This final chapter will briefly review the arguments presented in earlier chapters. The purpose is to draw in all of the loose ends and complete a picture of what the United States can do to reduce the unemployment rate that is compatible with stable inflation.
Chapter 1 outlined some of the costs associated with unemployment. It noted that, in monetary terms, an unemployment rate of 7 percent costs the United States at least $400 billion in lost output. This lost output does not begin to add up the total cost of unemployment. In terms of social and human costs, unemployment has been linked to alcoholism, child abuse, family breakdown, vandalism and criminal behavior, psychiatric hospitalizations, suicide, homicide, and other problems.
Unemployment is not an insignificant problem in the United States. Currently, the United States is unable to drop its unemployment rate much below the 6 percent for any length of time before inflation begins to accelerate. In other words, the United States' nonaccelerating inflation rate of unemployment or the rate of unemployment that is consistent with stable inflation is currently about 6 percent. At present, the U.S. economy must keep more than 7 million people unemployed just to keep inflation from accelerating.
If unemployment is so expensive, why not allow inflation to rise and do whatever is necessary to force the unemployment rate down? The reason is that continuously accelerating inflation would result. Continuously accelerating inflation would damage the economy so severely that it might eventually collapse. Even if it did not collapse, our experience with unemployment and inflation in the 1970s has taught us that, except in