- Political stability
- Fiscal affairs
- Monetary policy
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- Macroeconomic developments
It’s not time for Keynes now
submited on 28.11.2008 in category Political stability | Fiscal affairs | Monetary policy | Regulated markets | Privatisation | Macroeconomic developments
submited on 28.11.2008 in category Political stability | Fiscal affairs | Monetary policy | Regulated markets | Privatisation | Macroeconomic developments
In our opinion the more important question is not whether the forecast for growing unemployment will come true, but rather what the political risks, arising from a broad consensus around these forecasts. The threat of more unemployment is a significant problem for the politicians (as if it concerns solely them). With the official expectations for unemployment of 7%, the growth in the number of unemployed will probably be – below 45 thousand people.
In the private non-farm sector at least 400 thousand people change their positions, their employers and in many cases even the industries. This “flow” of work force is an important process supporting the competitive pressure and the growth of real productivity. The newly unemployed people according to expectations will be slightly above 1% of the total labor force and some 10% of the people in the “flow of labor force”.
These numbers are rather insignificant from macroeconomic perspective. But from political standpoint they represent fear for loss of potential voters. Can the state do something when in the structure of employment it is responsible for less than 20% of the employment? Keynesians suggest an approach, increasing public expenses which would stimulate the demand for goods and services and therefore will maintain the employment in some “structure-defining” sectors.
Unemployment is playing again its role as a reason for government support to particular players. Now, when Keynesianism is literally resurrected, politicians will be able to increase public spending easily, with far less disputes on the benefits of government expenditure. After all, they are the ones saving the economy, aren’t they?
This is a bad time for investment climate in Europe and Bulgaria. The political risk of increasing public spending is growing. The tax burden on the private sector remains significant, and in such moments we leave the hope for its reduction. There is also the possibility of even more negative scenarios before the fiscal policy, which are not going to be product of the world crisis (as politicians will try to convince us), but rather a decision of the local government.
In the private non-farm sector at least 400 thousand people change their positions, their employers and in many cases even the industries. This “flow” of work force is an important process supporting the competitive pressure and the growth of real productivity. The newly unemployed people according to expectations will be slightly above 1% of the total labor force and some 10% of the people in the “flow of labor force”.
These numbers are rather insignificant from macroeconomic perspective. But from political standpoint they represent fear for loss of potential voters. Can the state do something when in the structure of employment it is responsible for less than 20% of the employment? Keynesians suggest an approach, increasing public expenses which would stimulate the demand for goods and services and therefore will maintain the employment in some “structure-defining” sectors.
Unemployment is playing again its role as a reason for government support to particular players. Now, when Keynesianism is literally resurrected, politicians will be able to increase public spending easily, with far less disputes on the benefits of government expenditure. After all, they are the ones saving the economy, aren’t they?
This is a bad time for investment climate in Europe and Bulgaria. The political risk of increasing public spending is growing. The tax burden on the private sector remains significant, and in such moments we leave the hope for its reduction. There is also the possibility of even more negative scenarios before the fiscal policy, which are not going to be product of the world crisis (as politicians will try to convince us), but rather a decision of the local government.
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