Stagnation and financialization: The nature of the contradiction

Monthly Review

Volumn 66, Issue 1, 2014, Pages 1-24

  Magdoff, Fred ^a   Foster, John Bellamy ^b  

^a UNIVERSITY OF VERMONT   (United States)

^b UNIVERSITY OF OREGON   (United States)

Author keywords

[No Author keywords available]

Indexed keywords

EID: 84901342844     PISSN: 00270520     EISSN: None     Source Type: Journal    
DOI: 10.14452/MR-066-01-2014-05_1     Document Type: Review

References (85)

1. William Morris, "The Depression of Trade," in The Unpublished Lectures of William Morris (Detroit: Wayne State University Press, 1969), 123.
2. On the Eurozone crisis see Costas Lapavitsas, Profiting Without Producing: How Finance Exploits Us All (London: Verso, 2013), 288-300.
3. Lawrence Summers, Speech to the IMF Fourteenth Annual Research Conference, November 8, 2013, http://larry-summers.com
4. Alvin H. Hansen, Full Recovery or Stagnation? (New York: WW. Norton, 1938), 289
5. The Stagnation Thesis," in American Economic Association, ed., Readings in Fiscal Policy (Homewood, IL: Richard D. Irwin, 1955), 540-57
6. See also John Bellamy Foster, "What Is Stagnation?" in Robert Cherry, et al., The Imperiled Economy: Macroeconomics from a Left Perspective (New York: Union for Radical Political Economics, 1987), 59-70
7. On the origins of the stagnation debate in the 1930s see William E. Stoneman, A History of the Economic Analysis of the Great Depression (New York: Garland, 1979).
8. Lawrence Summers, "Why Stagnation Might Prove to be the New Normal," Financial Times, December 5, 2013, http://ft.com.
9. Paul Krugman, "Secular Stagnation, Coalmines, Bubbles, and Larry Summers," New York times blog (November 16, 2013), http://krugman.blogs.ny- times.com.
10. Summers, "Why Stagnation Might Prove to be the New Normal."
11. Hansen's theory is discussed by Krugman as if it merely emphasized demographic factors, not issues such as industrial maturity, monopoly, and inequality. Stagnation is seen by both Summers and Krugman primarily as a result of a long-term desire on the part of investors for negative interest rates, presenting a constant liquidity trap problem-an explanation that at best simply pushed the question back one step further without providing a real explanation. Krugman also points to Robert Gordon's argument on the weakening of innovations. (See Robert Gordon, "Is U.S. Economic Growth Over? Faltering Innovation Confronts the Six Headwinds," National Bureau of Economic Research Working Paper 18315, August 2012, http://nber.org.) In all of this the fundamental historical problem of capital accumulation is not addressed.
12. Krugman, "Secular Stagnation, Coalmines, Bubbles, and Larry Summers?."
13. Paul M. Sweezy, "The Crisis of American Capitalism," Monthly Review 32, no. 5 (October 1980): 2-3.
14. Sweezy, "The Crisis of American Capitalism," 3.
15. See John Bellamy Foster and Henryk Szlajfer, eds., The faltering Economy: The Problem of Accumulation Under Monopoly Capitalism (New York: Monthly Review Press, 1984).
16. Hansen, The Stagnation Thesis," 551-52
17. Paul M. Sweezy, Four Lectures on Marxism (New York: Monthly Review Press, 1981), 36-39.
18. Sweezy, The Crisis of U.S. Capitalism," 4-6
19. Paul M. Sweezy, "Why Stagnation?," Monthly Review 34, no. 2 (June 1982): 7.
20. Paul A. Baran and Paul M. Sweezy, Monopoly Capital (New York: Monthly Review Press, 1966), 139-41.
21. Sweezy, "The Crisis of American Capitalism," 6-7
22. Alan Greenspan, The Great Malaise," Challenge 23, no. 1 (March-April 1980): 37-40.
23. Paul M. Sweezy, "More (or Less) on Globalization," Monthly Review 49, no. 4 (September 1997): 3.
24. Harry Magdoff and Sweezy had begun looking at the long-run decline in liquidity in the U.S. economy and its relation to the theory of monopoly capital as early as the mid 1960s, and carried this analysis forward in a number of prescient articles through the 1970s, even prior to what we are calling here The Great Fi-nancialization," which can be seen as beginning in earnest in the 1980s. On their earlier analyses of this phenomenon see Paul M. Sweezy and Harry Magdoff, The Dynamics of U.S. Capitalism (New York: Monthly Review Press, 1972)
25. Harry Magdoff and Paul M. Sweezy, The End of Prosperity (New York: Monthly Review Press, 1977).
26. Harry Magdoff and Paul M. Sweezy, "Production and Finance," Monthly Review 35, no. 1 (May 1983): 1-11.
27. Magdoff and Sweezy, "Production and Finance," 11
