Kalecki on Budget Deficits and the Possibilities for Full Employment
TL;DR: This paper revisited the writings of Michal Kalecki which relate to issues of fiscal policy, budget deficits and securing full employment in capitalist economies, and sought to relate those writings to real world economic problems.
Abstract: This paper revisits the writings of Michal Kalecki which relate to issues of fiscal policy, budget deficits and securing full employment in capitalist economies. It seeks to relate those writings t...
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TL;DR: In this paper, the authors analyzed the performance of the European Commission's model for estimating potential output, which is used as a yardstick for measuring the "structural budget balance" of EU countries and hence is crucial for coordinating European fiscal policies.
Abstract: This paper analyzes the performative impact of the European Commission’s model for estimating 'potential output', which is used as a yardstick for measuring the 'structural budget balance' of EU countries and, hence, is crucial for coordinating European fiscal policies. In pre-crisis years, potential output estimates amplified the build-up of private debt, housing bubbles and macroeconomic imbalances. After the financial crisis, they were revised downwards, which increased fiscal consolidation pressures. By focusing on the euro area's economies during 1999-2014, we identify two performative aspects of the potential output model. First, the political implications of the model led to a pro- cyclical feedback loop, reinforcing general economic developments. Second, the model has contributed to national lock-ins on path dependent debt trajectories, fueling 'â€sstructural polarization' between core and periphery.
55 citations
TL;DR: In this paper , a metric for green jobs, using non-dichotomous measurements as proposed by "fuzzy logic", is proposed as a tool to operationalize an ecological job-guarantee program.
Abstract: The 2008 economic crisis expanded the discussion about stabilization policies beyond its usual academic circles. Such concerns seem even more eminent now as, amidst the COVID-19, governments around the world search for solutions to the looming crisis. John Maynard Keynes, Michal Kalecki, and Hyman Minsky have long inspired those who believe that the private sector is unable to maintain long-lasting stability and, even less so, full employment. The remedy relies not in the indirect mechanisms of monetary fine-tuning, but rather on the direct means of fiscal policy. Less acknowledged, however, is that despite of their different approaches, neither of these three authors considered conventional pump-priming fiscal policy a direct policy. Considerations of this nature have, nonetheless, been pursued by a group of post-Keyensian/neo-Kaleckian economists—who argue that discussions about economic stability should be coupled with concerns related to the broader social and environmental systems. To contribute to the newly intensified push of a post-Keynesian/neo-Kaleckian ecological economics, the paper introduces a metric for green jobs, using non-dichotomous measurements as proposed by ‘fuzzy logic’, as a tool to operationalize an ecological job-guarantee program.
2 citations
TL;DR: In South Africa, unemployment has been rising significantly among the youth as mentioned in this paper , which is the most stubborn economic problems South Africa is facing, and unemployment seems to be foundational to the other two (Simkins 2004). Finding the correct mix of policies that can reduce unemployment remains elusive.
Abstract: Inequality, poverty and unemployment are the most stubborn economic problems South Africa is facing, and unemployment seems to be foundational to the other two (Simkins 2004). Finding the correct mix of policies that can reduce unemployment remains elusive. Among the youth, unemployment has been rising significantly. The government instituted a youth wage subsidy (National Treasury [South Africa] 2011), which has not delivered the much-needed jobs (Levinsohn & Pugatch 2014). The government instituted extended public works, some of which are in the care economy, which go beyond general infrastructure provision jobs (Altman & Hemson 2008). The Working for Water Programme, which is also part of the extended public works programme, creates green jobs while conserving biodiversity and promoting water security (Magadlela & Mdzeke 2004). Other public works programmes have been running for years, but unemployment remains problematic (Altman & Hemson 2008; Thwala 2011).
1 citations
TL;DR: In this article , the authors discuss mali disipline disiplin konusunu ele almaktadır, mali politikalarını pasif bir konuma çekerek, sadece fiyat istikrarına odaklanmaktiğır.
