Bill Mitchell — Time to expand public service employment

High and persistent unemployment has pervaded almost every OECD country since the mid-1970s. The rising unemployment began with the rapid inflation of the mid- 1970s. The inflation left an indelible impression on policy-makers who became captives of the resurgent new labour economics and its macroeconomic counterpart, Monetarism.

The goal of low inflation led to excessively restrictive fiscal and monetary policy stances by most OECD governments driven by the now-entrenched ‘budget deficit fetishism’.
The combined effects of tight monetary policy and restricted fiscal policy led to GDP growth in most OECD countries being generally below that necessary to absorb the growth in the labor force in combination with rising labor productivity. 

In the fifty years since the end of World War II, most OECD economies have gone from a situation where the respective governments ensured there were enough jobs to maintain full employment to a state where the same governments use unemployment to control inflation.

A major aspect of the abandonment of full employment in these economies has been the changes that have occurred in public sector employment. Many economies have undergone substantial restructuring of their public sectors with significant employment losses being endured.

The adoption of monetarism was in large part due to the political persuasiveness of Milton Friedman, who was also an advocate of economic liberalism. The result was the shift away from the dominance of Keynesianism in economics, political economy and public policy toward neoliberalism.The world is still suffering from Friedman's legacy transmitted through the Chicago School and allies as full employment was abandoned for inflation targeting, using a buffer stock of unemployed as a tool.

Clearly, if we had left the GFC to the Chicago school (or the Harvard school) line – which means government would have sat back and left it to the private market to sort the mess out, then we would have been facing a repeat of the Great Depression such was the damage to the financial system and the plunge in real output in the major economies.

Bill Mitchell – billy blog
Time to expand public service employment
Bill Mitchell | Professor in Economics and Director of the Centre of Full Employment and Equity (CofFEE), at University of Newcastle, NSW, Australia