Malcolm Sawyer
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.
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Econ4.org, a new platform for discussing and promoting urgent structural changes needed for a healthy American economy, is now introducing a five part video series called The Bottom Line. The videos will cover Jobs, Housing, Healthcare, Regulation and The New Economy. In the first one, Jobs, they argue that tax cuts and spending cuts, far from stimulating job creation, are counterproductive. They make the case that government has a significant role to play in generating employment growth.
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Barry Eidlin, Guest Blogger
For the past two decades, retail giant Walmart has served as a model for corporate America to emulate. Now, by forcing unions to break out of old habits, its workers might be showing the way forward for labor.
Walmart stores and critical parts of its distribution chain have been hit by a series of strikes in recent weeks. These strikes are remarkable for three reasons. First, the workers involved have no union protection. While their strikes are technically legal, they are taking huge risks by walking out. Second, many are not technically employed by Walmart. Rather, they work for a variety of sub-contractors that Walmart can replace at will. Third, despite items one and two, these workers are winning, and the strikes seem to be spreading.
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Yılmaz Akyüz
It is now generally agreed that China cannot go back to the export-led growth it had enjoyed in the run-up to the global financial crisis even with a return of the US and Europe to vigorous growth. It needs to expand the domestic market by reversing the secular decline in the share of private consumption in GDP, which has been hovering around wartime-like levels of some 35 per cent. It should do so not so much by reducing the household propensity to save as by increasing the share of household income in GDP which has been in a downward trend for almost two decades. This would require a judicious combination of wage, agricultural pricing and tax policies and significantly increased government transfers, particularly to poor rural households, financed with dividends from state-owned enterprises (Export Dependence and Sustainability of Growth in China).
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Jayati Ghosh
A new BIS working paper by Cecchetti and Kharroubi makes a point that is becoming more widely known, especially after the continuing financial crises experienced globally since 2008. This is that the level of financial development is good only up to a point, after which it becomes a drag on growth. In fact, the authors argue that when the focus is on advanced economies, a fast-growing financial sector is actually detrimental to aggregate productivity growth. This is explained by the authors on the grounds that, because the financial sector competes with the rest of the economy for scarce resources, financial booms are not, in general, growth-enhancing.
The recent experience of the United States and now particularly Europe, certainly confirms this – and even established doyens of the world of private finance are now more willing to concede this. But one critical aspect of the failure of financial intermediation is still inadequately recognised and discussed: the inability of the currently constituted private financial system to deliver funds to small and medium enterprises (SMEs), which still account for the bulk of employment not just in developing countries but also in advanced economies.
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Cornel Ban
Until recently Spain has been a quiet country known for a successful economic and political transition. In 1977, the entire political spectrum, from the hard right to the communists, signed a compact that sealed the terms of the country’s political and economic liberalization. This was followed by a massive transformation of Franco’s economic legacy during the 1980s and 1990s. During this period, the developmentalist industrialization drive that marked Spain’s postwar period made room for an economic model that aimed to increase competitiveness. It did so by targeting the consolidation and internationalization of the country’s financial, energy and construction sectors. As a result, in the eyes of many, Spain emerged as a European “tiger” economy.
A major weakness haunted Spain’s success, though: permanent double-digit unemployment levels. After a short respite given by German banks inflating Spain’s enormous construction bubble, the specter of unemployment would soon come to question the very bases of the post-Franco settlement.
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Suranjana Nabar-Bhaduri, guest blogger
Recent months have seen public concerns being voiced about the incipient slowdown in the Indian economy. Manufacturing output grew at only 0.1 per cent in April; the Indian rupee has been on a downward spiral since late 2011; exports have fallen; and capital inflows have been inadequate relative to India’s current account deficits. India’s GDP growth has declined to a nine-year low of 6.5 per cent in the financial year 2011-12.
The current situation draws attention to issues surrounding India’s services-led growth development strategy, and its persistent trade and current account deficits. It will hopefully provide a much-needed wake-up call to Indian policy-makers to undertake policies beyond “reforms”. A recent paper emphasizes that India’s services-led growth entails questions of long-run sustainability with respect to its balance of payments (BOP) and has a limited ability to raise the living standards of the population as a whole.
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Gerald Epstein
Part of the Triple Crisis Spotlight G-20 series.
Expectations were low to non-existent for the G-20 summit meeting that ended Tuesday in the sun-drenched resort of Los Cabos, Mexico. Policy analysts and business leaders have decried “policy paralysis” and the “loss of credibility” as most of the G-20 policy leaders rail against the negative impacts of austerity, even as they mostly continue to implement it.
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Eva Paus, guest blogger
The middle income trap is a new concept that strikes fear into the hearts of development practitioners. Analysts generally agree that the absence of broad-based upgrading towards more knowledge-intensive activities is at the heart of the middle income trap. But they differ in their explanation of the trap. Some see it as a typical problem for middle income countries in the process of accumulating technological capabilities and emphasize internal causes (e.g. Eichengreen, Park and Shin 2011, Asian Development Bank 2011). Others, including this author and her collaborators in a project on the middle income trap, argue that middle income countries have always faced the challenge of how to move from commodity production to more knowledge-intensive activities. But it is the current globalization context that is turning this challenge into a possible trap.
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Ali Kadri
When colonialist forces created states in their own images, they re-founded institutions that organise social structures in line with their strategies. When, after decolonisation, many of these states in Africa and the Middle East weakened under military or neoliberal assaults, they were dubbed ill-governed or ‘overdeveloped.’ The ‘or’ between military and neoliberal is inclusive. The neoliberal bent is imposed by shifting national class structures to accept the imperialist terms of surrender via neoliberal policies by power structures, foremost in which, is actual or potential military power.
As for the overdeveloped, it is said that ex-colonies borrowed over-fitted systems of government and administration from their Western patrons. More recently, many of these ex-colonies have failed and many others teeter on the brink of failure. Libya, Yemen and Syria can now be added to Lebanon, Afghanistan, Somalia and Iraq. However, these failures are not a one-time occurrence after which states resurrect in better shape or form. They have become states that exist in a continual condition of violence and collapse.
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