Arthur Okun
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Arthur Melvin Okun (1929-1980) was an American economist, representative of post-keynesism. He was born in Jersey City, New Jersey. Little is known about his childhood and growing up. He studied and received his doctorate at Colombia University. Since 1952, he lectured at Yale University, where, in 1963 he received the title of Professor of Economics.
Starting from 1961 he was a member of the Committee of Economic Advisers to US President John Kennedy, later also for the President Lyndon Johnson. In 1968 he became Chairman of this Committee. In later years Arthur Okun was an employee of Brooking Institution, one of the oldest American academic and research institutions, specializing in social sciences: sociology, economics, globalisation, political (including foreign) government.
Basic views and achievements
Okun is the author of the concept of "potential GDP", meaning production that can be achieved in a given period by the full utilization of material and human resources. This concept became one of the guiding principles of economic policy in the United States.
Basing on studies of the US economy, Okun formulated the law named later as Okun's law. Under this law, for each 1% increase in the actual unemployment, gap in GNP will increase by an amount of 2.5%.
Okun also studied the costs associated with a reduction in inflation. His research showed that, in order to reduce the cost of inflation of 1% for a year, unemployment should be maintained at the level of about 2% higher than the natural rate of unemployment.
Okun's achievements also includes an explanation of the phenomena occurring in developed economies, saying that product and production factors markets adjust to changes in demand and supply through quantitative changes, and not, as was believed by price changes. It follows that unemployment leads to lower nominal wages, and the increase in generating capacity to lower prices.
Okun is the author of the saying something for something (big tradeoff of equality and efficiency) referring to the conflict between efficiency and equity. This states that, among others, redistributive measures to ensure equalization of income (e.g. progressive tax), lead to lower levels of well-being.
Major works
- Potential GNP: Its Measurement and Significance - 1962
- Equality and Efficiency, The Big Trade-off - 1975
- Efficient Disinflationary Policies - 1978
- Prices and Quantities: a Macroeconomic Analysis - 1981
Examples of Arthur Okun
- Okun was a key figure in the development of the Phillips curve, a tool used to measure the relationship between inflation and unemployment. He also developed the Okun’s Law, which describes how a 1% change in gross domestic product (GDP) leads to a 2% change in unemployment. This has been used to help guide economic policies.
- Okun was a member of the Council of Economic Advisors for President John F. Kennedy, and later for President Lyndon B. Johnson. He advised both Presidents on economic policies, including the implementation of the Economic Opportunity Act of 1964 and the Tax Reduction Act of 1964.
- Okun also wrote several books on economic theory, including Equality and Efficiency: The Big Tradeoff (1975) and Prices and Quantities: A Macroeconomic Analysis (1971). His work on macroeconomics has been used to help shape economic policy in the United States and around the world.
Advantages of Arthur Okun
- Arthur Okun was an influential economist, representing post-Keynesism, who received his doctorate at Columbia University and lectured at Yale University.
- He was a prolific writer, with his most famous work being ‘Equality and Efficiency: The Big Tradeoff’, which was published in 1975.
- His work focused on income distribution, poverty, and economic equality, and he was the first to propose the concept of the ‘misery index’.
- He was a major contributor to the formulation of the Employment Act of 1964 and the Economic Opportunity Act of 1964.
- He was a member of the Council of Economic Advisers, advising Presidents Kennedy and Johnson.
- He was a strong advocate for government intervention in the economy, believing that government action can improve economic efficiency and equity.
Limitations of Arthur Okun
Arthur Okun had several limitations in his work. These included:
- His lack of formal economic training: Okun did not have formal training in economics, which limited his ability to draw on the latest economic theory and research in his work.
- His lack of access to research: Okun conducted most of his research without access to the vast amounts of data and research that is available today.
- His focus on the macroeconomic level: Okun was mainly interested in macroeconomic issues, such as unemployment and inflation, and not microeconomic issues, such as consumer behaviour or production decisions.
- His focus on the US economy: Okun was mainly interested in the US economy, although he did make some comments on the global economy.
- His lack of focus on emerging economies: Okun did not focus on the emerging economies of the world, such as China and India, which are now major players in the global economy.
- His lack of focus on technology: Okun did not focus on technology and its implications for the economy, which is now a major issue in economics.
Arthur Okun is closely associated with a variety of economic approaches, including the following:
- The Equity-Efficiency Tradeoff: This concept, first proposed by Okun in his book Equality and Efficiency: The Big Tradeoff (1975), states that a balance must be struck between economic efficiency and equity, as increased equity can lead to decreased efficiency and vice versa.
- The Okun's Law: This empirical relationship was first proposed by Okun in 1962 and states that a 1% increase in GDP is associated with a 2% decrease in the unemployment rate.
- Taxation: Okun was a proponent of the progressive taxation system, believing that it was the most effective way to reduce inequality.
Overall, Arthur Okun was closely associated with a variety of approaches, including the equity-efficiency tradeoff, Okun's law, and progressive taxation. He is remembered primarily for his work on the equity-efficiency tradeoff, as well as his pioneering work on macroeconomics, which is still influential today.
References
- Okun, A. M. (1971). The mirage of steady inflation. Brookings Papers on Economic Activity, 1971(2), 485-498.
- Okun, A. M. (1970). The political economy of prosperity. Brookings Inst Pr.
- Okun, A. M., Fellner, W., & Wachter, M. (1975). Inflation: its mechanics and welfare costs. Brookings Papers on Economic Activity, 1975(2), 351-401.
- Okun, A. M. (2015). Equality and efficiency: The big tradeoff. Brookings Institution Press.
- Arthur Melvin Okun @ Wikipedia.
