J. W. Nevile

Overcoming Social Exclusion

In the large majority of cases, social exclusion is caused by a lack of economic participation and in particular by chronic joblessness. This paper looks at policies and programs to overcome joblessness. Programs that increase individuals’ capacities are important, but they cannot be widely effective in increasing participation if there is a shortage of jobs available for people to fill. The first half of the paper surveys policies to increase the demand by employers for workers. At times like the present, when employment is increasing substantially, programs to build capacities can be much more effective in increasing economic and social participation. The second half of the paper is a case study of one such program — a rather controversial one — Work for the Dole. The paper concludes that Work for the Dole helps build capacities, but that changes in the program are necessary if it is to reach its full potential.

IS-LM and Macroeconomics after Keynes

This paper reflects Victoria Chick’s deeply held belief ‘that the macroeconomics which has followed the General Theory in time has not followed it in spirit’ (1983: v). This type of complaint is widespread in post-Keynesian literature and centres on the simultaneous equation equilibrium nature of the ‘Keynesian’ part of the neoclassical synthesis.

Exchange Rates and the Macroeconomy in an Era of Global Financial Crises, with Special Reference to Australia

Unless the global financial system is radically reformed — and the necessary reforms are looking increasingly unlikely to occur — it will continue to be conducive to financial crises. Government rhetoric and actions can often influence in desirable ways both the speculative actions that now determine the exchange rate and the effect of exchange rate movements on the domestic economy. Managing the exchange rate should start with Australian support for measures such as the Tobin tax that dampen speculation. In 2008 and 2009, exchange rate changes were helpful in reducing the impact of the global financial crisis on Australia, largely because of a very clear commitment by the Australian government to make preservation of jobs its top priority. In 2009, a rapid rise in the exchange rate was unhelpful. In the short run, little can be done about this, but in the longer run, it is possible to offset the adverse effects.

Why Keynesian Policy was More Successful in the Fifties and Sixties than in the Last Twenty Years

In the 1950s and 1960s unemployment averaged about 2 per cent. The lowest level of unemployment in the last twenty years was double that and long term unemployment, virtually unknown in the 1950s and 1960s, has been a severe problem. In each period there were two major slumps. We examine the progress of each slump and macroeconomic policy responses in each case, in order to search for reasons for this contrast. The priority given to minimising unemployment rather than restraining inflation is the most important difference between the two periods. Other major principles stand out, the most important of which are that in response to a downturn a fiscal policy stimulus is essential and must play the major part of any response; and that implementation must be swift and then followed up by further measures if necessary.

Tools of choice for fighting recessions

Policy makers are perpetually reinventing the wheel. Before the First World War, monetary policy was the sole tool used for macroeconomic stabilisation. The ‘Keynesian’ revolution heralded a major change, so that in the first twenty five years after World War II, fiscal policy became the primary tool for economic stimulation. After the experience of stagflation in the 1970s, fashion changed, and monetary policy came into its own. Its perceived importance for policy continually increased until, during the 1990s, it had totally replaced fiscal policy in the minds of policy makers and business interests.1 There has been a major swing in the views of economists interested in and knowledgeable about macroeconomic policy. The majority of such economists now look to monetary policy to cure recessions, whereas fifty years ago the majority thought monetary policy was of little use by itself, though it had a supporting role to play to fiscal policy. Has the world changed, or were most economists mistaken either fifty years ago or now?

