what's left

By Stephen Gowans

Reading Paul Krugman’s New York Times column today, A Permanent Slump?, I couldn’t help but get the feeling that the IMF, Larry Summers and Paul Krugman, had belatedly discovered an idea that Paul Sweezy, a Marxist economist who died in 2004, had elaborated on decades ago, namely that stagnation is the normal state of contemporary capitalist economies.

Krugman writes,

…the case for “secular stagnation” — a persistent state in which a depressed economy is the norm, with episodes of full employment few and far between — was made forcefully recently at the most ultrarespectable of venues, the I.M.F.’s big annual research conference. And the person making that case was none other than Larry Summers. Yes, that Larry Summers.

Summers is a Harvard economist whose career has included stints as chief economist of the World Bank, US Secretary of the Treasury and chief economic adviser to US president Barack Obama.

Krugman paraphrases Summers:

We have, he suggested, an economy whose normal condition is one of inadequate demand — of at least mild depression — and which only gets anywhere close to full employment when it is being buoyed by bubbles.

The idea that financial bubbles have counteracted the economy’s slide into permanent stagnation was also explored by Sweezy. But he cited other countervailing effects, too, including military spending, and in the post-war period, pent-up demand and the building of the interstate highway system, with its concomitant boom in the construction of the suburbs and expansion of the automobile industry.

Krugman concludes that “the evidence suggests that we have become an economy whose normal state is one of mild depression, whose brief episodes of prosperity occur only thanks to bubbles and unsustainable borrowing.”

Sweezy, I think, would have agreed, but added that the tendency to stagnation is hardly new, but has been an enduring characteristic of contemporary capitalist economies, traceable to their internal logic.