Labour’s loss: Why macroeconomics matters
DOI:
https://doi.org/10.13133/2037-3643/17673Keywords:
social democracy, New Keynesian macroeconomics, NAIRU, Keynesianism, full employment, fiscal and monetary policyAbstract
Electoral support for social democracy in Western Europe is in free fall. The implosion of social democracy is largely self- inflicted, because ‘Third Way’ social democracy alienated its traditional supporters by (a) a deliberate move to the non- reformist, status-quo oriented macroeconomics of the New Keynesian consensus, which de-politicizes macro management and legitimises macro control by technocratic central banks; and (b) its promotion of a middle-class oriented ‘cultural liberalism’, as compensation for a lack of achievements on the economic front. As a result, Western European social democratic parties became responsible for austerity, rising inequality, social and economic disempowerment, and heightened insecurity—factors which contributed to a hardening of attitudes on cultural issues and migration. Social democracy has to return to its earlier reformist roots. The paper outlines what is needed in terms of fiscal and monetary policy as well as social concertation to create sufficient space for a reformist, productivist, and egalitarian strategy oriented toward full employment— based on a reimagined Keynesianism in which a prominent role is given to the economy’s supply side.
References
Andor L. and Huguenot-Noël R. (2021), “The Janus’ face of Europe’s new social rulebook”, VoxEU.org, May 5. Available at: https://voxeu.org/article/janus-face-europe-s-new-social-rulebook
Baccaro L. and Simoni M. (2008), “Policy concertation in Europe: Understanding government choice”, Comparative Political Studies, 41 (10), pp. 1323–1348.
Ball L. (2013), “The case for 4% inflation”, VoxEU.org, 24 May. Available at: https://voxeu.org/article/case-4-inflation
Ball L (2014), Long-term damage from the Great Recession in OECD countries, Cambridge (MA): National Bureau of Economic Research.
Balogh T. (1982), The irrelevance of conventional economics. London: Weidenfeld and Nicolson.
Barro R.J. and Gordon D.B. (1983), “Rules, discretion and reputation in a model of monetary policy”, Journal of Monetary Economics 12 (1), pp. 101-121.
Bekker S. and Mailand M. (2018), “The European flexicurity concept and the Dutch and Danish flexicurity models: How have they managed the Great Recession?” Social Policy & Administration 53 (1), pp. 142-155.
Bhaduri A. and Marglin S. (1990), “Unemployment and the real wage: The economic basis for contesting political ideologies”, Cambridge Journal of Economics, 14 (4), pp. 375-393.
Birch J. (2015), “The many lives of François Mitterrand”, Jacobin, September 19. Available at: https://www.jacobinmag.com/2015/08/francois-mitterrand-socialist-party-common-program-communist-pcf-1981-elections-austerity/
Birch J. (2021), “François Mitterrand's Austerity Turn”, Phenomenal World, February 18. Available at: https://phenomenalworld.org/analysis/mitterrands-austerity-turn
Blair T. and Schröder G. (1998), “Europe: The Third Way/Die Neue Mitte”, Working Document No. 2, Johannesburg: Friedrich Ebert Foundation-South Africa Office. Available at: https://library.fes.de/pdf-files/bueros/suedafrika/02828.pdf.
Blanchard O.J., Cerutti E. and Summers L.H. (2015), “Inflation and activity - Two explorations and their monetary policy implications.’ NBER Working Paper, n. 21726, Cambridge (MA): National Bureau of Economic Research.
Blanchard O., Dell’Ariccia G. and Mauro P. (2010), “Rethinking Macroeconomic Policy”, IMF Staff Position Note, SPN/10/03, Washington, DC: International Monetary Fund.
Bonesmo Fredriksen K. (2012), “Income inequality in the European Union”, OECD Economics Department Working Paper, n. 952, Paris: OECD. Available at: https://dx.doi.org/10.1787/5k9bdt47q5zt-en
Bonoli G. (2004), “Social Democratic party policies in Europe: towards a Third Way?”, in Bonoli G. and Powell M. (eds), Social democratic party policies in contemporary Europe, pp. 197-213, London: Routledge.
Bremer B. and McDaniel S. (2020), “The Ideational foundations of social democratic austerity in the context of the Great Recession”, Socio-Economic Review, 18 (2), pp. 439–463.
