Kalecki's Analysis of Fiscal Policies for Full Employment
Kalecki’s contributions to
the analysis of fiscal policies
for full employment
Malcolm Sawyer
Emeritus Professor of Economics
University of Leeds UK
Introduction
•
Purpose is to highlight aspects of Kalecki’s writings on fiscal policy and
unemployment which have bearing on recent debates on austerity and
fiscal consolidation.
•
Cover four main areas:
•
Financing and funding of public and of private expenditure
•
The need for budget deficits to underpin full employment and the
impossibilities of balanced structural budgets
•
The (non) burden of public debt and the fiscal burden of interest payments
•
Remarks on political and social obstacles to full employment
Financing and funding of public expenditure
•
The circuitist distinction between initial financing and final
financing – using Mehrling’s terminology payment and funding.
•
In papers written in the first half of the 1930s, Kalecki indicated
that government expenditure (often infrastructure investment)
would be (initial) financed by central bank credits.
•
Kalecki noted that a fiscal expansion could come from “the
government obtaining large credits from the central bank and
spending them on massive public works of one sort or another. In
this case the money no doubt would be spent and this would
result in increased employment” (Kalecki, 1932b, p.175).
He often
proceeded to note the effects of the additional public expenditure
on profits.
Financing and funding public expenditure
•
Kalecki
illustrated the financing of public spending by means of a thought
experiment. “
imagine for a moment that the government pays its suppliers in
government securities. The suppliers will, in general, not retain these securities
but put them into circulation while buying other goods and services, and so on,
until these securities will reach people or firms which retain them as interest-
yielding assets. In any period of time the total increase in government securities
in the possession … of persons and firms will be equal to the goods and services
sold to the government. Thus, what the economy lends to the government are
goods and services whose production is ‘financed’ by government securities. In
reality, the government pays for the services, not in securities, but in cash, but it
simultaneously issues securities and so drains the cash off, and this is
equivalent to the imaginary process described above.” (Kalecki, 1944a, pp. 347-
348)
Financing and funding private expenditure
•
“the financing of additional investment is effected by the so-
called creation of purchasing power. The demand for bank credit
increases, and these are granted by the banks” (Kalecki, 1935,
p.190).
•
Kalecki presented ideas which can be seen as now embedded in
the structuralist post Keynesian analysis of endogenous money
and in the circuitist approach.
•
Messori (1991) argued that “Kalecki did not differentiate enough
between the two different meaning of financing: the monetary
flows required to finance an increase in the demand for capital
goods (investment financing), and the monetary advances
required to finance the purchase of working capital (production
financing).”
Full employment and balanced budgets
•
For the UK:”
in normal times, governments of the left as well as
the right should run a budget surplus to bear down on debt and
prepare for an uncertain future”, and that “in the Budget we will
bring forward this strong new fiscal framework to entrench this
permanent commitment to that surplus, and the budget
responsibility it represents.” (Osborne, 2015).
•
Within the European Union, the ‘fiscal compact’ was adopted by
26 of the 28 member countries. Amongst the measures agreed
was a balanced structural budget.
•
A structural budget position is calculated as that which would
appertain if the economy were operating at ‘potential output’ and
government expenditure and tax rates maintained at their current
levels.
Full employment and balanced budgets
•
‘Potential output’ is the level of output at which inflation would be expected to
be constant.
It may correspond with the non-accelerating inflation rate of
unemployment (NAIRU).
•
There are a range of what may be termed technical objections to the
construction and use of a structural budget. These include the issues of the
estimation of ‘potential output’ and the degree to which estimates of
‘potential output’ have path dependent effects on output.
•
The focus on ‘potential output’ is in effect an abandonment of any notion of
full employment.
•
Kalecki would have viewed the achievement of full employment as requiring
not only the appropriate level of aggregate demand supported by fiscal policy
but also the creation of sufficient productive capacity.
Full employment and balanced budgets
•
Kalecki (1944b) argued for a permanent budget deficits in the face
of intentions to save exceeding intentions to invest. He criticised
those who accepted that budget deficits would rise during
economic downswings but who did not accept the arguments for
the need for permanent budget deficits.
•
Kalecki
argued that “there will emerge out of a consistent anti-
cyclical policy a certain more or less stable level of private
investment which by itself, i.e. without considerable assistance by
loan expenditure of the public authorities, may fall short of the
level required to ‘fill the gap’ of savings out of a full employment
income.”
Full employment and balanced budgets
•
The question can be simply posed in the following terms.