The Current Crisis Has a Silver Lining

Capitalism has had many crises and often they have led to improvements in the way it has operated. Two related improvements are predicted as a result of the current crisis. One is the hastening of the decisive defeat of market liberalism. The other is the rehabilitation of fiscal policy as part of the tool kit used to minimise the inherent instability of capitalist economies. After a brief exposition of the core aspects of market liberalism, this article considers the use of fiscal policy in each of the short run and the long run. Policies around the OECD in the last 16 months have already embodied both these improvements, but a similar achievement in the long run will be more difficult. The crowding-out thesis has more appeal when applied to the longer run. However, the empirical evidence does not support crowding out. More generally, economic orthodoxy relies on neo-classical growth theory to support a belief that longer run trends in real economic variables such as output and employment are determined solely by supply side factors. The article uses the authority of Solow and Swan to emphasise that this is an assumption, not the result of any analysis, and that neoclassical growth theory itself assumes that fluctuations in investment over the business cycle will necessarily affect the path of potential output. Moreover, not only is the NAIRU (Non-Accelerating Inflation Rate of Unemployment) determined by the path of investment in physical and human capital, but at a much lower level of unemployment than the conventional wisdom believes.

Escaping from a Blind Alley: Disequilibrium in the Dynamic Analysis of Harrod and Kalecki

The pioneers of dynamic Keynesian economics, Harrod and Kalecki, began with an analysis of the trade cycle, but are remembered for their contributions to growth theory. Unlike most twentieth century growth theory, they both had a major focus on disequilibrium situations and an examination of this aspect of their theory is the purpose of this paper. Harrod distinguished three stages in his dynamic analysis. The first was the derivation of the fundamental equation and consequent theorems. Fundamental meant underlying: even apart from random factors the equation may never hold exactly in real life. In the second stage, detailed analysis was made of the factors (in addition to the fundamental equation) which have a systematic effect on the path the economy follows. The final stage is policy prescriptions. Except in his 1936 book on the trade cycle, Harrod did relatively little “second stage” work but this did not stop him putting forward policy prescriptions. This three stage structure of analysis contributed to the widespread misunderstanding of the nature of his fundamental equation leading to a widely accepted view of a Harrod growth model which was completely different to what Harrod thought he was putting forward. Kalecki, on the other hand, rejected what Harrod had called “first stage analysis” as being of little interest. His main criticisms of growth theory were aimed at, what he saw, as the vacuousness of such theorising. Instead, his work concentrated on second and third stage analysis, that is, in attempting to understand the non-equilibrium, dynamics of the economy with a view towards policy prescription. For this reason, Kalecki’s contribution was less open to misunderstanding than was Harrod’s.

Macroeconomic Impacts of Globalization

Globalization has led to substantial changes to the economies of many nations. The contemporary form of globalization has substantially increased the degree of openness of most economies, both in terms of international capital flows and in trade, and it represents an almost overwhelming force impacting on all countries. This paper considers some of the implications of the macroeconomic impact of globalization on nation states within an explicitly Keynesian/Kaleckian framework. Two interrelated forms of macroeconomic impact are considered. Initially, the general implications of globalization for the output and growth of national economies are examined, before turning to the constraints imposed on the ability of governments to influence the macro-economy via traditional polices.

Can Keynesian Policies Stimulate Growth in Output and Employment

There is widespread agreement that a faster, sustained rate of growth of the Australian economy is required to achieve a substantial lasting reduction in unemployment. As Burgess and Green (2000) argue, on current estimates of the relevant variables, including productivity growth and labour-force growth, GDP growth of around 4.3 per cent per annum is required to reduce unemployment by 1 per cent per annum. It is abundantly clear that such a level of GDP growth is much bigger than the trend rate of growth, of about 3 per cent a year, achieved over the last 25 years. It is also higher than the average rate of real GDP growth achieved in the 1990s of about 2.9 per cent. The required increase in the medium-term trend rate of growth is large enough to require a major change in the overall policy mix. This chapter argues that Keynesian policies can increase the growth rate by the required amount, but that it will not be easy and will entail some cost, in the form of higher taxation, to those already employed or receiving a comfortable income from rent, interest or dividends.

Full Employment, a Neglected, but Indispensable and Feasible Human Right

Human rights are the foundation of human existence and coexistence. Human rights are universal, indivisible and interdependent. Human rights are what make us human. They are the principles by which we create the sacred home for human dignity. [Message by Kofi Annan, Secretary-General of the United Nations, on the fiftieth anniversary year of the Universal Declaration of Human Rights 10 December 1997]