2011-03-19

Beyond Austerity – The Nation




The Nation is the oldest continuously published weekly magazine in the United States.
Beyond Austerity – The Nation
William Mitchell


When President Obama announced in December 2009 that “We don’t have enough public dollars to fill the hole of private dollars that was created as a consequence of the crisis,” the leader of the largest economy in the world told us that, despite having caused the worst economic crisis in eighty years, neoliberalism was still firmly in charge. ... Despite millions remaining jobless and poverty rates rising, governments have claimed that there is no alternative but to impose austerity by cutting budget deficits. In the United States and among most parties in Europe—whether in government or opposition—the unquestioned dominance of neoliberal ideology has reduced economic debate to questions of nuance. So conservatives eschew tax increases and want larger spending cuts, whereas progressives favor a combination of spending cuts and tax increases. This homogenization of the political debate has not only stifled progressive voices; it is also obscuring the only credible route to recovery.

What began as a problem of unsustainable private debt growth, driven by an out-of-control financial sector aided and abetted by government deregulation, has mysteriously morphed into an alleged sovereign debt crisis. ...
(...)
Austerity will worsen the crisis, because it is built on a lie. Public deficits do not cause inflation, nor do they impose crippling debt burdens on our children and grandchildren. Deficits do not cause interest rates to rise, choking private spending. Governments cannot run out of money. ...
(...)
Further, despite what they might say in public and what they demand of governments, bankers’ private actions show they know better—why else would long-term bond yields remain at historic lows? Yet the public conversation is mired in misinformation, paralyzing policy-makers, while the public interest is being sacrificed and a lost generation of unemployed is emerging.
(...)
But isn’t there a sovereign debt crisis in Europe? True, the nations that signed up for the euro did surrender their individual economic sovereignty
(...)
But that problem lies in the flawed design of the euro monetary system, which was a neoliberal ploy to limit the capacity of these governments to borrow and spend. ...
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How Did We Get Here?
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The Hooverian orthodoxy of balanced budgets, tried during the 1930s, failed. Full employment came only with the onset of World War II, as governments used deficit spending to prosecute the war effort. The challenge was how to maintain this full employment during peacetime.

Western governments realized that with deficit spending supplementing private demand, they could ensure that all workers who wanted to work could find jobs. All political persuasions accepted this commitment to full employment as the collective responsibility of society. As a result, very low levels of unemployment in most Western nations persisted until the mid-1970s. While private employment growth was relatively strong during this period, governments maintained a buffer of jobs for the least-skilled workers. These jobs were found in the major utilities, the railways, local public services and major infrastructure functions of government. By absorbing workers who lost jobs when private investment declined, governments acted as an economic safety valve. In addition, welfare systems provided income support and other public services (such as health and education) to citizens in need. While there were significant differences across nations in the scope of these systems, they all shared the view that the state had a role to play in providing economic security to citizens.
(...)
Rather than a failure of the system to create enough jobs, an idea that underpinned the New Deal consensus, mass unemployment was now depicted as an individual problem—poor work attitudes leading to a lack of job-seeking—exacerbated by excessively generous welfare payments. Policy-makers also adopted the neoliberal theory of unemployment, which claimed that Keynesian-style spending could no longer deliver lower unemployment without causing inflation. ...

These same ideas had driven the failed policies that led to the Great Depression. But history is easily forgotten, and with support from business and a co-opted media, a paradigm shift in the academy permeated policy circles. As the neoliberal train gathered pace, the debate became focused on so-called “microeconomic reforms”:
...
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The assault on regulation and the attack on workers’ rights brought about a growing gap between labor productivity and real wage growth. The result has been a dramatic redistribution of national income toward capital in most countries. For example, in the G7 countries between 1982 and 2005 there was a
6 percent drop in the share of national income paid as wages (as opposed to interest or dividends). This was a global trend.

In the past, real wages grew in line with productivity, ensuring that firms could realize their expected profits via sales. With real wages lagging well behind productivity growth, a new way had to be found to keep workers consuming. The trick was found in the rise of “financial engineering,” which pushed ever increasing debt onto the household sector.
(...)
The increasing share of real output (income) pocketed by capital became the gambling chips for a rapidly expanding and deregulated financial sector.

The Myth of Austerity
(...)
Most people are unaware that a major historical event occurred in 1971 when President Nixon abandoned what had been called the gold standard (or US-dollar standard). Under that monetary system, which had endured for eighty-odd years (with breaks for war), currencies were convertible into gold, exchange rates were fixed and governments could expand their spending only by increasing taxes or borrowing from the private sector. After 1971 governments issued their own currencies, which were not convertible into anything of value and were floated and traded freely in foreign currency markets. Most nations have operated “fiat monetary systems” ever since, and as a result national governments no longer have to “fund” their spending. The level of liquidity in the system is not limited by gold stocks, or anything else.

