Ending Poverty

Hyman Minsky opens with a lecture delivered in 1965 at a conference held at the University of California, Berkeley. In this lecture, Minsky argues for demand-side policies aimed at reducing poverty while also spurring economic growth as measured by the Gross National Product (GNP). Delivered one year after then-president Lyndon B. Johnson kicked off the War on Poverty in his state of the union address, Minsky's lecture is essentially an argument for creating good jobs for people (achieving tight, full employment[1]).

He concedes three barriers to using aggregate demand (job creation) as an anti-poverty measure. First, he argues that while short periods of full employment do indeed lead to inflation, sustained periods of full employment are not proven to cause continued inflation. So it is only a transitionary concern and policymakers would do well by giving the economy some time to run at full employment. Second, he argues that shifting the entire distribution of income raises GNP but it does not help households at the lower end of the income distribution. Because labor is heterogeneous and viscous rather than homogeneous and fluid[2] as standard models purport, fiscal and monetary measures should not be restricted to lowering taxes on people with incomes (supply-side, trickle-down policies). Rather, fiscal and monetary policies should redirect that same government spending (seeing as lower taxes = lower revenues) to employ the poor. It matters exactly where government spending takes place because, for instance, postwar spending on research and development worsened the lives of the poor by favoring highly trained labor. Third, Minsky concedes that pursuing his tight full employment objectives would oppose America's balance of payments objectives because the Bretton Woods system still tied the dollar to gold in order to maintain a fixed exchange rate with other Bretton Woods signatories. The government would have to spend more on imports if it's GNP was raised artificially through government spending[3].

He proceeds to provide solutions to overcome these barriers. For the first barrier, just try tight full employment and see what happens to inflation since we have not seen this before and have no evidence. For the second barrier, to make labor more homogenous and fluid, he suggests labor relocation and job training in occupations with excess demand (demand reveals itself after tight full employment is achieved). He also suggests breaking complex jobs into simpler ones. He suggests introducing a "wage support" law so that anyone willing to work at minimum wage can find a job, analogous to price supports (subsidies) in agriculture. "Local evaluation" boards would list and rank projects by priority thus attracting such wage-supported labor and private employers will likely raise their wages to compete for labor (if not, minimum wages might be necessary). For the third barrier, get rid of the gold standard, he says (which happened a few years later).

Jobs. The best way to reduce poverty is by providing people with well-paying jobs.

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[1] see here for tight vs slack full employment: https://www.economicshelp.org/blog/147987/economics/labour-market-slack/.

[2] Heterogeneity and viscosity mean that employees require a gestation period when switching jobs within an occupation and are thus not infinitely substitutable.

[3] see here for details on the Bretton Woods monetary system (1944-1971) and it's unwinding: https://www.imf.org/external/about/histend.htm.