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| Michal Kalecki 1899 - 1970 |
The paper starts by taking as given what Kalecki calls the doctrine of full employment. The basic idea is that the private sector, left to its own devices, is prone to Keynesian aggregate demand failures (see here for game-theoretic interpretation). The remedy for these spontaneously-occurring "coordination failures," is a government spending program that acts, or stands ready to act, as private demand begins to falter.
Kalecki starts his paper off by asserting that by 1943, the doctrine was widely accepted by most economists. It seems clear that Kalecki views the doctrine to be self-evidently true.
But if this is the case, then this poses a problem. If the doctrine is so obviously true, why then are there still economists who oppose it? And if the idea is so self-evident, why are so many "captains of industry" reluctant to accept it? As Kalecki admits (pg. 324), this attitude is not easy to explain. After all, depressions are bad for business and businesses collectively should welcome any intervention that restores the economy to full employment.
The problem, as he sees it, is a political one. While the "economic experts" that disavow the doctrine may believe in their own theories, however poor they may be, he notes that "obstinate ignorance is usually a manifestation of underlying political motives." He doesn't say exactly what these political motives are, but he notes that these "economic experts" are, or have been, closely connected with banking and industry. But if this is the case, then the question turns to what motivates industry leaders to block interventions that they know will be good for industry?
He lists the following three reasons.
[1] Absent full employment policy the "state of confidence" will produce business cycles. Under laisser-faire then, industry leaders can credibly use this fact to exert a powerful indirect control over government policy.
[2] Supporting obviously beneficial public sector investments leads to a slippery slope. The government may wish to encroach in other areas in competition with private enterprise.
[3] In a perpetually full employment economy, the threat of unemployment vanishes as a discipline device for employers (see also here). As well, the social position of the boss would be undermined and the self assurance and class consciousness of the working class would grow, leading to political instability.
What to make of this? Well, I'm not sure. The first reason asserts that "business leaders" are willing to plumb the depths of economic depression every once in a while in exchange for political power. He doesn't actually say what this political power buys them. But whatever it buys them, I wonder whether it might not be purchased more cheaply through more conventional means?
The second reason doesn't seem plausible to me. Why wouldn't the private sector be willing to support infrastructure projects that benefit their interests directly? Was there any serious industry opposition, say, to the Federal Highway Act of 1956? And if there was, was it because of a fear that the project might succeed too well, an outcome that would encourage the government to become more adventurous in other arenas?
The third reason also seems weak to me. It is true, Kalecki writes, that profits would be higher under full employment, "but 'discipline in the factories' and 'political stability' are more appreciated by the business leaders than profits." First, the idea of unemployment as a discipline device only needs a constant low level of unemployment to work (Shapiro and Stiglitz, AER 1984 "Equilibrium Unemployment as a Worker Discipline Device;" see their reply here to a critique.) A decade-long Great Depression seems like an awfully high price to pay for "worker discipline." And as for promoting political stability, I think it is understood that events like the Great Depression, or even the Great Recession for that matter, promote political instability (which even Kalecki mentions in the article).
To sum up, Kalecki asks a great question. Collectively, we are all better off materially in the absence of economic depressions. We know--in principle, at least--how to prevent major economic depressions (I'm not talking about regular "small time" business cycles here.) But if so, why are interventions like the Obama stimulus program met with such bitter opposition in some quarters? For that matter, the TARP intervention--a "bailout" program aimed at stabilizing the financial sector--was also met with vocal opposition, especially from Main Street. Is this really all just a concern over "moral hazard?"
Maybe there's just a suspicion that these interventions, however good they may sound on paper, work out in practice simply as ways to redistribute income to undeserving, but squeaky wheels. I overheard a political commentator on NPR the other day remark that in economic and political negotiations, "if you're not at the table, then you're likely on the menu." I suppose it's easy to say what we need in this case is better representation at the table. How to do this? I'm all ears.