The economics of Fuller Employment in the Twenty-first Century



HRc The economics of fuller employment in the twenty first century may 29 2019 5-48pm


The economics of fuller employment in the twenty first century. By Harold Chorney Concordia University, Montreal, Quebec, CEA annual meetings Banff, Alberta May 31 2019 (This version is missing various charts because of computer problems. For full paper with all charts included, click link above).

The economics of fuller employment in the twenty first century.  

By Harold Chorney Concordia University, Montreal, Quebec, CEA annual meetings Banff, Alberta May 30 2019

Ever since David Ricardo in the early nineteenth century, trade and free trade, and the increasingly global nature of capital expansion in particular has been central to economic policy and thought. We see these sort of questions have become central to politics and policy in the current debate over BREXIT in the UK and the European union. President Trump has reawakened these sorts of questions by his insistence that the US had to be made greatagain at the cost of its trading partners. But, of course none of them are as weak as they might have been decades ago. This is particularly true of China whose GDP is close to that of the US.


These sorts of questions were a natural complement to the theory and practice of full employment that Maynard Keynes and William Beveridge introduced into the world of neo-classical dominated economics in the 1930s and 1940s. But just as the integration of these rather disparate models of economic reality was taking place there were already forces at work seeking to undermine the Keynesian policy of low unemployment and distorting Keynes’ breakthrough into what Joan Robinson famously called bastardized Keynesianism.  It is also relevant that politics continues to drive policy.


The shadow chancellor of the Exchequer in Britain , a left of centre Labour MP, John McDonell has recently told British economists and civil servants that in the event of a new Labour government, if that should happen as a consequence of a new election or the failure of Prime Minister May‘s government,(May has just announced her resignation effective June 7, 2019) that the Labour party would expect the economic branch of the government to bone up on left of centre economics which stressed anti-poverty and full employment economics as top priorities. McDonnell in the past has stressed that as chancellor he would introduce a wealth tax, 250 billion pound infrastructure spending, an end to austerity, opposition to globalist trade agreements, reinstatement of trade union rights, a crack-down on corporate greed and corruption, and a major increase in the minimum wage. (see FTJohn McDonnell unveils Labour‘s left wing economic prospectus Sept 26, 2016 and GuardianMarch 25 2018) He has also discussed the idea of a universal basic income as explored by Guy Standing to help deal with the challenges of labour being displaced by technology. As well, he explores the notion of the state in co-operation with the private sector emerging as an essential partner in co-creating a value-creating capitalism. Standing according to Hutton argues that ‘‘…inequality, insecurity, debt, stress, precarity, advancing artificial intelligence (“A.I.”), extinction, and the rise of populism and neo-fascism” define the times. Hutton is skeptical of the UBI but he appreciates the emphasis that both Standing and McDonnel have put upon the shortcomings of Britain‘s social policy amidst rising inequality and poverty. (Will Hutton, The zeitgeist has shifted. Now theleft is fizzing with ideas for a smarter economy, Guardian, May 24, 2019)


This neo classical synthesis depended upon a linear system of equations – as opposed to the original non-linear system – that also banished uncertainty which was an integral part of the original schema. A non-linear system meant that the impact upon the price system would vary according to where the economy was positioned with respect to capacity utilization and animal spirits and growth rates. This issue is now more complicated by the addition of ecological and inequality issues. Keynes hinted at this state of affairs in the opening pages of the preface to the GT. He compares the GT to the earlier Treatise on Moneywhich was published in 1930.



He writes; The relation of this book and my Treatise on Money….is probably clearer to myself than it will be to others… When I began to write my Treatise on Money I was still moving along the traditional lines of regarding the influence of money as something so to speak as separate from the general theory of supply and demand. When I finished it had made some progress towards pushing monetary theory back to becoming a theory of output as a whole. But my lack of emancipation from pre -conceived ideas showed itself in what now seems to be the outstanding fault of the theoretical parts of that work that I failed to deal thoroughly with the effects of changes in the level of output. My so called fundamental equations were an instantaneous picture taken on the assumption of a given output. They attempted to show how assuming the given output, forces could develop which involved a profit disequilibrium and thus required a change in the level of output…. This book (the GT) has evolved into what is primarily a study of the forces which determine changes in the scale of output and employment as a whole; and whilst it is found that money enters into the economic scheme in an essential and peculiar manner, technical monetary details falls into the background. A monetary economy we shall find is essentially one in which changing views about the future are capable of influencing the quantity of employment and not merely its direction. But our method of analyzing the economic behavior of the present under the influence of changing ideas about the future is one which depends on the interaction of supply and demand, and is in this way linked up with our fundamental theory of value. We are thus led to a more general theory which includes the classical theory with which we are familiar, as a special case. (pp vi-vii, preface to GT 1936 edition, Macmillan and co., reprinted 1951)



Much of this variation and the policy consequences is lost by a linear system (See Keynes on inflation in the GT pp 192ff). The aggregate demand feature missing from the Say‘s law version was tacked on to the original model. Keynes‘s original model where uncertainty was  central in effect was banished and the equilibrium neo classical model reintroduced with an aggregate demand feature . That revised version held sway in most of the macro textbooks and  most of the introductory texts for the next 60 plus years. When I arrived as a new Ph.D. student at the LSE in the fall of 1970 some 49 years ago monetarism was largely the dominant belief system as opposed to Keynesian and neo-Marxist thought in command at Cambridge. Harry Johnson to his credit included Axel Leijonhufvud‘s path-breaking work on Keynesian Economics and The Economics of Keynesin his graduate course macro reading list.( 1968 Oxford U Press. See also his work Information and Co-ordination: Essays inMacroeconomic TheoryOxford U. Press, 1981) Leijonhufvud made an important distinction between the Keynes understood by the classicals and the breakthrough in disequilibrium non-market clearing adjustment that Keynes believed his general theory established.

As he pointed out in his work ‘‘His model is characterized by the absence of a Walrasian auctioneer assumed to furnish without charge and without delay, all the information needed to obtain the perfect co-ordination of the activities (both spot and future) of all traders. Keynes‘s revolution in thinking and its impact upon monetary theory and market clearing is still widely misunderstood today.  The essence of Keynes‘s break with the classical system of market clearing is that equilibrium in the supply and demand for labour is not an automatic   aspect of the market clearing system by which real wages are adjusted to yield an equilibrium. But rather disequilibrium is possible with a surplus of unemployed workers such as occurred in the great depression of the thirties. Interest rate reductions alone will not be enough to clear the capital market in slump circumstances. Indeed, as Klein pointed out it may require negative interest rates in the slump to do so. (see for example, Lawrence Klein, p.85 and figure 4; The Keynesian Revolution, J. C. Gilbert Keynes‘s Impact on Monetary Economics; John Eatwell and Murray Millgate, eds. KeynesEconomics and the Theory of Value and  Distribution, pp1-3.) In the classical model the adjustment works through variations in the interest rates and the real wage. In Keynes instead of prices solely adjusting quantities of output and labour employed vary. This led the neo-classicals to insist that it was wage rigidity that was explanation for the failure of labour markets to clear rather than the uncertainty and the complication of non-matching expectations and the excessively speculative nature  of the financial system that were to blame.


With the rise of post Keynesian critiques and more importantly the near total collapse of the global economy after the 2008 financial crash the search for a new paradigm in the sea of heterodoxy continues. The paper explores these issues and suggests the elements of a revised paradigm (expand and full citations needed     See also the work of Joan Robinson, EconomicHeresies; The Economics of Imperfect Competition;Michal Kalecki, Theory of Economic dynamics; The Last Phase in the Transformation of Capitalism; Abba Lerner, The Economics ofControl; Functional Finance; Hyman Minsky, Stabilizing an Unstable Economy Paul Davidson, Money and the Real World; Post Keynesian Macroeconomic Theory; Alan Blinder, After the Music Stopped; Joseph Stiglitz Free Fall PaulKrugman, End This Depression Now,R.Clower, William Beveridge, Full Employment in a Free Society John Maynard Keynes, Collected WorksJohn Hicks, A Market theory of Money; Classics and Moderns Tony Thirlwall ,Essays on Keynesian EconomicsDavid Colander, Robert Skidelsky, John Maynard Keynes3 vols. Ana Carabelli ,Athol Fitzgibbons, Keynes’s VisionLawrence Klein, The Keynesian Revolution Donald Patinkin, Keynes’s Monetary Thought; Money Interest and Prices; D.Moggridge, Harry Johnson, Mario Seccareccia, (with Hassan Bougrine eds. Introducing Macroeconomic AnalysisJ.C.Gilbert, Keynes’s Impact on Monetary Economics, John Hotson and Harold Chorney, After theCrash: Rediscovering Keynes and the Origins of Quantitative Easing; The Deficit and DebtManagement: An Alternative to Monetarism; The Deficit Hysteria and the Current Crisis  among others).



Ricardo wrote his famous text Principles of Political Economy and Taxation(1817) in the early nineteenth century. He also had published six pamphlets – essentially essays- focused on inflation, the corn laws and the national debt from 1810 to 1820. A seventh pamphlet on the quantity theory of money and questions of distribution, the gold standard and free trade was published posthumously in 1824. Ricardo was a powerful opponent of the corn laws and other comparable restrictive tariffs on imported goods. The corn laws were repealed by Prime Minister Robert Peel in 1846.Ricardo‘s critique of protectionism and its tendency to undermine most productive use of agricultural lands to the advantage of landlords at the expense of workers and owners of capital played a role in influencing Peel‘s decision.


Ricardo was one of the first economists to explain the benefits of comparative advantage, local specialization and unrestricted trade to the creation of greater national wealth. There were always critics of that position in Ricardo‘s time and thereafter who challenged his assumptions about free markets versus imperfect completion , cartels , oligopolies and monopolies and the potential imperialism of trade. But Ricardo‘s argument carried the day for over a century until the great depression of the twentieth century forced free traders like Maynard Keynes to rethink the wisdom of that position in a world dominated by austerians and fiscal conservatives wedded to laissez –faire obsessions about markets which always cleared and supply creating its own demand and Say‘s law and the rigors of the gold standard . It is very interesting that this debate remains at the centre of economic policy disputes in the contemporary world some 200 years later! The trade wars that President Trump has unleashed in response to Asian competitive pressure have once again placed these sort of debates at the centre of policy analsysis in this era of globalization.