•
Consider the equilibrium requirement G – T = S- I (closed economy for
simplicity)
•
The requirement for a balanced structural budget is the requirement
that savings and investment intentions would be balanced at potential
output. Kalecki’s answer would surely have been that those intentions
would not be balanced.
•
Keynes is frequently quoted as saying that “Look after the
unemployment, and the budget will look after itself.”
(
Keynes, 1933).
From a Kaleckian perspective, a revival of private demand, whether
coming in some sense autonomously or through some policy stimulus),
would lower unemployment and lower the budget deficit
.
Burden of debt
•
The claim that budget deficits burden future generations has
often been made: for example, “public borrowing is, in essence,
taxation deferred, and it would be irresponsible and unfair to
accumulate substantial debts to fund spending that benefits
today’s generation at the expense of subsequent generations”
(HM Treasury, 2010, p.11).
•
Kalecki clearly stated that “interest on an increasing national debt
(as indeed on all debt) cannot be a burden to society as a whole
because in essence it constitutes as internal transfer.”
Burden of debt
•
Consider the case where the government runs a budget deficit which averages
(relative to GDP)
d
.
•
A continuing primary budget deficit (relative to GDP) of
d
leads to a debt
(relative to GDP) of
b
=
d/(g -r )
where
g
is the growth rate and
r
the rate of
interest on government debt, which requires
g > r
for sustainability.
•
It is well-known that such a deficit will lead the debt ratio to converge to
b =
d/g
with the deficit (in the long term) becoming
d*
+
r
.
b
where r is the rate of
interest on government debt and
d*
the primary deficit. The
d
=
d* + r.d/g
and
d* = [(g – r)/r]. d
which is positive if
g > r
(i.e. a deficit) and negative (i.e. a
surplus) if
g < r.
The total budget deficit then eventually reaches
b + r.d
.
•
When it is total budget deficit ratio which is held constant, then debt ratio
converges on
d
/
g
(where
g
is the nominal growth rate) though the composition
of the budget deficit moves towards interest payments, and the primary
budget position converges on (
g
–
r
).
b
and interest payments on
r.b
.
Burden of debt
•
C
onsider the situation (as at present with the pandemic; during war when
Kalecki was writing) where the budget deficit has sharply risen and the debt
ratio has jumped.
•
Kalecki (1943) discussed ‘the burden of the national debt’, in terms of a
‘financial burden’ in that interest has to be paid out.
•
With a particular level of budget deficit required to secure full employment,
then a higher amount of interest payments would tend to reduce the level of
government expenditure consistent with that level of budget deficit.
•
Kalecki advocated an annual capital tax, levied on firms and individuals which
would raise money to finance the interest payments on the national debt
which would affect “neither capitalists’ consumption nor the profitability of
investment” (Kalecki, 1944a, p. 363).
Burden of debt
•
Some invoked the argument for a negative relationship between
the size of public debt and the rate of growth (at least above some
threshold level of debt); sometimes combined by a ‘falling off a
cliff’ argument – above some crucial level, economic decline would
set in.
•
“[o]ur main result is that whereas the link between growth and
debt seems relatively weak at ’normal’ debt levels, median growth
rates for countries with public debt over roughly 90 percent of GDP
are about one percent lower than otherwise; average
(
mean
)
growth rates are several percent lower. Surprisingly, the
relationship between public debt and growth is remarkably similar
across emerging markets and advanced economies” (Reinhart and
Rogoff, 2010, p. 573).
Burden of debt
•
The results of Reinhart and Rogoff were debunked by Herndon et
alia (2014). A more recent study found “that with further
hindsight, and from a time series perspective, there is little to no
support for the view that higher levels of debt cause reductions in
economic activity. In contrast to Reinhart and Rogoff (2010), we
suggest that economic slumps tend to cause debt build-ups rather
than
vice versa
” (Amann and Middleditch, 2020).
•
In Sawyer (2017), I considered further empirical evidence and
argued that the evidence for a negative relationship between
debt ratio and economic growth could be severely questioned.
Social and political obstacles to full employment
•
Kalecki wrote that “a solid of majority of economists is now [that is
1943] of the opinion that, even in a capitalist economy, full
employment may be secured by a government spending programme,
provided there is in existence adequate plan to employ all existing
labour power, and provided adequate supplies of necessary foreign
raw-materials may be obtained in exchange for exports” (Kalecki,
1943 p.347).
