That would seem to be the policy advice emanating from both New Keynesian and Post Keynesian economists. With capacity under-utilization and insufficient private investment there is neither an argument about inflation or crowding out to be made. Yet the discourse on fiscal consolidation is not really a mystery. Thirty years of the Sky is falling, the Sky is falling from the usual suspects has a way of becoming common (read median voter) sense. Now they want an adult conversation after having given succour to Victorian nonsense about fiscal chastity and “less is more.” My sense is the horse is out of the barn and it will take a generation before we can have an adult conversation.
There is a generational element to this. We can call this the Greedy Boomer Hypothesis (GBH). The boomers made off like bandits. Their parents received steady real increases in wages in step with productivity; near full employment in the labour markets; when they left the house they got to take advantage of the universal programs that were created by their parents and previous generations (and here I include unions); and later universal programs that they would create. Yet as soon as they started moving through their best earning years and into retirement they began supporting the dismantling of the public supports they took advantage of. That public health care is something they still support is more than a little telling. There are of course class dynamics at play here that I will not bother elaborate on. Class like the occupation of Palestine is something serious academics do not talk about.
What seems evident is the boomers are not going to go for increased public investment because in their median brain the basic equalities are: increased public investment = increased taxes = lower standard of living in retirement. I could read back the arguments over CITs and capital gains in this light: where for example, are retirement savings parked? The reaction over trusts is rather telling in this regard too. And the list goes on: Unions negotiating for protecting the integrity of pensions while agreeing to a 25% pay cut for surviving workers. Want a national securities regulator? All you have to do is convince the boomers it will secure their investments.
Do not get me wrong I am all for solidarity (indeed I think it is a great idea and an even better practice). I spent my 15-28 with my cohorts in the labour market with the reality of a 19 -25% unemployment rate. And when I did make the choice to retrain what did I get? The trebling of my tuition and a 40,000$ student loan. Apparently higher education had magically become a private good once the boomers were done with it. You can in fact take the greedy boomer hypothesis pretty far.
We could characterize neoliberalism as a system—partly—designed to ensure that the younger generation works harder for less in order to ensure the living standard of the last generation in their retirement. This analysis is of course as highly flawed as the median boomer thinking that austerity in the progeny is the key to the satisfaction of the needs of the progenitor. But Not unlike the peasant response to have more children the more scarce food becomes. But the boomer greed hypothesis is limited: there are poor boomers who will go from poor to impoverished in their old age—and it must be added never took advantage of the Glorious Welfare State that temporally was. There is also the fact that the successful upper middle class boomers have done a great job of making in family generational transfers to their children in order to make up for the savaging of public institutions: just where do you think couples in their late twenties and thirties get those down payments for buying a house? So try as we like the question of class cannot really be suppressed. Neoliberalism then is partly about protectionism; about freezing the opportunities for vertical betterment. The upper class—you know those people you do not know and never will—are perfectly happy with the median boomer mind set. They sit on top of the pyramid and by definition do not really need public institutions outside of courts to settle contract disputes. Everything else from roads, to police through to health care and education they can afford on their own: and increasingly the more so inequality grows.
I am not going to conclude with some perfunctory paragraph on the limits to the median boomer mind and the consequences of its myopic vision. It is pointless.
Relentlessly Progressive Political Economy 