To be fair there were neo-classical albeit monetarist leaning Keynesians like Harry Johnson who appreciated and largely understood what Keynes’s project was about but who still were critical of what they saw as exaggerated claims on behalf of a break with classical market clearing theory. The Donald Moggridge biography of Harry Johnson is an excellent guide to the Johnson contribution to the debate. See also Harry Johnson, The Keynesian Revolution and the MonetaristCounter – Revolution, American Economic Review61(May) 1-14, 1971; the F. de Vries lectures Inflation and the Monetarist Controversyon monetarist theory and inflation and stabilization policy in an open economy, July 1972. In the latter document Johnson neatly summarizes his monetarist orientation:


In the United States the governmental machinery is ill adapted to the execution of Keynesian- style economic policies, to the extent that the timing of fiscal policy changes has been pro-cyclical  rather than anti-cyclical….there are good reasons rooted in both the real analysis of economic historians and in monetary theory, as to why capitalist economies should be expected in normal circumstances both to maintain a high level of employment and to enjoy some non- negligible rate of economic growth. “real” analysis calls attention to the opportunities for the profitable investment of savings that the world of reality constantly throws up, while monetary analysis assumes as a matter of empirical fact that the economic system tends toward a rational full employment allocation of resources so long as the management of money is well behaved, and can only be thrown off course by severe monetary mismanagement. This…is the crux of the issue prevailing between Keynesians and monetarists: the Keynesian position is that the real economy is highly unstable and that monetary mismanagement has both little relevance to it and little control over it; the monetarist position on the contrary is that the real economy is inherently fairly stable but can be destabilized by monetary developments which therefore need to be controlled so far as possible by intelligent monetary policy (lecture one pp. 4-5).


This was the issue as Johnson saw it at the zenith of the monetarist epoch and perhaps this is still the crux of the matter at its nadir 46 years later. Johnson viewed the central problem of inflation to be bound up in the UK with trade and exchange rate issues. He regarded nationalist anti free trade views as one of the principal barriers to lower unemployment and more rapid economic growth .Environmentalist pioneers like E J Mishan ,a colleague at the LSE, were seen as eccentric elitists who regarded mass tourism and travel as a form of pollution.(see Mishan‘s work The costof Economic Growth) The early work on the rise of the multinational corporation (see Kindelberger, Hymer and Baran and Sweezy and Galbraith) already was exploring the roots of globalization and off shoring which bedevil our contemporary world.



Brexit propelled by a resurgence of British nationalism with a strong touch of toryism is central to this debate. In a strange sort of way so too is the British tory repudiation of the globalist model. The repudiation of classic British and western world heroes like Winston Spencer Churchill on the grounds of his imperial connections and his colonial attitudes is misguided postmodern distortion of recent history. It is not fashionable to write or say this now in pomo circles but if it were not for Churchill‘s perspicacity and vision, the Nazis and Hitler might well not have been defeated and the fate of the West by which I mean the civilization of modernity and democracy would have been irrevocably damaged. Churchill always regretted his decision in 1925 not to listen to Maynard Keynes‘s advice not to reinstate the gold standard and the constraints which that imposed on monetary and employment policy. Keynes had very strongly criticized Churchill for his decision in The Economic consequences of Mr. Churchill1925 (see J. M. Keynes, Esssays in Persuasion,The economic consequences …  1932).


Churchill was far from perfect but warts and all he played a huge role in saving Britain from a Nazi invasion and the isolation of the British Isles from their North American and Commonwealth allies. He was of course a creature of his own world and times but without him democracy might well not exist.  The future of democracy and the western alliance in the post war world was decisively shaped for the next 60 years by the outcome of the conflict between the appeasers like Chamberlain and Halifax and those who understood the threat posed by Hitler and the Nazis. For a somewhat contrary view of the dispute see Nigel Hamilton JFK reckless youth pp.451 -452. See also Alvin Finkel & Clement Leibowitz, In Our Time: The Chamberlain Hitler CollusionMonthly Review Press, 1998. The post war year triumph of Keynes‘s theory and policy was the direct result of this despite Keynes‘s circle who scarred by  World War one were largely opposed to war.


One of the greatest controversies of the victory of Keynes over the classical school defenders revolved around deficit spending, labour market equilibria and the real wage clearing mechanism. It also involved the quantity theory of money. It is a controversy that never truly disappeared except for the golden age of Keynesian theory and policy. The triumph of monetarism in the Thatcher and Friedman years eroded the knowledge base of many younger economists about the nature of Keynes‘s argument. But with the crash of 2008-09 there was a desperation among the Wall street financial actors and the investment banks who feared a total financial panic and the collapse of global capitalism. Almost all that I and a few others had predicted about the dangers of the financial markets and the importance of greater monetization of the debt along with several other economists of Keynes and post Keynesian orientation came to pass. The Bush and Obama administrations ran what would have been unthinkable deficits to save most of Wall street and its investment banks from near total collapse.


My and John Hotson and Mario Seccareccia‘s work on deficit spending made a useful contribution to the debate. I argued at the time that because of the nature of the collapse and the shock it had delivered what came to be known as quantitative easing essentially what I had been advocating as sensible policy innovation since the 1980s was the most appropriate policy and it would not lead, contrary to monetarist orthodoxy, to inflation for a lengthy period of time if ever because inflation was not just a monetary policy outcome and the quantity theory of money was deeply flawed. The following charts which originate from the St. Louis branch of the Federal Reserve and which Paul Krugman featured in a recent op ed tells the story decisively (see Paul Krugman, NYT,).











As we can see since 2007 consumer price inflation in the US has been very low averaging 2 % or less from 2007 until 2018 measured by the consumer price index. But if we look at the monetary base fueled by greater monetization of the federal government‘s annual deficit the value has risen enormously by more than fourfold peaking at close to a fivefold increase. Contrary to the claims of leading monetarists, despite this large increase there has not been an outbreak of serious inflation. There is still some significant slack in the economy and oil prices have remained relatively low and while there have been some rises in general commodity prices the commodity price cycle has not resulted in general inflation. Hence Keynesian stimulus particularly when financed in part by greater monetization of the debt is clearly very effective in fighting a slump. This doesn‘t mean inflation willnever happen but there is a well-documented role and  space for this Keynes policy technique.(see my paper After the Crash Rediscovering Keynes and the Origins of Quantitative easing, June 3 ,2011) When combined with infrastructure and social policy spending on the fiscal side the desired scissors effect can prevail. So fuller employment is both possible and feasible ifpolicy makers make the correct decisions. In fact, crises can be constructive as they may permit previous ill-founded dogmas to be shunted aside because of the clear and present dangers of the moment.


The net cost of the TARP bailout stimulus package is small compared to the impact, some 32.5 billion dollars out of 475 billion authorized to be spent after the initial 700 billion that was announced. The private sector cannot easily sustain a longer time horizon but the government is well positioned to wait for the speculative investments to recover and bear profitable fruit. In fact it was mostly AIG insurance that was responsible for the net liability. (see monthly report on TARP from the US treasury) Once the value of non-TARP AIG shares financed through the FRBNY is included the loss is substantially further reduced. (See note 10 table p.5 of the monthly TARP report for a full explanation.)


Given that the US banking system was saved from a catastrophic collapse, the 32 billion was a very good investment.  Furthermore, much of the global system was at risk   Writers like Joseph Stiglitz correctly complain that the very culprits who were responsible for the mess escaped and  even in some cases were rewarded by TARP because in some instances executives inappropriately used TARP funds to award themselves excessive bonuses. (see Joseph Stiglitz Free Fall. New York: 2010) That should not have happened. Stiglitz argued that a proper approach would have involved a restructuring of the banks rather than providing them with handouts at taxpayers expense. I agree.


But the idea that saving the financial system was not a good idea is wrong. If it had collapsed completely the damage to middle and working class people who had their savings in the banking system would have been even greater. Stiglitz proposed in part nationalizing de facto the banks which were insolvent.  That might have worked as it appeared to work in the UK but the politics of such a move in the very conservative United States is unpredictable, despite the history of FDR and the depression of the thirties. In any case people and many economists have had their distrust of speculative excesses in the financial system confirmed by the shattering events of 2008-09.  Major reform was clearly needed.


So a key part of any policy of fuller employment is stricter regulation and oversight of the financial system including the volatile options and futures markets and the short sellers. Casino capitalism is inherently destabilizing. A number of writers have explored these questions including Hyman Minsky, Joseph Stiglitz, Paul Krugman, Alan Blinder and Henry Paulson. Even Alan Greenspan, a major advocate of deregulation has admitted that regulatory reform in certain cirumstances can be stabilizing (see Alan Greenspan, The Map and the Territory, p.101). ‘‘Although there are often multiple objectives of regulation, when it can identify and inhibit irrational behavior under certain conditions, regulations can be stabilizing. ‘‘In the very next sentence however Greenspan reverts to his deregulation position. “but there is an insidious cost of regulation in terms of economic growth and standards of living when it reaches beyond containing unproductive behavior.”


But the last decade since the Fed and quantitative easing plus deficit spending and more recently tax cuts albeit largely for upper income tax payers in the past two years have produced a sustained recovery as the chart below indicates. Of course, the growth is very welcome but critics rightly complain that because of the inequitable distribution of the wealth and income that has been created the result is much less positive than is claimed. Also raw growth often has important implications for the environment and climate change. Some growth involves damaging negative externalities that need to be properly accounted for in the regulatory system. This will be even more relevant in future cost benefit analyses. We shall turn to that question in the next section of the paper. But first it is necessary to specify as much as possible the precise components of this Keynes style synthesis which to date has resulted from the policy choices of the Bush administration which late in its term was faced by the collapse and implemented TARP,  the Obama administration which although it could have spent more nevertheless revised TARP and then continued it in a diversified form and now in recent years President Trump‘s emphasis upon growth and a supportive monetary policy but flawed by his excessive tax cuts for the wealthy.

















The chart depicts the seasonally adjusted rate of economic growth in the real GDP or decline that is the percentage change from the preceding quarter from Q2 in 2015 until Q1 2019. The fact that there have been no negative quarters over the past five years is a significant sign that the strategy has worked effectively. In fact this is now the tenth year of positive growth in the GDP. The last time annual  growth was negative was the second quarter of 2009.It has been positive ever since that as we can see from the chart below which tracks the real GDP in billions of chained 2012 dollars on a quarterly basis from 2004 until the third quarter of 2018.