Burgoon B., Van Noort S. M. Rooduijn and G. Underhill (2019), “Positional deprivation and support for radical right and radical left parties”, Economic Policy, 34 (97), pp. 49–93.
Crotty J. (1994) “Are Keynesian uncertainty and macro-theory compatible? Conventional decision making, institutional structures, and conditional stability in Keynesian macromodels”, Mimeo.
Culpepper, Pepper D., and Regan A. (2014), “Why don’t governments need trade unions anymore? The death of social pacts in Ireland and Italy”, Socio-Economic Review, 12 (4), pp. 723-745.
Deutsche Bundesbank (1978), “Historisches Archiv Deutsche Bundesbank, Bestand N2/269”, Frankfurt am Main: Deutsche Bundesbank.
Dovern J. and Zuber C. (2020), “How economic crises damage potential output – Evidence from the Great Recession”, Journal of Macroeconomics, 65.
Enzensberger H.M. (1982), The industrialization of the mind: Critical Essays, New York: Continuum.
Erixon L. (2018) “Progressive supply-side economics: An explanation and update of the Rehn-Meidner model”, Cambridge Journal of Economics 42 (3), pp. 653-697.
Evans G. and Tilly J. (2012), “The depoliticization of inequality and redistribution: Explaining the decline of class voting.”, The Journal of Politics 74 (4), pp. 963–976.
Fatás A. and Summers L.H. (2016), “The Permanent Effects of Fiscal Consolidations”, NBER Working Paper, n. 22734. National Bureau of Economic Research. Available at: https://www.nber.org/papers/w22374.
Fazzari S.M., Ferri P. and Variato A.M. (2020), “Demand-led growth and accommodating supply”, Cambridge Journal of Economics 44 (3), pp. 583–605.
Fetzer T. (2019), “Did austerity cause Brexit?”, American Economic Review, 109 (11), pp. 3849-3886.
Fontanari C., Palumbo A. and Salvatori C. (2020), “Potential output in theory and practice: A revision and update of Okun's original method”, Structural Change and Economic Dynamics, 54, pp. 247–266.
Gagnon J.E. and Sarsenbayev M. (2021), “Bond yields are not good predictors of inflation”, Peterson Institute for International Economics. Available at: https://www.piie.com/blogs/realtime-economic-issues-watch/bond-yields-are-not-good-predictors-inflation.
Galbraith J.K. (1973), “Power and the useful economist”, American Economic Review, 63 (1), pp. 1-11.
Galofré-Vilà G., Meissner C., McKee M. and Stuckler D. (2021), “Austerity and the rise of the Nazi Party”, The Journal of Economic History, 81 (1), pp. 81-113.
Giles C. (2021), “OECD warns governments to rethink constraints on public spending”, The Financial Times, January 4. Available at: https://www.ft.com/content/7c721361-37a4-4a44-9117-6043afee0f6b.
Gingrich J. and Häusermann S. (2015), “The decline of the working-class vote, the reconfiguration of the welfare support coalition and consequences for the welfare state”, Journal of European Social Policy 25 (1), pp. 50–75.
Girardi D., Paternesi Meloni W. and Stirati A. (2020), “Reverse hysteresis? Persistent effects of autonomous demand expansions”, Cambridge Journal of Economics, 44 (4), pp. 835–869.
Glyn A. (2006), Capitalism unleashed. Finance, globalization and welfare. Oxford: Oxford University Press.
Goutsmedt A., Pinzon-Fuchs E., Renault M. and Sergi F. (2016), “Criticizing the Lucas critique: Macro-econometricians’ Response to Robert Lucas”, https://halshs.archives-ouvertes.fr/halshs-01364814/file/CES_Working_Paper_15059_AG_EPF_FS_MR.pdf
Guiso L., Herrera H., Morelli M., and Sonno T. (2016), “Demand and supply of populism”, CEPR Discussion Paper, n. 11871, London: Centre for Economic Policy Research.
Halevi J. (2019), “From the EMS to the EMU …. and to China”, INET Working Paper, n. 102, New York: Institute for New Economic Thinking.
