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another nail in the coffin of austerity?

April 17, 2013

So it turns out that one of the most influential and widely-cited studies used to push austerity measures, showing that countries with debt-to-GDP ratios above 90% tend to have slower economic growth, is flawed, containing a coding error (as well as ‘selective exclusions’ a questionable method of weighing the countries and averaging the data) that seriously skews the results.

Not only does it neglect to consider other possibilities, such as high debt ratios are a symptom of downturns rather than a cause, when corrected, its own numbers suggest that a debt-to-GDP ratios above 90% doesn’t necessarily lead to a drastic reduction in growth. In fact, the corrected number, 2.2% as opposed to -0.1%, only suggests a moderate slowdown, which itself could be the result of a downturn or other contributing factors, and not the precipitous fall into negative growth that the study initially concluded.

Besides motivating people to be more rigorous and have their data peer-reviewed and vetted before releasing it, this revelation should have us seriously rethinking our approach to dealing with the current economic downturn and unemployment.

Many, for example, argue that implementing austerity measures in the midst of a crisis will likely serve to slowdown an already sluggish economy, simultaneously decreasing demand and increasing unemployment while attempting to reduce debts and deficits at the expense of the working class, poor, and elderly since social spending is almost always the first target of such measures. And with more people drastically reducing their consumption, the growth rate will further decline with or without government deficit spending.

And looking at the Eurozone, which has taken the lead in instituting austerity measures in the wake of the most recent financial crisis, we can already see that the average unemployment rate is over 10%, and above 20% in places with the harshest deficit reduction policies like Greece and Spain.

While everyone has their own ideas about what approach to take, mine is somewhat radical and seemingly counter-intuitive at first look. Basically, it involves a combination of an overall reduction in hours of of labour, raising the minimum wage, and instituting a universal basic income, which I think would collectively go a long way to solving a lot of our problems and make things generally better for everyone.

For starters, an overall reduction in hours of of labour would immediately help to relieve unemployment by opening up space in the workforce, as well as give people more of their own time back. And that, plus a fairly drastic raise in the minimum wage, could eventually help shift employment from unproductive capitals to productive capitals, reducing the size of the state (and state spending), as well as the size and numbers of capitals producing for and financing the state.

Last but not least, a universal basic income would empower workers, decommodify labour-power by helping free workers from absolute dependence on wage labour for subsistence, enlarge the nonmarket social economy, and help increase the amount of non-labour (leisure) time for the vast majority of people.

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