Beyond Stagnation

Source: Mark Levinson and John Schmitt, Dissent Magazine, Vol. 61 no. 3, Summer 2014

In an influential speech at an International Monetary Fund event last November, Larry Summers, former economic adviser to both Bill Clinton and Barack Obama, laid out a decidedly pessimistic view of the U.S. economy. It was bad enough, Summers said, that four years into the recovery from the Great Recession the economy was operating about 10 percent below its full potential, and the share of the population that was employed had barely increased since 2009. But to make matters worse, he observed, the economy had been underperforming even before the crisis. In the mid-2000s, years before the downturn, economic growth was sluggish, output was already below its potential, and the employment rate was well short of its 2000 peak. Summers noted that after the mild recession of 2001, even the enormous twin bubbles in housing and the stock market had not succeeded in generating enough demand in the economy to create a boom: capacity utilization “wasn’t under any great pressure,” unemployment wasn’t “remarkably low,” and inflation was “entirely quiescent.” Summers speculated that the economy may have entered a long-term phase of “secular stagnation” some time ago….

Summers’s speech raises two big questions. The first is, what is the cause of this stagnation?… The second big question posed by secular stagnation is, what should we do about it?…

….This special section seeks to provide a fuller, progressive answer to the question of how we should respond to stagnation. One common theme of the essays that follow is that “recovery” from the economic crisis is not enough. We need to do more than just recreate the conditions that led to the crash. These articles are pieces, far from complete, of an alternative economic strategy. Each of the authors looks with care at some of our most urgent problems and proposes ideas that would shift the balance of power back toward workers and address the problems of stagnation that bedevil the American economy….

Articles include:
Full Employment and the Path to Shared Prosperity
By Dean Baker and Jared Bernstein
There are many policies that can reduce inequality, but there is none as straightforward conceptually and as difficult politically as full employment. The basic point is simple: at low rates of unemployment, the demand for labor allows workers at the middle and bottom of the wage distribution to achieve gains in hourly wages, annual hours of work, and thus income…

A New Agenda for American Families and the Economy
By Heather Boushey
…The idea that family economic security is good for the economy has fallen out of favor for several reasons. First, we have a “ladies problem.” The intellectual legacy of the New Deal, which was at once progressive and patriarchal, has married us to a set of policies and proposals geared for a time when women had only recently won the vote and tended to work inside, rather than outside, the home. Second, despite research showing that policies that ad-dress economic inequality and support workers and their families are good for the economy, today’s political class believes that a healthy economy requires only business-friendly policies. Finally, we do not have a politics that connects and transcends these first two problems. Too often, so-called women’s economic issues appear as an afterthought, rather than as fundamental to family economic security and the economy overall. Yet there is a set of policies that has the potential to help grow the economy and enhance productivity while also supporting families as they live and work today. Together, this collection of new policies can lay the foundation for a new strategy for economic growth as well as a new broadly progressive political coalition that could be as transformative and as durable as FDR’s New Deal….

Think Globally, Innovate Locally
By Amy Hanauer
Denial and indifference are two of the main congressional responses to the inequality, economic stagnation, and climate change that threaten America. But progressives can take heart in the creative, often inspiring initiatives flourishing in patches across the country. States and cities are increasingly stepping into the void left by congressional obstruction—proposing higher minimum wages, better labor standards, and projects that create jobs and improve communities. …

From a Tangle of Pathology to a Race-Fair America
By Alan Aja, Daniel Bustillo, William Darity, Jr., and Darrick Hamilton
….But if structural factors are largely artifacts of the past, what explains the marked and persistent racial gaps in employment and wealth? Is discrimination genuinely of only marginal importance in America today? Has America really transcended the racial divide, and can the enormous racial wealth gap be explained on the basis of dysfunctional behaviors?…

Reforming the Banks for Good
By Jennifer Taub
Despite pronouncements and promises of sweeping reform, many of the conditions that caused the financial crisis of 2008 persist six years after the multi-trillion-dollar bank bailouts began. While several steps have been taken to curb reckless practices, the U.S. financial system is still not safe enough. Today, the top banks are larger than they were before the crisis and engage in many of the same behaviors that led to the financial meltdown, including using large amounts of short-term borrowing to fund purchases of speculative securities. The largest banks have used their political muscle to shield their enterprises and individual bankers from criminal prosecution and to resist the toughest reforms. While global banks have reportedly paid $100 billion in legal settlements with the U.S. government for crisis-related misbehavior, this may not deter future abuses, because the bad actors rarely have been held personally responsible. Instead, the banks and their shareholders have picked up the check….