By Michal Kalecki*
1. A solid majority of economists is now of the opinion that, even in a capitalist system, full employment may be secured by a government spending programme, provided there is in existence adequate plan to employ all existing labour power, and provided adequate supplies of necessary foreign raw-materials may be obtained in exchange for exports.
If the government undertakes public investment (e.g. builds schools, hospitals, and highways) or subsidizes mass consumption (by family allowances, reduction of indirect taxation, or subsidies to keep down the prices of necessities), and if, moreover, this expenditure is financed by borrowing and not by taxation (which could affect adversely private investment and consumption), the effective demand for goods and services may be increased up to a point where full employment is achieved. Such government expenditure increases employment, be it noted, not only directly but indirectly as well, since the higher incomes caused by it result in a secondary increase in demand for consumer and investment goods.
2. It may be asked where the public will get the money to lend to the government if they do not curtail their investment and consumption. To understand this process it is best, I think, to imagine for a moment that the government pays its suppliers in government securities. The suppliers will, in general, not retain these securities but put them into circulation while buying other goods and services, and so on, until finally these securities will reach persons or firms which retain them as interest-yielding assets. In any period of time the total increase in government securities in the possession (transitory or final) of persons and firms will be equal to the goods and services sold to the government. Thus what the economy lends to the government are goods and services whose production is ‘financed’ by government securities. In reality the government pays for the services, not in securities, but in cash, but it simultaneously issues securities and so drains the cash off; and this is equivalent to the imaginary process described above.
What happens, however, if the public is unwilling to absorb all the increase in government securities? It will offer them finally to banks to get cash (notes or deposits) in exchange. If the banks accept these offers, the rate of interest will be maintained. If not, the prices of securities will fall, which means a rise in the rate of interest, and this will encourage the public to hold more securities in relation to deposits. It follows that the rate of interest depends on banking policy, in particular on that of the central bank. If this policy aims at maintaining the rate of interest at a certain level, that may be easily achieved, however large the amount of government borrowing. Such was and is the position in the present war. In spite of astronomical budget deficits, the rate of interest has shown no rise since the beginning of 1940.
3. It may be objected that government expenditure financed by borrowing will cause inflation. To this it may be replied that the effective demand created by the government acts like any other increase in demand. If labour, plants, and foreign raw materials are in ample supply, the increase in demand is met by an increase in production. But if the point of full employment of resources is reached and effective demand continues to increase, prices will rise so as to equilibrate the demand for and the supply of goods and services. (In the state of over-employment of resources such as we witness at present in the war economy, an inflationary rise in prices has been avoided only to the extent to which effective demand for consumer goods has been curtailed by rationing and direct taxation.) It follows that if the government intervention aims at achieving full employment but stops short of increasing effective demand over the full employment mark, there is no need to be afraid of inflation.2
2. The above is a very crude and incomplete statement of the economic doctrine of full employment. But it is, I think, sufficient to acquaint the reader with the essence of the doctrine and so enable him to follow the subsequent discussion of the political problems involved in the achievement of full employment.
In should be first stated that, although most economists are now agreed that full employment may be achieved by government spending, this was by no means the case even in the recent past. Among the opposers of this doctrine there were (and still are) prominent so-called ‘economic experts’ closely connected with banking and industry. This suggests that there is a political background in the opposition to the full employment doctrine, even though the arguments advanced are economic. That is not to say that people who advance them do not believe in their economics, poor though this is. But obstinate ignorance is usually a manifestation of underlying political motives.
There are, however, even more direct indications that a first-class political issue is at stake here. In the great depression in the 1930s, big business consistently opposed experiments for increasing employment by government spending in all countries, except Nazi Germany. This was to be clearly seen in the USA (opposition to the New Deal), in France (the Blum experiment), and in Germany before Hitler. The attitude is not easy to explain. Clearly, higher output and employment benefit not only workers but entrepreneurs as well, because the latter’s profits rise. And the policy of full employment outlined above does not encroach upon profits because it does not involve any additional taxation. The entrepreneurs in the slump are longing for a boom; why do they not gladly accept the synthetic boom which the government is able to offer them? It is this difficult and fascinating question with which we intend to deal in this article.
