In Low Orbit

The classical theory "is best regarded as a theory of distribution in conditions of full employment", Keynes said. "If the classical theory is only applicable to the case of full employment, it is fallacious to apply it to the problems of involuntary unemployment".

... Sorry. What?


They used to say, I see they still do, that an atom has one or more electrons orbiting the nucleus. Like moons orbiting a planet. But electrons sometimes jump to a higher or lower orbit. The "orbit" level for the electron is like the equilibrium level for the economy. That's the level where the electron (or the economy) wants to stay. But sometimes something happens to push the electron (or the economy) far enough away from its "happy place" that it doesn't go back. Instead, it finds a new level where it wants to stay.

When an electron changes its orbit level, they say, it absorbs or radiates energy. I say that when an economy changes its equilibrium level, it absorbs or radiates jobs.

When an electron jumps to a lower level it gives off energy. When an economy jumps to a lower level it gives off jobs. When it gives off jobs, there is less employment. When an economy jumps to a higher level it absorbs jobs, and there is more employment.

People have said the economy has a "new normal". They mean it has jumped to a lower orbit and given off jobs. This change created more "involuntary unemployment". The top "orbit" level for the economy, according to Keynes, is the "full employment" level. The lower orbits produce various levels of involuntary unemployment.

The classical theory only applies in high orbit, Keynes said.