Paul Krugman notes that business leaders in the 1940s “feared a relapse into depression, and wanted assurances that the government would spend enough to prevent that from happening” and goes on to wonder where the pro-stimulus figures are today.
He glosses some explanations, but I think he neglects the most important one—we’re not in a recession right now. Faced with an imminent risk of declining output, I think you find that business leaders do overcome their ideological qualms about active demand management and endorse it. But what we’re dealing with right now is growth that just doesn’t happen to be sufficiently rapid to cause a fast convergence to full employment. That, it seems to me, is a situation that suits business executives just fine. Slack labor markets discourage quitting and reduce the pressure to increase wages. My recollection of the really tight labor market of 1999 was that the fast food restaurants in my neighborhood basically had permanent help wanted signs in the window. Firms with healthy margins could raise wages to hang on to the workers they wanted, but low-margin places had to resign themselves to constantly losing their employees. They were able to stay in business by operating as kind of de facto job training facilities for people who’d be considered unemployable under normal circumstances. The employment-population ratio reached a level we’ve never seen before or after and working class cash wages went up in a way they hadn’t in fifteen years and haven’t since. Those dot-com years were the best of times, but from the standpoint of the owner of a Wendy’s franchise they were also the worst of times. Michal Kalecki’s “Political Aspects of Full Employment” is the classic on this but we don’t really need to make it too complicated—businessmen don’t like slumps, but they’re happy when people are afraid to quit their jobs.
