… secular stagnation – the persistent underuse of potential resources – is the fate of all economies that rely on private investment to fill the gap between income and consumption. As capital becomes more abundant, the expected return on new investment, allowing for risk, falls toward zero.
But this does not mean that all investment should come to an end. If the risk can be eliminated, the investment engine can be kept going, at least temporarily.
This is where public investment comes in. Certain classes of investment may not earn the risk-adjusted returns that private investors demand. But, provided that the returns are positive, such investments are still worth making. Given near-zero interest rates and idle workers, it is time for the state to undertake the rebuilding of infrastructure.
… The human race has proved very successful in the past at keeping capital scarce – mainly by engaging in destructive wars. One cannot exclude recourse to this solution in the future.
… one should view secular stagnation as an opportunity rather than a threat. The classical economists of the nineteenth century looked forward to what they called a “stationary state,” when, in the words of John Stuart Mill, the life of “struggling to get on … trampling, crushing, elbowing, and treading on each other’s heels” would no longer be needed.
If a point of true “full investment” – that is, a situation when the supply of capital increased to the point at which it would yield no net return above its replacement cost – were ever reached, it would signify that the human race had solved its economic problem. The challenge then would be to convert capital abundance into more leisure and balanced consumption.
Should that happen, we would be at the threshold of a new world – some would say a heaven on earth. We can be tolerably certain of one thing: our leaders will do their best to make sure we never get there.
For Friedrich Hayek in London, the ordoliberals in Freiburg and Henry Simons in Chicago, competition wasn’t just one feature of a market amongst many. It was the fundamental reason why markets were politically desirable, because it conserved the uncertainty of the future. What united all forms of totalitarianism and planning, according to Hayek, was that they refused to tolerate competition. And hence a neoliberal state would be defined first and foremost as one which used its sovereign powers to defend competitive processes, using anti-trust law and other instruments.
… an entire moral and philosophical worldview has developed, which assumes that inequalities are both a fair and an exciting outcome of a capitalist process which is overseen by political authorities. In that respect, the state is a constant accomplice of rising inequality, although corporations, their managers and shareholders, were the obvious beneficiaries.
… At a key moment in the history of neoliberal thought, its advocates shifted from defending markets as competitive arenas amongst many, to viewing society-as-a-whole as one big competitive arena. Under the latter model, there is no distinction between arenas of politics, economics and society. To convert money into political power, or into legal muscle, or into media influence, or into educational advantage, is justifiable, within this more brutal, capitalist model of neoliberalism. The problem that we now know as the ‘1%’ is, as has been argued of America recently, a problem of oligarchy.
… The result is a condition that I term ‘contingent neoliberalism’, contingent in the sense that it no longer operates with any spirit of fairness or inclusiveness. The priority is simply to prop it up at all costs. If people are irrational, then nudge them. If banks don’t lend money, then inflate their balance sheets through artificial means. If a currency is no longer taken seriously, political leaders must repeatedly guarantee it as a sovereign priority. If people protest, buy a water canon. This is a system whose own conditions are constantly falling apart, and which governments must do constant repair work on.
The outrage with the ‘1%’ (and, more accurately, with the 0.1%), the sense that even the rich are scarcely benefiting, is to be welcomed. It is also overdue. For several years, we have operated with a cultural and moral worldview which finds value only in ‘winners’. Our cities must be ‘world-leading’ to matter. Universities must be ‘excellent’, or else they dwindle. This is a philosophy which condemns the majority of spaces, people and organizations to the status of ‘losers’. It also seems entirely unable to live up to its own meritocratic ideal any longer. The discovery that, if you cut a ‘winner’ enough slack, eventually they’ll try to close down the game once and for all, should throw our obsession with competitiveness into question. And then we can consider how else to find value in things, other than their being ‘better’ than something else.