The reasons for the opposition of the ‘industrial leaders’ to full employment achieved by government spending may be subdivided into three categories: (i) dislike of government interference in the problem of employment as such; (ii) dislike of the direction of government spending (public investment and subsidizing consumption); (iii) dislike of the social and political changes resulting from the maintenance of full employment. We shall examine each of these three categories of objections to the government expansion policy in detail.
2. We shall deal first with the reluctance of the ‘captains of industry’ to accept government intervention in the matter of employment. Every widening of state activity is looked upon by business with suspicion, but the creation of employment by government spending has a special aspect which makes the opposition particularly intense. Under a laissez-faire system the level of employment depends to a great extent on the so-called state of confidence. If this deteriorates, private investment declines, which results in a fall of output and employment (both directly and through the secondary effect of the fall in incomes upon consumption and investment). This gives the capitalists a powerful indirect control over government policy: everything which may shake the state of confidence must be carefully avoided because it would cause an economic crisis. But once the government learns the trick of increasing employment by its own purchases, this powerful controlling device loses its effectiveness. Hence budget deficits necessary to carry out government intervention must be regarded as perilous. The social function of the doctrine of ‘sound finance’ is to make the level of employment dependent on the state of confidence.
3. The dislike of business leaders for a government spending policy grows even more acute when they come to consider the objects on which the money would be spent: public investment and subsidizing mass consumption.
The economic principles of government intervention require that public investment should be confined to objects which do not compete with the equipment of private business (e.g. hospitals, schools, highways). Otherwise the profitability of private investment might be impaired, and the positive effect of public investment upon employment offset, by the negative effect of the decline in private investment. This conception suits the businessmen very well. But the scope for public investment of this type is rather narrow, and there is a danger that the government, in pursuing this policy, may eventually be tempted to nationalize transport or public utilities so as to gain a new sphere for investment.3
One might therefore expect business leaders and their experts to be more in favour of subsidising mass consumption (by means of family allowances, subsidies to keep down the prices of necessities, etc.) than of public investment; for by subsidizing consumption the government would not be embarking on any sort of enterprise. In practice, however, this is not the case. Indeed, subsidizing mass consumption is much more violently opposed by these experts than public investment. For here a moral principle of the highest importance is at stake. The fundamentals of capitalist ethics require that ‘you shall earn your bread in sweat’ — unless you happen to have private means.
4. We have considered the political reasons for the opposition to the policy of creating employment by government spending. But even if this opposition were overcome — as it may well be under the pressure of the masses — the maintenance of full employment would cause social and political changes which would give a new impetus to the opposition of the business leaders. Indeed, under a regime of permanent full employment, the ‘sack’ would cease to play its role as a ‘disciplinary measure. The social position of the boss would be undermined, and the self-assurance and class-consciousness of the working class would grow. Strikes for wage increases and improvements in conditions of work would create political tension. It is true that profits would be higher under a regime of full employment than they are on the average under laissez-faire, and even the rise in wage rates resulting from the stronger bargaining power of the workers is less likely to reduce profits than to increase prices, and thus adversely affects only the rentier interests. But ‘discipline in the factories’ and ‘political stability’ are more appreciated than profits by business leaders. Their class instinct tells them that lasting full employment is unsound from their point of view, and that unemployment is an integral part of the ‘normal’ capitalist system.
1. One of the important functions of fascism, as typified by the Nazi system, was to remove capitalist objections to full employment.
The dislike of government spending policy as such is overcome under fascism by the fact that the state machinery is under the direct control of a partnership of big business with fascism. The necessity for the myth of ‘sound finance’, which served to prevent the government from offsetting a confidence crisis by spending, is removed. In a democracy, one does not know what the next government will be like. Under fascism there is no next government.
The dislike of government spending, whether on public investment or consumption, is overcome by concentrating government expenditure on armaments. Finally, ‘discipline in the factories’ and ‘political stability’ under full employment are maintained by the ‘new order’, which ranges from suppression of the trade unions to the concentration camp. Political pressure replaces the economic pressure of unemployment.
