Today is a national day of action sponsored by AFSCME to tell Congress to support jobs not cuts to social programs. I called my Senators and Representatives, but it got me to thinking. In the wake of a financial crash that brought about the worst economic downturn since the Great Depression, and the election of a Democratic President promising Hope and Change, why haven’t we had a jobs program?
This isn’t a new question, by the way. One of the most influential economists that you have never heard of attempted to answer this very same question back in 1943. Michael Kalecki’s Political Aspects of Full Employment, is worth examining to see what has changed and what is still the same. Kalecki was a Polish economist in the Keynesian tradition, who realized that many of the arguments made against full-employment were political in nature rather than economic.
“There is a political background in the opposition to the full employment doctrine, even though the arguments advanced are economic.”
Examining Kalecki’s thesis, it’s clear that the political objections to full employment remain in place. Yet it is mystifying because as Kalecki states– “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?”
Kalecki doesn’t come right out and say it but I can. The opposition to full employment is ideological.
“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.”
Wow! We just had a Presidential election where one candidate made the argument that the economy remained sluggish because investors lacked “confidence.” His other implicit argument was that the “captains of industry,” like him, are the real job creators, not the evil government bureaucrats.
Kalecki continues to articulate more reasons for the resistance to full employment. “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.”
What are the business solutions to unemployment? Glad you asked. In Kalecki’s milieu as in ours there is always the tried and true.
” 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.”
So what can we expect going forward?
“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.”
Amazingly prescient. No wonder you have never heard of Kalecki. I guess the more things change the more they stay the same.