Amartya Sen: Democracy, Austerity and Social Justice in Europe

I came across this interesting article by Amartya Sen via the CELS: "What happened to Europe?" It's a very broad article, but covers the connection between politics (and democracy) and austerity, social justice and European integration. An extract:

"That austerity is a counterproductive economic policy in a situation of economic recession can be seen, rightly, as a “Keynesian critique.” Keynes did argue—and persuasively—that to cut public expenditure when an economy has unused productive capacity as well as unemployment owing to a deficiency of effective demand would tend to have the effect of slowing down the economy further and increasing—rather than decreasing—unemployment. Keynes certainly deserves much credit for making that rather basic point clear even to policymakers, irrespective of their politics, and he also provided what I would call a sketch of a theory of explaining how all this can be nicely captured within a general understanding of economic interdependences between different activities (emphasizing in particular the fact that someone’s expenditure is another person’s income). I am certainly supportive of this Keynesian argument, and also of Paul Krugman’s efforts in cogently developing and propagating this important perspective, and in questioning the policy of massive austerity in Europe. 

But I would also argue that the unsuitability of the policy of austerity is only partly due to Keynesian reasons. Where we have to go well beyond Keynes is in asking what public expenditure is for—other than for just strengthening effective demand, no matter what its content. As it happens, European resistance to savage cuts in public services and to indiscriminate austerity is not based only, or primarily, on Keynesian reasoning. The resistance is based also on a constructive point about the importance of public services—a perspective that is of great economic as well as political interest in Europe.

THERE IS A CENTRAL ISSUE of social justice involved here—that of reducing rather than enhancing injustice. The public services are valued for what they actually provide to people, especially to vulnerable people, and this is something for which Europe had fought. Savage cuts in these services undermine what had emerged as a social commitment in Europe at the end of World War II, which led to the birth of the welfare state and the national health services in a period of rapid social change in the continent, setting a great example of public responsibility from which the rest of the world—from East Asia to Latin America—would learn.

In order to understand the inadequacy of Keynes as a guide to solving the European economic crisis, we have to ask: what kind of an economist was Keynes in terms of his vision of a good society? Keynes did say—famously, and accurately enough—that paying laborers to dig holes and then to fill them up can be a very good thing, because of its impact on increasing effective demand to combat a recession or a depression. This is fine as far as it goes, but Keynes had extremely little to say on what social commitments a state should have—what public expenditure should be for, other than for just strengthening market demand through state intervention."

 And:

"[...]

If we add to this economic argument the long-term concern in Europe about some form of social justice and the more immediate political worry about the undermining of the European sense of solidarity, we can see what a disaster the recent European financial policies have been. The case for resisting the savage cuts in public services can hardly be ignored. This is not because the commitment to social justice must always be paramount, but surely it must be a serious concern that cannot simply be discarded by bankers and financial leaders. There is, of course, always a need for rational scrutiny and examination of what a country can afford and what it cannot—taking into account all the relevant factors, including the changing age distribution of the population. But this is not the same question as checking what a country can afford with inefficient economic and financial management, with fuzzy thinking on exchange rates and market demands and economic competitiveness."

The first two pages are a bit of European integration history, and the substantive argument really gets going from page 3 onwards.