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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.
According to economists of neoclassical inspiration, foreign payments imbalances should not cause concern because they lead to a devaluation of the currency which will restore equilibrium in the medium-long run. Recent studies on the effects of devaluation show that this argument is questionable and that redistributive effects tend to depress domestic demand. The growing deficit in foreign payments may therefore be one of the main factors that drove part of the British public to vote to leave the European Union.
An empirical analysis by Brancaccio, Fontana, Lopreite and Realfonzo shows that the ECB is not capable of controlling the nominal income trend and therefore also inflation. The following study is in line with the alternative argument, according to which the real task of the central bank is to regulate the rhythm of insolvencies in the economic system.