•
Kalecki (1944) evaluated “three ways to full employment” of which
budget deficit was one, with re-distribution of income another one
which Kalecki favoured, though ‘back of the envelope’ calculations
suggest that while re-distribution could play a role it may be a
relatively minor one (depending on the differences in the propensities
to spend of the different income groups).
Social and political obstacles to full employment
•
Kalecki warned that those opposed to the idea that full
employment can be achieved by government spending “there
were (and are) prominent so-called ‘economic experts’ closely
connected with banking and industry. This suggests that there is a
political background in the opposition to the full employment
doctrine, even though the arguments advanced are economic.
That is not to say that people who advance them do not believe in
their economics, poor though it is. But obstinate ignorance is
usually a manifestation of underlying political motives.” (1943, p.
349).
Social and political obstacles to full employment
•
Osborne (2010) argued that concluded that “a credible fiscal
consolidation plan will have a positive impact through greater
certainty and confidence about the future.”
•
Kalecki had noted that “under a
laissez-faire
system the level of
employment depends to a great extent on the so-called state of
confidence. If this deteriorates, private investment declines, which
results in a fall of output and employment …. This gives the capitalists
a powerful indirect control over government policy: everything which
may shake the state of confidence must be carefully avoided because
it would cause an economic crisis, Hence budget deficits necessary to
carry out government intervention must be regarded as perilous. The
social function of the doctrine of ‘sound finance’ is to make the level
of employment dependent on the state of confidence.” (Kalecki, 1943,
p. 350)
Social and political obstacles to full employment
•
Kalecki (1943, pp. 347-56) raised a number of social and political
obstacles to the achievement of prolonged full employment in a
laissez faire capitalist economy. He argued that under sustained
full employment “the social position of the boss would be
undermined, and the self-assurance and class consciousness of
the working class would grow. Strikes for wage increases and
improvements in conditions of work would create political
tensions” (Kalecki, 1943, p.351).
Social and political obstacles to full employment
•
Kalecki saw
laissez-faire
capitalism as inconsistent with sustained full
employment. “’Full employment capitalism’ will, of course, have to develop new
social and political institutions which will reflect the increased power of the
working class. If capitalism can adjust itself to full employment, a fundamental
reform will have been incorporated in it. If not, it will show itself an outmoded
system which much be scrapped.” (Kalecki, 1943, p. 356).
•
Kalecki and Kowalik (1971) argued that “a ‘crucial reform’ imposed on the ruling
class may stabilize the system, temporarily at least. … we have to do with just such
a situation in contemporary capitalism” (p. 467). “Government intervention in the
expansion of markets became an institution, making it possible to limit
unemployment to a few per cent … This state of affairs (along with a considerable
expansion of social security) led to a certain transformation of the working class,
which on the whole became radically reformist in its attitude towards capitalism.
Preserving high employment rates in the leading capitalist countries generally
gives the workers a satisfactory level of real income.” (pp. 472-3)
Social and political obstacles to full employment
•
King (2013):“by 1971 the crucial reform was already beginning to
unravel” (p.32). Five aspects: collapse of Bretton Woods system of
fixed exchange rates, leading to increased financial instability;
financialisation; unwinding of first five principles of social
democracy ; tendency for the various ‘varieties of capitalism’ to
approach the Anglo-Saxon model; and “the so-called ‘Great
Moderation’ after 1992.
•
The unravelling of the ‘crucial reform’ and the ushering in of the
eras of neo-liberalism, globalisation and financialisation have
been accompanied by rising inequality and generally slower
economic growth.
In recent years (say last two decades),
unemployment in industrialised countries has fluctuated and has
rarely come close to what may be deemed full employment.
Social and political obstacles to full employment
•
The “labour market slack” as a percentage of extended labour
force (labour force plus potential labour force), for the EU
member countries averaged just under 17 per cent during the
2010. The American U-6 measure of unemployment averaged
14.6 per cent in the first half of the 2010s and 8.7 per cent in the
second half. These figures would suggest that full employment
has not been achieved.
Concluding comments
•
Kalecki recognized that public expenditure is financed by central
bank money creation and the private investment expenditure is
financed by bank loans, though he did not give it prominence.
•
Kalecki also argued that budget deficits pursued to secure higher
employment can always by funded. Kalecki doubted that a balanced
budget would usually be compatible with full employment: in
general a balanced structural budget would be attainable, and that
pursuit of such a balanced budget position would in general be
deflationary.
•
Kalecki gave a straightforward dismissal of the argument that
government debt is a burden on future generations.
