Liquidity trap as the new normal? Full employment only possible through bubbles? In his recent blog posts, Paul Krugman suggests that economic bubbles are not the problem, not the “bad excess” that need to be prevented, but the only way the economy today can be saved from plunging into a permanent state of depression.
Krugman states that this has in fact been a trait of capitalism ever since the 70s. All this, it seems to me, makes for a nice fit with what certain Marxists such as David Harvey, Giovanni Arrighi, or Immanuel Wallerstein have been saying for a long time about shifting cycles of hegemony, signal and terminal crises, and secular trends towards lower profit levels.
But then there are, of course, also differences.
1) Unlike the Marxists, Krugman blames the secular stagnation not on hegemonic cycles or inherent trends of capitalism to exhaust opportunities for profit, but mainly on demographics.
2) There is no theoretization about the possibility of a new hegemonic cycle centred on China or East Asia that might restore profit levels - at least not in the blog posts.
3) He still believes in a Keynesian recipe for dealing with the stagnation. Not austerity, but inflation targeting is the necessary remedy. Considering that this recepe can only produce what he now admits are bubbles, this is a rather grim (not to say desperate) argument.
Krugman states that this has in fact been a trait of capitalism ever since the 70s. All this, it seems to me, makes for a nice fit with what certain Marxists such as David Harvey, Giovanni Arrighi, or Immanuel Wallerstein have been saying for a long time about shifting cycles of hegemony, signal and terminal crises, and secular trends towards lower profit levels.
But then there are, of course, also differences.
1) Unlike the Marxists, Krugman blames the secular stagnation not on hegemonic cycles or inherent trends of capitalism to exhaust opportunities for profit, but mainly on demographics.
2) There is no theoretization about the possibility of a new hegemonic cycle centred on China or East Asia that might restore profit levels - at least not in the blog posts.
3) He still believes in a Keynesian recipe for dealing with the stagnation. Not austerity, but inflation targeting is the necessary remedy. Considering that this recepe can only produce what he now admits are bubbles, this is a rather grim (not to say desperate) argument.
The larger question raised by this idea of secular stagnation is whether we must put up with this madness. An economic system that can only survive on a medication of bubbles sounds like sitting in a taxi where the driver is either gleefully drunk or asleep. Isn't there some other way to live in a future without growth?
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The best presentation of the argument is here:
http://krugman.blogs.nytimes.com/2013/11/16/secular-stagnation-coalmines-bubbles-and-larry-summers/?_r=0
But this version is probably more widely read:
http://www.nytimes.com/2013/11/18/opinion/krugman-a-permanent-slump.html?partner=rssnyt&emc=rss
http://www.nytimes.com/2013/11/18/opinion/krugman-a-permanent-slump.html?partner=rssnyt&emc=rss
And here's a follow-up/clarification:
