Kalecki and fiscal policy

Why Not Fiscal Policy? by Chris Dillow

Simon Wren-Lewis suggests there might be “other motives at work“ than macroeconomic reasoning for the government’s refusal to consider using fiscal policy to combat rising unemployment. 

If he is anything like the Oxford macroeconomics lecturers of my day, he is hinting at Michal Kalecki’s 1943 paper, Political Aspects of Full Employment: 

Under a laissez-faire system the level of employment depends to a great extent on the so-called state of confidence…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... The social function of the doctrine of 'sound finance' is to make the level of employment dependent on the state of confidence…. 

'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.

A lack of discipline in the factories and political instability should be valued more by the left than wage gains. That is, lasting full employment should be *the* priority.

The goal should be to allow "government to increase employment by its own purchases." The doctrine of "sound finance" should be fought root and branch.

unemployment and inflation

The Tradeoff between Inflation and Unemployment: What We Don’t Know Can Hurt Us by Jared Bernstein

Inflation, Unemployment, Ignorance (Slightly Wonkish) by Krugman

The Leftovers, scapegoats, and inflation

The World’s Central Banker by DeLong

AV Club reviews the The Leftovers: “Pilot”

The Fed needs to target 4 percent inflation or else we'll get the scapegoating of foreigners. If 2 percent of the population disappeared, there'd be an economic boom as labor supply would meet demand and the Fed would have to raise rates.

Dean Baker had the best post on inflation and wage adjustment.

Kalecki

War is the Health of the GDP by Sandwichman

"Does this mean, then that the continued failure of our foreign policy is the only way to pay for the failure of our fiscal policy?"

--Eisenhower

full employment

The Full Employment Route to Poverty Reduction by Dean Baker

Full employment

Political Aspects of Full Employment by Michal Kalecki

Where Have All the Jobs Gone? by Jared Bernstein

How to State the Keynesian Argument Correctly by Yglesias

Employment is determined by the demand for it from the government and private (domestic + exports). Credit conditions set by the Central Bank can modulate demand, turning it up or down depending on inflationary/deflationary pressures. As can fiscal policy. 

The limits of it are set by the supply of employable. When there's an oversupply your going to get low inflation and a lower employed-to-population ratio compared to the 2000s and long term trend. 

Part of it as Bernstein states is that we've had a trade deficit for years. This can be replaced by fiscal (deficits) and monetary policy. A lower currency value will eliminate the deficit and raise employment from exports.

The Cult of "Price Stability" Is Killing American Workers by Yglesias

My first introduction to the mysteries of monetary policy came when I was maybe 15 or 16 in the mid-to-late nineties and I was scanning the newspaper over breakfast. I saw a story about a strong Employment Situation Report from the BLS and how it sent the stock market falling in response because markets were anticipating a rise in interest rates. Why, I asked my dad, would an increase in employment be bad? He explained that when too few people were unemployed, the Federal Reserve tended to get worried because with so few unemployed people around workers would start agitating for higher pay. And higher pay leads to inflation. So it's important for the Fed to respond to low unemployment with high interest rates to push unemployment higher and prevent wage gains. This sometimes has the incidental impact of causing stock prices to fall.

That sounded insane to me, and my dad agreed that it was insane and explained that executive of the modern state is but a committee for managing the common affairs of the whole bourgeoisie.

...

Now don't get me wrong. The moral of the story isn't that inflation per se is a good thing. But if you watch Kevin Durant play a whole season of basketball and his free throws never miss to the right, that's not a sign of shooting skill it's a sign of shooting error. Some misses are inevitable, but you want the misses to be roughly symmetrical because you're aiming for the hoop. If all your free throw misses are misses to the left, something's going wrong.

Political Aspects of Full Employment by Michal Kalecki

(via DeLong)