The financial and economic collapse that began in the United States in 2008 and spread to the rest of the world continues to burden the global economy. David Kotz, who was one of the few academic economists to predict it, argues that the ongoing economic crisis is not simply the aftermath of financial panic and an unusually severe recession but instead is a structural crisis of neoliberal, or free-market, capitalism. Consequently, continuing stagnation cannot be resolved by policy measures alone. It requires major institutional restructuring.

Kotz analyzes the reasons for the rise of free-market ideas, policies, and institutions beginning around 1980. He shows how the neoliberal capitalism that resulted was able to produce a series of long although tepid economic expansions, punctuated by relatively brief recessions, as well as a low rate of inflation. This created the impression of a “Great Moderation.” However, the very same factors that promoted long expansions and low inflation—growing inequality, an increasingly risk-seeking financial sector, and a series of large asset bubbles—were not only objectionable in themselves but also put the economy on an unsustainable trajectory. Kotz interprets the current push for austerity as an attempt to deepen and preserve neoliberal capitalism. However, both economic theory and history suggest that neither austerity measures nor other policy adjustments can bring another period of stable economic expansion. Kotz considers several possible directions of economic restructuring, concluding that significant economic change is likely in the years ahead.

David M. Kotz is Professor of Economics at the University of Massachusetts Amherst, and Distinguished Professor, School of Economics, Shanghai University of Finance and Economics.

Reviews

“Whereas [others] suggest that the downfall of the postwar system in Europe and the United States is the result of the triumph of ideas, Kotz argues persuasively that it is actually the result of the exercise of power by those who benefit from the capitalist economic organization of society. The analysis and evidence he brings to bear in support of the role of power exercised by business and political leaders is a most valuable aspect of this book—one among many important contributions to our knowledge that makes it worthwhile… In analyzing how neoliberalism worked, Kotz makes an important contribution to our understanding of the roots of the economic crisis of 2008 and the failure of the economy to rebound.”—Michael Meeropol, Challenge

“Kotz has written a highly readable book that is easily accessible to the general public. The book would serve as an excellent companion for courses in macroeconomics and economic history.”—Mayo C. Toruño, Journal of Economic Issues

“Kotz’s book will reward careful study by everyone interested in the question of stages in the history of capitalism.”—Edwin Dickens, Science & Society

“Kotz contrasts neoliberal capitalism (1979–2007) with its predecessor, regulated capitalism (1948–73), in order to explain the development of the financial crisis and subsequent recession that began in the U.S. in 2007, which he views as the greatest challenge for neoliberal capitalism to date. His neo-Marxian analysis is set within a historical treatment of U.S. political economy and offers a wealth of institutional comparisons and economic data in its discussion of the unique characteristics of the recent period… The goal of the book is to explain how neoliberal institutions gave rise to the financial crisis; while Kotz does not attempt to predict Western capitalism’s next institutional form, he offers a number of reasonable and insightful considerations about its possible future directions.”—J. Gerber, Choice

“David Kotz gives an insightful and original account of the origins of the economic crisis. He attributes it to a massive upward redistribution of income. This in turn led to a surge in debt, financial crisis, and huge excess capacity. His outline of possible paths of recovery should give readers much to consider.”—Dean Baker, Center for Economic and Policy Research, Washington, D.C.

“Here is the carefully researched backstory to how the heyday of right-wing economic policies came about, and why it is ending. Kotz provides the most compelling explanation to date of how a coalition of U.S. business interests dismantled the institutions and norms that had underpinned the long period of shared growth from the end of the Second World War to the early 1970s. He goes on to show how the return to a more free-market version of capitalism allowed them to hold down wages and expand their wealth, while setting the U.S. economy on course for the financial shipwreck of 2008. This is a convincing account of a sorry chapter in the history of the U.S. economy, now coming to a close.”—Samuel Bowles, Santa Fe Institute, author of Microeconomics: Behavior, Institutions, and Evolution

“Professor Kotz provides an instructive analysis of the neoliberal form of capitalism prevailing in the United States—its origins, its modus operandi, its critical weaknesses, and its future prospects. Particularly illuminating is his history of the U.S. economy, showing how successive institutional forms of capitalism have resulted in a crisis that can only be resolved through significant institutional change.”—Thomas Weisskopf, University of Michigan

Table of Contents

• List of Figures and Tables*
• Preface
• Acknowledgments
• 1. Introduction
• 2. What Is Neoliberalism?
• 3. The Rise of Neoliberal Capitalism
• 4. How Has Neoliberal Capitalism Worked?
• 5. Crisis
• 6. Lessons of History
• 7. Possible Future Paths
• Appendix: Data and Data Sources
• Notes
• References
• Index