2. The fact that armaments are the backbone of the policy of fascist full employment has a profound influence upon that policy’s economic character. Large-scale armaments are inseparable from the expansion of the armed forces and the preparation of plans for a war of conquest. They also induce competitive rearmament of other countries. This causes the main aim of spending to shift gradually from full employment to securing the maximum effect of rearmament. As a result, employment becomes ‘over-full’. Not only is unemployment abolished, but an acute scarcity of labour prevails. Bottlenecks arise in every sphere, and these must be dealt with by the creation of a number of controls. Such an economy has many features of a planned economy, and is sometimes compared, rather ignorantly, with socialism. However, this type of planning is bound to appear whenever an economy sets itself a certain high target of production in a particular sphere, when it becomes a target economy of which the armament economy is a special case. An armament economy involves in particular the curtailment of consumption as compared with that which it could have been under full employment.
The fascist system starts from the overcoming of unemployment, develops into an armament economy of scarcity, and ends inevitably in war.
1. What will be the practical outcome of the opposition to a policy of full employment by government spending in a capitalist democracy? We shall try to answer this question on the basis of the analysis of the reasons for this opposition given in section II. We argued there that we may expect the opposition of the leaders of industry on three planes: (i) opposition on principle to government spending based on a budget deficit; (ii) opposition to this spending being directed either towards public investment — which may foreshadow the intrusion of the state into the new spheres of economic activity — or towards subsidizing mass consumption; (iii) opposition to maintaining full employment and not merely preventing deep and prolonged slumps.
Now it must be recognized that the stage at which ‘business leaders’ could afford to be opposed to any kind of government intervention to alleviate a slump is more or less past. Three factors have contributed to this: (i) very full employment during the present war; (ii) development of the economic doctrine of full employment; (iii) partly as a result of these two factors, the slogan ‘Unemployment never again’ is now deeply rooted in the consciousness of the masses. This position is reflected in the recent pronouncements of the ‘captains of industry’ and their experts. The necessity that ‘something must be done in the slump’ is agreed; but the fight continues, firstly, as to what should be done in the slump (i.e. what should be the direction of government intervention) and secondly, that it should be done only in the slump (i.e. merely to alleviate slumps rather than to secure permanent full employment).
2. In current discussions of these problems there emerges time and again the conception of counteracting the slump by stimulating private investment. This may be done by lowering the rate of interest, by the reduction of income tax, or by subsidizing private investment directly in this or another form. That such a scheme should be attractive to business is not surprising. The entrepreneur remains the medium through which the intervention is conducted. If he does not feel confidence in the political situation, he will not be bribed into investment. And the intervention does not involve the government either in ‘playing with’ (public) investment or ‘wasting money’ on subsidizing consumption.
It may be shown, however, that the stimulation of private investment does not provide an adequate method for preventing mass unemployment. There are two alternatives to be considered here. (i) The rate of interest or income tax (or both) is reduced sharply in the slump and increased in the boom. In this case, both the period and the amplitude of the business cycle will be reduced, but employment not only in the slump but even in the boom may be far from full, i.e. the average unemployment may be considerable, although its fluctuations will be less marked. (ii) The rate of interest or income tax is reduced in a slump but not increased in the subsequent boom. In this case the boom will last longer, but it must end in a new slump: one reduction in the rate of interest or income tax does not, of course, eliminate the forces which cause cyclical fluctuations in a capitalist economy. In the new slump it will be necessary to reduce the rate of interest or income tax again and so on. Thus in the not too remote future, the rate of interest would have to be negative and income tax would have to be replaced by an income subsidy. The same would arise if it were attempted to maintain full employment by stimulating private investment: the rate of interest and income tax would have to be reduced continuously.4
In addition to this fundamental weakness of combating unemployment by stimulating private investment, there is a practical difficulty. The reaction of the entrepreneurs to the measures described is uncertain. If the downswing is sharp, they may take a very pessimistic view of the future, and the reduction of the rate of interest or income tax may then for a long time have little or no effect upon investment, and thus upon the level of output and employment.