Why, then, do governments borrow? Under the gold standard governments had to borrow to spend more than their tax revenue. But since 1971 that necessity has lapsed. Now governments issue debt to match their deficits only as a result of pressure placed on them by neoliberals to restrict their spending. Conservatives know that rising public debt can be politically manipulated and demonized, and they do this to put a brake on government spending. But there is no operational necessity to issue debt in a fiat monetary system. Interestingly, conservatives are schizoid on the question of public debt: public borrowing provides corporate welfare in the form of risk-free income flows to the rich because it allows them to safely park funds in bonds during uncertain times and provides a risk-free benchmark on which to price other, riskier financial products. The fact that bond yields have remained low throughout the latest economic crisis (reflecting strong demand for public debt) tells you that the parasitic bond markets do not buy the neoliberal rhetoric. They know that national governments (outside the Eurozone) have no solvency risk.
(...)

Deficits will drive up interest rates! That’s funny, since deficits have risen sharply in recent years but interest rates have remained close to zero. Japan has been running large deficits since its property market collapsed in the early 1990s and has maintained zero interest rates and low inflation ever since. The neoliberal lie forgets to mention that the central bank sets interest rates, not the market. What neoliberals don’t tell you is that when government deficits stimulate growth, savings also grow as a result of higher incomes. So the claim that private and public borrowers compete for a finite pool of savings is a lie. Far from taking funds away from private investors, deficits expand the pool of available savings. Neoliberals also lie about the way banks work. Any credit-worthy private borrower can get credit from banks. Bank loans create deposits, which can be drawn down when banks make loans to borrowers. Yes, banks need reserves to back their loans, but they also know that the central bank will always supply those reserves should the banks fail to attract the necessary funds from other sources. So private borrowing is not constrained by existing savings. Borrowing typically increases income, which increases savings.
(...)
Fiscal sustainability is being defined by the austerity myth in terms of some arbitrary financial ratio (public debt to GDP, etc.). But actually deficits should be whatever is required to maintain overall spending at the level consistent with full employment. No more, no less. Fiscal sustainability is about fulfilling the government’s responsibility to maintain an inclusive society in which everyone who wants to work can.
(...)

The Continuing Conservative Dominance
Neoliberal economists and their supporters failed to predict the recent crisis and offered no effective solution once it arose. Organizations such as the IMF and the OECD advocated policies that contributed to the crisis. So why do neoliberal myths still dominate?
(...)
We also fell for the oldest political con: divide and rule. The poor were portrayed as the lazy detritus of this new entrepreneurial age. The unemployed were easily vilified as failures—which suggested that the rest of us were successes—even if success was measured in terms of the size of the houses and accompanying paraphernalia we could ill afford.
(...)
This madness was given a sense of legitimacy by a constant media chorus, sustained by a well-funded conservative lobby operating through high-profile think tanks harmonizing with endorsements from academic economists.
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In part, the neoliberals have retained their dominance because the opposition has been weak and fragmented.
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progressives continually propose all sorts of financial offsets—such as “making the rich pay”—which sound fair but do not get to the heart of the problem. Changing the mix of public spending and taxation may be sensible on equity grounds, but if there is an overall deficiency of spending and the private sector is reluctant to increase spending, then the overriding macroeconomic problems of entrenched unemployment and accompanying poverty will not be solved without increasing budget deficits.
(...)
With some well-known exceptions (for example, Joseph Stiglitz, Paul Krugman and William Greider), progressives think that advocating fiscal constraint makes them appear responsible. What they fail to see is that their economic stance largely undermines their capacity to pursue enlightened social and environmental policies.
(...)

What Is to Be Done?
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In advocating further fiscal stimulus, I would use the increased public spending to directly target job creation. I would introduce an open-ended public employment program—a Job Guarantee—that offers a job at a living (minimum) wage to anyone who wants to work but cannot find employment. These jobs would “hire off the bottom,” in the sense that minimum wages are not in competition with the market-sector wage structure. By not competing with the private market, the Job Guarantee would avoid the inflationary tendencies of old-fashioned Keynesianism, which attempted to maintain full capacity utilization by “hiring off the top” (making purchases at market prices and competing for resources with all other demand elements). Job Guarantee workers would enjoy stable incomes, and their increased spending would boost confidence throughout the economy and underpin a private-spending recovery. There is no reason the government could not afford this program. The labor is available for work, and the government can easily supply the jobs.

Sustainable growth requires that the private sector save overall and avoid ever-increasing levels of indebtedness. It is possible that strong net exports could allow high levels of domestic activity with both private saving and the government’s budget in surplus. But that situation cannot hold for all countries. Normally, budget deficits will be required. Progressives should stop apologizing for them.
William Mitchell
is research professor of economics and director of the Centre of Full Employment and Equity at the University of Newcastle, Australia.
He blogs daily at bilbo.economicoutlook.net/blog
Klicka på länken här eller länken i rubriken och läs hela, det ger en bättre bild av det hela än den här korta ”readers digest” varianten.

Bara att gratulerar Mitchell till att ha fått in foten på The Nation och den Amerikanska ”marknaden” för politiskt tyckande. Amerikanerna behöver all hjälp de kan få, om så ändå från Australien.

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