From Financial Crisis to Stagnation

The US 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. 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 book explains why the economy is now confronted with stagnation rather than the quick recovery predicted by other accounts. 'Thomas Palley has provided a penetrating analysis of the Great Recession, the weakness of the policy response, and the role of economic ideas in both. If we are to avoid the Great Stagnation - and build a more equitable and sustainable economic future - economists and policy makers must fundamentally change the way they think about economics and politics. Mr Palley points the way.' Ron Blackwell, Chief Economist, AFL-CIO 'Thomas Palley's carefully argued study combines an acute critique of conventional economic thinking with thoughtful and stimulating proposals to fix America's broken economic policies.' Thomas Ferguson, University of Massachusetts, Boston, and Senior Fellow, Roosevelt Institute 'In the depths of the Great Depression, John Maynard Keynes wrote that 'nothing is required, and nothing will avail, except a little clear thinking.' Thomas Palley here renews that message for our time.' James K. Galbraith, author of Inequality and Instability: A Study of the World Economy Just Before the Great Crisis 'This is an outstanding book: clear, concise, and comprehensive. It shows that the economic crisis is the result of economic policies derived from flawed ideas and flawed ideologies. Read it and recommend it to your friends. It provides a map to overcome the great stagnation and to return to shared prosperity.' Jose Antonio Ocampo, Columbia University, Former UN Under-Secretary-General for Economic and Social Affairs and former Finance Minister of Colombia 'In this perspicacious and persuasive book, Tom Palley shows how conventional economic thinking led ultimately to the disaster of the Great Recession and how it is now threatening to culminate in the Great Stagnation. His thoughts on how to avoid that and how to recover are compelling and important.' Clyde Prestowitz, President, Economic Strategy InstitutePreface; Part I. Origins of the Great Recession: 1. Goodbye financial crash, hello stagnation; 2. The tragedy of bad ideas; 3. Overview: three perspectives on the crisis; 4. America's exhausted paradigm: macroeconomic causes of the crisis; 5. The role of finance; 6. Myths and fallacies about the crisis: stories about the domestic economy; 7. Myths and fallacies about the crisis: stories about the international economy; Part II. Avoiding a Great Stagnation: 8. The coming Great Stagnation; 9. Avoiding a Great Stagnation: rethinking the paradigm; 10. The challenge of corporate globalization; 11. Economists and the crisis: bad ideas revisited; 12. Markets and the common good: time for a great rebalancing.