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The central argument of this book is that the foundations for sustainable prosperity lie in an approach to economic management based on modern monetary theory and a job guarantee. This approach builds on the work of Keynes, Kalecki, Minsky, Davidson, Godley and other Post- Keynesian economists—as well as research by behavioral economists including Simon, Kahneman and Loewenstein—to explore the role that a permanent, equitable job guarantee could play in building an inclusive, participatory and just society. Orthodox (neoclassical) economics, in its various forms, has failed to deliver sustainable prosperity. An important reason for this failure is its lack of realistic foundations. It misrepresents both human nature and economic institutions, and its use as a frame for the development and assessment of economic policy proposals has had disastrous consequences for social inclusion and the quality of life of millions of people. This book discusses an alternative, more realistic and more useful set of economic foundations, which could deliver the opportunity of a decent quality of life with dignity to all.



Chapter 1. Introduction—Searching for a New Economics

There are two broadly defined approaches to the study of how modern economies work, what drives their evolution over time, and what role, if any, government policies can play in ensuring economic outcomes serve the public purpose. Most policy-makers are aware of only one of these approaches, often referred to as orthodox, mainstream or neoclassical macroeconomics. The limitations of orthodox macroeconomics are illustrated in this chapter with reference to a series of recent statements by economists and policy-makers about economic policy and financial markets which are demonstrably incorrect, and yet in each case a consequence of thinking within the frame of the orthodox model.
Steven Hail

Chapter 2. ‘Real’ Analysis of an Unreal World

The orthodox view macroeconomics up to at least 2008 was one of linear progress. Models and techniques had supposedly got better and better down the decades so that central bankers were now able to deliver a ‘great moderation’ through their skilled manipulation of official interest rates, and the problem of economic depressions had been solved. An alternative view was that it had essentially gone round in circles for over a century, had become increasingly unrealistic and misleading in the past 30 years, and was a failed paradigm which desperately needed replacing. This chapter provides a brief history of the development of the dominant orthodox macroeconomics of today from its neoclassical roots of more than 100 years ago.
Steven Hail

Chapter 3. New Wisdom from Old Books

This chapter provides a brief description of the first serious attempt at a realistic model of the economy, as outlined by Keynes in his General Theory and four subsequent academic papers. In these works, Keynes laid the foundations for what became known after his death as Post-Keynesian economics. The chapter also includes a discussion of the important contributions made by one contemporary of Keynes and two later economists to the development of a realistic macroeconomics.
Steven Hail

Chapter 4. Behavioural Foundations

All economics has psychological foundations. In the case of modern orthodox economics, those foundations involve expected utility maximisation by a radical individualist with unlimited cognitive capacity, and sufficient information about the economic environment to never make errors which are theoretically avoidable. This is bad psychology. It is bad, because this is not an accurate description of how real people generally understand the world, react to their environment, make decisions or develop feelings of subjective well-being. This chapter describes a better set of psychological foundations for economics, which have important implications for public policy.
Steven Hail

Chapter 5. Modern Monetary Theory

This chapter begins with an explanation of the three core statements, or axioms, at the heart of modern monetary theory: (1) monetary sovereign governments face no purely financial budget constraints; (2) all economies, and all governments, face real and ecological limits relating to what can be produced and consumed; and (3) the government’s financial deficit is everybody else’s financial surplus. This leads on to a discussion of the macroeconomic policies suggested by modern monetary theory, and potential institutional reforms to clarify the fiscal space available to monetary sovereign government.
Steven Hail

Chapter 6. Stock-Flow Consistent Monetary Economics

The focus in this chapter is on Wynne Godley and Marc Lavoie’s contribution to stock-flow consistent macroeconomics. The Godley and Lavoie models describe economies as systems of shifting and interlocking balance sheets, evolving through time. A simplified open economy stock-flow consistent model of a growing economy is outlined, used to carry out a policy experiment concerning the relative effectiveness of monetary and fiscal policy, in order to show that fiscal policy is the appropriate demand management tool for the maintenance of full employment and sustainable prosperity. This is linked to the use of a job guarantee to identify the appropriate fiscal stance for this purpose.
Steven Hail

Chapter 7. A Job Guarantee

This chapter opens with a discussion of the impact of involuntary unemployment on subjective well-being, based on research undertaken by psychologists and others. A comparison is made between the impact of unemployment and changes in income on subjected well-being. It is shown that there are significant non-pecuniary benefits to paid employment and that full and equitable employment is essential to sustainable prosperity. It is argued that full and equitable employment supported by a job guarantee is consistent with moderate and stable rates of inflation and ecological sustainability.
Steven Hail

Chapter 8. Conclusion—Economics for Sustainable Prosperity

The final chapter summarises a new economics for sustainable prosperity. This requires the replacement of the old orthodoxy with a new approach to economic management, drawing on insights from Post-Keynesian and behavioural economics, and using modern monetary theory as a frame. It requires that we live within our real and ecological constraints, with equitable full employment based on a well-designed job guarantee and a financial system designed to serve the needs of a sustainable economy, rather than one designed to promote inequality and financial fragility.
Steven Hail


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