I remember being quite taken with a letter written by a post-Keynesian economics professor (Paul Davidson?) which appeared in the NY Times last year. It took the form of a little thought experiment that went something roughly like this. You abolish welfare, thus forcing more people into the workforce on pain of starvation. Some starve and some find jobs. The unemployment rate therefore falls. The Fed, seeing the unemployment rate fall, raises interest rates to prevent a damaging bout of inflation. This raises the unemployment rate again. More people starve, thus lowering the unemployment rate again. The Fed, ever vigilant, raises interest rates again. More unemployment and starvation ensue. As the process is repeated the size of the workforce gradually declines as a result of starvation to zero. Everybody ends up starving to death. Though it was not part of the letter, one can imagine the last human act in America being Alan Greenspan decreeing a rise in interest rates just before he expires. There was a good piece today in the NYT by Frances Fox Piven on the op-ed page comparing the present lunacy to welfare reform in 19th century Britain, before enough people realised the ideology was falsified by the facts of experience. Peter
