Austrian self-healing doctrine cannot explain persistent unemployment given low US unionization

Evidence

First, being the last redoubt of the “can’t live with it” liberals, Austrians bemoan austerity but see no alternative to it. “Do nothing” and let the economy “self-heal” are their main policy proposals. A version of this is currently being tried in the Eurozone, and as we saw there, the healing is not going so well. We should also remember that we have been here before. These same ideas were offered as explanations and implemented as policies in many countries in the 1920s and 1930s, and as we shall see in chapter 6, they didn’t work then either. As Keynes demonstrated, there is no reason for an economy to “naturally” return to a full-employment equilibrium after a shock. It can settle into a state far from full employment for a very long time. The Austrian explanation of sustained unemployment after a bust—the inability of the economy to self-heal as it should—is that trade unions are holding up the market-clearing wage. But in the United States, for example, where unions cover less than one in eight workers, such an explanation is simply not credible. Moreover, Germany and Sweden, countries with much higher unemployment rates through the business cycle, also have far higher unionization rates. — Mark Blyth, Austerity, 399

Categorization

• XREF: Connects to the Keynesian critique of natural full-employment equilibrium and the broader austerity literature (Mattei) treating liquidationism as a repeated failed policy. — connects to: Austrian business cycle theory blamed politics and left crisis victims unsupported — Dieter Plehwe, Quinn Slobodian & Philip Mirowski (eds.), Nine Lives of Neoliberalism, 395

Broader Connections

• Austrian business cycle theory blamed politics and left crisis victims unsupported #qualifies (0.75) — Dieter Plehwe, Quinn Slobodian & Philip Mirowski (eds.), Nine Lives of Neoliberalism, 395