A Realistic Analysis of the Market Oriented Capitalist Economy
Perhaps the three central questions of macroeconomics are: What drives fluctuations in employment and output? What is the relationship between the short run of business cycles and the long run of growth? And what policy tools are needed to overcome the instabilities to which capitalist economies are subject? The behaviour of the U.S. economy in the decade since 2008 is informative for all three questions. The U.S. experience suggests that, first, consistent with Keynesian theory, short-run variation in employment and output is dominated by aggregate demand and not by technological or other ‘structural’ factors. Second, less comfortably for heterodox as well as mainstream macroeconomists, the distinction between a demand-determined ‘short run’ and fundamentals-determined ‘long run’ appears less viable. Third, the pre-2008 consensus that setting the central bank-controlled overnight interest rate to the appropriate level is sufficient to keep output and employment near their desired levels has become harder to defend. Going forward, macroeconomic policy is likely to rely on a broader toolkit and a more eclectic theoretical framework.
Brian K. MacLean, Hassan Bougrine and Louis-Philippe Rochon
With an emphasis on developments during and after the Great Recession, and paying due attention to the impacts of austerity policies, the chapters assembled here explain that the maintenance of a suitably high growth of aggregate demand is as essential as ever to achieving full employment and rising living standards. Written by distinguished Keynesian and Post-Keynesian economists from diverse national backgrounds, the chapters tackle theoretical and empirical issues in an effort to illuminate the economic experiences of both large areas of the world and specific economies.
The starting point of this chapter is an analysis of the original 19th-century classical dualistic structure of emerging industrial economies associated with a decoupling between real wage and productivity growth. This is followed by a description of how this gap disappeared during the Golden Age period of les Trente glorieuses and then re-emerged after the 1970s. This is done with the purpose of providing a framework for discussing some of the literature on guaranteed income programmes as promoted by both mainstream and heterodox economists. As is well known, proposals in favour of guaranteed income have become fashionable in recent times to address this growing income polarisation that has become endemic in mature industrial economies, and this chapter offers a critique of these proposals from a Polanyian perspective. While supporting the principle of a universal basic income as a means to establish a social subsistence floor, it is argued that a guaranteed income policy without also a societal commitment to full employment may trigger mechanisms that could actually strengthen labour market decoupling.
This chapter examines the case for wage-led growth from the point of view of Micha_ Kalecki’s theory of wages. The chapter extends Kalecki’s formal consideration of wage increases to that of an open economy. The chapter argues that wage-led growth is a revival of earlier pre-Keynesian under-consumption theories that consider wages solely as income, rather than as a cost of production in capitalism.
The construction of the Economic and Monetary Union and its fiscal policy agenda have not been conducive for the attainment of full employment, ‘Fiscal discipline’ has been a major pillar of the structure of EMU since before its formation through the role of budget deficits and debt ratios in the convergence criteria of the Maastricht Treaty, then in the Stability and Growth Pact (SGP), and reinforced by the fiscal compact. As such, the objectives of the fiscal policies of the euro area appear only concerned with budget deficits and debt and not with economic performance including high levels of employment. Many of the countries of the euro area have been plagued by unemployment for a long time, and the favoured ‘structural reforms’ of labour markets to address high levels of unemployment have not worked. The SGP and fiscal compact seek to enforce a ‘one size fits all’ policy arrangement across all countries. These policy arrangements make no allowance for the differing needs across countries for public expenditure and investment. The central assumption of the fiscal compact relates to the feasibility of a balanced structural budget, despite the historical record that such a position is rarely achieved. Seeking to impose such a requirement on all countries without regard to their current account and savings/investment positions ensures that there will be a climate of austerity. The ‘excessive deficit procedures’ put further austerity measures in place. The fiscal compact seeks to prevent political parties campaigning on a fiscal expansion as such a policy would break the terms of the compact.
Since the debt crisis in the early 1980s, and the collapse of the state-led industrialization strategy, Latin American economies have been subjected to several adjustment programmes, frequently imposed by the International Monetary Fund (IMF). The economic slowdown and the higher levels of unemployment in this period were only subdued during the short period of the commodity boom between 2003 and the beginning of the Global Financial Crisis in 2008. While there was a short-lived Keynesian moment after the crisis, the return of the balance of payments constraint, and policy choices related to the ascendancy of conventional views on fiscal policy, favouring adjustment and balanced budgets, reasserted their dominance. The growth and employment outlook for the region in the near future looks grim.
Hassan Bougrine and Louis-Philippe Rochon
While the notion of austerity has recently become the subject of intense debate among academics and in policy circles in the industrialized countries, it is rarely if ever discussed in the so-called developing countries where policymakers faithfully implement its dogmatic principles; often with the tacit support of the intelligentsia and under the overt pressure of international financial institutions which make their lending explicitly conditional on the implementation of strict austerity measures; as exemplified in the 1990s by the Washington Consensus. In this chapter, we argue that austerity policies are inspired by the colonial rule and, therefore, have a long history in the developing world. By focusing on the post-independence era, particularly since the 1970s, the study shows that austerity measures have been designed and implemented with the clear aim of aborting any developmental strategy, and that the results have been as expected in most countries – economic stagnation, precarious employment, and a rise in poverty. Interestingly, the notable few exceptions happened in countries where official policymaking relied on the government as a major player stimulating growth and generating prosperity through massive public spending in a clear breakaway from the free-market ideology.
A national unemployment rate of 6.3 per cent in 2017 or 5.8 per cent in 2018 is only ‘low’ compared to what Canadians have got used to. Between 1946 and 1975, Canada’s unemployment rate averaged 4.7 per cent and since then the labour force has become much better educated and considerably older, which should have reduced the unemployment rate significantly. This chapter asks what ‘full employment’ would look like in Canada in the early 21st century, how we might we get there and why we might want to. It begins by discussing why ‘full employment’ became a policy priority of government in Canada after 1946, but then disappeared after 1980 – collateral damage in Canada’s successful war on inflation. It then addresses the political economy context created by the 30-year stagnation of earnings produced by that policy decision. Recent econometric evidence on the possibility that lower unemployment might cause inflation is discussed. The long-term costs of inadequate labour demand and the available macroeconomic policy tools that could produce full employment are then surveyed. The chapter concludes that full employment can and should be reinstated as a major policy objective of Canadian governments.