Häusermann S., Kitschelt H., Abou-Chadi T., Ares M., Bischof D., Kurer T., van Ditmars M. and Wagner M. (2021), “Transformation of the left. The myth of voter losses to the radical right”, Bonn: Friedrich Ebert Foundation. https://library.fes.de/pdf-files/id/ipa/17385.pdf.
Hope D. and Limberg J. (2020), “The economic consequences of major tax cuts for the rich”, LSE International Inequalities Institute Working Paper, n. 55. London: London School of Economics.
IMF (2010), “IMF Survey: Controls on Capital Part of the Policy Mix, Says IMF Staff”, Washington, DC: IMF. Available at: https://www.imf.org/en/News/Articles/ 2015/09/28/04/53/sopol021910a.
IMF (2020), “Kurzarbeit: Germany’s short-time work benefit”, Washington, DC: IMF. Available at: https://www.imf.org/en/News/Articles/2020/06/11/na061120-kurzarbeit-germanys-short-time-work-benefit
Judt T. (2010), Ill fares the land. A treatise on our present discontent, London: Penguin Books.
Kahn R. (1972), “Memorandum of evidence submitted to the Radcliffe Committee (1958)”, in Selected Essays on Employment and Growth, pp. 124-152, Cambridge: Cambridge University Press.
Kalecki M. (1943), “Political aspects of full employment”, The Political Quarterly, 14 (3), pp. 322-330.
Keynes J.M. (1942 [1980]), in Moggridge D. (ed.), The collected writings of John Maynard Keynes, XXV: Activities 1940-1944 shaping the post-war world - The clearing union, Cambridge: Cambridge University Press.
Kiefer D., Mendieta-Muñoz I., Rada C. and von Arnim R. (2020), “Secular stagnation and income distribution dynamics”, Review of Radical Political Economics, 52 (2), pp. 189–207.
Klein L. R. (1985), Did mainstream econometric models fail to anticipate the inflationary surge?, London: Palgrave Macmillan, pp. 289–296.
Kok W (1995), “We laten niemand los”, Den Uyl-Lecture, December 11.
Kydland F.E. and Prescott E.C. (1977), “Rules rather than discretion: The inconsistency of optimal plans”, Journal of Political Economy 85 (3): pp. 473-491.
Lagarde C. (2016), “We need forceful policies to avoid the low-growth trap”, IMF Direct, available at: https://blogs.imf.org/2016/09/01/we-need-forceful-policies-to-avoid-the-low-growth-trap/
Lavoie M. (2018), “Rethinking macroeconomic theory before the next crisis”, Review of Keynesian Economics 6 (1), pp. 1-21.
Lavoie M. and Seccareccia M. (2020), “Going beyond the inflation-targeting mantra: A dual mandate”, Paper presented at Choosing the right target: Real options for the Bank of Canada’s mandate renewal, a conference held by the Max Bell School of Public Policy, September 22-25. Available at: https://www.mcgill.ca/maxbellschool/article/articles-choosing-right-target/going-beyond-inflation-targeting-mantra-dual-mandate
Lucas R.E. (2003), “Macroeconomic priorities”, American Economic Review 93 (1), pp. 1-14.
Mankiw, N.G. (2021), “Can America afford to become a major welfare state?”, The New York Times, September 15.
Martin P. (2018), Crise mondiale et systèmes partisans. Paris: Presses de Sciences Po.
Messing V. and Ságvári B. (2019), “What Drives anti-migrant attitudes?”, Social Europe, 28 May. Available at: https://www.socialeurope.eu/what-drives-anti-migrant-attitudes
Modigliani F., Fitoussi J.P., Moro B., Snower D., Solow R., Steinherr A. and Sylos Labini P. (1998), “An economist's manifesto on unemployment in the European Union”, BNL Quarterly Review, no. 206, September.
Mosimann N., Rennwald L. and Zimmermann A. (2019), “The radical right, the labour movement and the competition for the workers’ vote”, Economic and Industrial Democracy 40 (1), pp. 65–90.
Mounk Y. (2019), “How labour lost the culture war. The broad socioeconomic coalition that once buoyed Labour has broken in two, leaving the party shattered”, The Atlantic, December 13. Available at:
https://www.theatlantic.com/ideas/archive/2019/12/how-culture-killed-labour-party/603583/
Odendahl C. (2017), “The Hartz myth: drawing lessons from Germany”, CER Bulletin, No. 115, London: Centre for European Reform.
