Citizen Action Monitor

Government has a vital stabilizing role to play during a transition to a post-growth economy, says Jackson

“The principle of increasing government public spending when output falls and reducing public spending when output rises proved remarkably robust.”

No 2122 Posted by fw, December 12, 2017

To access all other synopses from Prosperity without Growth, click on the Tab titled “Prosperity without Growth” — Links to All Posts in the top left margin of the Home page.

Among the model simulation exercises conducted by Jackson and Victor, one that is of particular interest allowed government spending to play a moderating role in the transition from a growth-based to a stationary state economy. Jackson explains the outcome:

The principle of increasing government public spending when output falls and reducing public spending when output rises proved remarkably robust. It appears that government spending provides the means to stabilize an unstable economy under a wide variety of conditions, and in particular when transitioning from  growth-based to a stationary state economy.

This is the main point of a short Section 10, Chapter 9. The synopsis follows.

Tim Jackson is a British ecological economist and professor of sustainable development at the University of Surrey.

**********

The stabilizing role of government, a synopsis, from Chapter 9, “Towards a Post-Growth Macroeconomics ” of Tim Jackson’s book, Prosperity without Growth, Routledge, 2nd edition, 2016-17

One of the simulations that Tim Jackson and Peter David explored in their research was the impact of a “strict austerity policy” by cutting government spending in order to try and reduce the fiscal deficit* to zero. [*A fiscal deficit occurs when a government’s total expenditures exceed the revenue that it generates, excluding money from borrowing. A fiscal deficit is regarded by some as a positive economic event. Source: Investopedia].

The result,” asserts Jackson, “is a disaster”:

“Consumption and investment both collapse and debts escalate uncontrollably, reinforcing the insights of all those who criticized austerity in the wake of the financial crisis.”

In other simulations conducted by Jackson and Victor, one that is of particular interest is a simulation that allowed government spending to play a moderating role in the transition from a growth-based to a stationary state economy. Jackson explains the outcome:

The principle of increasing government public spending when output falls and reducing public spending when output rises proved remarkably robust. It appears that government spending provides the means to stabilize an unstable economy under a wide variety of conditions, and in particular when transitioning from  growth-based to a stationary state economy.”

American economist Hyman Minsky (23/9/1919 – 10/24/1996) supported some government intervention in times of crisis: the vital role of government is to be the “employer of last resort” to maintain high levels of employment, and to stabilize output – to which Jackson would add — to protect the “fundamental dynamics of the post-growth economy.”

Jackson makes a final point worth noting in his conclusion to Section 10, Chapter 9:

“The capability of government to exercise these stabilizing strategies depends on having an appropriate monetary policy. There may be no case for doing away with the charging of interest on debt altogether. But there is a strong case for government to have influence over its own power to invest in social welfare. This chapter underlines the importance of monetary reform to the economy of tomorrow.”

%d bloggers like this: