September 2003, Vol. 126, No. 9
Book reviews from past issues
The Benefit of Full Employment: When Markets Work for People. By Jared Bernstein and Dean Baker. Washington, DC, Economic Policy Institute, 2003. 112 pp. $11.95/paperback.
The Benefit of Full Employment: When Markets Work for People is an economic study of the relation between the inflation rate and the unemployment rate in the United States from 1950 to 2000. In a very simple and descriptive form, the book opens the debate about government policies to control inflation and stimulate employment. It presents a variety of quantitative facts to support a full-employment economy.
These two economists intend to prove not only how a full-employment situation is economically useful, but also how those results translate in social benefits and improve the quality of life of the whole Nation. The introduction discusses the economic growth period with low unemployment and low inflation in the 1990s and its implications for the Non Accelerating Inflation Rate of Unemployment (NAIRU) doctrine. The authors argue for a reformulation of economic goals and policies that will avoid periods of "stagnant wages growth, growing inequalities, and a stubbornly high poverty rate."
The book is divided into five chapters with graphs and charts that are useful to understand—and visualize more easily—changes in the economy in the last 50 years. The first chapter, "What is full employment," defines what is full employment. It presents how economic indicators like unemployment rate, unemployment rate by ethnic background, and unemployment rate by educational background, have been affected across history. It also established that minority groups benefited most from reaching full employment levels.
In the second chapter, "How NAIRU became the enemy of full employment," the development of the NAIRU is explained and evaluated with empirical evidence. The NAIRU policy developed during the late 1960s and early 1970s. Since that time, it has been used by monetary policymakers in the United States and other countries. It states that a controlled inflation rate is needed to have an unemployment rate no lower or higher than a determined level. The authors’ emphasis that recognized economists like Milton Friedman and Edmund Phelps defend the NAIRU’s postulates, argued that most of the people who were unemployed remained so voluntarily.
Even though the study always refers to the decade of the 1990s as the most significant failure of NAIRU, it also cites empiric evidence that supports NAIRU. This chapter describes the situation of the economy by decades from the 1950s to 2000. For example, during the 1960s, the economy was experiencing a period of low unemployment and rising inflation. Instead of attributing the rising inflation to the low unemployment rate, Bernstein and Baker focused on a variety of other elements. Some events that the authors mentioned include the income tax increase for new government expenditures in social programs, such as Medicare and Medicaid, and the Vietnam War. Additional factors include the increase in payroll taxes and the miscalculation of the consumer price index, both of which alter future economic expectation.
In the third chapter, "The benefits of full employment," the authors address the philosophical contradiction regarding the economic and social importance of work to achieve happiness and the deliberated government policy to deny employment to a certain percentage of the work force by raising the interest rate to keep the inflation rate constant. After approaching NAIRU’s contradictions, the study presents evidence relevant to the advantage of a full-employment economy. Some of the factors mentioned were the quantity and quality of available jobs, increases in low-wage job supply, reduction in the economic disparity, and lowering crime rates.
In the fourth chapter, "A closer look at full employment and low-wage trends in the 1990s," the economists compare the unemployment rate and economic scenario of the 1960s with that of the 1990s. Socioeconomic variables such as labor supply and demand, workers’ skills, and productivity growth were used to examine the economic trend of the 1990s. Regarding labor supply and demand, it is stressed that the demand for low-wage labor is inelastic to wage changes and that a quick surge in labor demand created a significant difference during the 1990s labor market. The study references, "among economists and policy makers for long term stagnation in real wage of low wage workers was their lack of skills." This contradicted the behavior of less-skilled workers during the 1990s, and the workers benefited most in getting jobs. Also, this chapter presents a quantitative analysis of the unemployment impact on the growth of low wages.
The concluding chapter, "Getting back to full employment," analyzes the particular characteristics of the last half of the 1990s decade and the actual economic situation. Characteristics of this era were low interest rates by the Federal Reserve, the stock market bubble that "fueled demand through a strong wealth effect," and the dollar bubble, which kept prices down. These characteristics were mentioned as key factors for reaching high employment levels without rising inflation during 1995–2000. As a final reaffirmation of their support of an economic policy that attends to achieve full employment, Bernstein and Baker insist that this is the best form to "tap the tremendous power of a free market economy" and "to ensure that the gains are fairly shared by all who helped produce them."
