Keynesian Robert Schiller’s Latest Proposal

Schiller says that we don’t sufficiently recognize the cost of high unemployment. This will come as news to most people.

He would like to see more stimulus spending, but recognizes that economists have not been able to prove this works. He doesn’t of course recognize the possibility that there is no proof it works because, in fact, it does not work.

If we can’t do more stimulus bills, Schiller likes the idea of raising taxes and using the proceeds to subsidize low income jobs. Specifically the government would pay $4.50 of each low income worker’s wage. This would supposedly increase employment.

In other words, we will raise taxes on employers (who pay most of the income tax), thereby leaving them with less to spend on hiring, and this will reduce unemployment.

What all these proposals from leading Keynesians such as Schiller ignore is that full employment depends on a price system that is allowed to do its work. Government has already price controlled interest rates, mortgage rates, currency rates, and many other key prices. Subsidizing wage rates, another key price, will just make it worse. The more government keeps intervening and interfering with prices, the more unemployment there will be. It is like pouring sand into a car’s fuel tank and wondering why it is stalling.

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Hunter Lewis 11-27-2011