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Wednesday, May 01, 2013

Politicians Embracing Austerity Are Killing Jobs

Today, we got a report which confirms everything we've been telling you about how the economy is dipping into recession. ADP reported job creation for April was only 119,000. This compares to the approximate 150,000 jobs that needs to be created just to keep up with population increase. Clearly, this should be a wakeup call for everyone who has been claiming that the economy is doing just fine.

Why are we seeing the economy falling into recession? While some will point to various factors, the underlying problem is that we have shunned innovation as a solution to our economic problem. Prospering through innovation economics gives us an answer:

Perhaps the greatest 20th century economist was Joseph Schumpeter.  Unlike Keynes, Schumpeter put innovation first and in doing so articulated the idea that capitalist economies advance on the basis of “creative destruction.”  Yet, while Schumpeter may have been European (Austrian), too few European policymakers are Schumpeterians.

In other words, when most European leaders refer to innovation, they mean tech-based industries, not the constant transformation of an economy and its institutions, including public institutions. Real innovation is disruptive, often painful, but almost always good. Unless Europe can accept that innovation and productivity entail plant closures and job losses and also embraces, rather than resists or regulates, new technologies and business models with uncertain social or environmental impacts, it is not likely that Europe will be able to keep up in the race for global innovation advantage.  One way to do this is to embrace the Nordic flexicurity (a combined term for “flexible security”). Flexicurity is based on the reality that employment security is decreasing. To help workers manage, they will need new kinds of security – not to help them stay at a particular job, but to help them effectively transition into new employment through viable skills.

The same prescription will work in the USA, just after we vote out of office all the Austerians.