3. Even those who advocate stimulating private investment to counteract the slump frequently do not rely on it exclusively, but envisage that it should be associated with public investment. It looks at present as if business leaders and their experts (at least some of them) would tend to accept as a pis aller public investment financed by borrowing as a means of alleviating slumps. They seem, however, still to be consistently opposed to creating employment by subsidizing consumption and to maintaining full employment.
This state of affairs is perhaps symptomatic of the future economic regime of capitalist democracies. In the slump, either under the pressure of the masses, or even without it, public investment financed by borrowing will be undertaken to prevent large-scale unemployment. But if attempts are made to apply this method in order to maintain the high level of employment reached in the subsequent boom, strong opposition by business leaders is likely to be encountered. As has already been argued, lasting full employment is not at all to their liking. The workers would ‘get out of hand’ and the ‘captains of industry’ would be anxious to ‘teach them a lesson. Moreover, the price increase in the upswing is to the disadvantage of small and big rentiers, and makes them ‘boom-tired.’
In this situation a powerful alliance is likely to be formed between big business and rentier interests, and they would probably find more than one economist to declare that the situation was manifestly unsound. The pressure of all these forces, and in particular of big business — as a rule influential in government departments — would most probably induce the government to return to the orthodox policy of cutting down the budget deficit. A slump would follow in which government spending policy would again come into its own.
This pattern of a political business cycle is not entirely conjectural; something very similar happened in the USA in 1937-8. The breakdown of the boom in the second half of 1937 was actually due to the drastic reduction of the budget deficit. On the other hand, in the acute slump that followed the government promptly reverted to a spending policy.
The regime of the political business cycle would be an artificial restoration of the position as it existed in nineteenth-century capitalism. Full employment would be reached only at the top of the boom, but slumps would be relatively mild and short-lived.
1. Should a progressive be satisfied with a regime of the political business cycle as described in the preceding section? I think he should oppose it on two grounds: (i) that it does not assure lasting full employment; (ii) that government intervention is tied to public investment and does not embrace subsidizing consumption. What the masses now ask for is not the mitigation of slumps but their total abolition. Nor should the resulting fuller utilization of resources be applied to unwanted public investment merely in order to provide work. The government spending programme should be devoted to public investment only to the extent to which such investment is actually needed. The rest of government spending necessary to maintain full employment should be used to subsidize consumption (through family allowances, old-age pensions, reduction in indirect taxation, and subsidizing necessities). Opponents of such government spending say that the government will then have nothing to show for their money. The reply is that the counterpart of this spending will be the higher standard of living of the masses. Is not this the purpose of all economic activity?
2. ‘Full employment capitalism’ will, of course, have to develop new social and political institutions which will reflect the increased power of the working class. If capitalism can adjust itself to full employment, a fundamental reform will have been incorporated in it. If not, it will show itself an outmoded system which must be scrapped.
But perhaps the fight for full employment may lead to fascism? Perhaps capitalism will adjust itself to full employment in this way? This seems extremely unlikely. Fascism sprang up in Germany against a background of tremendous unemployment, and maintained itself in power through securing full employment while capitalist democracy failed to do so. The fight of the progressive forces for all employment is at the same time a way of preventing the recurrence of fascism.
1 This article corresponds roughly to a lecture given to the Marshall Society in Cambridge in the spring of 1942.
2 Another problem of a more technical nature is that of the national debt. If full employment is maintained by government spending financed by borrowing, the national debt will continuously increase. This need not, however, involve any disturbances in output and employment, if interest on the debt is financed by an annual capital tax. The current income, after payment of capital tax, of some capitalists will be lower and of some higher than if the national debt had not increased, but their aggregate income will remain unaltered and their aggregate consumption will not be likely to change significantly. Further, the inducement to invest in fixed capital is not affected by a capital tax because it is paid on any type of wealth. Whether an amount is held in cash or government securities or invested in building a factory, the same capital tax is paid on it and thus the comparative advantage is unchanged. And if investment is financed by loans it is clearly not affected by a capital tax because if does not mean an increase in wealth of the investing entrepreneur. Thus neither capitalist consumption nor investment is affected by the rise in the national debt if interest on it is financed by an annual capital tax. [See ‘A Theory of Commodity, Income, and Capital Taxation’]
3 It should be noted here that investment in a nationalized industry can contribute to the solution of the problem of unemployment only if it is undertaken on principles different return than private enterprise, or it must deliberately time its investment so as to mitigate from those of private enterprise. The government must be satisfied with a lower net rate of slumps.