In terms of post war expansions this ten year post slump expansion is now  the second longest in US history. If it last past this coming July it will be the longest. Of course, there are still plenty of complaints and criticism of the quality of the expansion from the point of view of workers and the low wages they find for too many of the jobs. Compared to the higher growth rates of earlier decades going back to the 1960s and 1970s these growth rates are smaller. (see the chart below) None the less the unemployment rates have fallen significantly. In the U.S. this past month to 3.6 % as the economy added 263,000 jobs, the unemployment rate was the lowest rate since 1969. However, the explanation lay in reduction in the size of the labour force which itself may have been the result of baby boomer retirement as much as discouraged workers as well as other demographic factors connected to immigration.

The Canadian unemployment rate which needs to be adjusted to compare it to the American has fallen to 5.6 %. One analyst Constance Sorrento writing in the Monthly Labour Reviewin June 2000 (International Unemployment rates: how comparable are they?; adjusted to U.S. concepts , the Canadian unemployment rate is reduced by 1 percentage point; effects of adjustments on European unemployment rates are smaller) argues that the Canadian unemployment rate should be reduced by one percentage point to make it comparable to the US rate. Essentially Canada has a more generous method of accounting for passive job search than does the US. If we do this Canadian unemployment measured on American terms is 4.6%. Either way rates have fallen substantially since they peaked in 2009 (For a European perspective and he fate of social democratic strategies for full employment see also The Radical Reformist, May 18 Jacobinre:Peter Gowan,  Rudolph Meidner and Ghosta Rehn and the Swedish model and how it explains the fate of the Swedish model in the era of neo conservatism and the monetarist EU).

Of course, growth rates of the GDP and unemployment rates alone are not enough to demonstrate that a progressive fuller employment agenda is being advanced by our economic institutions. Growth has implications for environmental factors which increasingly are viewed as critical factors in the quality of life and indeed in planetary survival. As well the distribution of the fruits of growth in the income flows and the accumulation of wealth in an excessively unequal way is also a critical factor in assessing the quality of economic growth. In this latter area there has been an explosion of interest. Writers like Thomas Piketty, Joseph Stiglitz, Lars Osberg and Anthony Atkinson among others have had published influential books focusing on this issue exploring the apparent dramatic rise in inequality in Canada, the U.S. and Western Europe. The recent success of populist politicians who have highlighted issues of inequality ever since the crisis of 2008 has also unfortunately mixed the critique of inequality with xenophobic sentiments and slogans which now threaten in the Trump era to swamp the values of a progressive multicultural western society, But it also remains true that the entire basis of the post war Keynes inspired western model of democratic capitalism depended upon the achievement and maintenance of a reasonable degree of equality as well as the achievement principle which rewarded entrepreneurship but also hard work, sacrifice and education.

Atkinson puts the point well: Inequality fell during World War two in Europe. This decline continued in the decades following the war right up to the 1970s. But then the factors that had promoted this fall in inequality either ended or were reversed. (pp.2-3) Of course, the 1970s were the decade within which Margaret Thatcher and at the end of the decade Ronald Reagan came to power and neocon ideas began to affect public policy. Inflation and not low unemployment became the target. The wealth shares of the richest became the priority rather than the income of the broad middle classes. These trends were reinforced by the growth of labour displacing technology and the spread of globalization and global supply lines accompanied by the weakening of trade unions and workers’ rights and labour standards. There was also an ideological attack that argued for the weakening of the welfare state and more frequent and long in duration recessions. The growth of China as an economic power and major competitor also has played a role in exporting good jobs to Asia. Atkinson makes the point that it is not just about insuring that all members of society have an equality of opportunity to make the best of their talents and abilities but that we should also pay attention to equality of outcomes. A similar deep concern about inequality has emerged in the UK where the Institute of Fiscal studies has sponsored research on growing poverty and inequality in the country. (see Guardianarticle on this Britain risks heading toward US levels of inequality, Guardian, May 14, 2019   Sir Angus Deaton a Nobel prize winning economist heads the five year study which points out the risk of the UK following the US and developing much greater inequality, in pay, wealth and health. The UK has a Gini coefficient of 34.1 the US 41 and Canada 34. France 32. 3, Japan 32.1 Germany31.4 Netherlands 28.6, Denmark 28.5, Sweden 27.2 and Norway 26.8 (See Table 2, p19 below) .

Here in Canada a number of economists notably Lars Osberg has warned of growing inequality and distorted wealth distribution. Prolonged periods of higher unemployment such as occur during and after recessions have an obvious negative impact upon equality. In a democratic society excessive inequality and the growth of an impoverished underclass and homelessness undermine the values of a democratic society. Democracy is premised upon fair treatment of all citizens and the notion that there should be relatively equal rights for all and that values of community and caring are part of the culture. It is a kind of distortion of these liberal democratic values that has accompanied the drift away from liberal democracy and toward authoritarian values that we see in a number of countries around the world. The virtues of the market model were that all participants could participate in an optimal fashion, maximizing their personal well being so long as the distortions of monopoly and excessive greed were constrained. But the recent crisis in 2008-09 revealed very deeply rooted structural problems as well as policy errors and irresponsible behavior.

I have taught a course on inequality featuring the work of Piketty, Stiglitz, Clement, Porter, Galbraith, Desai, Mills, Phillips and others over the last several years. There is considerable interest among students in this topic. In France Thomas Piketty has led the way in arguing that inequality is a leading problem in advanced societies with his best seller Capital in the TwentyFirst Century. He also reaches quite pessimistic positions with respect to how difficult it will be to reverse the trend that is embedded in his  sometimes criticized analysis of the growth rate of income as opposed to that of capital.

Of course, distributional questions have been central to economic thought since the Physiocrats in the 18thcentury, Ricardo and Marx in the nineteenth and Veblen in the twentieth. They were also central although in a subsidiary way in Keynes versus Pigou and the classics and in the work of Pierro Sraffa. But these distributional questions have been largely ignored by most neo-classical thought. Atkinson cites the microeconomics text book of Greg Mankiw which contains a chapter on distributional issues but which Mankiw excludes from his book on the Essentials of Economics(see Atkinson p.15).

Lucas and other rational expectations monetarists in the immediate aftermath of the 2008-09 crisis insisted on austerity as opposed to stimulus on the dubious grounds that it would be confidence building. That was also the position of the European Central Bank then president Jean Claude Trichet. He and others circulated this clearly historically disproven argument from the great depression that falling wages would boost exports and thus promote recovery (Krugman, Pp.195 ff +pp.106 ff). I was told the same argument in a public panel discussion I participated in on March 19, 2012 at Concordia University with the Greek consul in Montreal Thanos Kafopoulos about austerity and the Greek debt crisis.

Paul Krugman discusses this argument at length in his work End This Depression Now(New York: Norton, 2012). Clearly a major crash and subsequent deep recession have a major impact upon inequality that can take years to recover from. So it is not surprising that distributional questions that revolve around the growing public concern over inequality in a number of western societies have risen to the centre of political debate in the US and western economies generally as the economy recovered from the deep slump brought about by the shock of the crash. Liquidity preference and cash hoarding goes up dramatically in a slump because of fear. The campaign of Bernie Sanders who has turned the excessive wealth and income gained by the one percent into a political issue has helped make these inequality issues central in the US with contagion effects upon other leading societies. Any comprehensive strategy of fuller employment must pay attention to excessive wage, income and wealth inequality. Employment strategies need also to focus on economic and social inequality- in terms of gender, ethnicity, and class.

The period of stagflation that did so much to discredit Keynesian economics was an exceptional period brought about by the shock of the oil cartel and the rising commodity prices of the 1970s . WTI or NYMEX oil prices were as low as 20.72 dollars a barrel in May 1973 but rose to over 122$ a barrel by July1980 then falling again to 22.47 by October 1998.They rose again to a peak of 162.32 in June 2008 then fell again to 36.38 in January of 2016. Currently they are at just over 59 $ a barrel in the spot market as of May 27 2019. The price is typically driven by highly speculative futures trading. It is unwise in the extreme to allow such factors to affect monetary  and fiscal policy. Right now the market appears bearish about the future of prices. To the extent this is reflected in energy prices generally the impact on the GDP price indexes is likely to be somewhat downward. In any case energy cost is roughly 11 % of total GDP (Natural Resources Canada, accessed May 27, 2: 49).

Chart 5: World Oil Prices WTI Dollars per Barrel, 1947-2019


Environmental issues and fuller employment

Economists since Keynes and Shumacher and Pigou have known about environmental constraints on the growth of capital. Nineteenth century writers like Marx, Dickens and John Stewart Mill captured the disasterous impact of industrial society and capital accumulation upon the well being of workers and their families and pollution and despoliation of nature. The earth was not ever a free resource although this was less evident when the global population was much smaller. The earth held one billion people at the beginning of the nineteenth century as compared to 7.7 billion today. By 1900 it was 1.6 billion (United Nations Dept of Economic and Social Affairs and Worldometers). Writers like Paul Erlich, E.J.Mishan, Hazel Henderson, Herman Daly, Barry Commoner, Kenneth Boulding, Karl Kapp, John Cobb ,Rubin Simkin, Georgescu-Roegen, Murray Bookchin and others have pointed the way forward to sustainable economic growth and quality of life and preserving spaceship earth has top priorities for economic theory. Fuller employment means also more fulfilling employment that supports sustainable growth and planetary preservation. This is a theme that is developed by a number of ecological communitarian economists beginning with John Stewart Mill, and continued by Kenneth Boulding, Herman Daly, Georegescu–Roegen, J. Cobb, R. Schumacher and Rubin Simkin and others.

Mill in the nineteenth century complained about the cruel treatment of tenants by their landowners and their abuse of their ownership of the land in his Principles of Political Economy

‘‘when landed property has placed itself upon this footing (by treating its tenants in an heartless matter) it ceases to be defensible and the time has come for making some new arrangements of the matter. No man made the land. It is the original inheritance of the whole species.‘‘ (John Stewart Mill, Principles of Political Economy  1973 edition pp.232-233, quoted in Daly and Cobb, p.105)


Chart 6:
The 12-month change in the Consumer Price Index (CPI) and the CPI excluding gasoline Canada




So it seems reasonable to restate the variable factors of fuller employment as including the following (Cei – Cpi) +(Iei-Ipi) +(Gei –Gpi) +(Xei-Xpi ) – Tei  – M (all subject to an appropriate monetary policy that facilitates a reduction of unemployment by funding deficit spending where appropriate by some quantitative easing or purchase by the government of Treasury bills and bonds to ensure interest rates are kept at a reasonable accommodating level.


