I totally agree that ' "reasonable government policy" doesn't fall from the sky.' My point was that in industrial democracies, post-1945, "Great Depressions" don't fall from the sky either. The last 100 years of historical experience suggests that the U.S. could only suffer a "Great Depression" if the U.S. government pursues policies that abet a "Great Depression." And people should reasonably expect the government not to pursue such policies. While I am all for a "mass workers movement," it shouldn't be necessary for this purpose - it hasn't been necessary in the past. A modicum of informed democracy should suffice.
On Fri, Mar 21, 2008 at 12:57 PM, Jim Devine <[EMAIL PROTECTED]> wrote: > Robert Naiman wrote: > > Is there any case, in the last 100 years, when an industrial democracy > > has experienced anything like the Great Depression, without it being > > abetted by contractionary government policy? > > There aren't many data points there. There's the 1930s, maybe the > 1990s in Japan, and perhaps the decade that's starting now. But I'll > try to answer the question anyway. The 1930s recession was encouraged > to become a full-scale depression by contractionary monetary policy. > I'll talk about that below. I don't know enough about Japan to say > much. > > The current onset does not seem to have contractionary monetary policy > behind it. Interest rates have been drifting upward, but that wasn't > due to contractionary monetary policy. Here are some recent rates, on > U.S. Treasury securities: > > 3-mo 6-mo 3-yr 10-yr > 2000. 5.85 5.92 6.22 6.03 > 2001. 3.45 3.39 4.09 5.02 > 2002. 1.62 1.69 3.10 4.61 > 2003. 1.02 1.06 2.10 4.01 > 2004. 1.38 1.58 2.78 4.27 > 2005. 3.16 3.40 3.93 4.29 > 2006. 4.73 4.81 4.77 4.80 > 2007. 4.41 4.48 4.35 4.63 > > All columns shows that these rates rose from 2003 up to 2006, but then > fell in 2007. This suggests that Fed became more expansionary in 2007 > than in 2006. Longer-term interest rates are not shown because they > are not very influenced by Fed policies. Looking at monthly interest > rates (not shown), they leveled off in about July of 2006 to July 2007 > and then after that. > > What about real rates? they were low in the middle 2000s. My estimates > of the shorter-term three listed above were actually negative in 2004 > and moved positive after that. But I don't the moves as big enough to > encourage recession. > > Why did rates rise before 7/2006? My feeling is that it was partly a > matter of rising demand for funds; the Fed does not dictate interest > rates, just as it doesn't dictate money supplies. Instead, it's > constrained by private demand and supply. It was also partly a matter > of the Fed trying to accumulate "ammunition" to fight recession. > Greenspan had cut the fed funds rate almost as low as it goes (to > moderate the 2001 recession). That meant that the Fed couldn't > stimulate the economy if it wanted to. Finally, the Fed does not want > the real rate to be negative or too low. They seem to have a target > rate (following something like the "Taylor rule") and if rates are too > low by this standard, they up them. > > So rates had to go up (from the Fed's perspective). After July 2007, > rates have fallen due to falling demand for funds and the Fed's > efforts to prop up the financial system. The Taylor rule has been > jettisoned, at least for now. All else equal, this seems to be the > right thing to do. > > There are three ways that monetary policy can contribute to causing > recessions. The first is of the sort we saw during the late 1920s and > early 1930s. The recession was encouraged partly by anti-inflationary > efforts (not that inflation was significant, but it was feared). Then > the recession was converted into a depression (with its symptoms seen > partly in Milton Friedman and Anna J. Schwartz's famous "Great > Contraction" of the money supply). > > My feeling is that such policies resulted from the "recessions purge > all imbalances so they're a good thing" attitude of Andrew Mellon and > many others at the time, by the commitment to the gold standard, and > by the conservative response by banks (resisting rate cuts). More > fundamentally, i.e., behind these, there was a world-wide employers' > offensive going on, or what UAW chief Doug Fraser called a "one-sided > class war" in a later era. That is, there was a big effort to smash > Bolshevism and small-b bolshevism (anarchism, socialism, etc.), to > destroy labor unions, and to shift the distribution of wealth and > income to the rich. In the 1920s, that undermined consumer demand > growth, which ultimately set the stage for collapse. In the 1930s, it > led to wage cuts which made matters even worse. The Fed wanted to > "liquidate labor": high wages were seen as being at the root of the > problem of recession. This meant the excessive purgation of > imbalances, even from capitalism's point of view. > > Monetary policy largely reflects the same structural fissures that > characterize the capitalist mode of production as a whole. In addition > to class antagonisms (just mentioned), there's structurally-based > competition amongst capitalists. This added force to the employers' > offensive: wage-cutting by one employer encouraged the same by others, > which in turn made the original wage cuts less effective at increasing > profits. At some unknown point during the 1920s, this pushed the US > economy beyond the point (in terms of income distribution) where > stable growth of the "real" economy (production) could be sustained. > The bosses got "greedy" and fouled their own nest. > > Part of capitalist competition is the division between production and > finance. The financiers want a bigger piece of the pie, too. They get > this is by pushing for deregulation and by figuring out ways to get > around current financial regulations. This encourages extensive > extensions of credit and increasing degrees of leverage. This in turn > sets up the financial system for collapse, as in 1929 and (perhaps) > 2008. The financial collapse reinforced the effects of production's > fragility and crisis. > > That's the second way that monetary policy encourages depression. > Instead of directly contributing to the collapse (as a proximate or > efficient cause), they set the stage by "giving the moneyboys what > they want." (This might be called structural or material/formal > causation.) Alan Greenspan did this in spades. _Laissez-faire_ finance > prevailed in the 1920s, too. > > The third way that monetary policy encourages recession or depression > is related, since it involves setting the stage. Sometimes a small > recession _is_ needed. In the late 1960s, for example, profits were > being squeezed and employers were trying to deal with this by pushing > up prices (i.e., via inflation). A recession might have stopped this. > But this purging of mild imbalances was prevented by two things. > First, Johnson and Nixon didn't want to cut military spending on the > imperial venture _du jour_. Second, this was ratified by the Fed, > because it was committed to the Bretton Woods fixed exchange-rate > system. Because the Nixon recession was mild from the system's point > of view (though hard on -- and destructive to -- many or most people), > the imbalances persisted, and stagflation resulted. > > Since changing capitalism in the leftward direction was ruled out, > this necessitated the big recessions of 1980/1981-82. This started the > new employers' offensive, also known as the neoliberal policy > revolution which has persisted until this day (though it may be ending > as we speak). > > (The 1960s imbalances were qualitatively different from any seen > during the 1920s, so while Mellon's strategy _might_ have made sense > in 1968, it did not do so in the 1930s.) > > > Japan had a huge overhang, and low interest rates and public spending > > didn't restore growth; but did they have 25% unemployment? > > No, they didn't. Unemployed went from about 2.1% (as measured using US > standards) in 1900 to 5.4% in 2004 and has fallen since then Part of > the small size of the rise is due to hidden unemployment (non-working > workers who are being paid). > > > ... And isn't the story of this article therefore basically right? That > > there is no danger of a "Great Depression" so long as you have > > reasonable government policy? > > In theory, a reasonable government policy could have a positive > impact. In fact, one of the basic tendencies of capitalism is toward > growing explicit socialization of production, circulation, and > finance. That usually refers to the concentration and centralization > of capital and the like, but it also means the greater role for > governments. The anarchy of capitalist production, the class > antagonism, and the aggressive competition amongst capitalists causes > problems that can be (temporarily) solved via explicit socialization. > So the "wise technocrats" like Keynes or social democrats are called > in. Alternatively, fascist financial wizards or the like may be > brought in, if the historical situation is ripe. > > But the fact is that "reasonable government policy" doesn't fall from > the sky. We can't go back in a time machine to make sure that the Fed > did the right thing from 1929-33 or from 2003-2007. Repeating myself, > government policy reflects the same problems (class antagonism, cap > competition) that the dynamics of the economy do. (The Fed and > government do have "relative autonomy," but that doesn't matter very > much in the longer term.) The employers offensive of the 1920s or the > one in the US since the late 1970s affects both the economy and > policy. > > Now it's true that if we had a mass workers' movement -- even of a > social-democratic sort -- we could see capitalism managed in a more > reasonable way. We saw something like that in W. Europe during the > 1950s & 1960s. In the US, we saw that in a anemic way, but some > reasonable management arose from military Keynesianism. The problem is > that the system, its big power blocs, and its leaders hate mass > workers' movements and fight to the death to get rid of them. So such > movements are usually temporary, only persisting to the extent that > people like us fight for them. > -- > Jim Devine / "Segui il tuo corso, e lascia dir le genti." (Go your own > way and let people talk.) -- Karl, paraphrasing Dante. > _______________________________________________ > pen-l mailing list > [email protected] > https://lists.csuchico.edu/mailman/listinfo/pen-l > _______________________________________________ pen-l mailing list [email protected] https://lists.csuchico.edu/mailman/listinfo/pen-l
