‘Half a parrot’: Commissioner László Andor challenges European Central Bank economics and policy
László Andor, the outgoing EU Commissioner for Employment, Social Affairs and Inclusion, has just finished hosting a two-day conference: ‘Labour economics after the crisis: what theoretical lessons to draw from policy experience?’. This experience led ultimately to a call for increased public investment expenditures in the Euro Area.
In his response to his own question, Andor made the case for a review and restoration of the Phillips curve. Not unlike the OECD in their recent Employment Outlook, he rejected the vertical Phillips curve (when any attempt to expand employment beyond a certain point leads to inflation), and argued instead that the curve was horizontal (so that there would be no increase in inflation when attempting to expand employment, certainly under present conditions).
The theoretical gauntlet was grasped from the audience by representatives of Manchester University’s Post-Crash Economics Society, who asked the panel whether there was room to extend the teaching of economics in universities to ‘wider schools of thought’.
Commissioner Andor’s response betrayed exasperation with the policy context within which he had been operating. Under the tuition of Samuelson’s and Nordhaus’s Macroeconomics textbook, he has been assured that a parrot could be taught economics by just repeating supply and demand. But ‘the EU had achieved only half of the parrot’, the supply half; the other half, the demand half was regarded as ‘heretical to normal thinking’.
Since at least the inception of the single currency, the supply half of the parrot has dominated EU policy. But this had evidently failed the people in a disastrous way. As Andrew Watt (of the Hans Boeckler Foundation in Germany) observed, at the start of the 1990s the EU confronted double digit unemployment with structural (i.e. supply-side) reforms. Yet less than two decades later, in spite of these reforms, the EU was back where it had started, confronting again double-digit unemployment.
(Others went much further. Guy Standing of the School of Oriental and African Studies received the loudest applause for his compelling an ultimately tragic assessment of social outcomes after 40 years of globalization, based on his new book and his A Precariat Charter: from Denizens to Citizens.)
The conference concluded with a plenary on ‘Meeting Europe’s 2020 employment target: how should structural and macroeconomic policies support each other’. Different speakers made various calls for policy on the demand side of the parrot: increasing investment expenditures, increasing spending in member countries that could afford it, and institutional changes so that the ECB might support necessary fiscal expansion (though more than a degree of caution from the Commission director for structural reform and competitiveness).
At an earlier point another delegate suggested that the majority of the (large) audience might agree with the horizontal Phillips curve, but asked whether certain policymakers might stand in the way. The Commissioner thought that all policymakers were perfectly familiar with the whole parrot, but there was a ‘lack of courage’. Mario Draghi had ‘talked the talk’ in 2012 when he proclaimed that he was ready to do ‘whatever it takes’, and only a fortnight ago, at the gathering of central bankers Jackson Hole, he too had finally conceded the demand side of the parrot. Was he ready to ‘walk the walk’?