C stands for consumption; I for investment; G for government expenditures. X for exports; T for taxes and M for imports Where Ce is ecologically neutral or even positive, the same is true of Ie and Ge. The subscript i refers to the rate of interest that is advanced by the central bank and is itself sensitive to the degree of monetization of the debt. Te is an equitable tax system that helps reduce inequality and ensures a greater degree of equity in the economy. Cp, Ip and Gp on the other hand, are damaged by pollution externalities or other negative environmental effects. We could also add a variable that could account for the contribution to psychic income and longevity insofar as communitarian values were enhanced.


Finally we come to the issue of technological innovation and the digital age and its impact upon employment and the need for a guaranteed annual income. In my lifetime there has been a revolution in technology that began during the second world war and the decades that followed it. The development of transistors that led to the miniaturization of radios and my first high tech purchase of a Sony tr608 radio when I was a teenager in 1959 or 1960 and my first computer in 1983.Indeed I last used my now ancient electric typewriter to type the first draft of my Ph.D.thesis in 1983.


From a consumption point of view the experience has been very enjoyable and delivered much psychic income (See the gross national happiness index) but the employment impact has been more ambivalent. According to a survey done by the World Economic Forum of 15 large economies and 350 leading companies some 7.2 million jobs will be lost to automation, artificial intelligence, robotics and bio technology in the coming few years. This will result in a net employment loss because the same forces will only create 2.1 million jobs


The Davos group doesn’t always get data or theory right but it is flagging what likely will turn out to be a serious challenge. Given this plausible development it makes sense to develop and have in place an income support program that first appeared in the early 1960s in the work of Robert Theobald and not long thereafter Milton Friedman, the guaranteed annual income now called the universal basic income. Theobald published his work on the universal basic income in 1962. It was titled Free Men Free Markets: Proposed A Guaranteed Income. He was certain that cybernetics, automation and artificial intelligence would have a profound impact on employment markets in the decades to follow. As he put it then almost sixty years ago ‘‘Today, the cybernated productive system is emerging-a new innovation in productive techniques and organization based on machine power and machine skill, that is to say, on the combination of automated machinery and the computer.‘‘ (Theobald, 1963 p xi) Theobald predicted that this technological trend would replace jobs with computers and lead to growing unemployment. He therefore proposed a guaranteed annual income. Society had changed so profoundly from the pre-industrial Jeffersonian era that was premised on full ownership of land by all of the people that a new guarantee of personal dignity was required. ‘‘human dignity in a cybernated era can only be guaranteed through a constitutional right to a share in the production of machine systems. ‘‘Theobald then proposes a guaranteed annual income which he calls Basic Economic Security. That is an automatic income paid by the state that guarantees an economic floor below which he or she cannot fall regardless of their position in the labour market (p.118ff). There have been over the past few decades a number of trials of the GAI in Manitoba during the 1970s and more recently in Ontario which suggest that the program is very workable. Obviously there are some risks with the program particularly if one finances it by eliminating traditional social assistance which is what appealed to Milton Friedman.  Friedman’s version was based on his notion of the negative income tax. If your income was below a certain floor you would be automatically compensated by the system. There are several experiments or debates underway or were underway recently in Ontario and Nova Scotia based on the GAI and I suspect it could well return to centre stage in the years to come. Theobald was a visionary and I was enlightened by his work. I still favour a large measure of Keynesian policy, particularly when a proper mixture of monetary and fiscal policy is followed. But the GAI is a sensible adjunct tool to add to the policy kit bag to ensure fuller employment.


The great depression helped bring about a revolution in economic thought that lasted many decades. The great crash of 2008-09 and its consequences and the climate change crisis may well do the same.









12-month % change0. excluding gasoline


Table 18-10-0004-01.

Chart description


The 12-month change in the Consumer Price Index (CPI) and the CPI excluding gasoline, 12-month % change
  CPI CPI excluding gasoline
April 2014 2.0 1.8
May 2014 2.3 2.1
June 2014 2.4 2.2
July 2014 2.1 2.1
August 2014 2.1 2.2
September 2014 2.0 2.2
October 2014 2.4 2.5
November 2014 2.0 2.3
December 2014 1.5 2.3
January 2015 1.0 2.4
February 2015 1.0 2.2
March 2015 1.2 2.2
April 2015 0.8 1.9
May 2015 0.9 1.9
June 2015 1.0 1.9
July 2015 1.3 2.0
August 2015 1.3 1.9
September 2015 1.0 2.0
October 2015 1.0 1.9
November 2015 1.4 1.9
December 2015 1.6 1.9
January 2016 2.0 2.0
February 2016 1.4 1.9
March 2016 1.3 1.9
April 2016 1.7 2.0
May 2016 1.5 1.9
June 2016 1.5 1.9
July 2016 1.3 1.9
August 2016 1.1 1.7
September 2016 1.3 1.5
October 2016 1.5 1.4
November 2016 1.2 1.3
December 2016 1.5 1.4
January 2017 2.1 1.5
February 2017 2.0 1.3
March 2017 1.6 1.1
April 2017 1.6 1.2
May 2017 1.3 1.0
June 2017 1.0 1.2
July 2017 1.2 1.1
August 2017 1.4 1.1
September 2017 1.6 1.1
October 2017 1.4 1.2
November 2017 2.1 1.5
December 2017 1.9 1.5
January 2018 1.7 1.5
February 2018 2.2 1.8
March 2018 2.3 1.8
April 2018 2.2 1.7
May 2018 2.2 1.5
June 2018 2.5 1.6
July 2018 3.0 2.2
August 2018 2.8 2.2
September 2018 2.2 1.9
October 2018 2.4 2.1
November 2018 1.7 1.9
December 2018 2.0 2.5
January 2019 1.4 2.1
February 2019 1.5 2.1
March 2019 1.9 2.2
April 2019 2.0 2.3








Chart 7: Unemployment Rates in Canada and the United States, 1976-2016

Table 2


Gini coefficient by country Source: World Bank.

Definition: Gini index measures the extent to which the distribution of income (or, in some cases, consumption expenditure) among individuals or households within an economy deviates from a perfectly equal distribution. A value of 0 indicates perfect equality. A value of 100 perfect inequality. A Lorenz curve plots the cumulative percentages of total income received against the cumulative number of recipients, starting with the poorest individual or household. The Gini index measures the area between the Lorenz curve and a hypothetical line of absolute equality, expressed as a percentage of the maximum area under the line. Thus a Gini index of 0 represents perfect equality, while an index of 100 implies perfect inequality.

Source: World Bank, Development Research Group. Data are based on primary household survey data obtained from government statistical agencies and World Bank country departments. For more information and methodology, please see PovcalNet (http://iresearch.worldban

See also: Thematic mapTime series comparison

Find indicator:

Rank Country Value Year
1 South Africa 63.40 2011
2 Namibia 61.00 2009
3 Botswana 60.50 2009
4 Suriname 57.60 1999
5 Zambia 57.10 2015
6 Central African Republic 56.20 2008
7 Lesotho 54.20 2010
8 Belize 53.30 1999
9 Swaziland 51.50 2009
10 Brazil 51.30 2015
11 Colombia 51.10 2015
12 Panama 51.00 2015
13 Guinea-Bissau 50.70 2010
14 Rwanda 50.40 2013
15 Honduras 50.10 2015
16 Congo 48.90 2011
17 Guatemala 48.70 2014
18 Kenya 48.50 2005
19 Mexico 48.20 2014
19 Costa Rica 48.20 2015
21 Paraguay 48.00 2015
22 Benin 47.80 2015
23 Chile 47.70 2015
24 The Gambia 47.30 2003
25 Cabo Verde 47.20 2007
26 Venezuela 46.90 2006
27 Seychelles 46.80 2013
28 Nicaragua 46.60 2014
29 Cameroon 46.50 2014
29 Ecuador 46.50 2015
31 Malaysia 46.30 2009
32 Malawi 46.10 2010
33 Bolivia 45.80 2015
34 Mozambique 45.60 2008
35 Jamaica 45.50 2004
36 Comoros 45.00 2013
37 Dominican Republic 44.90 2015
38 Guyana 44.50 1998
39 Peru 44.30 2015
40 Djibouti 44.10 2013
41 Chad 43.30 2011
42 Zimbabwe 43.20 2011
43 Togo 43.00 2015
43 Nigeria 43.00 2009
45 Argentina 42.70 2014
45 Angola 42.70 2008
45 Madagascar 42.70 2012
48 St. Lucia 42.60 1995
49 China 42.20 2012
49 Gabon 42.20 2005
49 Ghana 42.20 2012
52 Dem. Rep. Congo 42.10 2012
53 Samoa 42.00 2008
54 Papua New Guinea 41.80 2009
55 Côte d’Ivoire 41.70 2015
55 Uruguay 41.70 2015
57 Israel 41.40 2012
58 Turkey 41.20 2014
59 United States 41.00 2013
59 Uganda 41.00 2012
61 Haiti 40.90 2012
62 El Salvador 40.80 2015
62 Turkmenistan 40.80 1998
64 Morocco 40.70 2006
65 Senegal 40.30 2011
65 Trinidad and Tobago 40.30 1992
67 Philippines 40.10 2015
68 Indonesia 39.50 2013
69 Burundi 39.20 2013
69 Sri Lanka 39.20 2012
71 Tuvalu 39.10 2010
72 Bhutan 38.80 2012
72 Iran 38.80 2014
74 Georgia 38.50 2015
75 Myanmar 38.10 2015
76 Thailand 37.80 2013
76 Tanzania 37.80 2011
78 Russia 37.70 2015
78 Lithuania 37.70 2014
80 Tonga 37.50 2009
81 Bulgaria 37.40 2014
82 Vanuatu 37.30 2010
83 Solomon Islands 37.00 2013
83 Kiribati 37.00 2006
85 Yemen 36.70 2014
86 Fiji 36.40 2013
86 Lao PDR 36.40 2012
88 Spain 36.00 2014
89 Greece 35.80 2014
89 Syrian Arab Republic 35.80 2004
89 Tunisia 35.80 2010
89 Mauritius 35.80 2012
93 Cyprus 35.60 2014
93 Portugal 35.60 2014
93 Macedonia 35.60 2015
96 Sudan 35.40 2009
97 Uzbekistan 35.30 2003
97 Burkina Faso 35.30 2014
99 India 35.20 2011
100 Latvia 35.10 2014
101 Vietnam 34.80 2014
102 Italy 34.70 2014
102 Australia 34.70 2010
104 Estonia 34.60 2014
105 United Kingdom 34.10 2014
106 Canada 34.00 2013
106 Tajikistan 34.00 2015
106 Sierra Leone 34.00 2011
106 Niger 34.00 2014
110 Bosnia and Herzegovina 33.80 2011
111 Jordan 33.70 2010
111 Guinea 33.70 2012
113 Ethiopia 33.20 2010
113 Liberia 33.20 2014
115 Mali 33.00 2009
116 Nepal 32.80 2010
117 Switzerland 32.50 2013
118 Mauritania 32.40 2014
118 Armenia 32.40 2015
120 France 32.30 2014
121 Croatia 32.20 2014
122 Japan 32.10 2008
122 Bangladesh 32.10 2010
122 Poland 32.10 2014
125 Mongolia 32.00 2014
126 Montenegro 31.90 2014
126 Ireland 31.90 2014
128 Azerbaijan 31.80 2008
128 Lebanon 31.80 2011
128 Egypt 31.80 2015
131 Korea 31.60 2012
132 Germany 31.40 2013
133 Luxembourg 31.20 2014
134 Hungary 30.90 2014
135 São Tomé and Principe 30.80 2010
136 Pakistan 30.70 2013
137 Austria 30.50 2014
138 Timor-Leste 30.30 2007
139 Iraq 29.50 2012
140 Serbia 29.10 2013
141 Albania 29.00 2012
141 Kyrgyz Republic 29.00 2015
143 Netherlands 28.60 2014
144 Denmark 28.50 2014
145 Belgium 28.10 2014
146 Algeria 27.60 2011
147 Romania 27.50 2013
148 Sweden 27.20 2014
149 Moldova 27.00 2015
150 Norway 26.80 2014
150 Finland 26.80 2014
152 Belarus 26.70 2015
153 Kazakhstan 26.50 2015
154 Slovak Republic 26.10 2014
155 Czech Republic 25.90 2014
156 Slovenia 25.70 2014
157 Iceland 25.60 2014
158 Ukraine 25.50 2015

