From: "Anwar Shaikh" <[EMAIL PROTECTED]> Organization: S.O.A.S. To: [EMAIL PROTECTED] Date: Fri, 5 Feb 1999 10:47:47 GMT Subject: long wave recovery Jeff My analysis of the US economy's recovery is not published. I am working on a book now, but am a long way from that particular section. Part of my work has involved showing that a secular fall in the rate of profit provides a theoretical foundation for long waves. The basic arguments and empirical evidence are in the papers listed below. One of the implications of this is that the recovery of profit growth (growth in the level of profits) is the foundation for a recovery. I also was able to show that we could link the changes in the amount of profit directly to movements in the stock market. The key in both cases is the rate of return on new investment, which can be related to the incremental profit rate r = D(P)/I(-1), where D(P) is the change in real gross profits, and I(-1) is the previous period's real gross investment. Such a link works very well empirically for a variety of issues, as I and various others working with me have been able to show. In the US, the mass of profit began a strong persistent upward trend in the early 1980's, and has been trending upward steadily since. For this reason, I trace the turnaround point in the US to the mid-1980's. There another also other quite remarkably consistent measure of long waves which I have been able to extend back about 200 years in the US and the UK, and it too pointed in much the same direction. Mary Malloy, at Iona College, is another person who has worked on linking long waves to profits, and has taken her data back almost 150 years. All such measures work best when smoothed somewhat to bring out trends. I tend to use simple centered moving averages, which does not distort major turning points too much, but the cost of that is of course that timing of a turnaround becomes clearest only a few years after the fact. Nonetheless, this was clear by the late 1980's. Previous long waves show that recoveries can be interrupted by a sharp but relatively brief downturn. For instance, in the Great Depression (previous to this one) we found that a sharp recovery in profits took place by around 1933, long before the war and its further boost. But there was a sharp downturn in 1937, followed by an equally sharp recovery by 1938-9. A profit recovery in the US does not, of course, automatically raise the whole capitalist world. While Britain has also had a profit recovery (for much the same reasons), many other advanced countries have not (Japan), or at least not to the same degree. And of course, in certain major developing countries which have made successful forays into the world market, the takeoff has been grounded for the time being (S. Korea) or possibly aborted (Indonesia, Malaysia). Even there, I do not place much credence in the claim that the volatility of financial flows are to blame, since that kind of argument seldom confronts the huge internal problems of profitability and credit overhang in many of these countries. The greatly enhanced role of credit is one critical difference in the modern era -- both as a means of covering up a crisis, and as a threat to a recovery through a financial meltdown. The two aspects are obviously linked, not the least by the fact that states and international organizations plays a role on both sides, so to speak. But in the end the power of these capitalist institutions floats on a sea of profits. This power is the greatest when the tide is in, even though the need for intervention is generally greatest when the tide is out. A long wave recovery of course requires a settlement of class struggle in favor of the (surviving) big capitals. A sharp recovery of profits is only a (lagging) indicator of this. And here, in the advanced countries at least, the outcome seems clear to me. The decisive balance has been long in favor of capital, and even any resurgence of labor militancy does not seem probable until well into a recovery. So, are we ultimately on a long wave upturn? On balance, I think so. Other advanced countries are beginning to move in the US and UK direction, and lamenting it does not change the facts. Even Japan, stuck as it is, is not likely to collapse and bring the whole system crashing down. And I never thought that the Asian Crisis would do so. As I began by saying, none of this precludes a sharp interruption in the process, triggered most likely by a financial crisis. Anwar "The Stock Market and the Corporate Sector: A Profit-Based Approach", in a Festschrift for Geoffrey Harcourt, Malcolm Sawyer, Philip Arestis, and Gabriel Palma (eds.), Routledge & Kegan Paul, 1998. "The Falling Rate of Profit and Long Waves in Accumulation: Theory and Evidence", in Alfred Kleinknecht, Ernest Mandel, Immanuel Wallerstein (eds.), New Findings in Long Wave Research, London: Macmillan, 1992. "The Falling Rate of Profit and the Economic Crisis in the U.S.", in Robert Cherry, et al., The Imperiled Economy, Book I, Union for Radical Political Economy, 1987. Anwar Shaikh Dept. of Economics SOAS, Univ. of London Thornhaugh Street, Russell Square London WC1H OXG 0171 323-6166 (work)
