"Fiscal policy and financial fragility: why macroeconomic policy is failing"

by Mitchell, William; Reedman, Luke; Others, (2002)

Abstract

Abstract: Several high profile companies in Australia and abroad have failed recently due to poor management and unsustainable debt, levels. Household debt in Australia is at record levels and private debt/income ratios have grown alarmingly. Economic growth in Australia since 1992, while insufficient to restore full employment has been driven by increasing private deficits, necessitated by the obsessive pursuit of fiscal surpluses. We examine these trends in terms of Minsky's financial fragility hypothesis, which posits that capitalist expansion endogenously generates increasingly fragile private portfolios and ultimately crisis. Unplanned public deficits follow as activity stagnates and unemployment increases. By failing to understand the crucial role that budget deficits should play in maintaining fully employment, the Government has not only consigned thousands to unemployment and/or underemployment, but has also underpinned an unsustainable growth path. A return to full employment requires a federally-funded Job Guarantee and thus an endogenous budget outcome determined by private spending.

Keywords

Full Employment, Unemployment, Fiscal Policy

Themes

Unemployment, Economics

Links to Reference

• https://search.informit.com.au/documentSummary;dn=058277655118680;res=IELBUS
• https://www.researchgate.net/profile/Luke_Reedman/publication/254382247_Fiscal_policy_and_financial_fragility_why_macroeconomic_policy_is_failing/links/0c96053b5de88e68fd000000.pdf

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