A Realistic Analysis of the Market Oriented Capitalist Economy
New Directions in Post-Keynesian Economics series
Chapter 6: Creating full employment policies
The cause of persistent unemployment in the economy is a shortage of aggregate market demand for all the products and services industry can produce at full employment. It is, therefore, obvious that government must develop policies to assure there will always be sufficient market demand to encourage entrepreneurs to believe that it will be profitable to hire all workers who want a job. This means creating additional market demand by policies that (1) produce incentives for private sector decision makers to spend more by either reducing the savings propensity of some groups in the private sector or by encouraging some decision makers to borrow to spend more, that is, by encouraging dissavings, and/or (2) provide more spending by government deficit spending on investment projects that provide useful services for the population. Monetary policy can encourage additional borrowing. An easy monetary policy that lowers the market rate of interest on various types of loans can encourage private sector spending decisions. Unfortunately, encouraging some forms of loans to induce additional private sector spending may not always produce permanent good consequences. For example, permitting households to spend more on producible goods and services by increasing significantly their credit card debt can create problems. With the recession resulting from the financial collapse of 2007–2008, many households lost jobs and incomes and therefore faced increased difficulties in paying their credit card obligations. The result was an increase in credit card defaults and ultimately even less total spending by household borrowers.
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