Concluding comments
•
A budget deficit designed to underpin full employment can be
funded and will be sustainable.
•
There are fiscal costs of interest payments on an enhanced public
debt (following war or a pandemic), which could be met, if
required, by an annual levy on wealth levy.
•
Kalecki’s prediction that there would always by ‘economic experts’
ready to provide spurious arguments to undermine the pursuit of
fiscal policy designed to enable full employment was clearly shown
in the aftermath of the global financial crises.
•
The experiences of recent decades have highlighted that there
have not been the ‘fundamental reforms’ required to provide
sustained non-inflationary full employment.
Malcolm Sawyer discusses Kalecki's contributions to analyzing fiscal policies for achieving full employment. The content covers topics such as financing public and private expenditure, the role of budget deficits in maintaining full employment, the impact of public debt, and obstacles to achieving full employment. Kalecki's insights on the financing and funding of public and private spending are highlighted, emphasizing the importance of government intervention in stimulating economic activity and employment.
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Presentation Transcript
Kaleckis contributions to the analysis of fiscal policies for full employment Malcolm Sawyer Emeritus Professor of Economics University of Leeds UK
Introduction Purpose is to highlight aspects of Kalecki s writings on fiscal policy and unemployment which have bearing on recent debates on austerity and fiscal consolidation. Cover four main areas: Financing and funding of public and of private expenditure The need for budget deficits to underpin full employment and the impossibilities of balanced structural budgets The (non) burden of public debt and the fiscal burden of interest payments Remarks on political and social obstacles to full employment
Financing and funding of public expenditure The circuitist distinction between initial financing and final financing using Mehrling s terminology payment and funding. In papers written in the first half of the 1930s, Kalecki indicated that government expenditure (often infrastructure investment) would be (initial) financed by central bank credits. Kalecki noted that a fiscal expansion could come from the government obtaining large credits from the central bank and spending them on massive public works of one sort or another. In this case the money no doubt would be spent and this would result in increased employment (Kalecki, 1932b, p.175). He often proceeded to note the effects of the additional public expenditure on profits.
Financing and funding public expenditure Kalecki illustrated the financing of public spending by means of a thought experiment. imagine for a moment that the government pays its suppliers in government securities. The suppliers will, in general, not retain these securities but put them into circulation while buying other goods and services, and so on, until these securities will reach people or firms which retain them as interest- yielding assets. In any period of time the total increase in government securities in the possession of persons and firms will be equal to the goods and services sold to the government. Thus, what the economy lends to the government are goods and services whose production is financed by government securities. In reality, the government pays for the services, not in securities, but in cash, but it simultaneously issues securities and so drains the cash off, and this is equivalent to the imaginary process described above. (Kalecki, 1944a, pp. 347- 348)
Financing and funding private expenditure the financing of additional investment is effected by the so- called creation of purchasing power. The demand for bank credit increases, and these are granted by the banks (Kalecki, 1935, p.190). Kalecki presented ideas which can be seen as now embedded in the structuralist post Keynesian analysis of endogenous money and in the circuitist approach. Messori (1991) argued that Kalecki did not differentiate enough between the two different meaning of financing: the monetary flows required to finance an increase in the demand for capital goods (investment financing), and the monetary advances required to finance the purchase of working capital (production financing).
Full employment and balanced budgets For the UK: in normal times, governments of the left as well as the right should run a budget surplus to bear down on debt and prepare for an uncertain future , and that in the Budget we will bring forward this strong new fiscal framework to entrench this permanent commitment to that surplus, and the budget responsibility it represents. (Osborne, 2015). Within the European Union, the fiscal compact was adopted by 26 of the 28 member countries. Amongst the measures agreed was a balanced structural budget. A structural budget position is calculated as that which would appertain if the economy were operating at potential output and government expenditure and tax rates maintained at their current levels.
Full employment and balanced budgets Potential output is the level of output at which inflation would be expected to be constant. It may correspond with the non-accelerating inflation rate of unemployment (NAIRU). There are a range of what may be termed technical objections to the construction and use of a structural budget. These include the issues of the estimation of potential output and the degree to which estimates of potential output have path dependent effects on output. The focus on potential output is in effect an abandonment of any notion of full employment. Kalecki would have viewed the achievement of full employment as requiring not only the appropriate level of aggregate demand supported by fiscal policy but also the creation of sufficient productive capacity.
