I wrote,
> > Saying that a phenomenon is "natural" is a much less
> scientific way of describing something than doing so in simple descriptive
> terms (which are more coherent or systematic).
Tom Walker changes the subject:
> Except that this distinction ultimately goes around in circles. Instead of
> attributing the mystical status directly to the rate itself, the NAIRU
> "description" defers its mysticism to the unexamined definitions of
> inflation and unemployment.
These definitions aren't "unexamined" by me. I would be the last one to reify the official definitions of these concepts and to not question the mode of their measurement.
The key thing is that given the present institutional structure of the US economy (the one I know most about), if the officially-measured unemployment rate rises, almost all unofficial measures of unemployment and measures of working-class ill-health also rise, as do measures of income inequality, poverty, and racial income disparities. So even though the official unemployment rate is poorly measured, it does seem to capture something about inadequate demand for labor-power (where "inadequate" is defined from a working-class perspective). (Baran & Sweezy noticed this back in their MONOPOLY CAPITAL in the 1960s.) It does seem that institutional change -- such as weakening labor unions and more anemic unemployment insurance benefits -- has made a percentage point of official unemployment have more impact in terms of raising workers' economic insecurity in 2002 than it used to (say, in 1980). But that doesn't mean that we should simply throw out the official measure of unemployment, as Tom seems to be implying.
Inflation measures are shakier in my book. For example, a bit more than a year ago (March/April 2001), I published an article in CHALLENGE magazine in which I presented an alternative "cost of living" measure of inflation, bringing in non-market aspects of inflation and the like. According to my estimates, for the years 1980 to 1988, my most conservative measure of cost-of-living inflation rose 0.7 percentage points per year faster then the official measure (using the personal consumption expenditure deflator). This implied a much steeper fall in estimated "real" wages during that period than did the official measures. Even so, the official measures of inflation move with mine over short periods, e.g., in recessions and booms.
> Whatever the common sense notions of those two categories may
> be, their measurement is profoundly subject to manipulation by policy.
> For example, policy can count as employed someone who has worked one hour
> in the last week or can change the eligibility requirements for
> unemployment benefits and sickness benefits, thus redefining people out
> of the labour force.
All of this is familiar, at least to me and to anyone else who's studied labor economics. For many purposes, the fact that the official definition of unemployment doesn't change very often means that the number do say something about the inadequate demand for labor-power. (It's not like in England, where the Thatcherites manipulated the definitions deliberately to lower measured unemployment rates. In the US, Reagan tried that, but it never took hold.)
> Hypothetically, one could design various procrustean policy
> regimes that would generate roughly just about whatever NAIRU one wished
> to designate as _the_ NAIRU, which takes us back to Looking Glass world where
> words mean precisely what Humpty-Dumpty wants them to mean. The reductio
> ad absurdum limit cases might be thought of as, on the one hand, a
> subsistence economy where there is no unemployment because there is no employment
> and there is no inflation because there are no prices. NAIRU would be zero.
> At the other extreme, if we define as "unemployment" all hours spent not engaged at
> designated workplaces in direct production of a set of standardized staple
> goods and define as active in the labour force all individuals physically
> capable of performing some minimal routine operation there would be an
> extremely high "NAIRU", let's say somewhere in the neighbourhood of 90.
yeah, but the people who do the defining -- in the US, the Bureau of Labor Statistics -- don't conspire with the macro-econometricians to do these kinds of tricks.
> Back in the real world, the definitional play of NAIRU may be more of the
> order of its estimated size, which is to say "4.9, give or take 4.9". And
> I'm 6' 2" give or take a couple of yards. What is the "scientific" status of
> statements like that?
if the standard error of the estimate of the NAIRU is high (as it is), that's a serious strike against the theory, which is why people like Krueger & Solow dedicate entire books like their THE ROARING NINETIES to re-examine such questions. A mystical theory -- such as astrology or the core theory behind neoclassical economics -- can't be undermined that way.
> At some ethereal level there may well be intuitive appeal to the "idea" of a
> NAIRU -- it's one of those seductive reactionary thought experiments. But
> NAIRU mixes together vague definitions with an _intimation_ of precise
> measurement for the purpose of arriving at a pre-conceived policy
> prescription. We already know what that prescription is -- restrain wages.
> Assigning a number doesn't make the prescription more scientific. In this
> regard, it is no different than judging figure skating at the Olympics.
We live in a capitalist society, don't we? It's not like it's going away, or is it? if we're stuck with it for awhile (maybe a decade, maybe longer), then we have to acknowledge the fact that part of its "laws of motion" involves restraining wages. If wages get too high, it hurts profits and the capitalists -- who are much more powerful than you or me -- scream. This is a problem we have to live with, not something we can just wish away, until capitalism is replaced by some other system, one without a exploitative ruling class.
In the book UNDERSTANDING CAPITALISM, Bowles & Edwards sketch three different ways in which capitalism can deal with this problem. One is the "invisible hand," i.e., using the reserve army of labor (unemployment) to keep wages down. (This is formalized by the NAIRU theories.) Another is the "iron fist," i.e., fascist-style suppression and/or co-optation of unions and other independent worker organizations, imposition of work-camps, etc. A third is the "handshake," i.e., the kind of social-democratic "deal" that used to prevail in Sweden (involving a unified industrial council getting together with a unified labor movement to restrain wages).
The second and third alternatives don't seem to be likely in the near future in the US (though suppression of unions in the past has had an impact today and the fading of the weak version of social democracy we had here has had an effect). So some version of the NAIRU theory may apply.
That doesn't mean that unemployment is "natural." Instead, it means that it's a way that the capitalists impose their rule on us -- and that we have to figure out a way to replace them with something better.
Jim
