James Galbraith in a lecture at Michigan State University this week argues that after the recent financial crisis, the economy cannot return to the old normal. The economy will not recover on its own and public policies seem inadequate. He calls the period 1940-70 a Golden Age. The recovery lasted until another crisis in 1980 in Russia and Asia. The rich gained at the expense of the poor. A pseudo-golden age unfolded after 2001 until the disaster of 2007.
What is different now that makes return to normal doubtful? Changing geo-physics. While fracking and natural gas offer some respite, energy costs are multiples higher than before. Our military power seems unlikely to insure stability as witnessed by Iraq and Afghanistan. The picture is clouded by climate change and rising coastal flooding already in train. Technological change is making people redundant--we simply do not need as many.
Much of our apparent growth was in the financial sector as almost everything of value over time was turned into an immediate source of great profits for traders and banks--accounts receivable was a historic transformation now dwarfed by life insurance premuims, mortgage payments, derivatives, etc. Of course, the growth of the financial sector has led to grossly unequal wealth.
Galbraith argues that a change in thinking and expectations is is order to avoid the violence exhibited by Greece as people protest austerity. How will we learn to live with slow growth?
More in future posts. I would like to hear ideas from my readers.