More rankings: Africa | Asia | Central America & the Caribbean | Europe | Middle East | North America | Oceania | South America | World |

Limitations and Exceptions: Gini coefficients are not unique. It is possible for two different Lorenz curves to give rise to the same Gini coefficient. Furthermore it is possible for the Gini coefficient of a developing country to rise (due to increasing inequality of income) while the number of people in absolute poverty decreases. This is because the Gini coefficient measures relative, not absolute, wealth. Another limitation of the Gini coefficient is that it is not additive across groups, i.e. the total Gini of a society is not equal to the sum of the Gini’s for its sub-groups. Thus, country-level Gini coefficients cannot be aggregated into regional or global Gini’s, although a Gini coefficient can be computed for the aggregate. Because the underlying household surveys differ in methods and types of welfare measures collected, data are not strictly comparable across countries or even across years within a country. Two sources of non-comparability should be noted for distributions of income in particular. First, the surveys can differ in many respects, including whether they use income or consumption expenditure as the living standard indicator. The distribution of income is typically more unequal than the distribution of consumption. In addition, the definitions of income used differ more often among surveys. Consumption is usually a much better welfare indicator, particularly in developing countries. Second, households differ in size (number of members) and in the extent of income sharing among members. And individuals differ in age and consumption needs. Differences among countries in these respects may bias comparisons of distribution. World Bank staff have made an effort to ensure that the data are as comparable as possible. Wherever possible, consumption has been used rather than income. Income distribution and Gini indexes for high-income economies are calculated directly from the Luxembourg Income Study database, using an estimation method consistent with that applied for developing countries.

Statistical Concept and Methodology: The Gini index measures the area between the Lorenz curve and a hypothetical line of absolute equality, expressed as a percentage of the maximum area under the line. A Lorenz curve plots the cumulative percentages of total income received against the cumulative number of recipients, starting with the poorest individual. Thus a Gini index of 0 represents perfect equality, while an index of 100 implies perfect inequality. The Gini index provides a convenient summary measure of the degree of inequality. Data on the distribution of income or consumption come from nationally representative household surveys. Where the original data from the household survey were available, they have been used to calculate the income or consumption shares by quintile. Otherwise, shares have been estimated from the best available grouped data. The distribution data have been adjusted for household size, providing a more consistent measure of per capita income or consumption. No adjustment has been made for spatial differences in cost of living within countries, because the data needed for such calculations are generally unavailable. For further details on the estimation method for low- and middle-income economies, see Ravallion and Chen (1996). Survey year is the year in which the underlying household survey data were collected or, when the data collection period bridged two calendar years, the year in which most of the data were collected.

Unit of Measure: %

Periodicity: Annual

General Comments: The World Bank’s internationally comparable poverty monitoring database now draws on income or detailed consumption data from more than one thousand six hundred household surveys across 164 countries in six regions and 25 other high income countries.









Chart 8
The 12-month change in the Consumer Price Index (CPI) and the CPI excluding gasoline

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12-month % change0. excluding gasoline


Table 18-10-0004-01.

Chart description


The 12-month change in the Consumer Price Index (CPI) and the CPI excluding gasoline, 12-month % change
  CPI CPI excluding gasoline
April 2014 2.0 1.8
May 2014 2.3 2.1
June 2014 2.4 2.2
July 2014 2.1 2.1
August 2014 2.1 2.2
September 2014 2.0 2.2
October 2014 2.4 2.5
November 2014 2.0 2.3
December 2014 1.5 2.3
January 2015 1.0 2.4
February 2015 1.0 2.2
March 2015 1.2 2.2
April 2015 0.8 1.9
May 2015 0.9 1.9
June 2015 1.0 1.9
July 2015 1.3 2.0
August 2015 1.3 1.9
September 2015 1.0 2.0
October 2015 1.0 1.9
November 2015 1.4 1.9
December 2015 1.6 1.9
January 2016 2.0 2.0
February 2016 1.4 1.9
March 2016 1.3 1.9
April 2016 1.7 2.0
May 2016 1.5 1.9
June 2016 1.5 1.9
July 2016 1.3 1.9
August 2016 1.1 1.7
September 2016 1.3 1.5
October 2016 1.5 1.4
November 2016 1.2 1.3
December 2016 1.5 1.4
January 2017 2.1 1.5
February 2017 2.0 1.3
March 2017 1.6 1.1
April 2017 1.6 1.2
May 2017 1.3 1.0
June 2017 1.0 1.2
July 2017 1.2 1.1
August 2017 1.4 1.1
September 2017 1.6 1.1
October 2017 1.4 1.2
November 2017 2.1 1.5
December 2017 1.9 1.5
January 2018 1.7 1.5
February 2018 2.2 1.8
March 2018 2.3 1.8
April 2018 2.2 1.7
May 2018 2.2 1.5
June 2018 2.5 1.6
July 2018 3.0 2.2
August 2018 2.8 2.2
September 2018 2.2 1.9
October 2018 2.4 2.1
November 2018 1.7 1.9
December 2018 2.0 2.5
January 2019 1.4 2.1
February 2019 1.5 2.1
March 2019 1.9 2.2
April 2019 2.0 2.3
Posted in anti austerity, Brexit, Canada, deficit hysteria, European unemployment, European Union and UK, France politics+economy, Free trade and Canadian history, free trade and globalization, full employment, infrastructure investment, J.M.Keynes, Uncategorized | Leave a comment

Fed and Bank of England raise rates Bank of England warns of recession

Well so much for raising rates to kill inflation without causing a recession.The stock market on Wall street clearly disagreed and today saw a broad sell off of stocks leading to a drop in the S and P 500 of 186 , close to 6% in the NASDAQ and over 1300 fall in the Dow with bearish expectations widespread even in high tech stocks. I am not surprised since any study of irrational expectations and market behaviour understands that irrationality dominates behaviour both on the way down and on the way up.Furthermore Chairman Powell decided to raise rates substantially without properly taking into account and demonstrating that raising unemployment is an appropriate solution to supply chain , wartime price pressures and the cartel nature of energy markets. West Texas oil is around $108 barrel. So expect further trouble on the policy front over the next six months.

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Federal Government Budget cautious document :unemployment projected to be 5.8% then fall to 5.5 % in 2022-23

The Federal government is betting that its modest deficit and strong oil prices will enable the unemployment rate to stabilize at 5.5 % despite the Bank of Canada‘s mistaken decision to embrace a series of interest rate rises as a misguided weapon against supply chain rises in prices and the inflation rate. But what is the projected rate of inflation ? The budget projects it as 3.9 % rise in the CPI in 2022-23 and 2.4 % in 2023-24. There is a risk in this policy approach that the Bank of Canada will have a stronger negative impact than they anticipate. Mistaken expectations are an economic fact of life. We shall see what happens over the next year.

There are also a number of good things in the budget including a dental services support program, which is unfortunately income tested, an opening initiative in the long term battle to ensure quality housing for as many people as possible and a strong fiscal anchor in the debt to GDP ratio projected to be 45.1%, increased spending on defense and more aid to Ukraine.

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Hello after much faffing about with the help of my computer savvy son I am glad to say that my wordpress site is once again accessible

A lot has happened since I last was able to post on the site. The pandemic, the horrible war in Ukraine, the re-emergence of inflation , the reduction in the rate of unemployment, the agreement between the Liberals and the NDP in the Canadian parliament, the Bank of Canada’s decision to raise interest rates. Because of all these events public policy is more complex than ever. But one thing remains fairly certain Keynes and post Keynesianism remains more relevant than ever.

The problem of supply chain disruption and its and the oil cartels’ impact on the rate of inflation which appears significant has also given the anti Keynesian neoconservatives the opportunity to falsely blame the inflation that exists on deficit spending. This misleading diagnosis needs to be corrected before policy players are seduced by it.As usual the Globe and Mail has been leading the charge from the neocon point of view.

