Today's free marketeers attribute the failure of inflation to rise, despite wage growth and low unemployment, to a new normal -- a new "natural" inflation rate. With their Panglossian blinders, whatever they observe is assumed to be the most natural outcome in the most natural of all possible economic systems..
When the Great Depression followed the 1929 stock-market crash, almost everyone acknowledged that capitalism was unstable, unreliable, and prone to stagnation. In the decades that followed, however, that perception changed. Capitalism's postwar revival, and especially the post-Cold War rush to financialised globalisation, resurrected faith in markets' self-regulating abilities.
Today, a long decade after the 2008 global financial crisis, this touching faith once again lies in tatters as capitalism's natural tendency towards stagnation reasserts itself. The rise of the racist right, the fragmentation of the political centre and mounting geopolitical tensions are mere symptoms of capitalism's miasma.
A balanced capitalist economy requires a magic number, in the form of the prevailing real (inflation-adjusted) interest rate. It is magic because it must kill two very different birds, flying in two very different skies, with a single stone.
First, it must balance employers' demand for waged labour with the available labour supply. Second,...