Abstract: Bu çalışma, neoliberalizmin temel ilkelerinden birisi olan ve kamu bütçesinin sürekli denk olması gerektiğini ifade eden mali disiplin konusunu ele almaktadır. Yeni Makroekonomik Uzlaşı çerçevesinde ortodoks yaklaşım, maliye politikalarını pasif bir konuma çekerek, sadece fiyat istikrarına odaklanmaktadır. Diğer yandan kriz dönemlerinde, bir stabilizatör işlevi yüklediği bütçe açıklarına başvurmaktadır. 2008 küresel finansal krizi ve Covid-19 pandemisinde olduğu gibi, ekonomiler krizden çıkış için bütçe açıklarına sarılmıştır. Fakat biraz toparlandıktan sonra, yeniden mali disipline dönülmüş, krizlerin faturası ise kemer sıkma politikalarıyla, ücretli ve düşük gelirli kesimlerin üzerine bırakılmıştır; nitekim ortodoks maliye politikaları, doğrudan istihdam artışlarını ve gelir dağılımı adaletini hedeflememektedir. Öte yandan post-Keynesyenler, tam istihdam ve adil gelir dağılımının maliye politikalarıyla başarılabilir hedefler olduğunu ileri süren alternatif yaklaşımlar sunmaktadırlar. Çalışma, mali ortodoksiye karşı alternatif politika önermelerini, mevcut ve potansiyel kısıtları dikkate alarak, post-Keynesyen bakış açısıyla tartışmaktadır.
TL;DR: In this article , the authors propose general guidelines for the construction of a plan for subnational development towards a more equitable and inclusive society on the regional, individual, and geo-economic levels.
Abstract: Abstract An admirer of John Maynard Keynes and an advocate of a historically grounded economic theory, the French economist, Bernard Maris, investigated the possible emergence of alternative monetary, productive, and distributive institutional arrangements for a more just society. Based on a dialogue between institutional economics and Bernard Maris, the present paper aims at proposing general guidelines for the construction of a plan for subnational development towards a more equitable and inclusive society on the regional, individual, and geo-economic levels. With a special focus on the region of Occitanie—Maris’s native region, located in the Southwest of France—the study borrows Karl Polanyi’s lens, in his The Great Transformation, to envision a possible reduction of dependency in each one of those three levels through the process of decommodification of money, labor, and land, respectively. Because of its ability to take into consideration specificities (being them departmental, territorial, and/or social), institutional economic theory seems adequate to support subnational development, especially in a region with great diversity and a high level of socio-economic and geographic disparity like Occitanie.
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TL;DR: This paper study the relationship between government debt and real GDP growth and find that the relationship is weak for debt/GDP ratios below a threshold of 90 percent of GDP, while for higher levels, growth rates are roughly cut in half.
Abstract: We study economic growth and inflation at different levels of government and external debt. Our analysis is based on new data on forty-four countries spanning about two hundred years. The dataset incorporates over 3,700 annual observations covering a wide range of political systems, institutions, exchange rate arrangements, and historic circumstances. Our main findings are: First, the relationship between government debt and real GDP growth is weak for debt/GDP ratios below a threshold of 90 percent of GDP. Above 90 percent, median growth rates fall by one percent, and average growth falls considerably more. We find that the threshold for public debt is similar in advanced and emerging economies. Second, emerging markets face lower thresholds for external debt (public and private)--which is usually denominated in a foreign currency. When external debt reaches 60 percent of GDP, annual growth declines by about two percent; for higher levels, growth rates are roughly cut in half. Third, there is no apparent contemporaneous link between inflation and public debt levels for the advanced countries as a group (some countries, such as the United States, have experienced higher inflation when debt/GDP is high.) The story is entirely different for emerging markets, where inflation rises sharply as debt increases.
2,007 citations
TL;DR: This paper study the relationship between government debt and real GDP growth and find that the relationship is weak for debt/GDP ratios below a threshold of 90 percent of GDP, while for higher levels, growth rates are roughly cut in half.
Abstract: We study economic growth and inflation at different levels of government and external debt. Our analysis is based on new data on forty-four countries spanning about two hundred years. The dataset incorporates over 3,700 annual observations covering a wide range of political systems, institutions, exchange rate arrangements, and historic circumstances. Our main findings are: First, the relationship between government debt and real GDP growth is weak for debt/GDP ratios below a threshold of 90 percent of GDP. Above 90 percent, median growth rates fall by one percent, and average growth falls considerably more. We find that the threshold for public debt is similar in advanced and emerging economies. Second, emerging markets face lower thresholds for external debt (public and private)--which is usually denominated in a foreign currency. When external debt reaches 60 percent of GDP, annual growth declines by about two percent; for higher levels, growth rates are roughly cut in half. Third, there is no apparent contemporaneous link between inflation and public debt levels for the advanced countries as a group (some countries, such as the United States, have experienced higher inflation when debt/GDP is high.) The story is entirely different for emerging markets, where inflation rises sharply as debt increases.
