Tom is quite right to challenge the prevailing view that we are not
already witnessing many of the manifestations of depression that were
the hallmark of the depression of the 1930s. (By the way, I wonder why
no one has mentioned the ‘great depression’ in Britain after the
financial crash in 1873 until circa 1896?) Still, that is not my point.
We will not relive the depression of the 1930s for a number of reasons
that have been mentioned on this list. But, equally, we will not relive
the recovery of the ‘40s, ‘50 and ‘60s. The whole discussion of Fed and
US gov’t policy that I see in the financial press and on the media and
even see on this list seems to me to be an Alice in Wonderland
dreamscape because it assumes that once we settle the subprime debt
problem and get the housing market back on course and get consumers
buying (on the cuff) again, the economy can resume its upward and onward
course without major deviations from the path of the last half-century.
Nothing could be more delusionary because it ignores several immutable
facts:
global warming, peak oil, peak water, peak food (and other commodities),
overpopulation, deforestation, etc. etc.
Let me be more explicit. The 1930s were, as Keynes clearly pointed out,
a period of insufficient demand, and indeed the whole canon of Keynesian
thought pushed for supplementing aggregate demand with government
expenditures, tax cuts, investment incentives, redistributive transfers
– anything to increase C + I + G + (X-M) in the classic Keynesian
formulation. But fundamental to this prescription was the underlying
understanding of insufficient aggregate demand relative to excess
aggregate supply. Many Marxists, including our Jim, attribute it, at
least in part, to an ‘underconsuption undertow’ resulting from an
increasingly unequal income distribution which robbed the working class
of the ability to consume. One should also, of course, mention the
collapse of international demand that resulted when Germany’s access to
borrowed funds to pay Britain and France its war reparations were cut
off. Certainly, in Canada’s case, it was the collapse of export markets
for our commodities, in particular, grains, which triggered the depression.
The 2nd World War ‘solved’ the problem for North America by creating
excessive aggregate demand (‘military Keynesianism’) but, what is
readily apparent, is that this massive increase in aggregate demand
(gov’t expenditures approaching 50% of GNP) was relatively easily met
with existing resources and capital stocks. That is, there was massive
excess capacity in both capital and in commodity resources. There was
some rationing and inflationary pressure but, in general, macroeconomic
balance was maintained and, when the war was over, capacity was switched
to consumer products – and to capital goods to restock Europe --with
relative ease. Productivity increase prompted by the war, unions and the
‘labour-management accord’ meant that for the majority industrial
workers, income increases were sufficient to absorb the increased output
of US industry and to the extent it was not, the government expenditure
on the military for the ‘cold war’ sufficed. Hence the ‘golden age’,
otherwise known as ‘mass-production for mass-consumption.’
However, this was coming to an end in the late 1960s. Though much of the
analysis of this period stressed the re-emergence of excess capacity or,
the other side of the coin, falling profits, little attention has since
been paid to another phenomena that caused considerable comment among
post-Keynesian economists at the time, the secular rise in real
commodity prices. Though the increase was fairly widespread, it was the
rapid jump in oil prices in 1973-4 accredited to OPEC that caught the
attention of most. Over the next half decade or so the battle between
capital and labour over who was to absorb the cost of oil rents paid to
the mid-east oil barons resulted in inflation which again accelerated in
1978 with the second oil shock. This necessitated, from capital’s point
of view, the destruction of labour’s countervailing power and the
virtual destruction of the labour movement, at least in the capitalist
surplus value sector. This was accomplished by monetarism and the severe
recession of the early 1980s. It is no coincidence or accident that real
wages have remained stagnant (or declined for the lower waged and
minimum waged workers) since the mid-1970s. Family wages have increased
marginally entirely due to increased female participation and longer
hours worked by both men and women which allowed consumption to increase
even as income distribution became more and more unequal.
The ‘70s seem to me to be a kind of pivotal decade in the post-war
period. As mentioned real commodity prices began to rise even before the
OPEC oil crises, real wages peaked and began falling, Bretton Woods was
abandoned, the unions entered a secular decline in the face of a
monetarist-neoliberal response to stagflation. At the same time Ehrlich
published his “Population Bomb” (1968) and the Club of Rome, “The Limits
of Growth” (1972) which highlighted for the first time since Malthus the
physical resource limits to economic expansion and population growth.
Malthus’ prediction was countered by colonial expansion opening up the
food resources of the new world. Ehrlich’s and the Meadow’s projections
were countered by North Sea and other non-OPEC oil discoveries, the
‘green revolution’ in agriculture (made possible by the expansion of
fossil fuel availability) and a renewed expansion of mineral discovery
and development. This made possible the demand-led recoveries from the
‘81-‘83, ‘91-‘94, and 2001-‘02 recessions based on easy credit and
monetary expansion and ridiculously low prices for oil.
These conditions have changed since 2002. Oil and commodities are no
longer in elastic supply (ie real commodity prices are rising along with
resource rents redistributing income from resource poor countries which
now includes the United States to resource rich countries and regions)
and the ‘green revolution’ is failing, in part due to global warming, a
growing shortage of water, soil degradation, rising resistance to
pesticides, herbicides, and the rising cost of fossil fuel based fertilizer.
This implies that we can not expect a Keynesian ‘demand side’ solution
to the current slump/crisis nor that we can ‘grow’ (invest, consume) our
way out of a recession-depression. It also suggests that any longer term
solution must involve both a declining population and a major
redistribution of (a declining) GDP, as well, of course, of a major
change in our ‘style’ of living necessary to offset the increase and
impacts of global warming, never mind of peak oil.
Any short term ‘fix’ of credit and consumption expansion will
immediately run up against rising real energy (and food) costs,
inflation, rising emissions (and hence climate change) and, even in the
short run, increased shortages of water (it takes thousands of litres of
water to produce one litre of ethanol; 3 to 6 barrels of water to
produce one barrel of synthetic crude, etc.)
In view of these realities, I think we have to look at a quite different
family of policies to get us out of the current recession. What is
perhaps the most disheartening is that in the current presidential
primary debates, one hears next to nothing from Clinbama indicating even
an awareness of the problem. (This is not to say that in Canada there is
any greater awareness. The Harper conservative government has its head
firmly buried in the sand with its backside facing south.)
Paul Phillips
Sandwichman wrote:
Nothing restores my optimism like a pep talk from "economists" about
how they've arranged things so there can't be "another depression like
the 1930s"!
For sure there won't be another depression like the 1930s. There also
will not be another war like World War I or even World War II. But
there already is the Iraq War and there already is homelessness,
"foodbanks" and social economic exclusion. No breadlines? What about
the ones that have been there throughout the boom years? Are they
going to abolish those? How long those folks "selling their belongings
on eBay" will have to wait for a free terminal at the public library
is another question.
--
Paul Phillips Professor Emertus, Economics University of Manitoba Home
and Office: 3806 - 36A st., Vernon BC, Canada. ViT 6E9 tel: 1 (250)
558-0830 email: [EMAIL PROTECTED]
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