A Turning Point?

Memory matters in the broad sweep of public policy. I was reminded of this reading the latest newsletter by Peter Bernstein, a market historian and financial advisor.

"History is not a pool of inconsequential happenstances. Each episode is a consequence of the preceding episode. The Great Depression and the obsessive fear of high unemployment prompted the Full Employment Act in the 1950s and the Great Society in the 1960s. Inflation was a secondary consideration to unemployment. Sumner Slichter, Harvard Business School’s most famous professor of the era, even argued that inflation was the right policy for encouraging high em-ployment (a view Chairman Bernanke just recently rejected without qualification) The result was the Great Inflation of the 1970s, in which reducing unemployment dominated controlling inflation as a policy goal. The roles have been reversed over the past thirty years. Now controlling inflation dominates economic policy and worrying over unemployment is a secondary consideration."

The battle against inflation has been won over the past quarter century. Sure, there will always be periodic inflation scares, such as right now with the rising cost of food and energy. But the central banking nomenklatura--the economists at the Fed and other central banks, economists at the IMF and BIS, economists in university departments at home and abroad--have made huge strides in understanding the causes of inflation, the consequences of inflation, and ways of keeping inflation contained.

No, it's the precarious situation of labor that will dominate going forward. I don't think employment will remain a secondary consideration.

Why? It's not one thing. It's the cumulative impact of a quarter century of rising inequality, persistent poverty, and increasingly earnings and job instability. You can see it in the backlash against immigrants and the embrace of policies that would erect trade barriers against Chinese imports. It's not just the worry that a rising tide no longer lifts all boats but only a few yachts, but the very real fear that among a growing number of lower middle class and low income families that their children will not be better off they their parents.

The benefits of globalization, which are considerable (and that's an understatement) have come at a considerable price for many people.

Economists have made a powerful brief against protectionism and trade barriers. And, by and large, the public and policymakers are convinced. But to preserve open borders requires greater efforts to create a better safety net for a hyper-competitive economy. It will demand greater emphasis on employment inclusion--making sure that everyone has a job. And it means devising policies that worry less about the wealthy and more about the economic opportunities of society's disadvantaged members. After all, why can't we have full employment? We should.

The first test: Will we get universal health insurance? And can the public debate move beyond the sterile rhtoric and false choice between between "socialism" and "markets".

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