Declining Profitability and the Evolution of the US Economy: A Classical Perspective

The 1970s were a pivotal decade for the US economy, with deindustrialization, globalization, offshore investments, domestic productivity growth declining, and labor-saving technology empowering superstar corporations. This book argues that the transition from the Fordist phase of capital accumulation to the neoliberal phase and the rising power of finance led to the persistent fall in profitability, leading to the stagflation crisis. Neo-Keynesian economists explained the persistence of secular stagnation with arguments borrowed from Alvin Hansen in the 1930s, such as the declining birth rate or the falling relative prices of investment goods.

Format: Hardback
Length: 300 pages
Publication date: 01 September 2023
Publisher: Taylor & Francis Ltd

The 1970s were a transformative decade for the US economy, marked by significant shifts that had far-reaching consequences. Deindustrialization, which involved the decline of manufacturing and the rise of service-based industries, weakened the power of labor unions and paved the way for the redistribution of income in favor of corporate profits. Globalization and offshore investments opened up new avenues for nonfinancial capital accumulation, challenging the traditional dominance of domestic financial markets. Domestic productivity growth declined, while labor-saving technology enabled superstar corporations to rapidly gain market share.

The persistent fall in profitability, leading to the stagflation crisis, can be attributed to the transition from the Fordist phase of capital accumulation, characterized by large-scale manufacturing, to the neoliberal phase and the growing influence of finance. Neoliberalism restored the power of rentiers but not the profit rates of nonfinancial corporations. Falling accumulation rates weakened the growth capacity of nonfinancial corporate firms, and secular stagnation became the norm.

Neo-Keynesian economists, such as Larry Summers and Paul Krugman, offered explanations for the persistence of secular stagnation. They borrowed arguments from Alvin Hansen in the 1930s, suggesting that declining birth rates or falling relative prices of investment goods could lead to a shortfall of demand. In the Classical paradigm, profitability drives capital accumulation, and falling profitability slows down growth. As the accumulation rate declined and the capacity growth diminished, breakdowns in supply links, exacerbated by the COVID-19 pandemic, prevented large infusions of purchasing power from finding matching levels of supply, resulting in the stagflation crisis's return.

This book will be an invaluable resource for researchers and scholars interested in the development of Classical Political Economy, particularly in addressing issues related to inflation, stagnation, growing inequality, and the next phase of neoliberalism. It provides a comprehensive analysis of the economic trends and policies that shaped the 1970s and their long-term consequences, offering insights into the complex dynamics of the US economy and the challenges it faces in the future.

Weight: 730g
Dimension: 234 x 156 (mm)
ISBN-13: 9781032538150