Somewhere about one-third of the way through the twentieth century, the world abandoned an approach to business fluctuations and unemployment that had previously governed human behavior. In the world of economic ideas, the halfheartedly-believed theory that excessive wages were the root cause of unemployment was overthrown. The Keynesian Revolution led the economics profession down an unproductive, destructive path for decades. In our judgment, even today the corrosive impact of the intellectual ferment of the 1930s prevents most students of economic ideas from learning some simple but very powerful verities about the way things work. While the world has increasingly appreciated the power of markets in allocating goods and services, it has failed to grasp that the same market forces work equally well in providing jobs for those seeking them.
The Keynesian Revolution's influence, however, was not simply confined to misguiding a few academics. It provided the intellectual corner‐ stone for an alteration of the role of the state in modern society. It led to profound public-policy changes. It unleashed a world of unrelenting inflation, continuing budget deficits, and increased governmental intervention in previously private decisions involving resource allocation and income distribution. It inflamed a politics of envy and ultimately slowed the great economic engine that had propelled the American economy to becoming the mightiest in the world.
This book is about these intellectual and policy shifts as they relate to a great concern of citizens of the twentieth century, namely, unemployment. First and foremost, this book is a history of changing unemployment patterns in the United States, written from a labor-market perspective. Second, it is a critique of public-policy developments that have shaped that labor market and impacted on unemployment. It develops the thesis that the state has increased, not decreased, the magnitude of unemployment in