Thomas Palley — Explaining Stagnation: Why it Matters

Pally lays out the alternatives.

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 [monopoly capital] 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.

These views are not mutually exclusive, but in the end, reforming capitalism leads to a dead-end. It's possible to reform capitalism away from the neoliberal variety, but in the end, capitalism will be capitalism, that is, biased toward increasing capital share over labor share, saving and investment over worker income and consumption, therefore, supply over demand. Having superior power and the ability to capture governments, capital is destined to win over labor unless workers assert themselves against this institutional structure and are able to win. This is about power.

Capitalism involves a demand problem structurally through its very definition, privileging capital over labor, asset value over worker incomes, and production over consumption. This is only going to increase with globalization and labor fungibility as we enter the global age, as well as the growing introduction of automation and robotics as we enter the digital age.

This is a one-two punch delivered to the chin of incomes and demand. Or, a sucker punch to the workers of the world. The result is chronic oversupply and lagging effective demand unless the entire view of political economy is  revisited and revised from the bottom up, putting people first instead of machines and money. The Post Keynesianism that Palley prescribes is only punting, although it would relieve the pressure for awhile.

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.

This is the typical capitalist strategy of co-optation — give only as much as absolutely necessary to keep the system in place as it is while keeping it going. It's keeping the goose that lays the golden egg on life-support.

Explaining Stagnation: Why it Matters
Thomas Palley