If capitalism were a batter in a baseball game, it would be clear to all that it just struck out.
Let me explain. . .
The first strike was “just deserts.” Capitalism promises that everyone gets what they deserve. However, the rising level of economic (income and wealth) equality beginning in the mid-1970s demonstrated that not everyone was getting what they deserve. No matter how measured (e.g., in terms of CEO-to-average-worker pay ratio or the top 1 percent or top-90-to-bottom-10 ratio), the obscene levels of inequality we’ve seen over the course of the past decade are simply impossible to understand or justify as a form of “just deserts.”
The second strike was the worst economic crisis since the first Great Depression. The problem of capitalist instability, especially the exaggerated boom-and-bust cycle of the late-nineteenth and early-twentieth centuries was supposed to have been solved. They even gave it a name: the Great Moderation. And then we were faced with—and forced to suffer the effects of—the crisis of 2007-08 and the onset of the second Great Depression. Neither conventional nor unconventional economic policies were able to stem the tide, and the negative consequences of both the severe crisis and the lopsided recovery will be felt by the majority of people for years (perhaps even decades) to come.
And now strike three: if capitalism doesn’t (and can’t) deliver “just deserts” and instability, at least it can produce economic growth and rising living standards. At least more stuff—an immense accumulation of commodities—will be produced. Or so the third claim goes. But now, according to the International Monetary Fund (in an advance chapter [pdf] from next week’s World Economic Outlook), the prospects for renewed economic growth are growing dimmer and dimmer. Already before the crisis, potential output growth in advanced economies was slowing (although it was rising in emerging market economies). Shortly after the crisis hit in September 2008, economic activity collapsed, and more than six years after the crisis, growth is still weaker than was expected before the crisis. Now, the IMF argues, potential growth has declined in both advanced and emerging market economies in the aftermath of the crisis and is expected to decline even further compared with pre-crisis rates.
Reduced prospects for potential growth in the medium term have important implications for policy. In advanced economies, lower potential growth makes it more difficult to reduce still-high public and private debt. It is also likely to be associated with low equilibrium real interest rates, meaning that monetary policy in advanced economies may again be confronted with the problem of the zero lower bound if adverse growth shocks materialize. In emerging market economies, lower potential growth makes it more challenging to rebuild fiscal buffers. For all economies, a total factor productivity growth rate that remains below precrisis rates will slow the rise in living standards relative to the precrisis years.
In a real baseball game, the umpire standing behind the plate would declare: “Strike three, you’re out!”