Buffer Stock Employment: “Ever-normal Granary of Labor Force” and the Kalecki Dilemma

Economic depressions mean general “unemployment”: dashed expectations (or the collapse of the marginal efficiency of capital) would bring monetary “unemployment” (investment preferences shifting towards liquidity preference), leading to a widespread “unemployment” state where people are out of work and goods are left unused. In this situation, the government acts as “the Employer of Last Resort” that does not pursue commercial profits but is committed to maintaining the long-term marginal efficiency of capital. This allows for the re-employment of the “unemployed” people, capital, and goods in the market. The question then arises: who enjoys the priority for “employment”? If macroeconomic policies focus more on top-down management of total demand, emphasizing investment, growth, and closing output gaps (i.e., focusing on employment of “goods”), then it is difficult to achieve full employment due to structural constraints within the economy and society. This can prevent the macro-economy from achieving sustainable endogenous stability. Following Keynes’ idea that public works are programs for “permanent on-the-spot job creation”, post-Keynesian economists suggest a bottom-up approach which prioritizes the employment of workers, and further developing the “Buffer Stock Employment” (BSE) model: the government creates public employment opportunities for “buffer stock” which absorbs or releases workers in a counter-economic-cyclical manner, forming a complementary and interactive coordination mechanism with the market. This plays the role of an economic stabilizer. The model of “buffer stock employment” is the theoretical extension of the ideas and policies of “labor relief” in ancient China and in Franklin D. Roosevelt’s New Deal. Post-Keynesian economists’ unique interpretation of fiscal functions provides theoretical support for the government to expand spending to create buffer stock employment, thus unlocking the “deadlock” of fiscal deficit constraints. However, from the perspective of Marxian political economy, the theory of “buffer stock employment” overlooks the variable of social institution, revealing the discontinuity in the “Kalecki’s dilemma” that capitalist systems and full employment are incompatible. If the focus is on “capital” rather than “people”, the “knack” of this model may be difficult to be implemented and transformed into a long-term sustainable mechanism.