Unemployment rates

[Brett Knowlton]

Brad DeLong wrote:
>Arthur Okun and company thought that the NAIRU had successfully been
>breached in the 1960s--that they could run the U.S. economy without
>structural changes at 4% unemployment and 2% inflation forever. The result
>was the 1970s--and the fall of social democracy as a governing ideology.
>
>Be very, very careful before you try to repeat their mistakes: better to
>have 4.5-5.0% unemployment than to have a few years of 3.0-4.0%
>unemployment followed by OPEC Shock III, productivity slowdown II, and the
>second coming of Ronald Reagan.

I have some fundamental questions about the unemployment rate itself.  Why
does it exist in the first place?  Is there any THEORETICAL underpinning to
the notion of a NAIRU?  Why is it that the unemployed 5% (or whatever it
is) can't be added productively to the economy?  I mean, there's no law of
physics which states than Unemployment < NAIRU = inflation, is there?

I know the standard line is that output won't go up, so unemployment rates
which are less than the NAIRU only cause inflation.  Is this simply an
empirical assertion, or is there more to it?  When you take into account
the fact that the REAL unemployment rate is 50-100% greater than the
official unemployment rate due to underreporting and the like, it is a
fairly profound statement to say that 7-10% of the population is
superfluous in terms of  output.

Secondly, you could argue that this is a good thing from a distributional
standpoint.  Why isn't it better to have everyone employed and earning a
payckeck, albeit with inflation, than to have no inflation and 5% of the
population permanently on the outs, relying on gov't assistence or some
form of charity for survival?

Is this peculiar to capitalist economies, or all economies?  Are there
other economic systems which could eliminate unemployment?  I want to know
what you all think about this.

Brett