“Trade-offs between inequality, productivity, and employment”

That is a new post from the excellent Interfluidity.  I read it as a version of Keynes’s chapter seventeen, where the demand to buy insurance (in various indirect forms) is the bottomless pit preventing full employment, rather than the demand to hold money.  One question I have is why the funds spent on insurance are not in some useful manner recycled.

Here is one provocative paragraph:

Why did World War II, one of the most destructive events in the history of world, engender an era of near-full employment and broad-based prosperity, both in the US where capital and infrastructure were mostly preserved, and in Europe where resources were obliterated? People have lots of explanations, and I’m sure there’s truth in many of them. But I think an underrated factor is the degree to which the war “reset” the inequalities that had developed over prior decades. Suddenly nearly everyone was poor in much of Europe. In the US, income inequality declined during the war. Military pay and the GI Bill and rationing and war bonds helped shore up the broad public’s balance sheet, reducing indebtedness and overall wealth dispersion. World War II was so large an event, organized and motivated by concerns so far from economic calculation, that squabbles between rich and poor, creditor and debtor, were put aside. The financial effect of the war, in terms of the distribution of claims in the US, was not very different from what would occur under Keen’s jubilee.

Interesting throughout, as they say.


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