Palley presents a brilliant, original, and unique analysis on the 2008-onwards crisis.
Loyal to the best Keynesian tradition that places demand-creation mechanisms as the primary driver to income generation, Palley discloses how a virtuous cycle of sustainable growth led by real productivity gains was replaced by a vicious cycle of unsustainable growth led by debt increase backed by asset inflation.
This process is traced back to the 80's, when the dominance of neoliberal ideas in politics and economics have then been undermining that economic mechanism that had led the world to experience an unique era of sustained growth, which Palley calls `shared prosperity'. The neoliberal model of `purchase power increase' from `increasing debt-raising power' supported by asset inflation will head the world towards a long and painful adjustment which, optimistically, will impose years of stagnation. The analysis is dense, sharp, and truly convincing, supported by data and facts. An outstanding analysis under Keynesian heuristics, though modern and updated to the current state of the world.
Nevertheless, an attentive 'foreign' (to US) reader will soon perceive that such a description is well-suited to US conjuncture, but somewhat fails to take into account positive feedbacks from that process on developing countries, though not exempted from drawbacks as well: from a Chinese or Brazilian (like me) agent, the effect had been an eventful process of job creation and income generation, exactly because developing economies were receptors and beneficiaries of the three flaws that Palley presents as the pillars of the neoliberal model: offshoring production, employment, and investment. In developing countries, however, the flow was the opposite: onshore production, employment, and investment, in addition to improving income distribution, productivity gains, lower external vulnerability (from a foreign debt perspective), and sounding economic growth as a result.
In other words, demand-creation process seemed to be sustainable on such countries under this sight (income/productivity), although vulnerabilities are in place since 'export-led' grounded. Therefore, improved conditions were only possible at the expense of declining fundamentals of the US economy, as much as the strengthening Northern Europe was nourished from a weakening South. This clearly shows the limits of the sense of shared prosperity experienced by the developing world: despite benefits, if demand-creation from the importing economy has vulnerable grounds, export-led nations' performance is structurally at risk as well. Palley does not move that much overseas, which somewhat leaves a flavor of inward oriented analysis.
Nevertheless, a masterpiece, whose sounding approach leaves precious insights to shed new sights on Keynesian-oriented economic policies and institutions to lead the world to an immediate recovery, hopefully to a sustained and stable economic growth under new (actually old...) fundamentals. As Keynes said, we are all hostage of old ideas of some dead economist...
Palley, instead, makes us feel as Keynes is alive, and making his ideas revolutionarily fresh as much as when he shaken the economic thought 80 years ago. Yes, economics has a Nietzsche as well: like this philosopher, everlasting contribution is checked by the inspiration granted to contemporary apostles.
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