Inequality, the Financial Crisis and Stagnation: Competing Stories and Why They Matter

Inequality, the Financial Crisis and Stagnation: Competing Stories and Why They Matter

Thomas Palley
There exists several mainstream explanations of the financial crisis and stagnation, each explaianing the role they respectively attribute to income inequality. Those explanations contrast deeply with a structural Keynesian explanation of the crisis. The role of income inequality also differs substantially, giving rise to very different policy recommendations. That highlights the critical importance of economic theory, which shapes the way we understand the world, thereby shaping how we respond to it. The theoretical narrative we adopt therefore implicitly shapes policy. That observation applies forcefully to the issue of income inequality, the financial crisis and stagnation, making it critical we get the story right.
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One comment

  • Purple Library Guy

    Except for those who use theory as a means of justifying the policies they already want, for reasons which have nothing to do with economic growth or avoidance of crises. For the .1%, if the theory they currently use to justify upward redistribution loses credibility, they need a new theory which will serve the same purpose–not one which recommends different policies.

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