Financialization and the ‘New Normal’. At the root of the aggregate demand problem undermining New Capitalism

This paper focuses on how financialization contributes to the ‘New Normal’ in advanced countries -- namely, the current macroeconomic context characterized by slow growth and low inflation -- which has been generated by deep structural change since the 1980s. The paper emphasizes that such structural change, which brings about a new growth regime labelled ‘New Capitalism’ (NC), consists of both ‘objective’ changes -- namely key trends, such as financialization, globalization, information technology, deregulation and the performativity of standard theory -- and ‘subjective’ changes, such as shifts in agents’ conventional perceptions of these trends, which crucially affect the drivers of aggregate demand. The key thesis of this paper is that the interconnectedness between these dimensions of structural change undermines the stability of NC. More specifically, it stresses that financialization crucially affects the modus operandi of NC by changing agents’ perceptions in such a way as to undermine the drivers of aggregate demand.