Transformational Growth and Full Employment
Edited by Edward J. Nell and Mathew Forstater
Chapter 11: Functional Finance and Full Employment: Lessons from Lerner for Today
Mathew Forstater The United States economy was already headed for recession when the September 11, 2001 terrorist attacks occurred, worsening conditions in an already troubled global economy. The Asian financial crisis, with fallout in Latin America and the transition economies; the Russian default; continuing troubles in Japan; weaknesses in the structure of the new European EMU; volatility on Wall Street; deflationary pressures in the global economy Ð recent economic developments invite reconsideration of some of our most deeply held beliefs concerning economic theory and public policy. Even within the hallowed halls of mainstream economics, voices of dissent can be heard. Paul Krugman, Joseph Stiglitz and Jeffrey Sachs are among those whose recent proclamations mark our entry into a period in which orthodox views are openly questioned, creating an atmosphere characterized by a crisis of confidence. Such periods of impending crisis, and open expressions of self-doubt, question our most deeply held beliefs about the way the world works and create a climate in which the ideas of the great unorthodox thinkers of the past may be revisited. The work of those who in the past dedicated their lives to formulating solutions to the challenges of modern capitalist economies may contain lessons applicable to contemporary conditions. In this spirit, this chapter revisits the early works of Abba Lerner, outlining 15 such lessons regarding macroeconomic theory and policy that are as fresh in the context of the current scene as they were some five decades ago when first formulated. Lesson #1: Full employment, price...
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