Currently unemployment is still 5. 5% while inflation has risen to 5.7 % . But the inflation is largely due to oligopoly price increases and supply chain effects exacerbated by the war in Ukraine and the ongoing pandemic not expansion of the money supply nor excessive deficit spending or debt monetization by the central bank.

The supply side inflation is also a global phenomenon. Euro country inflation has risen to 7.5 % as of March. Inflation excluding food and fuel in the ECB rose to 3.2 % from 2.9 %. The unemployment rate in the eurozone in February was 6.8%.Oil prices for WTI oil hovers around 99 to 100 dollars a barrel, more than 40 % higher than the price in June of 2021.

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Poli 349 AA (9930): Political and Social Theory and the City. Course outline fall 2021. Thursday 5:45-8:15 Prof. Harold Chorney (Latest Version).

This course focuses on the rise of the metropolis and its links to economic and technical change that underlay the beginnings of nineteenth and twentieth century industrial capitalism. The city has always played a central role in both conservative and radical social theory.The search for community and the overcoming of alienation and loneliness is at the heart of considerable social theory. The rise of mass society and its displacement of class society is also a central theme in much post modern literature and has a useful role to play in explaining the cultural and communicative nature of society in an increasingly globalized high tech world.

We explore these themes by carefully examining the work of a number of writers from the nineteenth, twentieth and twenty first centuries.

The grade will be based upon a term essay due in class in the last week of October 50 % and a final test at the end of term.

Text: Harold Chorney, City of Dreams: Social Theory and the Urban Experience, Nelson Canada 1990. Lawrence Cahoone, editor From Modernism to Post Modernism.Blackwell publishing 2003.Selected chapters.

Lecture topics:

1. Introduction and overview: the rise of cities and the search for community. Post modernism versus modernism.

2. Alienation, class consciousness and urbanization: the work of Marx and Engels.

3. Gemeinschaft versus Gesellschaft :the work of Ferdinand Toennies

4.Georg Simmel: the Metropolis and Mental Life.

5.Urbanization and anomie and the conscience collective: the work of Emile Durkheim .

6.Max Weber: Modernism and Disenchantment. The economy of cities.

7.The Chicago School , mass society and American mainstream urban sociology. The early roots of post modernism.

8. Georg Lukacs and the theory of reification.

9. Walter Benjamin and the Theory of Technical Reproduction.

10. The Frankfurt School and the dialectic of enlightenment.

11. The phenomenology of the Urban:From social theory to public policy.

12. Toward a critical theory of urban policy and politics in the global metropolis.

Essay assignment:Write a 10-12 page essay on one of the following topics.Be sure that your essay is free of grammatical errors and has a bibliography and is properly footnoted . Use a manual of style like the University of Chicago or Harvard Manual in guiding your notes or footnotes and bibliography.

Essay topics: (Still under revision)

1.Explore modernism and post modernism as philosophical concepts and cultural movements. How are they usable in building a theory of social change in cities. Why is Marx a modernist and Benjamin more of a post modernist ?

2. Explore the work of Walter Benjamin in depth. How is it that he transcends political analysis and enters the realm of art and literature.

3. Select two writers in City of Dreams other than Benjamin and Marx and explore and compare their work.

4. Explain and analyze global metropolises . How does the phenomenology approach aid us in our understanding of a global metropolis ?

5. Use some of the theoretical perspectives developed in City of Dreams to analyze Montreal city politics in recent years.

6. Do an in depth analysis of the work of Jacques Derrida. Explain how it is the outgrowth of his rejection of Sartre’s conception of modernity.

7. How has modern technology facilitated the growth of community? Can the kind of community which this social media driven community has created be considered comparable to the community which writers like Toennies , Durkheim and Marx were searching for.

8. Explore the economic, philosophical and sociological aspects of Marx and Engels’ analysis of cities and capitalism. What if anything in their analysis is still relevant in the the 21st century.

Class notes:

A:Useful in conjunction with the lectures on Marx and the metropolis

1. The falling rate of profit. Major financial crises like the one we have experienced in 2008 -09 and the tensions surrounding globalization raise fascinating questions about the structural problems of modern capitalism. In the nineteenth century and for much of the twentieth century many economists debated this question. Keynes was convinced that there was little value in returning to any debate that was wedded to the anachronistic labour theory of value. Instead, he approached the issue of crisis from the point of view of less than full employment aggregate demand and the failure of the classical labour market clearing mechanism to operate consistently to deliver full employment. The labour theory of value that originated in the work of David Ricardo and was built upon by Marx to develop his theory of crisis that was rooted in the tendency of the rate of profit to fall over time because of a tendency to increase the organic composition of capital, that is the ratio of embodied technology, physical plant and raw material that was a key ingredient in the production process. These increases were motivated by the entrepreneurial and corporate desire to increase labour productivity.If the productivity gains are large enough they can reverse the tendency for the profit rate to fall. This was the argument of Bortkiewicz .In a funny sort of way it is also the argument of those who argue that high end technological innovation will rescue the first world from the global outsourcing that is going on whereby production is being shifted from North America and West Europe to countries like China, India and Asia generally. The unresolved problem still remains that high end technology does not appear so far to generate enough jobs quickly enough to replace all those that are being lost due to outsourcing. In addition there is the very real problem of ensuring enough global effective aggregate demand to purchase all of the high end output generated by these high tech centres of activity.

Keynes dismissed the labour theory of value as out of date controversializing, but members of his circle like Michal Kalecki were less certain. Even Keynes chose to use an hour’s employment of ordinary labour and the remuneration it received as his numeraire in the General Theory.(see ch.4 GT) Bortkiewicz and Bohm Bawerk in their work raised effective critiques of Marx’s doctrine, according to Sweezy, although Sweezy remained much more convinced that Bortkiewicz was closer to the truth than was Bohm Bawerk.( Bohm Bawerk, Karl Marx and the Close of his System, P.Sweezy editor, London , 1948; L.Bortkiewicz, “Value and price in the Marxian system” translated from “Archiv fur Socialwissenschaft und Sozialpolitik, ertrechnung und Preisrechnung in Marxschen System” Bd.xxlllHeft 1, 1906, International economic papers no.2.) Bortkiewicz argues that Marx was guilty of methodological inconsistencies and neglected the mathematical relation between the productivity of labour, dependent upon the organic composition of capital and the rate of surplus value.The rise in productivity may be such as to totally reverse any tendency for the rate of profit to fall.But this may also imply a tendency to increase the rate of exploitation of labour. Roman Rosdolsky attempts not completely successfully to refute both Sweezy and Bortkiewicz and Keynes’s colleague, Cambridge economist Joan Robinson in their critique of the falling rate of profit in his work The Making of Marx’s Capital, (London, Pluto Press, 1980, pp.398-411). Meghnad Desai in Marxian Economic Theory, ( London, Gray Mills publishing , 1974) has pointed out that Michio Morishima (whose class I regularly attended at the L.S.E.) believed that it would be better to abandon the labour theory of value because of the very difficult technical complications requiring complex mathematics to resolve in order to transform values into prices.(See also Desai’s work Marx’s Revenge:The resurgence of Capitalism and the Death of statist socialism, London:Verso books 2004) Morishima wrote “

We conclude by suggesting to Marxian economists that they ought radically to change their attitude towards the labour theory of value. If it has to determine the amounts of labour which the techniques of production actually adopted in a capitalist economy require, directly and indirectly , in order to produce commodities, it is not a satisfactory theory at all.” M.Morishima, Marx’s economics, Cambridge University press, 1973 p.193. Paul Baran and Paul Sweezy attempted to do precisely that in their classic Monopoly Capital wherein they substituted the tendency for the surplus to rise and the problem of surplus absorption for the falling rate of profit.Piero Sraffa’s classic work The Production of Commodities by Means of Commodities:Prelude to a Critique of Economic Theory, 1960, Cambridge University press, demonstrates a workable mathematical method for assessing dated labour in terms of its contribution to the value and price of a commodity which makes a very key contribution to this debate.

Sraffa demonstrates convincingly how prices and values vary with variations in the rate of profit. Sraffa was a friend and colleague of Keynes who Keynes had helped rescue from fascist Italy before the Second World War by helping him secure a position at Cambridge. Sweezy in his classic Theory of Capitalist Development reduces the falling rate of profit to the following striking formulation; p=s'(1-q) where p is the rate of profit and q the organic composition of capital i.e. c/c+v (Marx in Capital vol 2 defines it as c/v rather than as Sweezy defines it c/c+v )p.625 chapter 23, vol.2 Dutton, Everyman’s library edition, London&N.Y. translated by Eden and Cedar Paul, introduction by G.D.H. Cole. &vol.3 p.214 ch xlll, progress edition, 1966.) He arrives at this as follows. p= s/c+v = sv/v(c+v) = sc+sv -sc/v(c+v) = s(c+v)/v(c+v) – sc/v(c+v) = s/v-s/v.c/c+v= s/v(1-1.c/c +v) = s'(1-q) (p.68) We won’t be pursuing this controvery further in the course but those who wish to read further about it consult the works cited above and also look at Ronald Meek, Studies in the Labour theory of Value, Jesse Schwartz, ed.

Subtle Anatomy of Capitalism and M.Desai, Marx’s Revenge as well as Paul Mattick, Marx and Keynes. Desai who is a former teacher of mine who may now want to revise his assessment about the success of globalization in the light of recent events has an interesting chapter on Marx, Hayek and Keynes.You might also want to look at my conference paper which I presented to the association for heterodox economics in London in 2001 which is part of the Deficit Papers, The Theory of the Business cycle in Keynes, Hayek and Schumpter:What do we know in the Age of globalization ? David Harvey, Limits to Capital, Verso 2006 is also very accessible and useful in integrating spatial and urban issues from a radical geography perspective.

Perspectivism:One of you brought up this approach which is identified with Nietzsche’s view of the relativity of belief according to the perspective of the individual , as opposed to the objective circumstances of reality. You are right , of course, to suggest a close affinity between the views of the post moderns, relativism and those of Nietzsche. However, in City of Dreams I drew not upon Nietzsche but rather upon the phenomenology of Husserl, Merleau Ponty, Schutz, Mead and Berger and Luckmann among others, as well as my own observations about the metropolis and the work of Benjamin.Clearly the approaches are related.

