Toward a New Fiscal Constitution

Looking at the current fiscal policies of states around the world, one might think that the end of pedantic budget consolidation is over and that it has been realized that government activity is not the root of all evil. But a second look is enough, argue Marianna Mazzucato (IIPP) and Robert Skidelsky (em. Warwick University), to see that no lessons have been learned from the mistakes of the 2008/09 financial crisis. They argue that the programmes have the potential to exacerbate inequality, to boost asset prices even further and all that without tackling unemployment to a sufficient degree and driving forward the socio-ecological transformation.

In their article for Project Syndicate, the two researchers therefore call for a revolution of thinking. They argue that the crisis has shown the enormous potential of government activity, but that it has been used for the wrong purposes. The problems of our time can only be achieved with a mission-oriented fiscal policy. Such a policy implies that one should be as concerned about the nature of economic growth as about its size. For this to happen, it is essential that the state plays a greater role, as the past decades have shown that liberal markets prefer short-term goals to long-term ones.

This kind of mission-oriented government activity can also be found in the theories and publications of the Levy Institute for Economics, which, with the Modern Monetary Theory, wants to herald a new way of thinking in fiscal policy. Like the MMT researchers, Mazzucato and Skidelsky also plead for a shift in preferences in government activity. Full employment should therefore be the ultimate goal of the economic order.

In order to achieve this, they argue for socio-ecological work guarantee programmes, which, as antyciclical fiscal instruments, would not only provide excellent crisis protection, but could also drive forward urgently needed projects on an ecological and social level. According to the model, these programs would offer the possibility to every unemployed person to take up a job or a further education program financed by the state, which was created in cooperation with communities, NGOs and socially oriented companies.

Only if state investments were geared to socio-ecological needs and goals could a real reversal of the resource- and labour-hostile economy be achieved. Only then could a system be created in the sense of Carlotta Perez that supports “Smart Green Growth”.

The whole article on Project Syndicate: Toward a New Fiscal Constitution.