Liquidity and Not Increasing Returns Is the Ultimate Source of Unemployment Equilibrium

Abstract

In 1982, President Reagan suggested that the unemployment problem could be solved if only each business firm in the nation immediately hired one more employee. Since there are more firms than unemployed workers, the solution is obviously statistically accurate, but unless the employment by each firm of these additional workers creates a profitable demand for all the additional output, it will not be profitable to employ the extra workers. In a Keynesian world, the lack of effective demand means that sales of this additional output produced under this Reagan proposal cannot be profitable. Nevertheless, in a recent article, M. L. Weitzman’s analysis (1982) implies that the Reagan announcement, if somehow implemented, would assure profitable sales of the additional output.

Journal of Post Keynesian Economics, 7 (1985).