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

Please cite the paper as:
Teodoro Dario Togati, (2018), Financialization and the ‘New Normal’. At the root of the aggregate demand problem undermining New Capitalism, World Economics Association (WEA) Conferences, No. 2 2018, The 2008 Economic Crisis Ten Years On, 15th October to 30th November, 2018


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.

Recent comments



  • Arturo Hermann says:

    Your paper puts forward many interesting ideas. In this regard, it could be interesting to explore the links between the lack of effective demand and financialisation. If, in fact, the latter has reinforced the former, also the other way round holds true; in the sense that the structural tendency of effective demand to lag behind the supply of full employment (however defined), has induced firms to invest their cash flow in financial activities. And one can well suspect that a major shift in this trend was programmed in the late 1970’s by the big powers and backed by monetarist policies. In fact, while the declared objective of these policies was the so-called inflation-targeting, this was pursued by a substantial increase of the real interest rate. This phenomenon, by reducing the marginal efficiency of capital, has further depressed incentive to invest in productive activities and enormously boosted financial speculation.

  • Jacob Jennings says:

    I learned a lot from your paper in addition to picking up a wonderful set of new research papers and quotes. I think your focus on conventional and psychological dynamics of effective demand are the right direction to engage in. Your framework of modern capitalism to new capitalism and ‘new normal’ are a really useful way of outlining recent forms of capitalistic systems.

    In your points on ‘interconnectedness’ in this latter stage or NC, I wonder if you might contrast this stage of globalization with other stages (Eichengreen, 2003), and why this one is different. Essentially the difference is the recent era’s rampant domestic and international level of financialization.
    I also really gravitated toward your thoughts on how the engine of demand has shifted from wage growth to asset price growth in line with Thomas Palley’s work. Can you elaborate on your points of rising instability from low demand or that consumption is more volatile under NC(section 4.2)?

    Again I really enjoyed your paper and the organization of your ideas.



  • Dario Togati says:

    Dear Arturo and Jake,

    thanks for both of your stimulating comments. I agree that the mutual links between the lack of effective demand and financialisation are important, in line with the emphasis I place on ‘interconnectedness’. As Jake rightly points out, this is feature of the New Capitalism (NC) which is influenced by fiancialisation. The relation between the two is important but I think is still under-researched. In my paper I tried to discuss these issues by stressing how they change agents’ conventional propensities. I feel that my approach is only a first attempt to go beyond traditional ‘deterministic’ models that assume stable behavioral parameters. However, it is still under-developed. In particular, further work is required to take up the interesting issues raised by Jake.