Market, State, and Labor: Three Ontologies of Stagflation
The 1970s stagflation debate is not merely a historical chronicle, but a laboratory for three competing visions of the economy. The first views it as a self-regulating system, where the state’s only role is to remove tax barriers. The second defines capitalism as a contractual system, in which conflicts over income distribution require explicit coordination. The third, based on Minsky’s thought, points to endogenous financial fragility, where every attempt at stabilization breeds new risks. Understanding these ontologies is crucial today, as global institutions warn of a return to a stagflationary landscape amplified by automation.
Goodstein and McMahon: Stagflation as a Political Project
Marvin Goodstein interprets stagflation as a crisis of political legitimacy. Society rejects old methods not through cold calculation, but when established instruments begin to resemble ineffective rituals. This creates space for radical rhetoric that is cognitively cheap but socially expensive. Marshall E. McMahon goes further, exposing supply-side economics as a political project rather than a neutral technocratic fix. This doctrine deliberately uses unemployment as a tool for disciplining the workforce—an approach McMahon calls primitive, as it ignores the network of social feedback loops.
The Minsky Hypothesis and the Critique of Monetarism
The foundation of stability analysis is Hyman Minsky’s thesis: stability is destabilizing. Long periods of calm breed a habit of risk-taking, leading to sharp collapses in asset prices. Paul Davidson complements this with a critique of monetarism, labeling it economic Darwinism. In his view, inflation is a conflict over income distribution that cannot be "killed" by interest rates alone without causing civilizational destruction. Francis M. Bator points to inflationary inertia—the economy has a memory embedded in contracts and expectations, making price inertia a permanent institutional defect.
The Costs of Exporting Recession and the Illusion of Sovereignty
J.A. Kregel argues that within a reserve currency system, economic sovereignty is a fiction. By fighting inflation, the US exports recession to other countries, forcing them to import someone else's discipline. Thatcherism employed a similar technology of shifting costs onto the social periphery. Under such conditions, uncertainty paralyzes the effectiveness of R&D tax breaks, as innovation requires stable demand. Meanwhile, the increase in female labor supply in the 1970s was not a choice, but a survival mechanism against the erosion of real family incomes. These structural tensions show that monetary policy always strikes asymmetrically.
Summary: Coordinating Claims in the Age of AI
Modern central banks are adapting lessons from the 1980s, understanding that price stability does not guarantee system stability. One solution could be Tax-based Incomes Policy (TIP)—a mechanism for coordinating claims that replaces administrative coercion with fiscal incentives. Today, this challenge is compounded by AI-driven automation, which, while acting as a disinflationary factor, simultaneously destabilizes the labor market. The dispute over coordination has both technical and normative dimensions: it concerns which institutions can fairly distribute adjustment costs in a world where stability has become a scarce good.
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