opinion | James K. Galbraith

The new way forward

We can’t return to a ‘normal’ economy, but we can recognize our challenges and keep moving ahead


Last month’s job gains extended America’s longest run of private-sector job growth and put unemployment back below 6 percent. Yet the labor force and the ratio of employment to population remain way down, and economic growth has been slower than in past expansions. It has been a mixed picture, without disaster but not without disappointment.

“Secular stagnation” has become a fashionable view. But this phrase from the 1940s refers mainly to business psychology, suggesting that a better mood would bring a happier economic result. This is too easy. There are material reasons why we have done as well as we have — and also why we likely won’t see full recovery on the familiar model.

Consider aging; the workforce falls as baby boomers retire. But this isn’t a bad thing, as many think; actually it’s been a big advantage. So long as older workers can retire — as long as Social Security, Medicare, and Medicaid continue to supply them with income and health care — they become a potent source of purchasing power, and this helps the economy achieve a new balance. The same goes for unemployment insurance, food stamps, and other programs that ward off destitution. Social insurance works; we should take note and be grateful. Yet these programs remain under threat. If they are cut, the support they give to the economy will decline.

Energy is a second bright spot, at least for now. Since natural gas is not easily carried across oceans, the shale boom gives the United States a great cost advantage over Europe and Japan. For how long? We don’t know. (And at what environmental cost? Likely, very high.)


Overall, though, energy is a worldwide constraint. Rising resource costs and energy-price speculation helped squeeze the economy in the run-up to the Great Recession, they continue to do so in Europe and Japan, and they will eventually again hit the United States.

Meanwhile, the illusion of global security maintained by a single superpower has now mostly faded. And with it go the economic advantages of the prospect of long-term peace. We are drifting toward a world of unstable regional conflicts, on one side — and of nervous nuclear powers on the other. This instability so far hasn’t reached our shores much, but it will affect everyone eventually. That is the economic price of our fiascoes in Iraq and Afghanistan — and now in Syria.


Technology is another two-edged blade. While the digital revolution vastly improves our lives, it also slashes away at labor demand, replacing whole sectors with servers. It’s not a surprise that profit-seeking business do that. But we haven’t created needed public and nonprofit institutions to hire people for jobs that cannot be digitized.

Finally, the financial sector remains a bloated behemoth. It long ago ceased fueling jobs, growth, and development — and has become instead a state-sponsored, self-serving predator, largely beyond the discipline of regulation or influence by supervisors. Recent audiotape revelations from the New York Federal Reserve Bank hammer this point home. And (for obvious reasons) our political leaders have no plan to restructure finance so that it becomes, once again, a servant instead of a master.

For these reasons, it may be that we can not return fully to “normal” even if there were a lot more “stimulus” as fellow Keynesians often demand. So let’s challenge our basic assumptions, and adjust. High ambition is sometimes a good thing — but stubborn over-reach leads to perpetual failure.

There are better ways. Let’s first recognize that our great social insurance programs are more necessary than ever before; these programs should be extended, not attacked and cut back. Second, let’s demand that the financial sector be restructured and shrunk, with public alternatives that can achieve social objectives at low cost. Third, let’s focus our minds on specific objectives — for jobs, education, caring, living conditions, energy, climate mitigation and decarbonization — that may be achieved within the limits and despite the difficulties that we face. Fourth, let’s (finally) face the limits of military action and the foundations of global security.


Growth alone cannot solve our problems. But we can still improve our lives, work to stabilize our world, and work to the save the planet, if we put minds and resources to the task.

James K. Galbraith is the author of “The End of Normal,’’ which was just published.