“From Financial Crisis to Stagnation: The Destruction of Shared Prosperity and the Role of Economics” by Thomas Palley, Cambridge University Press, 2012.
The U.S. economy confronts the prospect of extended stagnation. This book explores why. The argument is the Great Recession and destruction of shared prosperity is due to flawed economic policy. One flaw was the growth model adopted after 1980 that relied on debt and asset price inflation instead of wages to fuel growth. A second flaw was the model of globalization which 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 earlier post–World War II economic model based on rising middle-class incomes has been dismantled, while the new economic model has imploded. Absent change of policy paradigm, the logical next step is stagnation. The political challenge is how to achieve paradigm change.