Survey
* Your assessment is very important for improving the workof artificial intelligence, which forms the content of this project
* Your assessment is very important for improving the workof artificial intelligence, which forms the content of this project
Nouriel Roubini wikipedia , lookup
Balance of payments wikipedia , lookup
Edmund Phelps wikipedia , lookup
Greg Mankiw wikipedia , lookup
Modern Monetary Theory wikipedia , lookup
Business cycle wikipedia , lookup
Fiscal multiplier wikipedia , lookup
Transformation in economics wikipedia , lookup
‘Structural budget balance’ a well-defined analytical concept or one more arbitrary straightjacket? Post-Keynesian Conference Friday, 23rd May 2014 Jesper Jespersen Why ‘structural’ deficit? EU-regulation: • Has become a part of the European Fiscal Compact: public sector ‘structural deficit’ must not exceed ½ percent of GDP 2. This is an addendum to the requirement in the Stability Pact that the current deficit should never exceed 3 percent of GDP 3. Medium term requirement of public sector balance or surplus (does not make sense) Danish fiscal policy ‘rule of thumb’ – more pragmatic 4. ‘Financial Sustainability’ – a constant Debt/GDP-ratio Conventional Economics short term Structural budget measures fiscal policy – a balanced SB means neutral fiscal policy. The rule from Bruxelles (max. ½ pct. structural deficit) is severely to restrict the use of (expansionary) fiscal policy in the short run! – independently of the rate of unemployment and other imbalances. The argument is, that the private sector is selfadjusting, does not need support, if the labour market is flexible enough – in any case, persistent unemployment is a symptom of labour market reforms! Conventional economics long term 1. Labour market ‘full employment/natural unemployment’ equilibrium 2. Private sector equilibrium between savings and real investment 3. Deviations are cleared via the financial capital markets, domestically 4. Internationally via the balance of payments, capital account (especially within a monetary union without exchange rate risk). These ‘beliefs’ are challenged by post-Keynesian Theory: 1. Any analysis of the public sector budget should always be modelled as a part of the ‘economy as a whole’ Because: • No empirical evidence that the labour market is selfadjusting to anything like ‘full employment’ • Employment in a closed economy depends on effective demand, because private investment is not necessarily equal to private savings at full employment • Effective demand has to be managed (by policies). • Furthermore (private) ‘Balance of payments deficit’ is not automatically financed - not even in Monetary Union Here we are The Stability Pact limits the working of the ‘automatic stabilizers’ 2. The Fiscal Compact limits fiscal policy Which most likely destabilizes the macroeconomic system 1. For what reason? • Are Conventional Economists doing their best? Or they justdon’t trust politicians (Democracy?) • Politicians don’t trust each other: a. domestically – the constitution is changed b. In the Monetary union – the Lisbon Treaty and independent European Central Bank. Jesper’s methodological ’iceberg’ World 1 Fundamental clash between normative and descriptive economics data World 2 clock-work agents Market System Prediction within an Inspiration: Martin Hollis ideal marketsystem World 3: actors Power, structures, culture Understand reality reflexive ‘organism’ Conventional Economics The rules of the European Monetary Union Demonstrate how dominant conventional economics is (accepted by 25 out of 27 EU-countries): 1. Independent Central Bank 2. Stability Pact 3. Fiscal Compact Undisputed Recommendations: EU, Berlin and IMF 1. Balanced budgets in the long run– austerity policy 2. Labour markets reforms á la Hartz-laws in the short run Where does it comes from? The neoclassical – or dare I say mainstream – macroeconomists’ believe (or fundamental assumption) in the market economic system as a long run general equilibrium system. This believe has not yet been challenged by the mainstream? Macroeconomists. The macroeconomic genealogy Athur Cecil Pigou, 1933 Selfadjusting system:General equilibrium Old Keynesians (Neoclassical synthesis) ISLM-model Short term Macro Demand & rigid wages John Hicks Monetarism I Exogenous money supply Vertical Phillips-curve Milton Friedman New-classical (Monetarism II) Rationel expectation Representative Agents ‘Policy Ineffectiveness’ ‘Real Business Cycles’ Robert Lucas New-Keynesianism (Monetarisme III) Transaction costs Asymetric information Hysteresis effects Edmund Phelps Gregory Mankiw Normative economics John Maynard Keynes, 1936 Open, indeterment system: trends Post-keynesianisme I Uncertainty Effective Demand Income distribution Joan Robinson Nicholas Kaldor Michal Kalecki Post-keynesianisme II Endogeous money Cost inflation Dynamic method Paul Davidson Hyman Minsky Post-keynesianismeIII Open Methodology Path-dependency Macro n * micro Sheila Dow Victoria Chick Wynne Godley Positive economics Perhaps, I should stop here This story has been told so many times. That general equilibrium theory is bad as descriptive economics; but easy to ‘sell’ as economics’, because it pretends: individual freedom, neutral markets, rationality and objective analyses. Who can object to these principle? Which leads to an individual/voluntary excuse for unemployment: lack of wage flexibility, social generosity and too high taxes, Government should – like any other household - not have deficits it burdens future generation etc. etc. Fallacies of composition-arguments are abstract and often unconvincing economics 1. Higher saving ratios cause total saving to fall 2. Lower wages cause employment to fall 3. Public investments financed by deficits are to the benefit of future generations 4. The welfare state and equality makes everyone better off 5. Higher Taxes increase productivity These arguments are abstract, difficult to give a popular explanation and for the time being not politically correct! Which facilitates the propaganda of normative economics in populistic settings The outcome: public sector deficits are considered bad politics • Based on normative economics • Intention: to limit expansionary fiscal policy • Probably with the consequence of making economic growth lower than otherwise • Which of course is debatable, but for quite other reasons! • The ‘Dismal Science’