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THE THEORY OF MONOPOLY CAPITALISM: An Elaboration of Marxian Political Economy (New Edition) by John Bellamy Foster
THE ENDLESS CRISIS: How Monopoly-Finance Capital Produces Stagnation and Upheaval from the USA to China
by John Bellamy Foster and Robert W. McChesney
THE GREAT FINANCIAL CRISIS: Causes and Consequences
by Fred Magdoff and John Bellamy Foster
MARX'S ECOLOGY: Materialism and Nature
by John Bellamy Foster
THE ECOLOGICAL REVOLUTION: Making Peace with the Planet by John Bellamy Foster
THE ECOLOGICAL RIFT: CAPITALISM'S WAR ON THE EARTH
by John Bellamy Foster, Brett Clark, and Richard York
WHAT EVERY ENVIRONMEN-
TALIST NEEDS TO KNOW ABOUT CAPITALISM by Fred Magdoff and John Bellamy Foster
|Explaining Stagnation: Why It Matters
by Thomas I. Palley
Larry Summers and Paul Krugman have recently identified the phenomenon of stagnation. Given that they are giants in today's economic policy conversation, their views have naturally received enormous attention. That attention is very welcome because the issue is so important. However, there is also a danger that their dominance risks crowding out other explanations of stagnation, thereby short-circuiting debate.
Krugman has long emphasized the liquidity trap -- zero lower bound to interest rates -- which supposedly prevents spending from reaching a level sufficient for full employment. Summers has added to this story by saying we have been in the throes of stagnation for a long while, but that has been obscured by years of serial asset price bubbles.
That is a good start to the conversation, but there are other views that dig deeper regarding the causes of stagnation. For instance, John Bellamy Foster and Fred Magdoff clearly identify stagnation in their 2009 book The Great Financial Crisis: Causes and Consequences. They conclude with a section titled "Back to the Real Economy: The Stagnation Problem" and they write:
My own 2009 New America Foundation report, "America's Exhausted Paradigm: Macroeconomic Causes of the Financial Crisis and Great Recession," concluded:
That report became a core chapter in my 2012 book, From Financial Crisis to Stagnation, the blurb for which reads:
The big analytical difference between Foster and Magdoff and myself is that they see stagnation as inherent to capitalism whereas I see it as the product of neoliberal economic policy. Foster and Magdoff partake of the Baran-Sweezy tradition that recommends deeper socialist transformation. I use a structural Keynesian framework that recommends reconstructing the income and demand generation mechanism via policies that include rebuilding worker bargaining power, reforming globalization, and reining in corporations and financial markets.
Larry Summers' story of serial bubbles delaying stagnation has substantial similarities with both accounts but he avoids blaming either capitalism or neoliberalism. That is hardly surprising as Summers has been a chief architect of the neoliberal system and remains committed to it, though he now wants to soften its impact. Instead, he appeals to the black box of "secular stagnation" as ultimate cause and suggests fiscal policies that would ameliorate the demand shortage problem. However, those policies would not remedy the root cause of stagnation as they leave the economic architecture unchanged.
Though Summers and Krugman are relative late-comers to the stagnation hypothesis, they have still done a great public service by drawing attention to it. Now that stagnation has been identified, the real debate can begin.
The questions are what caused stagnation and what must be done to restore shared prosperity. There is no guarantee we will answer those questions correctly (my prior is mainstream economists will continue their track record of getting it wrong). But it is absolutely certain we will not get the right answer if we do not ask the right question. So thank you Larry Summers and Paul Krugman for putting stagnation on the table. Let the debate begin.
Thomas I. Palley is Senior Economic Policy Adviser for the AFL-CIO and Research Associate at the Economic Policy Institute. Among his publications in recent years is From Financial Crisis to Stagnation: The Destruction of Shared Prosperity and the Role of Economics (Cambridge University Press, 2012). This article was first published in his blog thomaspalley.com on 24 February 2014; it is reproduced here for non-profit educational purposes.