Noam Chomsky on Budget & Economy Political Activist

Austerity in a period of recession makes situation worse

Take the European Central Bank (ECB). There are many economists, Nobel Laureates and others, and I agree with them, who think that the policies that the ECB is following and pursuing-- basically austerity in a period of recession--are guaranteed to make the situation worse. So far, I think that's been the case.

Growth is what is needed in a period of recession, not austerity.

2008 real estate bubble came from increasing role of finance

A: At the root of its occurrence is the major shift in the economy that began to take place in the 1970s. It was escalated radically under Reagan, Thatcher in England and on from there. There was a big growth period in the US, the largest in history, during the 1950s and 1960s. At that time, there was also egalitarianism: the lowest quintile did as well as the highest quintile. That came to an end in the 1970s when there was a shift towards increasing the role of finance in the society. Combined with this were corporate decisions to ship production abroad. It's not a law of nature, again. You can have decent working conditions and production at home and abroad, but they make more profit that way. These decisions greatly changed the economy. One effect of this was that wealth became concentrated heavily in financial industries and that led to concentration of political power that leads to legislation.

Banks thrive due to bailouts, while people suffer recession

Doubtless there was some impact of the populist image crafted by the PR machine, but this appears to have had only a secondary role. The popular anger is quite understandable, with the banks thriving thanks to bailouts while the population remains in deep recession. Unemployment is at 10% and in manufacturing industry at the level of Great Depression, with one out of six unemployed, as was reported the day of the Massachusetts election

Adam Smith called for equality of outcome plus free market

Is it a law of nature that we must keep to these? Not if we take seriously the doctrines of classical liberalism. Adam Smith’s praise of division of labor is well known, but not his denunciation of its inhuman effects, which will turn people into objects, something that must be prevented by government action to overcome the destructive force of the “invisible hand.” Also not well advertised is Smith’s belief that government “regulation in favour of the workmen is always just and equitable,” though not “when in favour of the masters.” Or his call for equality of outcome, which was at the heart of his argument for free markets.

1920s and 1950s were both called the "End of History"

The book "The End of Ideology" in 1959 argued that ideological issues were over: they finally understood everything, more or less. Economics, incidentally, were saying the same thing. Paul Samuelson, the leading economist at the time, was writing that it would take an idiot not to be able to maintain a steady 3% growth with very low unemployment. From now on it was just a matter of tinkering. Well, a couple of years later the economy had totally changed, the country was up in arms and there was tremendous ferment. These cycles go on and on.