Joseph Stiglitz’s article in the Vanity Fair about the current Big Slump has been picked up and argued about by certain economists – Brad Delong and Nick Rowe for instance – in terms of whether it deviates from neo-Keynesianism or not. I'd argue that the more applicable background disagreement is that between Keynes and Marx.
Stiglitz's argument, I think, is that the ‘economy’ or the international system of production is very well able to produce goods and services – but its increasing efficiency means that it can’t produce employment or higher wages for work. This is a sectoral dysfunction – it happened with agriculture in the 20s and 30s, and with manufacturing post 70s (that is, in the U.S.). The increasing efficiency over time thus works both to narrow the ability of other entrants in the field - it shrinks competitiveness - and it diminishes the need for labor. In other words, there is an asymmetry between this capacity for production and the ability of the population to absorb it by – crucially – paying for it. This strikes me as very much like the Keynesian position and the Marxian position vis-à-vis the chronic problem of market clearing faced by ‘free markets”, and predicted by equilibrium realists – people like Says, who believe that the market really is self-regulating, rather than booby trapped. Marx, however, says that the increasing efficiency will eventually bite the capitalist in the ass by lowering his rate of profit. The Keynesian doesn’t think this is true, and in the short term it certainly isn’t. The capitalist can benefit in two ways from the current system: he can benefit from the increased efficiencies all the way down the logistical line that cheapen his labor cost, and he can benefit from the free insurance given him by the government when a problem with ‘aggregate demand’ happens – free insurance that can take many forms, some of which have to do with allowing the tax payer to make tax free investments – in houses, in 401ks – some of which consists of guaranteeing monopoly – IP rights – and some of which is simply giving money to the capitalist on a grand scale as the last resort. For the Keynesian, then, all problems are short term problems and will be solved accordingly. The long term never arrives. For the Marxian, the long term does arrive occasionally – in true structural crises. The Keynesian being right depends, crucially, on the capitalist being able to paper over the cracks in the structure caused by efficiency through the government – but that, in turn, depends on the idea that these efficiency problems can be isolated within one sector and that the legitimacy of the government doesn’t come into doubt. Legitimacy doesn’t just mean the confidence of the bond market in the state, but – and this arises only in moments of abnormal structural stress – the confidence of the people in the state.
It strikes me that Stiglitz economic point is joined with the political point that he has been making a lot - that the confidence problem is not fundamentally in the bond market or upper management, but among the people. And this isn't some amorphous problem that one can ignore, economically, for if the people turn against the state provided insurance for business, businesses will be cast into the Marxian hell. Marx’s notion can be put very well in the dystopian proposition that, every once in a while, you can’t avoid the long term. Which is why the revolutionary part of Marx, which most Marxists now tamely discard, is, I think, central not just to Marx’s politics, but to his economic analysis.