4 A rigorous demonstration of this is given in my article to be published in Oxford Economic Papers. [See ‘Full Employment by Stimulating Private Investment?’]
*Political Aspects of Full Employment1
Michal Kalecki (22 June 1899 – 18 April 1970) was a Polish Marxist economist. This essay was first published in Political Quarterly in 1943; it is reproduced here for non-profit educational purposes. A shorter version of this essay was published in The Last Phase in the Transformation of Capitalism (Monthly Review Press, 1972).
Amazing. Thanks for posting this. Confirmation and elaboration for me. There are a few wise men in every generation. From the same period I’ve enjoyed some of the testimony/writing of M. S. Eccles.
I also wonder if China isn’t providing another variation on this theme. Leadership in China seems determined to hold unemployment down, by whatever means necessary. That is not the only aim of their policy, but it seems to be an overriding one … for reasons of social stability.
Wow, thanks. I had this opened in a browser window all last week after hearing it referenced by Robert Pollin in an interview he did, which was posted on The Nation’s website. Never got around to reading it, though. Thanks for the unintended, coincidental reminder. I guess it’s just that relevant.
This cannot be a marxist hypothesis. Marx would not settle for the workers taking control of the politicies of the state without taking control of the state and distructing capitalism.
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There is no reason in a prospering economy, why government spending on providing employment (by making improvements to the infra-structure) is necessary. All it would do is to make the land more valuable, which has the effect of raising production costs, reducing the gains of the producers and placing these sums in the pockets of the land owners. In other words it helps to spoil the prosperity that otherwise would otherwise continue to flourish!
If by prospering you mean full employment, then, yes, we don’t need the federal government trying to boost output any further. But, this (US) economy is not prosperous! It leaves aside millions of people without jobs and opportunity. Despite the fact that it produces a monumental level of output, incomes are insufficient to buy it all up. Any economic system that has the technological capacity to provision for all, to ensure that each member of society can gain access to this magnificent surplus we produce annually, and yet fails to do so, cannot and should not be called prosperous. That sort of stark contrast between plenty and want is shameful; it’s a disgrace.
One more point before I rest my case: Why should I, or anyone I know, and anyone they have ever known, be concerned about the relative shares between landowners and capitalists? Both are rentiers in their own right, and have demonstrated that they have no interest whatever in providing much beyond their table scraps for the vast majority of people that live by their labor. When the crumbs do fall to the floor, we are forced to fight between ourselves for them, in some sort of farce that is supposed to represent to free market. My gain is your loss; veni vidi vici; all is best in the best of all possible worlds! In truth, it takes many hands, all of which are linked together through space and time, through a vast chain of interconnected processes, to bring forth the goods and services that we live by. Production is a social act. Therefore, we need a social method of distribution. What we currently have is anti-social; dictated by sociopaths.
The economic principles of government intervention require that public investment should be confined to objects which do not compete with the equipment of private business (e.g. hospitals, schools, highways). Otherwise the profitability of private investment might be impaired, and the positive effect of public investment upon employment offset, by the negative effect of the decline in private investment. This conception suits the businessmen very well. But the scope for public investment of this type is rather narrow, and there is a danger that the government, in pursuing this policy, may eventually be tempted to nationalize transport or public utilities so as to gain a new sphere for investment.
To me, this gets close to the nub of things . But Kalecki was too sanguine, I think, about what is going on.
There should be no mystery why capitalist enterprises push back against government participation in economic production. Public enterprise and private enterprise are often in competition. Sometimes that is because the public sector expands beyond its previous sphere of economic operations and moves into direct competition with, or displacement of, private firms. But even if the public sector is passive, and seeks only to maintain its current sphere of operations, it will still be attacked politically and economically by private capitalist enterprise, as the latter execute their inherent drive to expand.
