 
So what are the political
consequences of stagflation?
They're very important,
because as I mentioned,
the 1970s become the decade
that sets the paradigm.
It says what the problems
are and what the answers are.
Now, because the Keynesian consensus,
because that Keynesian recipe
had failed to deal adequately with
inflation and high interest rates
with inflation and
recession at the same time,
the way is opened for those who
want to argue that what we need
is a more laissez-faire government,
which cuts taxes, eliminates
regulation, and lowers social spending.
The way is open for them
to make that argument
and to get a ready reception
among a much broader audience
than they would have been able
to get in the 1950s and 1960s,
when people still believed in a
different paradigm, different set
of problems, different set of answers.
And along with that new recipe
come other things as well,
other things which also help to
answer some of the problems that
have been troubling many Americans
since the 1960s, the problem,
for instance of why their society
seemed to be changing so much, why
their culture seemed so disrupted, why
violence seemed to be on the increase.
There are many causes for
all of these problems.
And some of them were over-reported
to such an extent by the media
that Americans really
didn't have a clear picture
of what was actually happening.
But for those who were offering
the new laissez-faire paradigm,
there was often a kind of
extra bonus in suggesting
that what was seen as a sort of
profligacy of deficit spending
was somehow responsible for these other
kinds of what they saw as profligacy,
these other kinds of social and
cultural breakdown for unwed mothers
and single parent homes, for all of
these kinds of social ills it was
suggested a shift to a new philosophy of
how you direct capitalism from the top
was the answer.
Those political consequences had
all kinds of other consequences
as well, consequences that played
out in the social and economic life
of millions of ordinary Americans.
The declining protection for individual
workers, for the labor movement,
and in particular, the
rollback of regulations
on the financial sector
in the United States
would help to drive a tremendous
shift in the American economy.
There are all kinds of ways
in which this played out--
the de-industrialization of large
sectors of the American Northeast
and Midwest, in particular the
offshoring of numerous industries,
the rise in competing products, which
wipes out still other industries.
But maybe the single biggest thing,
maybe the single biggest transformation
is the increasingly powerful
role of the financial sector,
of Wall Street and other markets,
other associated stock exchange
and bond markets in
the US economy itself.
And we can look at that shift
in a couple of different ways.
We can look at the rise in the
percentage of the American GDP
that is accounted for
by the financial sector.
And we've got great graphs of that.
Or we could also look at the rise in the
income of those who disproportionately
benefit from the financialization
of American society.
And this is, in particular, the
top 1% of all income earners.
What we see is that over the years
since the start of the New Deal,
the percentage of all American income
that they had earned in a given year
had been in decline.
But starting around 1975 or so and
especially taking off after 1980,
that percentage begins to accelerate.
It accelerates from less
than 10% to well over 20%.
It slows down in the 1990s,
takes off again in the 2000s,
until it nearly hits 30%.
That transformation is a tremendous
shift and income and ultimately
in wealth, away from the lower 90% in
particular of American income earners.
That in turn will have all kinds of
effects in the lives of that 90%.
And many of these effects
are very destabilizing.
Many of these effects are what
are going to in fact push them
into credit markets, into borrowing
increasing amounts of money
to sustain a lifestyle that is
even like that, not even increased
from that of the 1970s but
is even on par with that.
And in particular, we're going to see
that some of those choices that they
make aren't even what we
would call lifestyle choices.
Those would simply what
have to be defined, I think,
as necessities-- medical care,
which gets increasingly costly
and for which people
increasingly borrow money,
and education for their children,
especially higher education, which
becomes more and more expensive
relative to their incomes.
