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Reorienting fiscal policy: a bottom-up Approach

Listed author(s):
  • Pavlina R. Tcherneva

The present article offers a fundamental critique of fiscal policy as it is understood in theory and exercised in practice. Two specific demand-side stabilization methods are examined here: conventional pump priming and the new designation of fiscal policy effectiveness found in the new consensus literature. A theoretical critique of their respective transmission mechanisms reveals that they operate in a trickle-down fashion that not only fails to secure and maintain full employment, but itself contributes to the increasing postwar labor market precariousness and the erosion of income equality. The two conventional demand-side measures are then contrasted with the proposed alternative—a bottom-up approach to fiscal policy based on a reinterpretation of Keynes's original policy prescriptions for full employment. The article offers theoretical, methodological, and policy rationale for government intervention that includes specific direct employment and investment initiatives, which are inherently different from contemporary hydraulic fine-tuning measures. It outlines the contours of the modern bottom-up approach and concludes with some of its advantages over conventional stabilization methods.

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Article provided by M.E. Sharpe, Inc. in its journal Journal of Post Keynesian Economics.

Volume (Year): 37 (2014)
Issue (Month): 1 (October)
Pages: 43-66

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Handle: RePEc:mes:postke:v:37:y:2014:i:1:p:43-66
Contact details of provider: Web page: http://mesharpe.metapress.com/link.asp?target=journal&id=109348

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