In the first kind of case, the stakeholders in private enterprises resist an expansion of the public role because they worry that they will be outcompeted by public competitors, since public enterprise is not constrained by the requirement that it must return profits to its owners. In principle, then, the entire revenue from the provision of goods and services by a not-for-profit public enterprise can be devoted to covering the costs of the production, and so the enterprise can deliver the same goods and services at lower prices. We saw this kind of pushback during the health care debate, and it was the chief reason offered for killing the public option. Private health care providers and insurers were terrified of the prospect of the government getting its foot in the door, and showing that it could deliver the same health care goods as private firms, and deliver them more cheaply. That might have been the beginning of the end for private health care.
I think it is important to see that this is not just a matter of political pushback from individual firms acting as firms, to defend their own particular interests. We get coordinated and well-financed political pushback from capitalist firms working together as a political coalition, even firms that have no particular business interest in the specific issue being debated. The owners of private enterprises have a mutual interest in preserving the “free enterprise system” and so they work together politically to defend that system against any kind public encroachment.
But capitalist enterprise does not just fight to defend itself against public encroachment. Their war also includes offensive operations. Firms under capitalism operate under a continuing imperative to grow. Every manager and executive in a large corporation is ruled by a spreadsheet, on which is inscribed the expectations for growth and increased revenues. One way operations grow is by taking customers away from competitors. And when there are not enough business left to take away in the private sector, they will look to the public sector from prospects. When the big financial firms look out at the American landscape and say, “Where is our growth going to come from?” they notice public competitors like the Social Security system. All of that money flowing directly as transfers from the younger generation to the older generation, without any private financial firms taking a cut! From the capitalist point of view that is a huge missed opportunity for profit that they are desperate to get a piece of. So capitalism as a system struggles to put the public sector out of business. But the methods of competition are different than those used in the private sector – they involve lobbying and other forms of struggle in the political sphere to attack their public sector competitors.
Kalecki seems to suggest that a government can stick to its own sphere, to some extent, and avoid competition with, and political pushback from capitalists. But capitalists never stop competing and devouring. We are now seeing in our own time how aggressive capitalists are in attempting to seize control of forms of production that were previously thought to be the preserve of the public: schools, highways and other infrastructure. Even the business of war-fighting is seeing a continuous encroachment from the private sector, with governments contracting out soldiering to for-profit war-making firms.
Very nice analysis Dan. I think those on the left would benefit from it as it helps explain the constraints on government actions. Capitalists have already moved into infrastructure and the other sectors you mentioned. I would add prisons. And the Post Office could be next. Can debtors prisons and forced labor be far behind?
But do you have any proposals to slay the beast? It would seem the only way to do this would be political action to ring fence public enterprises or what was considered in the public sphere. But there is no stomach for that sort of thing I can see. In any case it is a direct challenge to ever getting a JG off the ground.
The soc-dems were too politically bankrupt to float around tax-to-nationalize public policy, whereby some mixture of business profits and financial assets would be subject to a special tax and then the government would use the funds from this tax to exercise eminent domain / compulsory purchase on the voting shares or other ownership stakes of those same businesses.
This particular policy would also be “fiscally responsible” in that it goes counter to stereotypical capitalist nationalizations financed by…. debt.
Excellent analysis, Dan. I think Kalecki would agree with you, which is why he included as objectionable the possibility of changes in habits of thought among the working class, resulting from the maintenance of full employment. He recognized that a true commitment to full employment would probably dislodge the manager or entrepreneur from their seat of power viz. the worker. This new situation would probably, at least, foster solidarity, and worse (for capitalism) an invigoration of more radical sentiment.
I agree with you Marx, these petty bourgeois reformists, far from wanting to transform the whole society according to the interests of the workers, only aspire to make the existing society as tolerable for themselves as possible. … At the end of the day the workers will remain wage laborers as before. However, these UMKC petty bourgeois reformists will hope to bribe the workers in order to cure their sins…
These fake accounts should go read Marx’s Programme of the French Workers Party and Demands of the Communist Party in Germany, along with the Eisenach Program of the Social-Democratic Workers Party of Germany.
This is a brilliant essay by Kalecki.
