From Financial Crisis to Stagnation: The Destruction of Shared Prosperity and the Role of Economics
The U.S. economy today is confronted with the prospect of extended stagnation. This book explores why. Thomas I. Palley argues that the Great Recession and destruction of shared prosperity is due to flawed economic policy over the past thirty years. One flaw was the growth model adopted after 1980 that relied on debt and asset price inflation to fuel growth instead of wages. A second flaw was the model of globalization that created an economic gash. Third, financial deregulation and the house price bubble kept the economy going by making ever more credit available. As the economy cannibalized itself by undercutting income distribution and accumulating debt, it needed larger speculative bubbles to grow. That process ended when the housing bubble burst. The earlier post-World War II economic model based on rising middle-class incomes has been dismantled, while the new neoliberal model has imploded. Absent a change of policy paradigm, the logical next step is stagnation. The political challenge we face now is how to achieve paradigm change.
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Alan Greenspan banks beneﬁts borrowing Bretton Woods budget deﬁcits business cycle capital cause Chicago China corporate globalization countries crash created debt demand demand-generating process democratic deregulation difﬁcult dollar economic policy economists efﬁcient excess exchange rates explain export-led growth federal funds rate Federal Reserve ﬁnan ﬁnance Financial ﬁnancial crisis ﬁnancial markets ﬁrms ﬁrst ﬁscal ﬂawed ﬂows Freddie Mac full employment global economy Greenspan growth model hard-core households housing price bubble imbalances incentive income distribution increased interest rates investment jobless recovery justiﬁed Keynesian economics labor markets loans macroeconomic market failure market fundamentalism ment minimum wage monetary policy moral sentiments mortgages neoclassical neoclassical economics neoliberal neoliberal policy Palley paradigm percent perspective policy makers political problem production proﬁts rebalancing Recession reﬂects reform regulation regulatory risk role saving glut hypothesis shared prosperity signiﬁcant social soft-core spending stagnation stimulus structural Keynesian theory trade deﬁcit U.S. economy undermined United Wall Street