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August 28, 2013

Why the economy won't work for all

Economist Michal Kalecki knew 70 years ago why big business and its political apologists conspire to prevent full employment. Obviously few people listened, but with the still shrill deficit alarmists and the rabid push for austerity, some are trotting Kalecki back onto the stage to show why.

I'd never heard of Kalecki until I read a column by Paul Krugman. Kalecki was a Polish, Marxist economist (and, really, who knew capitalism better than Marx?). In a short 1943 paper called "Political Aspects of Full Employment," Kalecki wrote that government intervention is needed to get all people to work. This was shortly after John Maynard Keynes wrote "The General Theory of Employment, Interest and Money," (1936) with many ideas shared by Kalecki.

President Roosevelt had already used the government to alleviate the appalling unemployment during the Depression, with programs such as the Works Progress Administration. But even with this so-called government interference in the market, there was never full employment. Big business likes it that way. In fact, even mainstream economists view an unemployment rate of 3 to 4 percent as "full employment."

Kalecki writes that there are three reasons why business doesn't want everyone to have a job: (1) dislike of government interference; (2) dislike of direction of government spending (public investment such as roads and subsidizing consumption, such as welfare and food stamps); and (3) dislike of the social and political changes resulting from the maintenance of full employment.

This is where it gets interesting. Commenting on the third point, Kalecki says businesses fear full employment because it will give workers confidence to form unions, fight for higher wages and create better working conditions. Those are capitalism taboos.

Of course, Kalecki maintains that full employment would mean a boost to production and hence a rise in profits. Then the economist goes on to argue that businesses will gladly give up some profits in order to maintain rigid control over workers and (my words) be able to threaten their livelihoods with firings and layoffs.

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