—Christian E. Malagón
formerly with the
Bureau of Labor Statistics
Coal: A Human History. By Barbara Freese. Cambridge, MA, Perseus Books, 2003. 308 pp. $25.00/hardback.
Coal produces 54 percent of electricity in the United States, a greater percentage than oil, nuclear power, and natural gas combined. Although we mine more coal than ever, for most Americans coal has become invisible. So argues Barbara Freese in her splendid book, Coal: A Human History. Freese, an environmental lawyer, writes with urgency about coal’s harmful ecological effects, but this is much more than a polemic. Freese also describes in fascinating detail how coal has modernized nations and created vast amounts of wealth, giving us the steam engine, the railway, and a cheap supply of iron that fueled the Industrial Revolution.
Freese begins her story in Great Britain, the first nation to be thoroughly transformed by coal; then travels to America, where coal created an industrial superpower with surprising speed; and ends in China, a nation on the cusp of modernization and currently the largest consumer and producer of coal. The benefits of coal everywhere came at the cost of environmental damage. In the mid-17th century, London’s coal-polluted air was found to cause premature death. Coal gave Manchester its sooty ambiance, which in turn provided the motivational setting for Frederick Engels’ The Condition of the Working Class in England. The British novelist Anthony Trollope, himself accustomed to London’s foul air, called Pittsburgh America’s first coal city, the blackest place he had ever seen. And China, which relies on coal for 70 percent of its energy, has 5 of the world’s 10 most polluted cities.
In the United States, 90 percent of the coal is used to produce electricity. Freese assiduously documents coal’s contributions to acid rain and global warming. She blames coal for a vista-destroying haze that perpetually covers the eastern two-thirds of the United States, and estimates that emissions from coal-fired power plants kill almost 30,000 Americans annually—more than AIDS or homicides—which she calls a public threat of the first order. In China, Freese estimates more than 1 million deaths occur annually from coal-generated air pollution.
Given our current knowledge of coal’s deleterious effects, a coal-based energy policy is morally unacceptable, tantamount to watching two trains about to collide. Freese disparages carbon sequestration, a technique favored by industry to fully capture emissions and dispose of them underground, as a wistful extension of a technology rooted in the past. Rather, Freese exhorts switching to hydrogen as an environmentally safe and plentiful substitute for coal. This will spawn a technological revolution, she reasons. Future generations will thank us for preventing further environmental damage, and wonder why we persevered so long with such a primitive fuel.
Although hydrogen is the most abundant element in the universe—Jules Verne called it the coal of the future—it does not exist in pure form. Energy must be expended to extract hydrogen from existing compounds such as water, where it bonds with oxygen. Freese advocates using wind and solar power to extract hydrogen, but the current reality is that most hydrogen is produced from carbon-based fuels. What specific steps can be implemented to ensure that hydrogen is produced with renewables?
As Freese herself admits, the coal industry is firmly entrenched in our current energy grid, a grip that will tighten if the 90 new coal-fired power plants currently on the drawing board are built. Does Freese assume her book is sufficient to rattle complacency and force action? Perhaps. But absent an ecological disaster and/or a sharp increase in the price of coal, and without a specific plan for action, I fail to see how a full-scale transition to hydrogen can occur. Furthermore, is it realistic to expect either the United States or China, each with ample supplies of coal, to embark on a full-scale transition to hydrogen without a similar commitment from the other?
The strength of Coal is its brevity. The scope is wide, and Freese covers a lot of ground in only 248 pages of text. Her breezy and entertaining style is peppered with illuminating anecdotes. Freese continuously stokes the interest of the general reader, and yet Coal can also be read for profit by the specialist. The bibliography is ample, although an appendix listing ownership of the world’s coal would have been helpful. Finally, given the book’s subtitle, I expected more attention to labor conditions; instead, the focus is sporadic with emphasis on labor relations in the United States.
These criticisms are minor and should not detract from the importance of this book. Freese has succeeded admirably in her effort to make coal visible. She has written a thoughtful book that will form the centerpiece in our energy debate. It deserves a wide audience.
Professor of Economics,
University of Wisconsin–Stout
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