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Austerity policies — nothing but kindergarten economics

from Lars Syll

 

I definitely recommend everyone to watch this well-argued interview with Steve Keen.

To many conservative and neoliberal politicians and economists there seems to be a spectre haunting the United States and Europe today — Keynesian ideas on governments pursuing policies raising effective demand and supporting employment. And some of the favourite arguments used among these Keynesophobics to fight it are the confidence argument and the doctrine of ‘sound finance.’

It should be first stated that, although most economists are now agreed that full employment may be achieved by government spending, this was by no means the case even in the recent past. Among the opposers of this doctrine there were (and still are) prominent so-called ‘economic experts’ closely connected with banking and industry. This suggests that there is a political background in the opposition to the full employment doctrine, even though the arguments advanced are economic. That is not to say that people who advance them do not believe in their economics, poor though this is. But obstinate ignorance is usually a manifestation of underlying political motives …

Clearly, higher output and employment benefit not only workers but entrepreneurs as well, because the latter’s profits rise. And the policy of full employment outlined above does not encroach upon profits because it does not involve any additional taxation. The entrepreneurs in the slump are longing for a boom; why do they not gladly accept the synthetic boom which the government is able to offer them? It is this difficult and fascinating question with which we intend to deal in this article …

We shall deal first with the reluctance of the ‘captains of industry’ to accept government intervention in the matter of employment. Every widening of state activity is looked upon by business with suspicion, but the creation of employment by government spending has a special aspect which makes the opposition particularly intense. Under a laissez-faire system the level of employment depends to a great extent on the so-called state of confidence. If this deteriorates, private investment declines, which results in a fall of output and employment (both directly and through the secondary effect of the fall in incomes upon consumption and investment). This gives the capitalists a powerful indirect control over government policy: everything which may shake the state of confidence must be carefully avoided because it would cause an economic crisis. But once the government learns the trick of increasing employment by its own purchases, this powerful controlling device loses its effectiveness. Hence budget deficits necessary to carry out government intervention must be regarded as perilous. The social function of the doctrine of ‘sound finance’ is to make the level of employment dependent on the state of confidence.

Michal Kalecki Political aspects of full employment  (1943)

  1. Garrett Connelly
    July 27, 2016 at 3:33 pm

    This type of thinking always employs an imaginary enlightened government to stimulate an infinite economy on a finite planet.

    Formal employment even if it destroys Earth is necessary in a capitalist system for the simple reason that nothing is left of the natural world to be utilized by free people unconnected to master plans of corporatist states.

  2. July 27, 2016 at 4:02 pm

    The state should represent the public interest but special interests or private interests seem to be in the driver’s seat with privatization, deregulation, liberalized markets, speculation, tax havens and corporate tax evasion. In “Escape from Freedom,” Erich Fromm explained that fear of the new and fear of the future can lead to authoritarianism.

    We are now still ruled by the myths of the self-healing market, the invisible hand, markets returning to equilibrium and dishwashers becoming millionaires. The alternative to these myths is the social state and the interventionist Keynesian state. Public squalor exists alongside private opulence but countermeasures and community centers (as in Vancouver B.C.) can reverse exploding inequality, precarious work, one-dimensional economics, profit worship and destruction of nature.

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