% recycled bandwidth.