Full employment and balanced budgets Kalecki (1944b) argued for a permanent budget deficits in the face of intentions to save exceeding intentions to invest. He criticised those who accepted that budget deficits would rise during economic downswings but who did not accept the arguments for the need for permanent budget deficits. Kalecki argued that there will emerge out of a consistent anti- cyclical policy a certain more or less stable level of private investment which by itself, i.e. without considerable assistance by loan expenditure of the public authorities, may fall short of the level required to fill the gap of savings out of a full employment income.
Full employment and balanced budgets The question can be simply posed in the following terms. Consider the equilibrium requirement G T = S- I (closed economy for simplicity) The requirement for a balanced structural budget is the requirement that savings and investment intentions would be balanced at potential output. Kalecki s answer would surely have been that those intentions would not be balanced. Keynes is frequently quoted as saying that Look after the unemployment, and the budget will look after itself. (Keynes, 1933). From a Kaleckian perspective, a revival of private demand, whether coming in some sense autonomously or through some policy stimulus), would lower unemployment and lower the budget deficit.
Burden of debt The claim that budget deficits burden future generations has often been made: for example, public borrowing is, in essence, taxation deferred, and it would be irresponsible and unfair to accumulate substantial debts to fund spending that benefits today s generation at the expense of subsequent generations (HM Treasury, 2010, p.11). Kalecki clearly stated that interest on an increasing national debt (as indeed on all debt) cannot be a burden to society as a whole because in essence it constitutes as internal transfer.
Burden of debt Consider the case where the government runs a budget deficit which averages (relative to GDP) d. A continuing primary budget deficit (relative to GDP) of d leads to a debt (relative to GDP) of b = d/(g -r ) where g is the growth rate and r the rate of interest on government debt, which requires g > r for sustainability. It is well-known that such a deficit will lead the debt ratio to converge to b = d/g with the deficit (in the long term) becoming d* + r.b where r is the rate of interest on government debt and d* the primary deficit. The d = d* + r.d/g and d* = [(g r)/r]. d which is positive if g > r (i.e. a deficit) and negative (i.e. a surplus) if g < r. The total budget deficit then eventually reaches b + r.d. When it is total budget deficit ratio which is held constant, then debt ratio converges on d/g (where g is the nominal growth rate) though the composition of the budget deficit moves towards interest payments, and the primary budget position converges on (g r).b and interest payments on r.b.
Burden of debt Consider the situation (as at present with the pandemic; during war when Kalecki was writing) where the budget deficit has sharply risen and the debt ratio has jumped. Kalecki (1943) discussed the burden of the national debt , in terms of a financial burden in that interest has to be paid out. With a particular level of budget deficit required to secure full employment, then a higher amount of interest payments would tend to reduce the level of government expenditure consistent with that level of budget deficit. Kalecki advocated an annual capital tax, levied on firms and individuals which would raise money to finance the interest payments on the national debt which would affect neither capitalists consumption nor the profitability of investment (Kalecki, 1944a, p. 363).
Burden of debt Some invoked the argument for a negative relationship between the size of public debt and the rate of growth (at least above some threshold level of debt); sometimes combined by a falling off a cliff argument above some crucial level, economic decline would set in. [o]ur main result is that whereas the link between growth and debt seems relatively weak at normal debt levels, median growth rates for countries with public debt over roughly 90 percent of GDP are about one percent lower than otherwise; average (mean) growth rates are several percent lower. Surprisingly, the relationship between public debt and growth is remarkably similar across emerging markets and advanced economies (Reinhart and Rogoff, 2010, p. 573).
Burden of debt The results of Reinhart and Rogoff were debunked by Herndon et alia (2014). A more recent study found that with further hindsight, and from a time series perspective, there is little to no support for the view that higher levels of debt cause reductions in economic activity. In contrast to Reinhart and Rogoff (2010), we suggest that economic slumps tend to cause debt build-ups rather than vice versa (Amann and Middleditch, 2020). In Sawyer (2017), I considered further empirical evidence and argued that the evidence for a negative relationship between debt ratio and economic growth could be severely questioned.
Social and political obstacles to full employment Kalecki wrote that a solid of majority of economists is now [that is 1943] of the opinion that, even in a capitalist economy, full employment may be secured by a government spending programme, provided there is in existence adequate plan to employ all existing labour power, and provided adequate supplies of necessary foreign raw-materials may be obtained in exchange for exports (Kalecki, 1943 p.347). Kalecki (1944) evaluated three ways to full employment of which budget deficit was one, with re-distribution of income another one which Kalecki favoured, though back of the envelope calculations suggest that while re-distribution could play a role it may be a relatively minor one (depending on the differences in the propensities to spend of the different income groups).
