Teaching macroeconomics: Austerity programs, citizenship and labor

The complexity of global, innovative and speculative financial markets has increased pressures on the political sphere. Soon after the 2008 global financial crisis, national responses were put in place in order to save the financial markets from collapsing. In the European Union, for instance, social tensions have currently arisen since banks and investors turned out to speculate against the risk of default of public debt securities issued by Greece. Also in Latin America, Brazil has been facing a macroeconomic adjustment agenda since the beginning of 2015 so as to rescue the credibility of investors in its fiscal policy.

In order to face the public debt management challenges, the search for macroeconomic austerity turns out to overwhelm the macroeconomic policy options and subordinates the social dynamics.  Indeed, Central Banks´ and Treasuries’ actions have not been independent from private pressures and national governments have to prevent a collapse of credibility of their domestic financial systems. As a result, banks and investors, to a large extent, have proved to depend on massive government support.

The implantation of austerity programs requires new macroeconomic guidelines. Fiscal measures regarding surplus, tax increases and expenditure cuts, turn out to be highlighted in the macroeconomic stabilization attempt. However, fiscal austerity could become a risky long-term strategy as a tighter fiscal policy would certainly result in even weaker economic growth rates and higher public debt/GDP rates. In addition, entrepreneurship sustainability is particularly influenced by finance, as Keynes warned. When the speculative demand for money increase, due to high uncertainty about the future, entrepreneurs reduce the demand for capital goods. Thus, under high uncertain expectations, the expansion of productive capacity would be postponed.

Consequently, the current era of austerity certainly affects day-to-day life of citizens. Indeed, austerity programs subordinate the whole policy decision process that turns out to look for a realignment of relative prices (mainly real wages) and further structural reforms (mainly in the public sector and the labor market). The labor market has become a key variable in macroeconomic policies based on austerity programs. Longer working hours, job destruction, turnover, outsourcing, workforce displacement, job reduction and loss of rights are part of the spectrum of management practices that emerge from the austerity guidelines. This scenario, characterized by precarious jobs, enhances the vulnerability of workers, mainly young people.

Following austerity programs, countries like Greece and Brazil must undergo painful adjustments mainly through deflationary policies that favor the reduction of the relative unit of labor costs. Wage cuts may prove to be devastating, not only socially and politically, but economically as well.

As Keynes pointed out in his analysis of the monetary economy of production, there is a contradiction of money as a public good and a private good that overwhelms the central banks’ actions in periods of crisis.  As a result of the choice to adopt austerity programs and support the investors’ credibility agenda, many governments have disappointed their citizens on behalf of less spending on social policies, low growth and increasing social inequalities.

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