Full Employment Abandoned

Full Employment Abandoned

Shifting Sands and Policy Failures

William Mitchell and Joan Muysken

This book dismantles the arguments used by policy makers to justify the abandonment of full employment as a valid goal of national governments. Bill Mitchell and Joan Muysken trace the theoretical analysis of the nature and causes of unemployment over the last 150 years and argue that the shift from involuntary to ‘natural rate’ conceptions of unemployment since the 1960s has driven an ideological backlash against Keynesian policy interventions.

Chapter 8: A Monetary Framework for Fiscal Policy Activism

William Mitchell and Joan Muysken

Subjects: economics and finance, labour economics

Extract

8. A monetary framework for fiscal policy activism 8.1 INTRODUCTION The essential operations of the macroeconomic system are often well explained in an introductory macroeconomics course. Sadly, the rudiments are quickly obfuscated as academic economists seek to replace them with increasingly difficult formal conceptions that distort the understanding students have of actual monetary economies. In this chapter, the rudiments of macroeconomics are restated to present a theoretical framework which demonstrates the actual options and responsibilities that apply to modern governments which issue fiat currency (see Mitchell, 1998; Wray, 1998; Mitchell and Mosler, 2002, 2006). We propose this monetary framework as a challenge to the orthodox macroeconomic consensus that we developed in Chapters 5 and 6 which has provided the so-called ‘intellectual authority’ to policy makers who have been intent on pursuing full employability rather than full employment policies. We show that the full employability consensus is not grounded in any logical understanding of the modern monetary system and negates many of the actual options that are available to fiat-currency issuing governments. 8.2 MODERN MONETARY ECONOMIES USE FIAT CURRENCIES The starting-point is to understand the central role that government can play in a modern monetary economy. Modern monetary economies use money as the unit of account to pay for goods and services. An important notion is that money is a fiat currency, that is, it is convertible only into itself and not legally convertible by government into gold, for instance, as it was under the gold standard. The fact that...

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