1,623 citations
TL;DR: The assumption that a government will maintain full employment in a capitalist economy if it only knows how to do it is fallacious as mentioned in this paper, and the misgivings of big business about maintenance of full employment by Government spending are of paramount importance.
Abstract: First, Kalecki's affirmation that full employment adversely affect profits represents a radical departure from the classical Marxist theoretical tradition within which he wrote. Indeed, the argument that profits undergo a wage-induced decline during an economic upswing actually reinforces Kalecki's basic thesis that full employment is not generally in the interest of business. The assumption that a Government will maintain full employment in a capitalist economy if it only knows how to do it is fallacious. In this connection the misgivings of big business about maintenance of full employment by Government spending are of paramount importance. The attitude was shown clearly in the great depression in the thirties, when big business opposed consistently experiments for increasing employment by Government spending in all countries, except Nazi Germany. And the policy of full employment based on loan financed Government spending does not encroach upon profits because it does not involve any additional taxation.
1,017 citations
TL;DR: This paper replicated Reinhart and Rogoff (2010A and 2010B) and found that selective exclusion of available data, coding errors and inappropriate weighting of summary statistics lead to serious miscalculations that inaccurately represent the relationship between public debt and GDP growth among 20 advanced economies.
Abstract: We replicate Reinhart and Rogoff (2010A and 2010B) and find that selective exclusion of available data, coding errors and inappropriate weighting of summary statistics lead to serious miscalculations that inaccurately represent the relationship between public debt and GDP growth among 20 advanced economies Over 1946–2009, countries with public debt/GDP ratios above 90% averaged 22% real annual GDP growth, not −01% as published The published results for (i) median GDP growth rates for the 1946–2009 period and (ii) mean and median GDP growth figures over 1790–2009 are all distorted by similar methodological errors, although the magnitudes of the distortions are somewhat smaller than with the mean figures for 1946–2009 Contrary to Reinhart and Rogoff’s broader contentions, both mean and median GDP growth when public debt levels exceed 90% of GDP are not dramatically different from when the public debt/GDP ratios are lower The relationship between public debt and GDP growth varies significantly by period and country Our overall evidence refutes RR’s claim that public debt/GDP ratios above 90% consistently reduce a country’s GDP growth
886 citations
TL;DR: In this article, the authors focus on the costs of public debt when safe interest rates are low and develop four main arguments for public debt rollovers, including the existence of multiple equilibria where investors believe debt to be risky and, by requiring a risk premium, increase the fiscal burden and make debt effectively more risky.
Abstract: This lecture focuses on the costs of public debt when safe interest rates are low. I develop four main arguments. First, I show that the current US situation, in which safe interest rates are expected to remain below growth rates for a long time, is more the historical norm than the exception. If the future is like the past, this implies that debt rollovers, that is the issuance of debt without a later increase in taxes, may well be feasible. Put bluntly, public debt may have no fiscal cost. Second, even in the absence of fiscal costs, public debt reduces capital accumulation, and may therefore have welfare costs. I show that welfare costs may be smaller than typically assumed. The reason is that the safe rate is the risk-adjusted rate of return to capital. If it is lower than the growth rate, it indicates that the risk-adjusted rate of return to capital is in fact low. The average risky rate however also plays a role. I show how both the average risky rate and the average safe rate determine welfare outcomes. Third, I look at the evidence on the average risky rate, i.e., the average marginal product of capital. While the measured rate of earnings has been and is still quite high, the evidence from asset markets suggests that the marginal product of capital may be lower, with the difference reflecting either mismeasurement of capital or rents. This matters for debt: the lower the marginal product, the lower the welfare cost of debt. Fourth, I discuss a number of arguments against high public debt, and in particular the existence of multiple equilibria where investors believe debt to be risky and, by requiring a risk premium, increase the fiscal burden and make debt effectively more risky. This is a very relevant argument, but it does not have straightforward implications for the appropriate level of debt. My purpose in the lecture is not to argue for more public debt, especially in the current political environment. It is to have a richer discussion of the costs of debt and of fiscal policy than is currently the case.
437 citations