Bryan Evans - The Austerity State

BRYAN M. EVANS AND STEPHEN MCBRIDE

Neoliberalism remains an apparently intractable part of the political economy of most mature capitalist industrial countries, and policies of austerity reflect neoliberal conventional wisdom of how to deal with the economic and financial crisis that began in 20078. There was a brief moment, roughly from 2008 to 2010, when governments and central banks appeared to be retrieving the lessons of Keynes to save the global economy from collapse. The contributions to this book, however, take the view that although some economic stimulus was a feature of the early reaction to the crisis, to see those as Keynesian was a misinterpretation of events.

In the aftermath of the crisis, some policies were applied that did involve economic stimulus. Whether this adds up to any deviation from neoliberalism in the direction of Keynesianism is much more problematic. The position taken here is that stimulus is not coterminous with Keynesianism (nor, for that matter, is austerity necessarily coterminous with neoliberalism, though in the current context we would argue that it is). So we need to be clear about how we are using these terms.

Elaborating upon the various elements that make up a policy paradigm like Keynesianism or neoliberalism may be helpful, in particular the distinctions made by between goals, instruments, and settings. The goal of the Keynesian paradigm was for the state to engage in counter-cyclical state action to maintain the economy at full-employment levels. It was a response to events, not an autonomous political decision made by states independent of the times or corporate (and labour) demands.

It could achieve its goal (full employment) by using a variety or a combination of policy instruments. These could include fiscal policy (spending levels, tax levels); monetary policy (interest rates, affecting the price of money; quantitative easing, affecting the quantity of money); and other measures like labour market policy. Depending on the business cycle, the settings of the policies could be expansionary or stimulative to create growth and employment; or restrictive, to rein in growth, inflation, and employment as the economy overheated. In the latter conditions, austerity measures might be applied. So austerity itself is not outside the Keynesian repertoire.

Neoliberalisms economic policy goal is control of inflation, control of government spending and debt, and reduction in the role of the state, especially its social dimensions. The paradigm might similarly employ a range of instruments. Like Keynesianism, it needs to be located in the particularities of the crisis it responded to and to the configuration of social forces, in which labours influence progressively weakened. Full employment is not a goal. Rather, unemployment should be allowed to gravitate to its natural level, or to the non-accelerating rate of unemployment (NAIRU), i.e., the level of unemployment consistent with stable rates of inflation. Settings on fiscal and monetary policy may often be restrictive to ensure that inflation does not develop beyond the target range. However, if there is a deflationary threat, the settings may be adjusted to provide stimulus. So stimulus does not equal Keynesianism and can, in fact, be part of the neoliberal repertoire, as it was in the immediate post-crisis period.