Mitch, I’m interpreting Kalecki’s comment about full employment changing workers’ culture and awareness differently. With work discipline out of fear of capitalists diminishing along with positive effects for society will come negative effects for society. Let’s face it, people do many socially useful things out of fear. If that fear is diminished, some people will stop doing such socially useful things. New, we hope more democratic, institutions may push people to continue to do socially useful things under conditions of full employment. Worker’s self-management is a very demanding discipline and there are many hard choices to be made in worker c0-participation in management decisions. The need for something like managers and management will not go away, whether under capitalist or in nonprofit public service driven enterprises.
We can hope that an institution like the JG/ELR will help more people find what they love to do and therefore will require less fear to do socially useful things, but the process will not occur suddenly or even linearly towards the state of everybody doing more fulfilling work or work that better suits their “core competencies”.
You may be right – we do seem to live in a world of fear, and fear of unemployment probably drives the worker to be more productive. But, I don’t think that’s inevitable – why choose the stick over the carrot? Maybe I’m too optimistic, but I think that most people, when given the chance, take pride in their work. They like to feel that at the end of the day, they’ve done something useful with their time. The problem is that over the last 30 years or so, the mgmt / workforce ratio has soared, reflecting the increasing need to keep a watchful eye on the labor process. Why is this so? One argument is that management gave up on the old post WWII strategy of shared prosperity, on the basis that 1) managers felt they deserved a larger slice of the pie, and 2) out of fear union militancy. As a result, they set out to pursue a policy of union busting, wage stagnation, and deskilling wherever possible. On the labor side, disappearing purchasing power, pensions and other fringe bennies has made the working day markedly more miserable than it may have been in the previous period. To keep them motivated you need more managers.
So, I don’t see anything universal or timeless about the need for managers. Nor do I think secular unemployment is necessary or just as a means of compelling people to do good things for society.
There’s one other thing that lurks in the background here, one that is probably not shared among other MMT types here and elsewhere, which is the question: exactly how productive do we need to be? How much goods and services do we really need to produce annually? The received doctrine is “as much as we possibly can.” But, why? Does having more and more widgets really make us happier? The evidence suggests otherwise. I would submit that given the technology we have today, we could provide for a high standard of living for all, for the indefinite future with no further increases in productivity. Of course, that requires a radically different way of viewing distribution. But, we should at least ask these questions and examine them critically. If we ignore them, dismissing them as impractical or inappropriate, then we have the privilege of continuing to face difficult problems with a rather narrow solution space.
crude politics has, for want of any better method, been the market arena for selecting much of public initiative;
I agree that we need a much more intelligent & scalable approach to exploring national options. Our current approach is neither intelligent, nor a good market for testing policy options.
If political economics takes that on seriously, then it will start merging with biology & ecology & sociology & anthropology, & engineering & systems theory … & ?
How much do we have to do? The answer is only answerable in the future, as we or others look back and say “they should have at least done [something].” In an adaptive race, the competition is to perceive in a changing context what we have to start doing differently, before others replace us AND before it’s too late for any & all to survive. We compete with others and against the universe itself, for our place in it.
I’m saying that inevitably there are carrots and sticks. Your comment implies that I am suggesting that we should only use sticks. That I suggest in a future, better social-economic system that sticks will exist and be necessary (as well as something like managers) doesn’t mean that I advocate ONLY sticks. People are diverse in their motivations and we cannot rely on everyone having only the best intentions. We also cannot assume that everyone incipiently has the worst intentions and therefore needs to be motivated by fear to do the right thing. There are also sociopaths, a small fraction of the population, that can either have more or less influence on how society is structured; Bill Black has pointed out how our regulatory culture in the last 35 years has produced a sociopathic culture in important sectors of the finance industry, promoting actual sociopaths to positions of critical importance.
Work needs to be organized so that it both serves the workers and also serves the people who “consume” the products of work, whether through purchase or some other means. There is tension there which is not easily resolved in favor of the producers or the consumers. This should be the subject of great debate in economics and other social sciences but it has been marginalized by neoclassical economics unrealistic worldview that is largely in favor of consumers/buyers. This is independent of the amounts of product produced or the profit achieved from that production.