Social and political obstacles to full employment Kalecki warned that those opposed to the idea that full employment can be achieved by government spending there were (and are) prominent so-called economic experts closely connected with banking and industry. This suggests that there is a political background in the opposition to the full employment doctrine, even though the arguments advanced are economic. That is not to say that people who advance them do not believe in their economics, poor though it is. But obstinate ignorance is usually a manifestation of underlying political motives. (1943, p. 349).
Social and political obstacles to full employment Osborne (2010) argued that concluded that a credible fiscal consolidation plan will have a positive impact through greater certainty and confidence about the future. Kalecki had noted that under a laissez-faire system the level of employment depends to a great extent on the so-called state of confidence. If this deteriorates, private investment declines, which results in a fall of output and employment . This gives the capitalists a powerful indirect control over government policy: everything which may shake the state of confidence must be carefully avoided because it would cause an economic crisis, Hence budget deficits necessary to carry out government intervention must be regarded as perilous. The social function of the doctrine of sound finance is to make the level of employment dependent on the state of confidence. (Kalecki, 1943, p. 350)
Social and political obstacles to full employment Kalecki (1943, pp. 347-56) raised a number of social and political obstacles to the achievement of prolonged full employment in a laissez faire capitalist economy. He argued that under sustained full employment the social position of the boss would be undermined, and the self-assurance and class consciousness of the working class would grow. Strikes for wage increases and improvements in conditions of work would create political tensions (Kalecki, 1943, p.351).
Social and political obstacles to full employment Kalecki saw laissez-faire capitalism as inconsistent with sustained full employment. Full employment capitalism will, of course, have to develop new social and political institutions which will reflect the increased power of the working class. If capitalism can adjust itself to full employment, a fundamental reform will have been incorporated in it. If not, it will show itself an outmoded system which much be scrapped. (Kalecki, 1943, p. 356). Kalecki and Kowalik (1971) argued that a crucial reform imposed on the ruling class may stabilize the system, temporarily at least. we have to do with just such a situation in contemporary capitalism (p. 467). Government intervention in the expansion of markets became an institution, making it possible to limit unemployment to a few per cent This state of affairs (along with a considerable expansion of social security) led to a certain transformation of the working class, which on the whole became radically reformist in its attitude towards capitalism. Preserving high employment rates in the leading capitalist countries generally gives the workers a satisfactory level of real income. (pp. 472-3)
Social and political obstacles to full employment King (2013): by 1971 the crucial reform was already beginning to unravel (p.32). Five aspects: collapse of Bretton Woods system of fixed exchange rates, leading to increased financial instability; financialisation; unwinding of first five principles of social democracy ; tendency for the various varieties of capitalism to approach the Anglo-Saxon model; and the so-called Great Moderation after 1992. The unravelling of the crucial reform and the ushering in of the eras of neo-liberalism, globalisation and financialisation have been accompanied by rising inequality and generally slower economic growth. In recent years (say last two decades), unemployment in industrialised countries has fluctuated and has rarely come close to what may be deemed full employment.
Social and political obstacles to full employment The labour market slack as a percentage of extended labour force (labour force plus potential labour force), for the EU member countries averaged just under 17 per cent during the 2010. The American U-6 measure of unemployment averaged 14.6 per cent in the first half of the 2010s and 8.7 per cent in the second half. These figures would suggest that full employment has not been achieved.
Concluding comments Kalecki recognized that public expenditure is financed by central bank money creation and the private investment expenditure is financed by bank loans, though he did not give it prominence. Kalecki also argued that budget deficits pursued to secure higher employment can always by funded. Kalecki doubted that a balanced budget would usually be compatible with full employment: in general a balanced structural budget would be attainable, and that pursuit of such a balanced budget position would in general be deflationary. Kalecki gave a straightforward dismissal of the argument that government debt is a burden on future generations.
Concluding comments A budget deficit designed to underpin full employment can be funded and will be sustainable. There are fiscal costs of interest payments on an enhanced public debt (following war or a pandemic), which could be met, if required, by an annual levy on wealth levy. Kalecki s prediction that there would always by economic experts ready to provide spurious arguments to undermine the pursuit of fiscal policy designed to enable full employment was clearly shown in the aftermath of the global financial crises. The experiences of recent decades have highlighted that there have not been the fundamental reforms required to provide sustained non-inflationary full employment.