Jurgen Habermas: for those interested in exploring the work of Jurgen Habermas and the culture of communications in more detail you can start by checking out the references in footnote 34 on pp.52-53. see also Harold Innis’s Bias of Communications. See also, Jurgen Habermas’s prolific writing for example: Knowledge and Human Interests; Toward a Rational Society;Legitimation Crisis(available on the internet)The Theory of Communicative Action; also Thomas McCarthy, The Critical Theory of Jurgen Habermas.

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Poli 204 Course outline Prof.Chorney latest version

Fall 2021

Poli 204 2 CC/ 2021 Concordia university
Introduction to Canadian Politics
Professor Harold Chorney 
Course outline including essay topics list

Tuesday 17:45-20:15 

Office hours t.b.a.

The study of Canadian politics is a complex field which draws upon a number of traditions in Canadian political science including institutionalism, political behaviour, political theory, international politics, political economy, history, judicial and constitutional history and economic history. In a broad survey course lasting a single term we can only touch upon a number of key 🔐 aspects of the field. 

In my view some knowledge of the key economic and political history of Canada and its initial colonial relationship to Great Britain and France and its relationship to the great republic to the south , the United States, is essential in making sense of Canadian politics and its political history. So too is a recognition of the indigenous peoples of Canada and their mistreatment and acts of genocide against them by the powers of the day from the past.

 The ongoing debate about the place of Québec in Canada can also only be properly understood in the light of Canadian history and the history of the French fact in the founding of the country. Much has changed in Canada over its history. New France in the 18th century had a European origin  population of about 70,000.The indigenous people numbered by some historical estimates as high as 1 million  were recorded in the 1871 census as being close to 200,000. In 1867 the population of Canada was 3.46 million people excluding the first nations’ population.  In 1913 the population was 7.63 million . In 1941 Canada had a population of about 11.5 million people. Its population today according to Statistics Canada is close to 38 million. Quebec‘s population is 8.2 million. Whereas in the 1940s and fifties the major groups were those of British or French background and people from other ethnicities constituted less than twenty percent of the population this third group has grown substantially in importance. The first nations’ and indigenous population is now estimated to be over 1.674 million or 4.9% of the total population.

Canada can no longer be understood as a British country or a former French colony. This in strong contrast to the Canada of the early 1950s when both the Union Jack and the Red Ensign flew on the flagpole of my elementary school in Winnipeg and we were considered British subjects. Rather Canadian nationality has come into its own based as it is on a wide range of ethnicities , founding peoples and nations and immigrants from all over the world. We will likely be a nation of more than 40 million in the not too distant future and have in much of the country a strong pan-Canadian national sensibility. Yet at the same time, Québec maintains its identity as the very successful product of more than 4 centuries of French dominant presence in North America. This French presence and identity is also strong in several other regions of the country notably New Brunswick, Ontario and Manitoba. The partly bilingual character of Canada and the tension over Québec’s place in Canada are creative if difficult elements of the Canadian nation making process.
On October 19th, 2015 Canadians went to the polls to elect a new Parliament. This election was a very closely hard fought election with three major parties each according to the poll of polls having had a good chance initially to elect the largest number of members and form a minority government. In the end it produced a majority Justin Trudeau led Liberal government. There was a subsequent election in October of 2019 in which the Trudeau Liberals lost their majority but were able to form a minority government with support from the NDP and Green party and sometimes the Bloc Québécois. In the 2019 election the Liberals won 157 seats with 31.1 % of the vote; the Conservatives 121 seats with 34.4% of the vote; the New Democrats 24 seats with 15.9% of the vote; Bloc Québécois 32 seats with 7.7% of the vote; the Greens 3 seats with 6.5 % of the vote;  Judy Wilson-Rabould  Independent 1; others 0 seats with 0.4% of the vote. There are 338 seats and 170 seats are needed for a majority. Seats won are not proportional to vote share and the uneven results reflect the partly undemocratic nature of the first past the post electoral system which cries out for reform.

We will discuss the election and the current election assuming one is called for this fall in detail, including the leading policy issues, the nature of the voting system, the differences between the parties, Canadian electoral history and the issue of getting younger Canadians to vote in much larger numbers. The election in 2015 of a majority government under the leadership of Justin Trudeau, a son of a former Prime Minister, Pierre Elliot Trudeau and a coalition of liberals, liberal progressives, environmentalists and liberal social democrats stands in sharp contrast to the recent electoral experience in the USA when Donald Trump was elected. The election of Joseph Biden and his Democratic Party coalition of progressives, moderates and environmentalists in 2020 moved the U.S. closer to values widely held in Canada although there are still significant differences.

Our complex but close trade relationship with the USA under the former Trump Republican administration has  strongly affected Canada and its democracy as anti free trade sentiments worked their way through Congress, the White House and the halls of public opinion. We will face serious economic challenges if the protectionist anti- NAFTA nationalist sentiments apparently held  by the Congress toward the new agreement are not moderated. . We also face a potentially very dangerous situation should there not be a peaceful diplomatic resolution of the dispute over North Korea acquiring nuclear weapons and the means of delivering them to North American targets.The decision of President Trump to weaken Americn ties to NATO is also an important development although President Biden has reversed this position.

Text:Eric Mintz, Livianna Tossutti and Christopher Dunn, Canada’s Politics:DemocracyDiversity and Good Government. Pearson , 2017 or preferably the new 2021 edition co-authored by Tossutti, Mintz, Brock and Barrie also published by Pearson available through the text bookstore or by ordering from Pearson or Amazon directly.

Evaluation: An essay due in the last week of October, October 26 on a topic chosen from a list of possible topics included in the list of possible essay topics below. 50 %. A final exam 50 %.

Additional reading: I draw upon several other works in Canadian history and Canadian politics . These include Alvin Finkel and Margaret Conrad’s two volume History of the Canadian Peoples vol.1Beginning to 1867 (1993) vol.2 3rd ed. 1867 to the present; C.B.Macpherson, The Political Theory of Possessive Individualism:Hobbes to Locke;Stanley Ryerson,French Canada; Unequal Union; Craig Brown, the illustrated history of Canada,2002; Donald Creighton,The Road to Confederation:The Emergence of Canada; D.Creighton the Story of CanadaHarold Innis, Essays in Canadian Economic History, Rand Dyck& Christopher Cochrane, Canadian Politics Critical Approaches;Stephen Brooks, Canadian Democracy, Oxford U Press, 2012. Michael Hart,A Trading Nation:Canadian Trade Policy from Confederation to Globalization, 2002. Mel Watkins and W. Easterbrook, Approaches to Canadian Economic History, 1969.Bob Rae,Whats’s Happened to Politics. Simon&Schuster, 2015; Richard Pound, Canadian Facts and Dates,Fitzhenry and Whiteside, 2005.

  Course Topics:

  1. Introduction and overview. Coping with the pandemic.  The last Canadian federal election, issues , polls and media spin.The electoral system and the need for reform.The recent American election and its impact upon Canada.The economics of full employment and the impact of globalization and growing inequality.
  2. Geography and Economic history: the role of the staple in French Canada and British North America.Readings and sources: Mintz et al, Canada’s Politics, pp.1-51, pp.91-120; Finkel & Conrad, History of the Canadian Peoplesvol.1 & 2; pp.1-208 in vol.2, pp. tba; Michael Hart, A Trading Nation:Canadian Trade Policy from Colonization to Globalizationch.1,2&3. Stanley Ryerson, Unequal Union:Confederation and the Roots of the Conflict in the Canadas 1815-1873; Stephen Clarkson, Does North America exist? Governing the continent after NAFTA and 9/11.Mel Watkins, A Staple Theory of Economic Growth, D.Drache,Harold Innis and Canadian Capitalist Development, and Claire Pentland, The Development of a Capitalistic Labour Market in Canadaall in G.Laxer ed, Perspectives on Canadian Economic Development,Oxford U. Press, 1991. J.Bhagwati ,Protectionism; Arghi Emmanuel, Unequal Exchange:A study of the Imperialism of Trade.
  3. Indigenous peoples in pre European Canada. Indigenous Rights and Governance. The Riel rebellions Manitoba and Québec.
  4. The conquest and its legacy.Québec nationalism in twentieth and twenty-first century Canada.
  5. Democracy and the Liberal democratic state.The 1837 rebellions and the chartists. The roots of confederation and the Canadian constitution. Canadian political culture. Gender politics. Identity politics.
  6. The clash between labour and capital in the nineteenth and twentieth centuries and its impact upon Canadian politics and the political party system.
  7. The Canadian economy, the business cycle, free trade , globalization, unemployment, inequality and regional disparities.
  8. Canada as an urban nation. The growth of diversity. Canada’s treatment of its minorities. Québec nationalism and Canadian federalism.
  9. Canadian political culture and our place in global politics. The other North America.
  10. Political parties, interest groups and social movements. Democratic reform.
  11. The constitution and the Charter of Rights. The Federal system and the economics of federalism.
  12. The institutions of government: Parliament and the power of the Prime Minister.
  13. The judiciary and the courts.
  14. Summary and Review.

Essay Topics for the TermAssignmentDue the last Tuesday in October. October 26. Write an essay of between 9-10 pages on one of the following topics. The essay must include a bibliography of sources consulted. Sources should include scholarly books, articles from academic journals and where appropriate the quality press, for example The Globe and Mail,TheNew York Times, Le Devoir, Toronto Star, The Wall Street Journal. Use a manual of style and proper citation and include a reference to it in your bibliography.

 Essay Topics:
1.”The Quebec Charter of Values and the bill 21 on religious symbols and Bill 96 are rooted in the Quebec nationalist opposition to Canadian federalism and the nationalists’ rejection of multiculturalism.” Discuss critically explaining the roots of the debate over values in Quebec, the goal of a secular society in the light of Quebec history and your assessment of the claim that this Charter and these bills are simply a legitimate expression of the need to protect Quebec’s culture.