28. The concept of a wealth effect-or increases in consumption associated with increases in wealth (measured in asset values), as referred to by Magdoff and Sweezy here-has come to play a large role in accounting for the real effects of financial bubbles on growth in GDP, and for the recent housing bubble, in particular, which was seen as based on a housing wealth effect. See Dean Baker, The End of loser Liberalism (Washington, DC: Center for Economic and Policy Research, 2009), 18
29. Christopher D. Carroll and Xia Zhou, 'Measuring Wealth Effects Using U.S. State Data," paper presented at Federal Reserve Board of San Francisco Conference on Empirical Macroeconomics Using Geographical Data, March 18, 2011, http://frbsf.org.
30. John Bellamy Foster and Fred Magdoff, The Great Financial Crisis (NewYork: Monthly Review Press, 2009), 121-22.
31. Harry Magdoff and Paul M. Sweezy, Stagnation and the Financial Explosion (NewYork: Monthly Review Press, 1987).
32. Federal Reserve Board statement quoted in Harry Magdoff and Paul M. Sweezy, The Irreversible Crisis (New York: Monthly Review Press, 1988), 44-45. As Magdoff and Sweezy noted here the term 'meltdown" came to be used to describe the possible effects of financial crises following the 1987 stock market crash.
33. Harry Magdoff and Paul M. Sweezy, The Irreversible Crisis (New York: Monthly Review Press, 1988), 76
34. A similar radical change in perspective took place in the work of Hyman Minsky in response to the 1987 Stock Market Crash, causing him to introduce his notion of "money manager capitalism" as a new perilous phase in the development of the system. See Hyman P. Minsky, 'Financial Crisis and the Evolution of Capitalism: The Crash of '87-What Does it Mean?,' in Mark Gottdiener and Nicos Komninos, eds. Capitalist Development and Crisis Theory (London: Macmillan, 1989): 391-403.
35. See John Bellamy Foster and Robert W. McChesney, The Endless Crisis (New York: Monthly Review Press, 2012), 4.
36. Jared Bernstein, "Structural Stagnation, Bubbles, and the Volcker Rule," On the Economy blog, December 10, 2013, http://jaredbemsteinblog. com.
37. Ben S. Bernanke, The Great Moderation," Address to the Eastern Economic Association, February 20, 2004, http://federalreserve.gov
38. Thomas I. Palley, From Financial Crisis to Stagnation (Cambridge: Cambridge University Press, 2012), 132-33, 195.
39. Foster and McChesney, The Endless Crisis, 4.
40. Foster and Magdoff, The Great Financial Crisis, 99.
41. On financial inflation see Jan Toporowski, Why the World Economy Needs a Financial Crisis and Other Critical Essays on Finance and Financial Economics (London: Anthem Press, 2010), 43-61.
42. Fred Magdoff and John Bellamy Foster, The Plight of the U.S. Working Class," Monthly Review Vol. 65, no. 8 (January 2014): 1-22.
43. The term "The Great Stagnation,' to describe the long-term slowdown in the economy was first used, to our knowledge by MIT economist lester Thurow. See Lester C. Thurow, "The Great Stagnation,' New York Times Magazine. October 17, 1982
44. Although pointing to the chronic failure of conventional views to consider the possibility of stagnation, Thurow did not himself provide a theoretical explanation for this phenomenon (beyond very vague Keynesian notions), nor go back to earlier theories on secular stagnation. In contrast Magdoff and Sweezy, from a Marxian standpoint, were already pointing to the reality that the '1970s [represented] the decade in which the Great Stagnation set in'; and that history had shown that it was impossible to overcome this through a simple Keynesian stimulus, as advocated by Thurow. See Harry Magdoff and Paul M. Sweezy, "Listen, Keynesiansl," Monthly Review 34, no. 8 (January 1983): 1-11
45. More important than deficit spending in stimulating the economy, Magdoff and Sweezy argued in that article, was the vast expansion of private debt which could not, however, provide an escape from the fundamental problem. More recently, the phrase The Great Stagnation" has gained considerable currency post-Great Recession due to its use in a similar way to Thu-row's in Tyler Cowen, The Great Stagnation (London: Penguin, 2011)
46. The role of capacity utilization in investment decisions under monopoly capitalism is theorized in Josef Steinet), Maturity and Stagnation in American Capitalism (New York: Monthly Review Press, 1976), 10-11, 127-37
