According to the National Bureau of Economic Research (NBER), a deep recession started in the United States in December 2007 and ended in June 2009. However, most people recognize that even though the recession was said to be over, its aftereffects lingered well into the next decade, and even in 2017, some 10 years later, governments in America and around the world were struggling with problems of low growth, wage stagnation, and high poverty.
Economic policy became dramatically unconventional following the recession, which is now well known as The Great Recession, although some economists such as Professor Paul Krugman, a Nobel Laureate, called it a depression. Interest rates fell faster than ever before as almost all nations printed a lot of money. In the United States, the federal funds rate fell to nearly zero for more than 7 years, whereas the rates became negative in Europe and Japan. This was totally unheard of, and even in 2017, negative interest rates were common in these areas. Budget deficits also jumped enormously, all over the world.
Most economists were caught off guard, and they began to look for answers to something that had stunned them and kept them in shock for several years. They offered new theories, giving up old ideas, while some stuck to their past beliefs, and wished to do more of the same by raising government spending even faster. Thus, there has been a lot of tumult and turmoil within the economics profession, but it has produced a great by-product, which may be called “New Macroeconomics.”
In the spirit of scientific inquiry, it is important to compare accepted theory with reality. Keynesianism remains the dominant paradigm in macroeconomics, and the 2008 meltdown revived Keynesian prescriptions. But the subsequent anemic and fraught recovery also intensified criticism of Keynesianism. This book examines consensus economics in the context of recent developments.
I confess that this book could be interpreted as a highly personal perspective. It draws upon ideas from a few well-known experts such as Professors Joseph Stiglitz, Paul Krugman, and Ravi Batra, through the lens of my own experience in the technology sector. I do not aspire to give a balanced presentation of all viewpoints from economists belonging to every school of thought as it is just impossible for me to achieve that, but rather I present to the readers at large my own interpretation of where traditional macroeconomics does and doesn’t explain facts on the ground. The final chapters of this book focus on the profound challenges and opportunities offered by technological progress.
New Macroeconomics is not the same thing as new classical economics or new Keynesian economics, both of which had been extensively analyzed by mainstream economists. Instead, it deals with subjects that mainstream economists had ignored until 2007. For instance, the question of growing inequality was never on the forefront of economic thought, but now it is, as both liberals and conservatives pay attention to the needs of a middle class that has been vanishing in America.
Similarly, the effects of environmental pollution, once totally ignored, are becoming a part of conventional economics. How the stock market interacts with macro policy is another hot topic among experts as well as policy makers. Above all, a revolutionary theory, known as the wage-gap theory, seems to have all the answers missing from traditional ideas. In fact, this wage-gap hypothesis formed a decent part of my first book entitled Mass Capitalism: A Blueprint for Economic Revival. In other words, new macroeconomics is totally new and has very little in common with conventional ideas of neoclassical and Keynesian economics.
Introduction
This chapter will include most ideas that were popular before the Great Recession. The neoclassical and Keynesian theories form the bulk of the material here and are described in an uncomplicated way that everyone can understand.
Global Economy in the New Millennium
Where the world stands today will be the subject of Chapter 2. The global economy has gone through a lot of churning. Why this happened and, in some ways, continues to happen will be examined here.
Macroeconomics of Income and Wealth Concentration
How income and wealth inequality affects an economy is discussed in Chapter 3. Here we begin with the views of Professors Stiglitz, Krugman, and Jeffrey Sachs—what they have in common and where they differ. The research of many others will also be discussed in detail because almost everyone agrees today that income and wealth disparities continue to rise even though economic growth has slowed around the world.
The Environment and Macroeconomics
How the changing environment and macro policy interact with each other are the ideas analyzed here. Pollution taxes and subsidies are being studied extensively nowadays. How they affect the macroeconomic performance is examined in Chapter 4. For instance, is a carbon tax better or worse than, say, an excise tax in terms of its effects on jobs, economic growth, and public well-being?
Stock Market and Macroeconomics
Stock ownership has grown substantially in the United States and globally. That is why central banks pay special attention to the effects of their policies on the stock market because its growth or crash can create a boom or a depression. However, many economists say that they do not understand how the stock market works, but new theories have emerged to answer their questions. Such theories are examined in Chapter 5.
The Wage-Productivity Gap
I believe the wage-gap theory answers all the questions that had been ignored by economists until 2007. I have studied this theory extensively and briefly analyzed it in my previous books Mass Capitalism, Sustaining Moore’s Law and How Information Revolution Remade the Business and the Economy. But this time, I will discuss all its aspects, because this is a complete theory and includes the best ideas of both classical and Keynesian models. This theory makes the “New Macroeconomics” really new. Its policy implications are also different. It does not believe in constant application of Keynesian policies such as printing money or keeping a high budget deficit almost all the time. Instead, it follows the advice of Adam Smith, the father of modern economics, and advocates the presence of high competition among firms to make them efficient and be responsive to the needs of the consumer. Keynesian policies are needed in an emergency, but after the recession was declared over in 2009, they were no longer necessary. However, the U.S. federal debt continued to rise sharply and has not stopped rising. This shows that Keynesian policies are not as effective as they used to be, and the wage-gap theory says that monopoly capitalism or a system of oligopolies is the culprit. Hence, we need free-market Mass Capitalism.
The Wage-Gap and The Future of The Technological Sector
Chapter 7 deals with the future of the new technological sector and shows that this future is strongly connected to the wage-gap theory.
Summation
Finally, Chapter 8 summarizes the contents in all chapters of this book.