Gerald Epstein, of the Political Economy Research Institute (PERI), interviewed by Jessica Desvarieux of the Real News Network:
These passages caught my eye:
DESVARIEUX: So, Gerry, this week we had the Fed vice chair Stanley Fischer come out saying that he is disappointed with the global recovery. …
EPSTEIN: Yes. Well, he’s not the only one who’s disappointed with the recovery.
DESVARIEUX: Okay. And [Fed vice chair Stanley Fischer] also said that it remained uncertain whether lower productivity growth and lower labor force participation rates are now a permanent feature. Can you break down for us what exactly he means by that?
EPSTEIN: Yes. So this debate is based–the way [Fischer’]s talking about this debate, it’s really based on a very mainstream, very conservative economic model, which says the following. It says long-term economic growth depends on a number of purely technical factors. Now, this is different than the way many of us here at PERI and elsewhere think about this, as being a result of a combination of historical, institutional, and political factors. So Stanley Fischer and the mainstream of economics profession say it’s just technological factors, and this depends, economic growth in the long-term depends on population growth. The faster population growth, the greater the growth of the labor force, so the more economic growth you potentially have. Number two, it depends on productivity growth, that is, the growth of output that each employee can produce; so the higher productivity growth, the faster economic growth can go. And the third factor is of innovation, economic innovation, technological change, new techniques, and so forth.
Now, what he’s leaving out in these three factors are factors such as the distribution of income and wealth and the level of aggregate demand in the economy, as emphasized by John Maynard Keynes. So you can have a lot of growth in technology, you can have a lot of growth in population, but if you don’t have demand, nobody’s going to buy the products that these factories are producing. And if income distribution is tilted way towards the rich who don’t consume very much, you’re not going to have much demand.
DESVARIEUX: So, essentially, Gerry, if I’m understanding you correctly, it’s wages. I mean, they’re not addressing the idea that people need to earn more in order for there to be more demand in the market.
EPSTEIN: That’s exactly right.
Is that what Fischer and all those guys really believe? That’s their model? Wowsers. We are in trouble.