47. See also Foster, The Theory of Monopoly Capitalism, 107-27.
48. Richard Rubin, "Cash Abroad Rises $206 Billion as Apple to IBM Avoid Tax," Bloomberg News, March 12, 2014, http://bloomberg.com.
49. See also Juan Sánchez and Emircan Yurdagul, "Why Are Corporations Sitting on So Much Cash?,' Federal Reserve Board of New York, Regional Economist, January 2013, http://stlouisfed.org
50. "Huge Cash Pile Puts Recovery in the Hands of the Few," Financial Times, January 21, 2014, http://ft.com.
51. Justin Lahart, "The Next Problem: Too Much Profit" Wall Street Journal, March 28, 2014, http://stream.wsj.com/.
52. Cardiff Garcia, 'Birinyi: authorised US share buyback amount finished 2013 up 58%," January 14, 2014 Fianancial Times, Alphaville blog, http://ftalphaville.ft.com.
53. Bureau of Economic Analysis NIPA Table 5.2.5. Gross and Net Domestic Investment by Major Type; Harold G. Vatter and John F. Walker, the Inevitability of Government Spending (NewYork: Columbia University Press, 1990), 6-22.
54. On depreciation funds and investment see Baran and Sweezy, Monopoly Capital, 99-104
55. Vatter and Walker, The Inevitability of Government Spending, 6-8, 113.
56. Ezra Klein, "Larry Summers on Why the Economy Is Broken-And How to Fix It" Washington Post blog, January 14, 2014, http://washingtonpost.com/ blogs.
57. Cowen, The Great Stagnation, 49-50.
58. "Apple's 2013 Annual Report," October 30, 2013, http://macrumors.com
59. Google Investor Relations, "Google Inc. Announces Third Quarter 2013 Results," October 17, 2013, https://investor.google.com
60. "Facebook Will Grow Head-count Quickly in 2013," January 30, 2013, http://techcrunch.com.
61. George Packard, "Amazon is good for customers. But is it good for books?" New Yorker, February 17, 2014, http://newyorker.com
62. Aki Ito, "Your Job Taught to Machines Puts Half U.S. Work at Risk," Bloomberg, March 12, 2014, http://bloomberg.com.
63. Palley, From Financial Crisis to Stagnation, 76-78
64. Krugman, "Secular Stagnation, Coalmines, Bubbles, and Larry Summers."
65. See Robert Pollin, et al., Green Recovery: A Program to Create Green Jobs and Start Building a Low-Carbon Economy, Center for American Progress, September 2008, http://peri.umass.edu/green-recovery.
66. John Maynard Keynes, The General Theory of Employment, Interest and Money (London: Macmillan, 1973), 376.
67. Foster and McChesney, The Endless Crisis, 137-43
68. Samir Amin, Three Essays on Marx's Value Theory (NewYork: Monthly Review Press, 2013), 67-76.
69. This argument was put forward forcefully in Michal Kalecki, The Last Transformation of Capitalism (NewYork: Monthly Review Press, 1972), 75-83
70. See also Paul Krugman, End This Depression Now! (New York: W.W. Norton, 2012), 94-96
71. John Bellamy Foster, "Marx, Kalecki, and Socialist Strategy," Monthly Review 64, no. 11 (April 2012): 8-12.
72. Joan Robinson, "Review of R.F. Harrod, The Trade Cyde' Economic Journal 46, no. 184 (December 1936): 691-93.
73. István Mészáros, Beyond Capital (New York: Monthly Review Press, 1995), 893.
74. On 'the political economy of labor' versus the 'political economy of property' see Karl Marx, On the First International (New York: McGraw Hill, 1973), 5-12.
75. Thomas Píketty, Capital in the Twenty-First Cenlury (Cambridge, MA: Harvard University Press, 2014), 7-11, 336, 515-17.
76. Michal Kalecki, Selected Essays on the Dynamics of the Capitalist Economy (Cmbridge: Cambridge University Press, 1971), 35-42
77. For a discussion of Kal-ecki's argument on wealth taxation and monopolistic accumulation see John Bellamy Foster, The Theory of Monopoly Capitalism (New York: Monthly Review Press, 1986), 133-36.
78. Piketty, Capital in the Twenty-First Century, 471-92, 531-32
79. Magdoff and Sweezy, Stagnation and the Financial Explosion, 88-90.
80. Paul Le Blanc and Michael D. Yates, A Freedom Budget for All Americans (New York: Monthly Review Press, 2013), 224-25.
81. Le Blanc and Yates, A Freedom Budget for All Americans, 232-33
82. Linda Bilmes and Joseph Stiglitz, The Three Trillion Dollar War The True Cost of the Iraq Conflict (New York: W.W. Norton, 2008).
83. Arnold J. Toynbee, A Study of History, Vol. 1 (Abridgement of Volumes I-VI) (Oxford: Oxford University Press, 1946), 11-13, 375-79.
84. See Fred Magdoff and John Bellamy Foster, What Every Environmentalist Needs to Know About Capitalism (New York: Monthly Review Press, 2011), 37-60.
85. Karl Marx, Capital, Vol. 3 (London: Penguin, 1981), 754.