I sent this comment again without having finished it (I do need a nap). But this time I'm not going to rewrite it. I'll just deal with the ending. (So this is part II.)
Fred writes: >Jim, what is surprising is that in your RRPE (2000) paper, you argue, along classical Marxian lines, that the cause of stagflation on the 1970s and 80s was a decline in the rate of profit, and that the cause of the end of stagflation in the 1990s was an increase in the rate of profit since 1980 (this latter conclusion needs to be reconsidered in light of more recent data). I agree completely that the cause of the stagflation of recent decades was the significant decline in the rate of profit in the early postwar period (a decline of roughly 50%). As you know, I have been making a similar argument for years. However, you now argue that the current recession was not caused by the decline in the rate of profit since 1997, but was instead caused by the increase in the rate of profit prior to 1997, which caused problems of underconsumption (which however do not seem to exist). I don't get it. ...< I interpret the stagflation (unemployment + inflation) of the 1970s and 1980s in terms of the fall in the rate of profit measured at full capacity utilization (a concept similar to, but not the same as, the concept used in the talk I gave in Sacramento that we were discussing above). The fall in the profit rate causes the Phillips curve trade-off to get worse -- so that the US economy faced a period of severe recessions and/or severe inflation, where the recessions were due to supply-side depression of the rate of profit and could only be avoided by suffering from inflation. Then, when that profit rate rose into the 1990s, we saw the "Goldilocks economy" (low inflation, low unemployment, both as officially measured). I think that this relation still works, all else equal. However, the theory only describes one aspect of what's going on, emphasizing the supply-side determinants of the rate of profit and the effects of this on the economy. The world is more complicated than this sort of one-equation model. The problem is that with a sustained rise in the profit rate (the trend I talked about above), the workings of the demand side of the economy changes. (The shift from a strong-labor regime like that of the 1960s to a weak-labor regime like that of the 1990s is similar to a phase change in chemistry.) The demand-side depression of the rate of profit can then become more than the normal cyclical matter that can be "corrected for" as I did in my 2000 paper. The problem of Fisherian deflation and my "underconsumption trap" come to the fore... Jim Devine [EMAIL PROTECTED] & http://bellarmine.lmu.edu/~jdevine
