The Problem: Three Decades of Policy Failure
Despite extensive documentation and repeated attempts, zero implemented solutions exist for diagnosed market failures that have blocked prosperity for over 30 years.
Executive Summary
For over 30 years, multiple diagnosed market failures have blocked the transmission of productive economic activity into broad-based prosperity. Despite extensive documentation in academic literature and repeated policy attempts, zero implemented solutions exist.
The cost: Trillions in foregone output, generational wage stagnation, political instability, and the demonstrable risk of multi-decade economic stagnation.
Three Proven Catastrophes
Japan’s Lost Decades (1990-Present)
Duration: 30+ years and counting
The Pattern:
- Asset bubble collapse (1990)
- Near-zero interest rates for decades
- Massive quantitative easing programs
- Aggressive fiscal stimulus
- Result: Chronic stagnation despite all conventional tools
The Cost:
- Cumulative GDP gap: Hundreds of trillions of yen
- Public debt: 260% of GDP
- Demographic decline accelerated by economic pessimism
- Lost generation of workers
The Lesson: Conventional monetary and fiscal tools became ineffective at stimulating private sector investment when the transmission mechanism between capital availability and productive deployment broke down.
Post-2008 Secular Stagnation
Duration: 15+ years across developed economies
The Pattern:
- Ultra-low (zero/negative) interest rates
- Trillions in quantitative easing (US, EU, UK, Japan)
- Corporate cash hoards at record levels
- High corporate profitability
- Yet: Mediocre growth, stagnant wages, chronic underinvestment
The Paradox:
- Capital is abundant and cheap
- Firms are profitable
- But investment remains weak
- Productivity growth stagnant
- Wage growth disconnected from productivity
The Lesson: The transmission mechanism from capital to productivity is fundamentally broken. Simply making capital available doesn’t ensure productive deployment.
The Middle Income Trap
Pattern across developing economies
What Happens:
Once countries reach middle-income levels:
- Growth stalls
- Innovation plateaus
- Rent-seeking replaces productive investment
- Human capital development stagnates
- Income inequality widens
The Mechanism:
Without forcing productive deployment, capital gets captured by elites through:
- Political connections
- Regulatory capture
- Market power concentration
- Financial extraction
Examples:
Trapped since 1970s
Stalled since 1980s
Post-apartheid stagnation
Unable to transition
The Lesson: Economic development requires not just capital accumulation, but mechanisms that force productive deployment over extraction.
The Priced-In Inefficiency
Why Conventional Policy Fails
Markets and firms have adapted to expect inefficient policy intervention:
The Self-Fulfilling Trap
- Poorly targeted fiscal stimulus
- Captured industrial policy
- Temporary, politically motivated incentives
- Policy reversals after elections
- Hoard cash rather than invest
- Extract rather than reinvest
- Optimise for policy capture
- Stimulus fails (validates expectations)
- Politicians look incompetent
- Firms hoard more cash
- Cycle repeats
The Political Economy Problem
Traditional Approach:
Give politicians discretionary authority:
- Infrastructure budgets
- Industrial policy grants
- Tax incentives for “strategic sectors”
Public Choice Reality:
Politicians optimise for re-election, not productivity:
- Pork-barrel spending for constituencies
- Favors for politically connected firms
- Short-term visible projects
- Policy reversals with each election
The Scale of Failure
Quantifiable Costs
Japan (1990-2025):
- Estimated cumulative output gap: $5-10 trillion
- Lost productivity growth compounding annually
- Demographic crisis exacerbated by economic pessimism
US/EU Post-2008:
- Productivity growth: 1.5% (1990s) → 0.5% (2010s)
- Labor share of income: 66% → 60%
- Corporate cash hoards: $2 trillion (US alone)
- Investment rate: Below pre-crisis levels despite record profits
Social Costs (Harder to Quantify)
- Generational wage stagnation
- Youth unemployment and underemployment
- Political radicalisation fed by economic failure
- Rising authoritarianism in stagnant economies
- Erosion of social trust and institutional legitimacy
The Question This Raises
Given:
- 30+ years of diagnosed policy failure
- Multiple proven catastrophes (Japan, secular stagnation, middle income trap)
- Trillions in lost output and immeasurable social costs
- No implemented solutions for diagnosed market failures
- Conventional tools demonstrably ineffective
More of the same that hasn’t worked for three decades?
The Answer: PRICI
A unified, rules-based framework that:
- ✅ Addresses multiple diagnosed market failures simultaneously
- ✅ Removes political discretion through deterministic rules
- ✅ Makes extraction expensive and investment rewarding
- ✅ Has demonstrated effectiveness in real-world simulations
- ✅ Bypasses political economy capture problems
This is not incremental policy adjustment.
This is system-level reform comparable to creating independent central banks.
Further Reading
- De Loecker et al. (2020) – “The Rise of Market Power”
- Lazonick (2014) – “Profits Without Prosperity”
- Azar et al. (2020) – “Labor Market Concentration”
- The Mechanisms Landscape → Full literature review
- Why PRICI Now → Urgency and timing
- Political Economy Design → How PRICI bypasses capture