Europe’s current misfortune is not just that it was hit by the most severe financial crisis in decades. It has also come from the fact that this crisis occurred during a time in which economic thinking was, and still remains, dominated by old concepts and neoclassical models.
Back in 2008 and 2009, survival instincts initially pushed even the most neoclassical politicians to support recovery plans of Keynesian inspiration. Unfortunately for Europe, those first instincts were quickly undermined by flawed forecasting models and the economic dogma that inspired them. In 2010, coinciding with the recovery of employment and output in Europe, policymakers and economic experts switched gears, abandoned the policies that were working and made a dramatic shift of policy towards austerity. The world was told that this would not provoke a new plunge in economic activity and a continuing explosion of unemployment. Their economic models, they said, showed that big cuts in public spending would restore investor confidence and pull us out of recession. As we now know, just the opposite happened. Unsurprisingly, recession is still present, confidence is low and unemployment and uncertainty continue to increase. It’s the multiplier, stupid!
The fiscal multiplier scandal, finally unveiled by the IMF but to this day not properly acknowledged by the European Commission, has been buried by the Commission under a mountain of confusion and discreet, superficial adjustments to the model, fighting shy of the fundamental revision that was needed. But the sorcerer’s apprentices in the Commission may yet be made accountable for their tragic mistakes: the European Parliament has just launched an inquiry into the work of the Troika in the EU’s “adjustment” countries – that is, those worst hit by the crisis.
Yet, neoclassical economics are not alone to be blamed. The crisis also painfully revealed the absence of influential alternative thinking from the worlds of science and of politics. It’s not that there were no good ideas around. At least some leading economists managed to make their critical voices heard, such as Joseph Stiglitz or Jean-Paul Fitoussi, and promoted a different approach. Back in 2010, the S&D Group issued a policy paper which looks more prescient with each passing year of recession and stagnation. It attacked the shift from recovery to austerity, called for a less frantic pace of budget consolidation and insisted that essential investment should be ring-fenced – these are key demands in today’s public debate. The S&D Group also fought a lonely battle against an extreme austerity-centred version of the “six pack” legislation in 2011, the successor to the so-called stability pact which carved out a slightly more favourable policy environment for productive public investment.
But these were voices in the wilderness.
Things cannot go on in this way. Progressives across society must reclaim the academic and public debates. To do that, a new, more intense and more sustained interaction between progressive politics, the academic world and key stakeholders – in particular the trade union movement – is needed. That is the cause for which Progressive Economy was launched.
The first Progressive Economy initiative was to support the production, in November 2012, of a serious and credible alternative to the European Commission’s so-called Annual Growth Survey (AGS). Because the AGS is the pivotal document within the annual European semester process, it was essential to break the Commission’s unhealthy intellectual and political dominance of EU-wide macroeconomic analysis, forecasts and policy recommendations. That is the role of the so-called independent AGS (iAGS), which is now produced each year in November by three economic institutes, based in three EU member states – OFCE, IMK and ECLM.
Since then, Progressive Economy has developed new initiatives directed both towards the scientific community through its prestigious scientific board – notably with its current call for papers – and towards the political community, seeking to achieve a much better joint involvement of progressive European and national members of parliament within the European economic and social policy process. These initiatives should generate stimulating and enriching exchanges between those communities and with key stakeholders, notably through this quarterly Journal for a Progressive Economy, and through a series of events, whose focal point will be the Annual Forum of the Progressive Economy initiative in March.
One can only encourage progressive-minded people in Europe and beyond, who feel they have something to contribute to the re-emergence of a strong and inspiring progressive agenda in the economic and social fields, to join the efforts of this initiative in whatever way they can..
This column is sponsored by the S&D Group in the European Parliament