In “Political Aspects of Full Employment,” a still widely cited article from 1943, Michal Kalecki raised many questions about the ability of a capitalist economy to maintain prolonged full employment — even though in light of the understanding of tools for stimulating aggregate demand and the use of fiscal policy brought about by the Keynesian ‘revolution.’ In a series of papers, Kalecki showed that the arguments against the use of budget deficits to secure full employment were invalid. Among these arguments, and their rebuttals, were that:
> deficits add to government debt, which is a burden on future generations
(rather, the government debt is bonds owned by individuals, pension funds etc.);
> deficits crowd out investment
(rather, they allow savings to take place and enable investment); and
> deficits cause higher interest rates
(the current situation makes the rebuttal to this clear).
Yet those arguments are still trotted out.
Unemployment Rate (percentage) in Eurozone and USA
(Calculated from Eurostat data)
Every picture tells a story – and this one should tell us several.
One of the common arguments in support of austerity and cut-backs in public expenditure comes under the heading of ‘we cannot go on living beyond our means.’ This can have something of a common sense ring to it – after all for an individual there are limits to how much they can spend and an individual’s ability to borrow more and more is eventually circumscribed. But the truth is that at present, probably in all countries in the world, we are living well within our means: there is widespread unemployment and we have the means (in terms of people willing and able to work) to produce more than is currently being produced.
Malcolm Sawyer is Professor of Economics at the Leeds University Business School in the U.K., and Managing Editor of the International Review of Applied Economics. He is also a member of the New Economy Network run by The Guardian newspaper. He was recently selected by the European Commission to direct a five-year, Europe-wide research study, with 15 partner institutions, on “Financialization, Economy, Society, and Sustainable Development,” (FESSUD). Malcolm has authored 11 books including Macroeconomics in Question (1982) and edited over 25 books including 21st Century Keynesian Economics (2010).