  1. How can C.B. Macpherson’s notion of possessive individualism be used to construct a theory of Canadian politics? Explain his theory and explore Canada’s class cleavages and political economy in your essay.
  2. Foreign ownership and control of the Canadian economy is still an issue of considerable importance in Canada’s political economy. Explain why and discuss how it has been integrated into our politics in the past and its current status.
  3. Does Canada’s voting system of first-past-the-post need to be reformed? What alternative systems are there? How would they work? Why would they be better and how could they be implemented?
  4. Discuss the power of the Prime Minister and his/her office. What checks if any need          to be placed on it?  What countervailing powers and influences are available in Canadian democracy?
  5. What ought to be Canada’s role in global affairs? Are we a peacemaker or a powder monkey ?
  6. Discuss the relationship of Canada to the U.S. Given the close economic integration that the free trade pact has promoted explore what challenges this poses to our sovereignty,  environment , public health and independence. If the new trade agreement were to fail what ought our trade strategy be.
  7. Analyze the problem of unemployment. What role has government economic policy played in this problem? What is the role of the Bank of Canada and the Department of Finance in managing this problem? Explain the competing approaches of Keynesianism versus monetarism with respect to this problem.
  8. Discuss Canadian economic history from the point of view of staple development ?Does staple theory still have explanatory power in the twenty first century?
  9. Discuss the struggle for responsible democratic government in Canada and its roots in the 1837 rebellions, the Riel rebellion, the struggle of the suffragettes for women’s voting rights and the struggle of the indigenous people for their rights and reconciliation after the cultural genocide practiced against them.     
  10. What role have trade unions played in Canada’s political and economic development ? How have they enhanced democracy? What is their role in an increasingly globalized world economy?
  11. Discuss the evolution of indigenous rights and governance in Canada.
  12. Discuss the recent Canadian election. In the end what do you believe determined the outcome: policy differences, the image of the party leader; regional differences; ideology; economic circumstances or media manipulation? What can polling tell us about this? Does the election show us the need for reforming the electoral system?
  13. Discuss Canada and free trade in the context of globalization. How can we break free from excessive dependence on an uncertain American market? What differences has the new Trump administration made to the Canada U.S. relationship and how should Canada respond?
  14. Discuss gender issues in Canadian politics.
  15. Discuss the importance of environmental issues and climate change in Canadian politics.
  16. Discuss the housing crisis in Canada. What policies are necessary to deal with it?
  17. Discuss the problem of poverty and excessive inequality in Canada. Would  a guaranteed or basic income policy be helpful . How would it work.


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Low interest rates and weaker job numbers than expected mean risk of inflation minimal

The latest data on unemployment and inflation and central bank determined interest rates strongly suggest there is still further room for stimulus and continued monetization of debt by the central bank in both Canada and the U.S as both economies recover from the covid induced collapse. The Wall Street Journal has noted that ten year treasury bills are attracting an interest rate of 1.47 % which to the extent they anchor consumer interest rates on mortgages, credit card and bank debt have an important role in the overall economy. This rate is far from contractionary.

The Bank of Canada for its part has continued holding the bank rate to 0.25% this is also recognition that inflation to the extent it exists is moderate, low and for the time being stable. Oil prices rose substantially over the past year from just under $40 per barrel to around 70 $ per barrel for WTI and Brent But today they weakened somewhat with WTI just under that price.

Oil prices account for close to 8 % of the GDP So the inflationary impact of the rise from 40 dollars a barrel to 70 dollars a barrel is low to moderate. With 8.2 % unemployment there is still considerable further room for expansion of the Canadian economy . The U.S. economy is somewhat tighter, unemployment Is 5.8%- but they could target lower unemployment, say setting a rate below 3 % – perhaps 2 %. The Nobel prize winning Canadian economist who taught at Columbia for many years William Vickery argued that 1 % unemployment was an excellent and achievable target.

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The Economics of inflation, Globe and Mail hysteria and the role of stimulus

The conservative Globe and Mail has amped up its anti Keynes campaign . It has in the past few weeks run several opinion pieces and articles in which it warns about excessive debt, the danger of inflation and the policy errors of the Justin Trudeau administration .

What are the facts ? Inflation is currently running at close to 2.2 % after recovering from its recent pandemic lows of minus 0.7% in the spring of 2020. What about unemployment? Despite over 6 % growth in the GDP unemployment is still 7.5 %.( The rate rose to 8.1 %in April) So there is plenty of need to further simulate the economy. That doesn’t mean that inflation above 3 -4 % cannot occur but it is highly unlikely in the current circumstance s. Oil prices remain relatively low although some analysts at Goldman Sachs are forecasting per barrel price rises to the 80 dollar range from their current level of 65 $ as the American economy recovers. But the changing nature of work and the stay at home option will push prices in a downward direction.

The real estate bubble is a potential problem which has been fuelled by very low and very essentially low interest rates. Like all bubbles it might burst and spread panic selling in the stock and commodity markets and provoke recession.

The need for stimulus continues. So long as the negative impact of Covid -19 continues and unemployment remains higher than 3-4 % the rates need to be kept low. It is also possible that large corporations in a position to use their oligopoly powers to raise their profit margins by raising supply chain costs can also fuel some inflation. But so long as price rise remain so low and unemployment so high the Federal Government is doing the right thing by using its powers to restore infrastructure, improve social programs, replace lost incomes, improve the environment, and reduce inequality.

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Federal government budget in Canada reinforces the eclipse of deficit dogma and anti Keynesian thinking on appropriate policy

The Canadian minister of Finance Chrystia Freeland has tabled a moderately but seriously Keynesian and progressive budget that takes seriously the negative impact of the Pandemic and the necessity of lowering the unemployment rate from 8 % to 6 %.and beyond. The government will inject a massive amount of deficit funding to finance the extension of a range of income support programs, programs to assist small businesses, child care spending plus a fifteen dollar an hour minimum wage.

The government‘s deficit will rise to 16.1 % of the GDP but unemployment is still projected at an unacceptable level while inflation is expected to rise slightly due to oil price increases which may materialize as the global economy recovers. But on this front the pandemic has taught us that many workers can do part of their jobs from home .This fact lowers per capita fuel consumption thereby depressing fuel prices and also facilitates reducing emissions.Despite the chorus of anti Keynesian deficit hawks their argument will fall by the wayside both in political terms -the measures taken on child care, the minimum wage and the extension of anti covid income support programs will be very popular and in policy terms there are very justifiable reasons to run such a large deficit-the net federal debt to GDP ratio will remain relatively low at close to 50 %.

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The emerging new consensus on stimulus and debt management

About this time last year I posted on how the pandemic would change the opinion of policy makers and politicians with respect to deficits and debt , the role of the state and macroeconomic policy in the months to come.(Co vid 19 Pandemic Confirms the Critical Relevance of Keynes and His policy Tools, March 27, 2020,Haroldchorneyeconomist ) I argued that since the Federal reserve and the Bank of Canada were financing stimulus and counter cyclical deficits to fight the pandemic and financing these by monetizing debt, in other words having the central banks buy debt instruments from the state and the private sector. In now out of date Friedman quantity theory of money terms this should lead to a rise in the rate of inflation. But it has not. Instead inflation continues to be very low just under two percent and the economy still suffers from excessive unemployment and demand for holding liquid assets.

What has boomed has been the stock markets and to a much lesser extent the energy market. So the old quantity of money framework has to be set aside now unless and until we see clear signs of excessive inflation. Such a striking change in policy consensus is also reflected in the 1.9 trillion Covid relief package and its reception by journalists.

For example, the New Yorker magazine, always a staunch defender of progressive American liberalism in its March 22nd issue has a lengthy article( Nicholas Lemann Bigger and Better : The Talk of the Town pp 11-14) praising the Biden 1.9 trillion dollar American Rescue Plan package as a very progressive piece of legislation, indeed the most progressive in fifty years. It suggests that the long period of Neo-conservative anti deficit ideology is coming to an end. That would also be my assessment . But its important to understand that the quantity theory of money argument has had a long run partly because most economists were always convinced that monetizing debt was bound to be inflationary sooner or later.

I and a number of other theorists of monetary and fiscal policy loosely grouped under the Keynesian and post Keynesian school disagreed and said so in a number of articles and books going back to the work of Keynes, Lerner and Takahashi. We shall see in the coming months whether any excessive inflation develops and what inflation rate is permitted by the central banks. The key factor is whether the markets seek to increase interest rates and the Fed stops buying debt and the Government continues to spend money on stimulus and infrastructure.

For now the emphasis must be on infrastructure investment, overcoming the shock of the pandemic and reducing unemployment to acceptable low levels. 3-4 % is an excellent target.

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Some thoughts on financing health care and producing vaccines here at home.

There have been some interesting positive developments on the vaccine supply front and some initiatives to further stimulate late summer or early fall domestic production of vaccines against covid 19 here in Montreal and elsewhere in Canada. These are very welcome changes in Federal government policy that absolutely need to accelerate so that we will not find ourselves beholden to unresponsive policies of some of our traditional allies when we need their support if vaccine nationalism and their domestic politics prevents them from being supportive .Here we must thank India and its Serum Institute for helping us out at a critical moment .Vaccine nationalism continues to spread and there is a conflict between the EU and its former member the UK over vaccine supplies and exports at the moment. Here in Canada there should be a committee or table of experts established that has as its top priority -perhaps it exists already- planning and developing domestic vaccine production as soon as possible (the latest breaking news from the US suggests that the US will be loaning 4 million vaccine doses of the Astra Zeneca vaccine- to Canada 1.5 million and to Mexico 2.5 million – if true this is very welcome news).

On the very critical question of how to advance the cause of health care in Canada the provinces should explore with the Bank of Canada the issuance of special long term bonds, say fifty year bonds at close to one half % interest or even less, to finance much needed critical improvements in the Canadian health care system rather than delay essential improvements that the pandemic has exposed. The provinces should issue the bonds, the Federal government should back them and the central bank should buy them.The federal government should share in the interest cost.

I am as of last week vaccinated with a first dose of a vaccine provided in a well organized clinic in Montreal. Getting a reservation for my age group was fortunately not too taxing and the clinic itself very well run and for that I am very grateful to all the health professionals who organized and administered it.

Vaccine roll out in Quebec continues to improve as more and more vaccines arrive in Canada As of March 11 there were 3.9 million vaccines distributed in Canada. As of March 22-28 there will be an additional 846,000 Moderna vaccines , 1.2 million Pfizer Biontech and some further Serum institute vaccines arriving and allocated and as o f the 4th of April there will be over a million Pfizer vaccines scheduled to arrive each week for the next seven weeks until the sixteenth of May. By the end of June the provincial government of Quebec has targeted vaccinating the entire adult population.Lets hope that there will be no disruptions to the schedule.

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