Monday, May 7, 2012

Austerity Economics: Tied Up in Knots?

A core element of neoclassical economics was to emphasize transactions rather than work, workers, or working conditions. The idea was that the justification of the system was the utility enjoyed by consumers. All considerations of work, workers or working conditions were to be swept aside. Production is relevant only insofar as serves to satisfy consumer needs.

Macroeconomics was expected to depend upon this neoclassical micro foundation. Nonetheless, macroeconomics centered on demand is rejected by all good austerians. Instead, the current fad is to emphasize supply-side economics. Trading the social safety net encourages hard work. Tax cuts ensure more employment.

Over and above the self-destructive consequences of austerity, the recent wave of austerian nonsense has the unintended consequence of contradicting the intellectual foundation of neoliberal economics.

1 comment:

Peter Dorman said...

Michael, the theory of compensating wage differentials for dangerous or unpleasant work really does have its roots in Adam Smith, and it was invoked repeatedly during the glory years of laissez-faire. So, in principle, the disutility of labor should be reflected in prices, and a market economy should allocate bad work efficiently. At least, that was the idea.

That's why J. S. Mill, who was appalled by the working conditions he saw with his own eyes, took pains to rebut Smith's theory. Modern neoclassicism largely lines up behind Smith (e.g. Viscusi), but Mill was surely right.