America’s flawed paradigm: macroeconomic causes of the financial crisis and great recession |
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Authors: | Thomas Palley |
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Institution: | (1) New America Foundation, Washington, DC, USA |
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Abstract: | This paper traces the roots of the financial crisis and Great Recession to a flawed U.S. macroeconomic paradigm that was adopted
around 1980 with the triumph of neoliberal economics. One flaw concerns the growth model. A second flaw concerns the model
of global economic engagement that created a triple economic hemorrhage of spending on imports, manufacturing job losses,
and off-shoring of investment. The new growth model hollowed out the economy and relied on growing debt and asset price inflation.
As the process deepened the economy needed ever larger bubbles to grow. Financial deregulation and excess kept the model going
longer than expected, but it meant the economy experienced a financial crash and deeper collapse when the contradictions finally
surfaced. The United States needs a new economic paradigm and a new growth model, but as yet this challenge has received little
attention from policymakers or economists. |
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Keywords: | |
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