David F. Ruccio — Capitalism’s growth problem

Anyone who understands MMT or has been following MMT blogs including this one knows what the "top" economists are apparently at a loss for.

The slow down of growth is a demand problem. Investment is demand led. Lagging demand can be fixed either by increasing labor share, or (inclusive disjunction) increasing government contribution.

Increasing exports cannot do this in an open global economy in which lagging demand is a global issue, since one country's net exports are other countries net imports. Unfortunately, this has not sunk into the thinking of policymakers that are trying to export their way out their countries' doldrums, using currency devaluation, for example.

So-called secular stagnation is a fancy way of saying that economies are settling into equilibrium at under optimal potential and full employment (without defining down "full"). Keynes understood this and showed how to escape this trap eighty years ago. The General Theory was published in 1936. Abba Lerner elaborated on how to manage government contribution through functional finance. In "Political Aspects of Full Employment," Michal Kalecki explained how capitalism is about disciplining labor and controlling labor share to the advantage of capital share.

There is no mystery here. What is wrong with these people?

The issue to threefold.

1. Capital is increasingly dominant over labor and the capital share to labor share reflects this.

2. The paradox of thrift is making itself felt through the popularity of fiscal austerity in government among elites.

3. The rise of mercantilism and beggar-thy-neighbor policy, where trade surpluses are preferred by elites even though they are a cost in real terms to net exporters' economies.

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Capitalism’s growth problem
David F. Ruccio | Professor of Economics, University of Notre Dame