While reading the book, Prosperity for All, by Roger E.A. Farmer, my favorite chapter so far was, chapter 2, Keynes Betrayed. In the section “Classicals, Keynesians, and Bastard Keynesians,” the author had made a comparison,
“The economy is like a boat on the ocean with a broken rudder. As the club hits the rocking horse, so the wind blows the boat. In the windy boat metaphor, there is no self-correcting market mechanism to return the boat to a safe harbor. We must rely, instead, on political interventions to maintain full employment.”
It’s a very interesting view and made me think about how interpret the economy. I do agree with the statement that the author has made but I also have a few issues with it. I believe there is no such thing as full employment. It’s a hypothetical condition that will only happens in a perfect world, in our world and the free market economy we have it will never be achieved. This due to people that are willing and able to work are will always look for jobs. This is like saying that McDonald’s, that had 1.9 million employees in 2015, will not have a single job opening at any point in time, simply will never happen. Comparing this to a large economy that we have today is simple, people will always look for jobs and be unemployed for a certain period. I do agree though that we need to rely on political interventions, by raising and decreasing interest rates (Inflation Targeting), is one of the ways that political intervention may change the unemployment level. With higher rates the number of people that are looking for work will hypothetically increase. To summarize my thoughts, I believe that even if the economy is working the best it can and the interest rate is at 0% there still will be some sort of levels of unemployment. EX. Japan having a -.18% interest rate but still has a 3% unemployment rate, can anyone explain this?