Out of Work: Unemployment and Government in Twentieth-Century America. - book reviews

Business Horizons, Jan-Feb, 1994 by Alfred Diamant

The reviewer, Alfred Diamant, is a professor of political science and West European Studies at Indiana University, Bloomington.

This is a very technical book that has been assigned to a most non-technical reviewer. Yet it is also a fiercely partisan book not necessarily in a party-political sense, but in a policy-political sense. Of course, it could not be any other way, for public policies in the U.S., as in all other democracies, are necessarily contested between political parties, among adherents of the same party, and among people adhering to no particular political party. Thus government policies regarding employment and unemployment cannot be anything but "politicized," as the term is used in a clearly derogatory manner by the Independent Institute, located in Oakland, California, which has sponsored this study.

The Institute holds the copyright to this volume; its two authors, professors of economics at Ohio University, are identified as research fellows at the Institute; and the roster of its board of advisors is a star-studded list of the American Right. The volume under review stakes out a position regarding government policy; thus it is necessarily an element in the political decision-making process. That it uses the highly technical means of economic modeling does not in any way place it above and beyond politics. If this is clearly understood, one can then proceed to a critical examination of this study.

The authors' central concern in this work is clear: to examine "the role the state has to play in determining the level of unemployment in a free society" (p. 288). Their central findings are that non-market--i.e., state--intervention in the employment relationship has invariably led to unemployment. The 12 central chapters of the book are devoted to an examination, in chronological order, of the U.S. history of unemployment. Its "natural rate... can be traced to a wide variety of public policies that have impacted on the labor market behavior in the United States" (p. 293).

This single-minded focus on one variable leads the reader to ask whether the conclusions at which the authors arrived were not well fixed in their minds from the outset. The answer to this question is found in the two opening chapters of the book, especially in Chapter 2, "The Neo-Classical/Austrian Approach," and in the appendix, which spells out the basic estimating equation from which their model is derived (pp. 298-307). For the adherents of the Austrian School, the "adjusted real wage" (ARW) is the product of market-determined transactions between workers and employers, and any state action or regulation will only distort the ARW and thus create unemployment. Given this foundation, the history of employment/unemployment in the U.S. is seen as a nearly endless calamity, resuiting from state intervention in the operations of the labor market.

If a society's highest goal is (or should be) a labor market that operates by the principles of the ARW, then all public policy action will only serve to distort that market. The question readers are entitled to ask is: Are not a host of variables--technical, cultural, historical--at work, both nationally and internationally, that have profoundly affected labor markets in the U.S. at any point in time since its rounding?

Surely those who share the authors' premises will welcome this book. Those who are at least doubtful about them will come away shaking their heads about a study whose authors obviously discovered what they already knew to have been the principal explanation for all the ills of the U.S. economy and society. They seem to be quite pessimistic about any positive impact their work might have by closing with George Santayana's dictum about those who cannot remember the past being condemned to repeat it. That strikes this reviewer as a rather downbeat ending for a work that so obviously engaged its authors' most profound ideas and convictions.

Richard K. Vedder and Lowell E. Galloway, Out of Work: Unemployment and Government in Twentieth-Century America. New York and London: Holmes & Meier, 1993. 336pp.