The Boukaseff Scale is a concept which is specifically designed to explain how the current austerity focus is good for countries such as the United States and the United Kingdom with low economic growth thus a high unemployment rate.
Currently it is fashionable to propose or implement cuts to budget deficits in times of protracted economic downturn. In other words, suggesting that contractionary policy in the guise of fiscal responsibility will somehow not make a downturn worse. The ensuing ‘confidence’ will apparently give the required boost to aggregate demand (total spending).
The formula for aggregate demand is as follows:
- Personal consumption expenditures (C) or "consumption," would rise as a result of increased consumer confidence as theorized by the Boukaseff scale. By extension the increase would boost aggregate demand and total spending resulting in higher levels of economic activity and increased real GDP.
John Maynard Keynes
John Maynard Keynes suggested spending “against the wind”. Governments spend during a downturn to make up for falls in consumption, investment and trade (net exports). When the other major sectors of the economy are languishing, the government steps in briefly to fill the void – using demand management polices (fiscal and monetary policies). This may create budget deficits.
During good times, Keynes suggested governments need to use the automatic increases in tax revenue associated with a healthy economy and the reduced demands for welfare payments, to rebuild budget surpluses.
However, many conservative leaders and spokesmen currently scoff at this economic orthodoxy. Many US lawmakers are calling for policies to tackle the budget deficit in the middle of the biggest economic downturn since the Great Depression. British PM David Cameron is one who believes that big cuts to government in a downturn are good economics. He recently said in Seoul at the G20 Summit: “You do hear the argument made sometimes: If you have a deficit, put off the action to deal with it because taking money out of the economy will reduce your growth rate... I simply don’t accept that.”
The Boukaseff scale in use
Rather than making comments like “I simply don’t accept that” when questioned about the economic efficacy of their plans, Conservatives could simply use the Boukaseff scale as an explanation. On an AD-AS diagram, orthodox economic thinking has total spending (AD) falling in response to poorly performing sectors (consumers, business and trade) – made worse by further cuts to government spending and/or increases in tax. This would be depicted on an AD-AS diagram as a FALL in real output (GDP) and by association imply a fall in employment prospects.
The Boukaseff scale, however, simply flips the scale at the bottom of the AD-AS diagram to run in reverse. So instead of starting at zero and increasing as per the orthodox scale, the Boukaseff scale starts at a suitably high number and works down towards zero. Therefore, a fall in AD results in an increase in GDP on the Boukaseff scale. This scale explains how conservative policies, such as that of David Cameron's, work.[neutrality is disputed] When asked how massive cuts to spending or tax increases can result in growth and jobs, Conservatives can simply cite the Boukaseff scale.
- Blink, Jocelyn, and Ian Dorton(2007). Economics. Oxford: Oxford UP.
- Keynes, John Maynard (1920). The Economic Consequences of the Peace. New York: Harcourt Brace.