The Affluent Society

by John Kenneth Galbraith

The immediate although not the ultimate cause of depression is a fall in the aggregate demand—meaning in the purchasing power available and being used—for buying the output of the economy. Unemployment insurance means that a man’s purchasing power is partially protected when he loses his job. It falls, but no longer to zero. Thus a measure designed to reduce the insecurity associated with unemployment also acts to counteract the loss of output—the economic inefficiency—of depression. And, to the confusion of the conventional wisdom, it acts on a central cause of inefficiency, one that is far more important than isolated malingering which unemployment insurance might conceivably have encouraged. This effect, of course, is not peculiar to unemployment insurance. Farm support prices, which force compensatory public outlays when farm prices, income and purchasing power fall, have the same effect. So do public welfare payments. Old age and survivor’s insurance ensure a modest but steady flow of purchasing power from those who are no longer able to work. This flow is unaffected by an ebb in economic activity and thus acts as a stabilizing influence. In the aggregate, these measures to minimize insecurity comprise a considerable part of what economists call the “built-in stabilizers” of the economy. Thus measures thought by the conventional wisdom to be hostile to productivity all support it at the most crucial point.