OECD (2014), “Focus on Inequality and Growth – December”, Paris: OECD. See: https://www.oecd.org/social/Focus-Inequality-and-Growth-2014.pdf
Oesch D. and Rennwald L. (2018), “Electoral competition in Europe’s new tripolar political space: Class voting for the left, centre-right and radical right” European Journal of Political Research, 57 (4), pp. 783–807.
Ostry J., Lougani P. and Furceri D. (2016), “Neoliberalism oversold?”, Finance and Development, June, pp. 38-41.
Panitch L. and Leys C. (2001), The end of parliamentary socialism: From new left to new Labour, London: Verso.
Rappeport A. (2021), “Yellen calls for a global minimum corporate tax rate”, The New York Times, April 5.
Rennwald, L. (2021), Social democratic parties and the working class. New voting patterns, London: Palgrave-Macmillan. Available at: https://library.oapen.org/ bitstream/handle/20.500.12657/41281/2020_Book_SocialDemocraticPartiesAndTheW.pdf;sequence=1
Rennwald L. and Pontusson J. (2021), “Paper stones revisited: Class voting, unionization and the electoral decline of the mainstream left”, Perspectives on Politics19 (1), pp. 36-54.
Robinson J. (1956), The accumulation of capital. London: Macmillan.
Sandbu M. (2021), “Europe’s social model is a source of productivity”, The Financial Times, May 6.
Scharpf F. (1991), Crisis and choice in European social democracy, Cornell: Cornell University Press.
Simonazzi A. (2021), “Dignity of work and full employment”, PSL Quarterly Review, 74 (297), pp. 115-126.
Skidelsky R. and Gasperin S. (2021), “Reinstating fiscal policy for normal times: Public investment and public jobs programmes”, PSL Quarterly Review, 74 (296), pp. 3-24.
Spoon J.J. and Klüver H. (2019), “Party convergence and vote switching: Explaining mainstream party decline across Europe”, European Journal of Political Research, 58 (4), pp. 1021-1041.
Storm S. and Naastepad C.W.M. (2012), Macroeconomics beyond the NAIRU, Cambridge, MA: Harvard University Press.
Storm S. (2019), “The secular stagnation of productivity growth”, INET Working Paper, n. 108, New York: Institute for New Economic Thinking.
Storm S. (2021a), “The economics and politics of social democracy: A reconsideration.”, in Basu D. and Das D. (eds.) Conflict, demand and economic development. Essays in honour of Amit Bhaduri, pp. 119-141, New Delhi: Routledge.
Storm S. (2021b), “Cordon of conformity: Why DSGE models are not the future of macroeconomics”, International Journal of Political Economy, 50 (2), pp. 77-98. .
Storm S. (2021c), “Lessons for the age of consequences”, Review of Political Economy, early on-line. See: https://www.tandfonline.com/doi/full/10.1080/09538259.2021.1985779
Taylor K. (2018), “Swedish election highlights decline of center-left parties across Western Europe”, Pew Research Centre. Available at: https://www.pewresearch.org/fact-tank/2018/09/12/swedish-election-highlights-decline-of-center-left-parties-across-western-europe/.
Therborn G. (1995), European modernity and beyond: The trajectory of European societies, 1945–2000. London: Sage.
Tooze A. (2021), “Janet Yellen and Mario Draghi have one last job”, Foreign Policy, April 1.
Weintraub S. (1972), “Incomes policy: Completing the stabilization triangle”, Journal of Economic Issues, December, pp- 105-122.
Wolfers J. (2016), “New Directions in Research and Policy”, Blanchard-fest celebration, MIT, June 4. Available at: http://users.nber.org/~jwolfers/papers/Comments/Blanchard-fest.pdf
Wren-Lewis S. (2021), “As things stand, the chances of defeating Johnson at the next election are minuscule”, Mainly Macro Blog, March 23. Available at: https://mainlymacro.blogspot.com/2021/03/as-things-stand-chances-of-defeating.html.
Downloads
Published
How to Cite
Issue
Section
License
Copyright (c) 2022 Servaas Storm
This work is licensed under a Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International License.
