Progressive perspectives on inadequate demand and economic recovery

Even before the advent of the Covid-19 pandemic, the world economy was suffering from inadequate demand in the long aftermath of the Great Recession of 2008-9. A range of often radical responses to the pandemic, including lockdowns and fiscal support for struggling businesses and individuals, have been forced on governments around the world, particularly in the richest nations where the capabilities of the state are typically greater than in poorer ones.

Low inflation and record low interest rates in the major economies suggest that inadequate demand is currently more of a problem than inadequate supply. Opinions among progressive and leftist economists differ on this. Keynesians typically see government action to stimulate demand with monetary and fiscal policy, and the avoidance of premature austerity, as vital to restoring prosperity during or following a recession. The more radical post-Keynesians likewise see deficient demand as the key problem, but call for deeper reforms of the economy, encompassing redistribution, policies which raise wages for the less well off while avoiding excessive inflation, and a new global monetary framework in the spirit of the original post war Bretton Woods system which promotes global demand and ensures that it is distributed in a sustainable fashion across the member countries.

Many socialist and Marxist economists argue that economic cycles, however disruptive, are a part of life under capitalism. In fact, they make the case for downturns as necessary to restore the health of the economy by destroying ‘weaker capitals’ or less productive businesses, and creating a ‘reserve army’ of the unemployed in a way which restores the profitability of the system and lays the foundation for a new phase of economic expansion. There is thus a need for a Schumpeterian process of ‘creative destruction’, and Keynesianism cannot prevent it. Continue reading

Where you start, where you finish – the implications of different approaches to economic analysis

This blogger has for many years been drawn to non-mainstream or heterodox approaches to economics. Heterodox economics is dominated by leftist analysis and policy conclusions. It is not exclusively so: Austrian economics is one exception. Many heterodox thinkers prefer to use the term political economy instead of economics. The former emphasises that there is more to analysis than the definition and use of the ‘science of rational choice’, dependent on methodological individualism. They are more willing to engage in interdisciplinarity, to draw on and integrate ideas from politics, philosophy, biology and so on. Continue reading

“The Scheme for Full Employment” – finding the economics in an unusual novel

I have to admit that much of my day-to-day reading is dominated by economics and political economy. Even when turning to fiction, at least in this instance, reading the cover of Magnus Mill’s unusual 2003 novel The Scheme for Full Employment instantly peaked my curiosity. For most of my (economics) life I have been concerned with the issue of unemployment under capitalism, the prospects for full employment and greater social justice, and how the work of Keynes and other great progressive economists has dealt with these.

MagnusMillsTheSchemeforFEMill’s novel is undoubtedly an entertaining and quirky read. I am informed that much of his writing is in this spirit. This example uses the story to take a humorous look at a ‘social experiment’ designed to ensure that everyone who wants a paid job in some non-specific nation can have one. If this is not provided by the private sector then ‘the Scheme’ will do it.

The Scheme itself seems to produce nothing, and consists of a huge number of ‘UniVans’ driven by the regular employees along numerous predetermined routes to various destinations, dropping off and picking up parts for the UniVans themselves. It thus provides activity and employment, whose only purpose is to eliminate unemployment in the fictional society.

The plot culminates in a strike by the workers, pitting the “flat-dayers” committed to an eight hour working day without exception, against the “swervers”, who want to facilitate more flexible and shorter working hours. In the end the strikers fail to achieve their aims, and the very end of the book sees the rapid unwinding of The Scheme as it loses public support. Continue reading