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Following Neo-Classical theories, developed countries continue to adopt austerity measures or too modest expansionary policies. However, their concern about the effects of public debt on economic growth found conflicting results in the empirical literature.
Most economists believe that the economic crisis is due to a structural excess of saving on investment. However, if we admit that production decisions follow the effective demand, it is easy to show that S and I are always equal. We suggest instead that crisis is due to the lack of demand that causes a high degree of unused capacity. The resulting sunk costs could be transferred to wages, further reducing demand. So, increasing investment, without raising wages, would worsen the effect of the crisis.
The 2007/2008 financial crisis has destroyed the illusion of who believes that capitalism would be able to reduce inequality within industrialized country. The optimism of post II World War has been demolished by the economic decadency of middle classes in developed countries. It is undeniable that international living standards have been dramatically improved over time. However, the crucial question is if capitalism - as system of production and social relationships - has been able to redistribute more equally its wealth. If yes, is this process due to specific circumstances or due to capitalism nature?
Austerity policies have been presented as the only paradigm able to solve the current economic crisis. This paper will try to show that neoclassical theories on unemployment are not supported by solid empirical evidence. The case study of Great Britain during the Great Depression to prove that (i) unemployment is not voluntary and (ii) public subsidies do not increase opportunistic behaviours.