Chapter 7: Requirements for Income-led Recovery and a Global Keynesian New Deal
7. Requirements for income-led recovery and a Global Keynesian New Deal1 7.1 INTRODUCTION In the previous chapters of this book we have shown how the macroeconomics of finance-dominated capitalism, that is, re-distribution at the expense of low wage incomes and the labour income share, dampening effects on real investment in capital stock, and the increasing potentials for wealth-based and credit-financed consumption, have contributed to macroeconomic instability at the national levels of the capitalist economies affected by financialization, and finally at the global level. These developments have then contributed to the severity of the recent financial and economic crisis and made it the Great Recession. From our analysis it follows that a medium- to long-run sustainable recovery strategy for major parts of the world economy should neither follow the ‘debt-led consumption boom’ type nor the ‘export-led mercantilist’ type,2 both identified in Chapter 6. This is particularly true for those economies which are characterized by wage-led demand and growth regimes. Tendencies towards over-indebtedness of private households have to be avoided, as well as persistent current account surpluses or deficits which are not due to productivity growth catch-up processes of less developed economies.3 This implies that also profit-led economies, which turn profit-led via the export channel, need to give up export-led strategies because their strategy has to rely on current account deficits in other countries and thus contributes to world wide imbalances. A medium- to long-run recovery strategy has thus to be (mass) income or wage led. In the present chapter we...
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