CERC Public Seminar: 'The Brussels-Frankfurt consensus: An answer to the wrong question'

Tuesday 13 June1:00-2:00pm
at Room 212, Level 2, 234 Queensberry Street, The University of Melbourne

presented by

Prof Joan Muysken

(Universiteit Maastricht, Faculty of Economics and Business Administration)

Abstract

The Brussels-Frankfurt consensus prioritises the maintenance of price stability – reflected in low rates of inflation – which allegedly facilitates the achievement of higher rates of economic growth over the medium term and helps to reduce cyclical fluctuations. The consensus reflected in the Stability and Growth Pact seeks as a matter of policy to constrain the fiscal options of sovereign states.

In our view this is an answer to the wrong question because the major economic problem facing most economies is persistently high unemployment and its accompanying income and social losses. Unfortunately, this malaise is not considered in EU politics to be a major issue that needs to be solved with the highest priority. Sadly, it is the other way around: Unemployment, at best, is seen as an unfortunate consequence of the need to maintain a low inflation environment and as a symptom of rigidities which hamper a proper functioning of the economy. At worst, it is seen as a voluntary state where individuals choose life paths emphasising leisure. Never is it constructed as a systematic macroeconomic failure of governments to ensure there are enough jobs created in their economies.

The aim of this paper is threefold. First, we analyse the background to the NAIRU-approach and the Brussels-Frankfurt consensus and show how it gained its influence on European policy through the OECD Jobs Study, the European Employment Study, the Maastricht criteria and the Stability and Growth Pact. Second, we challenge the basis of this dominant paradigm in conceptual terms, emphasising that European governments have abandoned full employment in favour of the diminished goal of full employability. Third, we argue that key components of the consensus are not in accord with the data.

Biography

Joan Muysken is Professor of Economics at the Faculty of Economics and Business Administration, Universiteit Maastricht. He studied quantitative economics at the University of Groningen and obtained his Ph.D. degree from the University of Groningen on the aggregation of production functions. His research interests are (in general): wage formation, labour demand, matching problems, analysis of unemployment and endogenous growth and diffusion of technologies.