Increasing Inequality, Financialization and Macroeconomic Instability: A Three Act Tragedy

Chapter 6 focuses on the domestic macroeconomics of neoliberalism and, in particular, the way in which the growing inequality and financialization of the household sector combined to create a seemingly well-functioning but, in fact, increasingly fragile and unsustainable US economy. Central to the neoliberal US economy is an ‘incomes policy based on fear’, in which the institutional structure of the labour market suppresses the distributive demands of workers and, in the process, alleviates inflationary pressures. It is also shown to have hollowed out the demand-generating mechanism in the US, requiring households to borrow in order to shore up consumption expenditures that cannot be funded by stagnating real wage incomes. The breakdown of this unsustainable debt-financed consumption mechanism in the wake of the financial crisis is associated with the depressed upswing in the US from 2009-2019 - the legacy of neoliberalism being an entrenched institutional framework that continues to generate increasing inequality but that is exhausted as a mechanism for generating growth.