Sam said: If there were such a thing as an economic tsunami, I would say we are experiencing it. Not since the Great Depression has the economy been in such bad shape, which leads many economists to predict that the downturn will be L-shaped, that is, deep and prolonged.
Furthermore, the economic contraction is worldwide. No country or region will escape its pain and long reach. Nor can any national economy, ours included, hope to make a full recovery without global coordination and cooperation. In an integrated global economy, we either swim together or sink together. Financialization – two-edged sword While the present economic turbulence was triggered by the collapse of the housing markets over the past two years, its underlying cause goes back to the mid-1970s. At that time U.S. economy was rocked to its core by the interweaving of seemingly stubborn and contradictory economic problems – high inflation and unemployment, declining confidence in the dollar as a means of international payment, new competitive rivals in Europe and Asia, and a falling profit rate, all of which occurred in the context of overproduction in world commodity markets. Stagflation was the term coined to describe this contradictory phenomenon. Faced with this unraveling of the economy and a crisis of profitability, then-chairman of the Federal Reserve Paul Volcker stepped into the breech and pushed up interest rates to near 20 per cent. This spike in interest rates threw the country into a deep recession, sending unemployment rates to the highest level since the Great Depression, forcing the closing of scores of manufacturing plants and a great number of family farms, laying waste to cities and whole regions, and bringing incredible hardship to the working class, and especially African-American, Latino and other racial minorities and women workers. The rate hike also opened the door for a many-sided attack on labor and its allies, the likes of which hadn't been seen since the pre-Depression era. Wage and benefit concessions were demanded. New labor saving techniques and computerization invaded the workplace. Rules governing seniority, job classifications, line speed, and safety were either eliminated or routinely violated. And, the relocation of production to non-union and offshore sites became standard fare. If we thought this was only done to dramatically increase the corporate share of the value that workers create in the production process relative to what they receive, we would be wrong. It was also motivated by the overarching desire of corporate capital to cripple the social power of the labor movement and disrupt its alliance with its most durable and powerful ally - the African American people. Now we can't leave it at this, because, in addition to the working class and its allies taking a pounding, there is another side to this intricate story – Volcker's interest rate spike also wrung inflation out of the economy, restored confidence in the dollar in international money markets, and, especially important to us, redirected domestic and foreign investment capital (and there was plenty of it), abruptly and massively from the "real" economy – auto, steel, machine tool, construction, and so on – into financial channels and speculative ventures where returns were markedly higher. Once in financial channels, money/speculative capital stayed there, but it did not sit on its hands. Its financial agents (banks, investment houses, hedge funds, private equity firms, mutual funds, and so on) intent on expanding their profits in an increasingly toothless regulatory environment raced at breakneck speed into a massive buying and selling and borrowing and spending speculative spree for the next three decades. And all this led to an explosion of the financial sector in terms of employment, transactions, and profits. Nearly 40 per cent of corporate profits came from this sector in the early years of this decade – not to mention the salaries, bonuses, stock options, and dividends of Wall St. insiders. Capital that produces little, destroys much If this transformation of the U.S. economy into a speculative casino run by the "masters of the universe," hunkered down on Wall St., has its roots in the unraveling of the U.S. economy three decades ago, what greased the skids during this period was the production and easy availability, seemingly without end, of staggering amounts of debt — corporate, consumer and government. Debt is as old as capitalism. But what is different in recent decades is that the production of debt and the accompanying speculative excesses and bubbles were not simply passing moments at the end of the business cycle, but essential to evolution, interrelations, and functioning of the overall economy. Without the massive piling up of debt and speculative bubbles first in internet technology, then in the stock market, and most recently, in housing, engineered by the Wall St/Washington complex, the performance of the U.S. and world economy would have been far, far worse. But, as we are painfully learning, turning our economy into a financial casino built on the pileup of massive amounts of debt and bubbles that eventually burst is a two-edged sword. While it stimulates the economy, restores profitability and enriches the corporate class on a scale never seen, it also introduces enormous instability, economic insecurity, income inequality, and imbalances and distortions into the arteries and structure of the U.S. and world economy. In other words, the growth of the financial sector and bubble driven economics were an unstable, bloodsucking, leech-like, and temporary fix for a sluggish, underperforming economy and the vehicle for the financial titans of U.S. capitalism to reassert their power. But as events have shown – it could not forever mask and compensate for stagnation tendencies, declining income of working people, and the shrinkage of the material goods sector of the economy. In fact, its remedy of rerouting capital into finance and turning the financial sector and speculation into the main dynamo of the U.S. and global economy only served to postpone the crisis to a later day and, in doing so, assured that it would be on a much broader scale as we now see. A Wal-Mart economy of low wages, even when combined with financial speculation and massive debt creation is unsustainable and eventually erupts into crisis. At some point, the chickens do come home to roost.. _______________________________________________ Marxism-Thaxis mailing list Marxism-Thaxis@lists.econ.utah.edu To change your options or unsubscribe go to: http://lists.econ.utah.edu/mailman/listinfo/marxism-thaxis