MARKETS AND INCOME INEQUALITY
April 29, 1999

Economists, it has been noted, are prone to disagreement. Even individually, we offer conflicting views. An exasperated American President is said to have wished for a one-handed economist – one who wouldn't start off by saying “On the one hand...”

A vivid illustration is offered by the history of macroeconomics, the subject that examines the causes of fluctuations in economic activity. It is a field that is perennially ripe for contentious debate. Classical economists, espousing the virtues of unfettered markets, constantly lock horns with the followers of John Maynard Keynes who argue that actively-managed government policy is essential for stable economic performance.

Thampy Mammen was an unapologetic Keynesian. He learned his craft in the 50's and 60's at the feet of celebrated Keynesian acolytes such as the Nobel-winning Lawrence Klein. This was the golden age of Keynes, as governments around the world embraced activist policies (spending and tax policies, principally) to manage economic performance.

Keynes fell into disrepute in the 70's. Unable to deal coherently with stagflation (the pernicious combination of high inflation and high unemployment), Keynesianism went into decline. The resulting intellectual void in macroeconomics was filled by variants of the old classical theories that trumpeted the virtues of free markets and generally frowned upon government intervention in the economy.

More recently in the 90's, during the Clinton presidency, Keynes has staged a recovery of sorts. The free-wheeling 80's, it appears, left a great deal to be desired, particularly in regard to income distribution. Activist government policy, albeit on a more subdued scale than in its heyday of the 50's and 60's, became fashionable once again.

During all this, Thampy stuck to his Keynesian guns, staunch in the belief that the advantages of a laissez-faire economy, considerable though they were, were likely to be overshadowed by exacerbated inequality in society.

Income inequality is not a subject that excites most economists. We are concerned more about the efficient use of resources in the economy – the right number of workers should be employed in the computer industry, the right amount of land should be devoted to the production of corn, etc. Of lesser concern is how this pursuit of efficiency affects the distribution of income in society – the effect of untramelled international trade on the least well-off, for example.

The profession has recently woken up to the fact that economists should pay more attention to such issues. This year's Nobel Prize in economics went to Amartya Sen, a professor in economics and philosophy who did pioneering work in the field of poverty and government measures to deal with it.

Thampy's long-standing concern about income disparity in society propelled his macroeconomic thinking. He regarded unemployment as the bane of modern society. Periods of high unemployment, he argued, were unkindest to the impoverished; full employment, therefore, should be the government's goal.

With the U.S. economy operating at full employment for a number of years, the goal no longer is deemed unattainable. But the debate about the efficacy of government intervention continues.

Thampy Mammen, Professor of Economics at St. Norbert College and ardent Keynesian, died on April 29, 1999.