In one of his last columns, Lord Skidelsky argued that fiscal stimulus is in order given the current status of affairs of the global economy, especially the United States (Skidelsky, 2013).
Why Lord Skidelsky does recommend stepping
aside our threats from deficits and accumulating public debt and trying to
re-invigorate the states development function through fiscal stimulus? At first
blush, the question of “why” has two aspects semantically: First, for what purpose? And second, for what
reason?
According to Skidelsky, the classical Keynesian renaissance would be of key importance in coping with the daunting challenge of income inequality, which can be seen as one of the most fundamental causes of the recent economic „perfect storm”. The purpose should be to diminish the gaping gap between the rich and the poor in terms of income inequality.
This argument assumes that the recent crisis can be rooted in the dispiriting income inequality that led to excessive borrowing coupled with affluent liquidity and banks that were able and willing to lend. However, this type of reasoning does not show convincingly that income inequality would be the cause (the good reason); what is more, it can also be argued that income inequality is just a symptom of deeper structural phenomena in the developed world.
According to Skidelsky, the classical Keynesian renaissance would be of key importance in coping with the daunting challenge of income inequality, which can be seen as one of the most fundamental causes of the recent economic „perfect storm”. The purpose should be to diminish the gaping gap between the rich and the poor in terms of income inequality.
This argument assumes that the recent crisis can be rooted in the dispiriting income inequality that led to excessive borrowing coupled with affluent liquidity and banks that were able and willing to lend. However, this type of reasoning does not show convincingly that income inequality would be the cause (the good reason); what is more, it can also be argued that income inequality is just a symptom of deeper structural phenomena in the developed world.
Income inequality may be the result of a series
of highly interrelated and mutually reinforcing phenomena being part and parcel
of our new techno-economic paradigm (ICT-based, service sector dominated knowledge
or learning economy). This paradigm has some specific features that have been
directing towards lower productivity through labour-saving technologies (i.e. automation,
standardisation by means of ICT etc.) which entailed downward trends in labour shares
as, for instance, Karabarbounis
and Neiman (2013) pointed out. There is a secular feature of problems behind
the scene rather that one could ascertain that mitigating income inequality via
economic policy engineering can result a sustainable ameliorating trend,
accordingly.
In our recent paper (Kovács, 2013) we addressed the daunting
challenge of current economic recovery by contributing to the better
understanding of its secular feature. In so doing we devote special attention
to the secular decline in innovativeness by raising three interlinked and
interrelated explanatory phenomena: (i) lowering productivity in the new
techno-economic paradigm; (ii) the effect of the different degree of employment
protection; and (iii) the issue of pent up disruptive innovations. We argued
that these phenomena are not black swans; however, they have been developing in
commonly unnoticed increments by manifesting the so-called ‘creeping normalcy’
and being endogenous to the market system. The paper drew lessons to be
learned for the Central and Eastern European Member States by emphasising the
need for a systemic approach which is of paramount importance when it comes to
fiscal consolidation.
Our earlier consideration still holds, namely that, for sure, sovereign
debt crisis triggered by recent crisis and the crisis management itself will
not evaporate in the short term, decreasing public debts will easily become a
decade-long task, however, consolidating to the numerical levels in the European
Union (stipulated by the Maastricht Treaty and the Fiscal Pact) without
considering the demand conditions (which is affected heavily by income
inequality, tighter liquidity constraints etc.) would be a Hayekian fatal
conceit in terms of growth consequences. Policymakers should therefore follow a
more cautious way of stabilisation if they are to avoid stabilisation that is
more like destabilisation. The big question is whether Europe can find the new
growth model pursuing for instance the sustainable global golden age tailored towards
green global economy promoted by Carlota Perez (Perez,
2010).
References
Karabarbounis, L. – Neiman, B. (2013): TheGlobal Decline of the Labor Share. NBER
Working Paper No. 19136
Kovács, O. (2013): Black Swans or Creeping Normalcy? – An Attempt to a Holistic Crisis Analysis. Eastern Journal of European Studies, Vol. 4. No. 1. pp. 127-143
Kovács, O. (2013): Black Swans or Creeping Normalcy? – An Attempt to a Holistic Crisis Analysis. Eastern Journal of European Studies, Vol. 4. No. 1. pp. 127-143
Perez, C. (2010): The Advance of Technology and Major Bubbles Collapses: Historical Regularities and Lessons for Today. Available: http://www.carlotaperez.org/download/PEREZTechnologyandbubblesforEngelsbergseminar.pdf Accessed on: 1.07.2013
Skidelsky, R. (2013): The Incompatibility of Austerity and Economic Reform. Economic Rebalancing Acts. Project-Syndicate. Available: http://www.project-syndicate.org/commentary/the-incompatibility-of-austerity-and-economic-reform-by-robert-skidelsky Accessed on: 1.07.2013
This post features the author's personal view and does not represent the view of ICEG European Center.
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