How Monopoly-Finance Capital Leads to Economic Stagnation
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Robert E. Hall, then president of the American Economic Association (AEA), provided a different approach in an address to the AEA in January 2011, entitled “The Long Slump.” A “slump,” as Hall defined it, is the period of above-normal unemployment that begins with a sharp contraction of the economy and lasts until normal employment has been restored. The “worst slump in US history,” Hall stated, was “the Great Depression in which the economy contracted from 1929 to 1933 and failed to return to normal until the buildup for World War II.” Hall labeled the period of prolonged slow growth in which the U.S. economy is now trapped “The Great Slump.” With government seemingly unable to provide the economy with the needed stimulus, he observed, there was no visible way out: “The slump may last many years.”
In June 2010, Paul Krugman wrote that the advanced economies were currently caught in what he termed the “Third Depression” (the first two being the Long Depression following the Panic of 1873 and the Great Depression of the 1930s). The defining characteristic of such depressions was not negative economic growth, as in the trough of the business cycle, but rather protracted slow growth once economic recovery had commenced. In such a long, drawn-out recovery “episodes of improvement were never enough to undo the damage of the initial slump, and were followed by relapses.” In November 2011, Krugman referred to “The Return of Secular Stagnation,” resurrecting the secular stagnation hypothesis of the late 1930s to early ’50s (although in this case, according to Krugman, the excess savings inducing stagnation are global rather than national).
Books too have been appearing on the stagnation theme. In 2011, Tyler Cowen published The Great Stagnation, which quickly became a bestseller. For Cowen the U.S. economy has been characterized by a “a multi-decade stagnation…. Even before the financial crisis came along, there was no new net job creation in the last decade….
Around the globe, the populous countries that have been wealthy for some time share one common feature: Their rates of economic growth have slowed down since about 1970.” If creeping stagnation has thus been a problem for the U.S. and other advanced economies for some time, Thomas Palley, in his 2012 book, From Financial Crisis to Stagnation, sees today’s Great Stagnation itself as being set off by the Great Financial Crisis that preceded it, and as representing the failure of neoliberal economic policy.
Such worries are not confined to the United States, given the sluggish economic growth in Japan and Europe as well. Christine Lagarde, managing director of the IMF, gave a speech in Washington in September 2011 in which she stated that the world economy has “entered a dangerous new phase of the crisis…. Overall, global growth is continuing, but slowing down,” taking the form of an “anemic and bumpy recovery.” Fundamental to this dangerous new phase of crisis was “core instability,” or weaknesses in the Triad — North America, Europe, and Japan — along with continuing financial imbalances “sapping growth.” The big concern was the possibility of another “lost decade” for the world economy as a whole. In November 2011 Lagarde singled out China as a potential weak link in the world economic system, rather than a permanent counter to world economic stagnation.
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