• * Figures and Tables
  • Figures
    • 2.1. World exports as a percentage of world gross domestic product, 1950–2009
    • 2.2. Merger transactions reported to the Federal Trade Commission, 1979–2011
    • 2.3. Monthly benefit per recipient under Aid to Families with Dependent Children or Temporary Assistance for Needy Families in 2009 Dollars, 1962–2007
    • 2.4. Federal hourly minimum wage in 2011 Dollars, 1960–2007
    • 2.5. Top federal marginal tax rates, 1952–2007
    • 2.6. Union members as a percentage of all employees, 1973–2012
    • 2.7. Gross value added of financial corporations as a percentage of gross value added of all corporations in the U.S., 1948–2012
    • 2.8. Profits of Financial Corporations as a Percentage of the Profits of All Corporations in the U.S., 1948–2012
    • 2.9. U.S. imports as a percentage of Gross Domestic Product, 1948–2007
    • 2.10. Government expenditure as percentage of Gross Domestic Product, 1948–2007
    • 2.11. Government infrastructure spending as a percentage of Gross Domestic Product, 1959–2007
    • 3.1. Rate of profit of the U.S. nonfinancial corporate business sector, 1948–1982
    • 3.2. Annual inflation and unemployment rates, 1960–1985
    • 3.3. Multilateral trade-weighted value of the U.S. dollar, 1967–1979 (March 1973=100)
    • 3.4. Goods imports as a percentage of goods-only Gross Domestic Product, 1960–1979
    • 4.1. Rate of profit of the U.S. nonfinancial corporate business sector, 1948–2007
    • 4.2. Annual growth rate of U.S. Gross Domestic Product in chained 2005 dollars
    • 4.3. Annual growth rate of world Gross Domestic Product
    • 4.4. Annual growth rate of Western European Gross Domestic Product
    • 4.5. Average annual labor productivity growth rate in the U.S.
    • 4.6. Investment performance in the U.S. in two periods
    • 4.7. Personal saving as a percentage of disposable personal income, 1948–2007
    • 4.8. Consumer spending as a percentage of Gross Domestic Product, 1979–2007
    • 4.9. Business fixed investment as a percentage of Gross Domestic Product, 1979–2007
    • 4.10. Share of aggregate income received by lowest 20% and top 5% of families
    • 4.11. Income shares of richest 1% and richest 0.1% as a percentage of total income, 1920–2007
    • 4.12. Annual growth rates of wages and salaries and corporate profit
    • 4.13. Average hourly earnings of nonsupervisory workers in 2011 dollars, 1948–2007
    • 4.14. Percentage increase in the average real family income of quintiles and the top 5%
    • 4.15. Average annual unemployment rate
    • 4.16. Families below the poverty line, 1959–2007
    • 4.17. U.S. trade balance as a percentage of Gross Domestic Product, 1948–2007
    • 4.18. The House Price Index relative to homeowner’s equivalent rent, 1982–2012
    • 4.19. Consumer spending as a percentage of disposable personal income, 1948–2007
    • 4.20. Household debt as a percentage of disposable personal income, 1980–2012
    • 5.1. Debt of sectors of the U.S. economy as a percentage of Gross Domestic Product, 1948–2007
    • 5.2. Outstanding value of collateralized debt obligations in the global economy, billions of U.S. dollars, 1995–2007
    • 5.3. Capacity utilization rate in manufacturing for business cycle peak years
    • 5.4. Causes of the economic crisis
    • 5.5. Estimated average house price by calendar quarter, 2000–2010
    • 5.6. Delinquency rate on single-family residential mortgages, quarterly rates, 2006–2013
    • 5.7. Gross Domestic Product, first quarter of 2007 to third quarter of 2009, billions of chained 2005 dollars
    • 5.8. Monthly excess reserves of depository institutions in billions of dollars, 2007–2013
    • 5.9. Monthly unemployment rate, 2007–2013
    • 5.10. Monthly job gain or loss, hundreds of thousands, 2008 and 2009
    • 5.11. Monthly underemployment rate, 2007–2013
    • 5.12. Long-term unemployed as a percentage of all unemployed, monthly, 2007–2013
    • 5.13. Employment as a percentage of the working age population, monthly, 2007–2013
    • 5.14. Median family income in 2012 dollars, 1990–2012
    • 5.15. U.S. federal debt held by the public as a percentage of Gross Domestic Product, 1940–1975
    • 5.16. Rate of profit of the nonfinancial corporate business sector, 2000–2012
    • 5.17. Annual rate of capital accumulation, 1948–2012
  • Tables
    • 2.1. The Ideas and Institutions of Neoliberal Capitalism
    • 3.1. The Ideas and Institutions of Regulated Capitalism
    • 3.2. Big Business Representatives Affiliated with the Committee for Economic Development, 1944
    • 3.3. Big Business Representatives Affiliated with the Committee for Economic Development, 1948
    • 3.4. Selected Business Roundtable Members, 1972 and 1979
    • 5.1. Quarterly Changes in Gross Domestic Product, Consumer Spending, and Business Fixed Investment (Annual Percentage Rate of Change)
    • 5.2. The Eleven Recessions since 1948
    • 5.3. Gross Domestic Product Change and Unemployment Rate in Fourteen Countries
    • 5.4. U.S. Economic Recovery since the End of the Recession
    • 7.1. The Ideas and Institutions of Business-Regulated Capitalism
    • 7.2. The Ideas and Institutions of Social Democratic Capitalism
    • 7.3. The Ideas and Principles of Democratic Participatory Planned Socialism