'O make me a Keynesian (but not yet)' ?

Slí Eile09/11/2009

Slí Eile: The entry by UK economist David Blanchflower into the domestic economic debate (re-flation versus deflation) created a stir last week. For a moment, it took us away from the narrow, Irish insular debate of ‘public sector versus private sector’, ‘job cuts versus pay cuts’, ‘public spending cuts versus tax hikes’, ‘your grandmother versus your job’ and ‘your left arm versus your right hand’ – all false dichotomies and enforced choices thrown on a public already anxious and dispirited. When you hear the Prime Minister of a country saying that he has a vision for the future and that vision is a smaller public service then you know we have a vision-crisis as well as a values-crises. Blanchflower’s message is simply that we cannot afford to condemn a generation of young people to long-term unemployment with all the devastating consequences that this entrails.

Blanchflower’s talk can be podcasted here.

and his talk can be downloaded here.

(as can all the papers for the Dublin Economics Workshop here)

Blanchflower’s main policy conclusion is
“The time to act is now. The young must be the priority.” (his words)
He also warns that Recovery may not be V-shaped but W-shaped. (IMF and other bodies are cautioning against a premature withdrawal of stimulus measures).
Before considering his menu of policy options, some of the key points he makes at the outset are that:
* The costs of unemployment will vary across countries and between groups within populations. * The young will be hit hard.
* The duration of the slump may be much more prolonged than most people are expecting and … * Much will be changed both in our ideas and in our methods before we emerge.
* During a long period of unemployment, workers can lose their skills.
* Unemployment increases susceptibility to malnutrition, illness, mental stress, and loss of self-esteem, leading to depression and in a few cases suicide.
* The long-term unemployed are at a particular disadvantage trying to find work. People's morale sinks as duration rises.
* As unemployment rates increase, crime rates tend to rise, especially property crime.
* Increases in the unemployment rate, lowers the happiness of the population, not just the unemployed. The fear of becoming unemployed in the future lowers a person’s subjective wellbeing
* Unemployment while young, especially of long duration, causes permanent scars rather than temporary blemishes. He cites solid UK longitudinal evidence to back this up.

His policy prescription is decidedly Keynesian:
1) Maintain or even increase aggregate demand through stimulative fiscal policy
2) Target assistance on the young through active labour market programs and continuing training and expansion of education, wage and employment subsidies for the young, incentives for hiring the young in public sector organisations such as in education and health and ‘lowering the minimum wage for the young’

Blanchflower argues that ‘moves to cut public expenditure or public sector wages or employment’ in the depths of a recession are ‘a mistake and may turn a recession into depression’

Little wonder that there was such a lively and adverse reaction from the economics mainstream here

In that thread Michael Burke asks:

A challenge to all the slash and burn advocates: Name another advanced economy which intends to pursue a course of slashing public spending currently in the way that Ireland intends.

One detects a severe case of Augustinian Keynesianism among the Irish economics confraternity (while we would love to stimulate fiscally we will not because.....):

O Lord make me a counter-cyclical Keynesian - but not yet.

Posted in: Economics

Tagged with: Keynes


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