I think a study of Hegel from a non- or post-Marxist point of view is helpful here. I interpret Hegel’s work as suggesting that there are great oppositions in society or in our thinking about society, that we tend to think in opposites and history moves because of a clash of opposing views. I think we need to evolve a little bit beyond thinking in opposites and try to offer a synthesis that is sustainable and workable. So I think rather than just argue against the current misuses of management or the problems of the current organization of work/reward/punishments, we need to provide a likely solution or a dynamic that doesn’t reproduce some of the problems of the past.
Nicely put, overall, but very odd that he seems unfamiliar with the concept of a fiat currency, with no such thing as a national debt in real terms. Pity Kalecki didn’t meet Marriner Eccles or Beardsley Ruml before 1942!
” Another problem of a more technical nature is that of the national debt. If full employment is maintained by government spending financed by borrowing, the national debt will continuously increase. This need not, however, involve any disturbances in output and employment, if interest on the debt is financed by an annual capital tax.”
Substitute “draining bank reserves” for “capital tax” and we have the bulk of MMT?
So an economy balanced between public and private investment is the one that will provide the most stable employment in the long term flattening the business cycles, right? I don’t know. All I know is the 104 nuke plants are starting to fall apart, reports show that wind/solar/tidal/conservation can replace the entire generating capacity of both nuclear and coal plants, and that there is a report out there that says that impacts of even low level nuclear radiation is much more damaging than previously thought (Inconsistencies and Open Questions Regarding low-level Exposure to Ionizing Radiation, by Nussbaum and Kohnlien.
Also regarding global warming impacts of nuclear power; nuke plants are direct warmers, gobbling up huge amounts of water, river or seawater, in order to stay properly cooled. Entire river ecosystems have been warmed up by up to 4-7 degrees having huge negative impacts on those ecosystems affected. So we really are not “solving” the global warming problem by upgrading or replacing nuke plants. Check out the solar thermal plants in the US southwest; these can work too, very well actually.
Oh yeah, I forgot. There’s around 5,000 plus bridges and dams that need replacing too. Remember damage to New Orleans could have been cut by 2/3rds by Katrina if a planned levee had been put in the summer before. The republicans refused to fund it. The communities were effectively destroyed and people were scattered to the four winds all over the US as a consequence. Outcome? Culture destroyed and land the public housing was on was stolen into the private sector by developers in cooperation with the new orleans city council probably totally in the pocket on the deals. In another situation, the I-35 bridge that collapsed was known to be compromised for years, but was not checked before it was overloaded in a widening project; down she goes!! The republicans there knew for ten years that the bridge was compromised but never repaired it adequately before the widening project. See how they are; la la land.
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Brilliant essay by a Marxian economist, though he didn’t foresee the rise in consumer services and possible government roles in them. The proper term for those outside the Bastard Keynesian / Neoclassical Synthesis box should be Zero Structural and Cyclical Unemployment, not “full employment.”
I am new to this and have yet to finish all the MMT blogs in the primer. Perhaps I should finish before opening my mouth. My question is “Why so much fear of spending/inflation when it has been pointed out above we have vast industrial capacity and can easily meet demand?” Additionally, as to where is the money going to come from, if not taxes (unpopular) then “keystrokes.” If we can put billions into war and preparing for war to kill, we should be able to find the credit for the “living.” Of course the FED keystrokes have to be paid back and get tacked on to our national debt, but who is going to “call in” the loan on every man woman and child? The ceiling just continues to infinity.
The answer to this question will vary depending on who you ask. There certainly exists a lot of misinformation in the media over the function of spending and the causes of inflation. Some argue that this is the result of powerful individuals not being educated in economics, others argue wilful ignorance, the need for people to sustain their respective economic faiths, and some even argue more wicked forces at work!
I guess anything beyond what I have said would be an opinion. Since you are relatively new to MMT you will be left with more questions as you learn more. Not questions about how the economy works – MMT shines here – but why we didn’t discover this sooner. IMO the answers to such questions will be highly opinionated, and we may never know the entire truth. But, the value of such questions is determined insofar as they allow us to understand the best path towards widespread understanding of MMT. 🙂
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