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Plenty of Nothing: The Downsizing Of The American Dream And The Case For Structural Keynesianism

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"Plenty of Nothing"

A consensus is stifling America. It stretches across the Republican Party and through to the Clinton Democrats. It is the rallying cry of business and the default perspective of the media. The consensus is over economic policy, and its tenets are free trade, tight credit and a slack labor market. Its conceit is saddled atop the current cyclical economic recovery which consists of low inflation, low unemployment and moderate economic growth. The consensus demands of any critic, "What's possibly wrong with that?" Palley has brought forth a powerful rebuttal. Briefly stated, he argues that economic activity, even self-interested private individually motivated competitive activity, occurs within a structure of laws and rules. Those structures affect the outcomes of the competition. The current structure has produced increased competition between working people and has failed to continue the mass prosperity of the 1945 to 1973 era. He writes, "The failure to recognize that widespread prosperity rests on appropriately designed market rules and regulations is the cancer that is killing the American dream." Palley then takes apart, both theoretically and empirically, the major policy issues that make the U.S. regulatory structure: tight fiscal policy, low inflation, free trade, collective bargaining, and international capital mobility. His theoretical model is what he calls "Structural Keynesianism." That framework focuses on the failures of "natural" capitalism and the policies of tight credit and fiscal austerity to properly manage demand so as to maintain full employment (i.e. very low unemployment). This in turn has led to falling or stagnant real wages for majority of working people, and a fantastic explosion of income for the super rich at the tip top. The solution is to correct the regulatory environment to balance the power between labor and management and then correct the policy governing demand so as to better set the stage for a tide of prosperity that truly raises all boats. It is an excellent book. It is well written and the ideas flow from the pages like a crisp breeze through the stagnant August haze of consensus.

A staff economist at the AFL-CIO, Palley presents labor's views on current economic issues. His grand thesis is that globalization and the decline of US unions have shifted the balance of economic power in favor of capital and to the detriment of labor. The result has been declining wages, increased economic inequality, and soft aggregate demand -- all of which have led to lower economic growth. Palley writes about specific issues such as monetary policy, trade, and taxation.

On the plus side, Plenty of Nothing is clearly written. Palley is very good at demonstrating how free-market economics often masks a pro-corporation bias. At the same time, he doesn't engage with rival points of view or provide adequate empirical support for his thesis. For example, he claims ad nauseum that national income is being reallocated from labor to capital -- but his statistics don't prove this. Instead, they show that average wages have declined over the last few decades while average profits have increased -- but this doesn't entail that labor's overall share of national income has decreased.

Similarly, he pooh-poohs the argument that growing inequality is caused by a skills/jobs mismatch in the labor market. If the supply of low-skill labor and hig-skill labor is inelastic, and demand shifts from low-skill to high-skill labor, then a wage gap will open up. Palley belittles this analysis as the conventional wisdom -- but he doesn't show that it's wrong.

Palley also contends that the Federal Reserve deliberately keeps interest rates high in order to service the needs of Wall Street and to restrain wage increases. Anybody who knows the latest rates on T-bills can only laugh at this. A lot can change in only four years (Palley's book was published in 1998).

To sum up, Plenty of Nothing is worth reading -- but it is not for the unwary. It is not the last word on these issues, it doesn't fairly apprise readers of ongoing debates, and doesn't gives its opponents enough credit for intellectual honesty.

This is a fantastic book. I took economics in college. It was a mix of graphs for laughs combined with a totally pro-business outlook. Unions were bad and workers were described as responsible for unemployment because of greedy wage demands. The idea that bargaining power might matter was completely absent. Thomas Palley has written an antidote to this. This is economics written clearly and lucidly. Best of all, I did not feel that I was being not told what to think, but rather I felt lead through the economy in a way that gave real understanding. For anyone who wants to understand how the economy and how globalization work and what their effects are, this is a must read. This may sound excessive, but this is the best economics book I have ever read. Compensation at last for the money I wasted on Econ 101.

This book provides an insightful examination of the problems currently facing the U.S. and world economy. It documents the extent to which most workers and have families have seen deteriorations in their living standards over the last quarter century. It then analyzes the various causes of this decline. Some of the factors that feature prominently in the explanation are lower unionization rates, higher unemployment rates, and increased trade with developing nations. These, and other changes, have had the effect of weakening the bargaining position of workers and have allowed capital and higher income earners to enjoy a disproportionate share of the benefits of productivity growth.

Palley also critically examines some of the core tenets of modern economic debate and shows them to be ill founded. For example, he points out that the concern over a balanced budget has little economic rationale and may actually lead to slower economic growth. He shows that the fixation with low inflation also may be counter-productive, since it can keep unemployment at excessively high levels, and may even have worse consequences. He also shows that not everyone benefits from freer trade.

The book is well written and quite topical. It well be very useful reading for anyone wishing to stay on top of current economic debates.

Every now and then a book comes along that causes readers to change the way they think in important ways. This is such a book. The discipline of economics has become ever more narrow over the last three decades. Most economists can speak with great expertise about the minutia of obscure policy debates, but know nothing that is really relevant to the world. Given this trend, Palley's book is a breath of fresh air. It tackles the big subjects. He examines the accepted wisdom on such issues as the NAIRU, free trade, and inflation, and exposes its flaws. It points out inconsistencies that other economists either overlook or are willing to ignore.

This book presents a new way of viewing the economy. It builds on the work of Keynes and the best of the Post-Keynesian economists. It is well worth the reader's time.