this is a good article!
> The first intellectual consequence of the economic crisis was to undermine
> neoliberalism—or the belief in the sufficiency of markets to secure human
> welfare—as the age’s default ideology.<
Alas, neoliberalism lives on. After all, Obama chose Summers and
Geithner to advise him on economic matters -- with Volcker on the
"left" flank. To say the last, the new financial regulations (which
haven't passed as yet) don't seem to be adequate to keep the
financial sector from getting back to its old games... Which suggests
that after a recovery (if it happens), there will be a new bubble and
bust.
> The second was to prompt a hasty resurrection of Keynes. “We are all
> Keynesians again!” the ghost of Richard Nixon might have declared as Gordon
> Brown and Barack Obama, leaders of the nations most squarely behind the
> neoliberal push of the last thirty years, changed the Anglo-American tune
> and, this past winter, begged their European colleagues to stimulate the
> Continental economy with borrowed money. The crisis also made the economists
> Paul Krugman and Nouriel Roubini into the first Keynesian superstars since
> John Kenneth Galbraith. ....<
Krugman & Roubini's stars seem to be fading. But if there's a second
dip, they'll be back.(By the way, PK has a speaking role in the flick
"Get Him to the Greek.")
> But the Keynesian revival, so far, is partial and expedient rather than
> thorough-going. Keynes’s “somewhat comprehensive socialization of investment”
> remains taboo, and when Hyman Minsky’s famous reinterpretation of Keynes was
> rushed back into print last year (Minsky developed through Keynes a theory of
> bubbles and their bursting), the author of the preface to the new edition
> assured readers that Minsky’s own advocacy of public-led investment could be
> ignored....<
shame, Randy!
> For the moment, the neo-Keynesian blog posts bear the same relationship to
> the crisis as cognitive behavioral therapy does to a patient’s troubles. Here
> is something insightful, helpful; listen carefully and it might save your
> life. But when the acute pain passes you will be left with the chronic
> problem of who and what you are. ...<
I believe this is a misrepresentation of cognitive behavioral therapy,
which actually has evidence to indicate that it works (much more than
any other kind of talk therapy and slightly better than psycho-drugs,
I believe). It helps you handle "who and what you are."
> The global rate of economic growth has declined from about 3.5 percent
> annually in the ’60s, to 2.4 percent in the ’70s, to 1.4 percent and 1
> percent in the ’80s and ’90s, to 1 percent in this decade—much of which
> single paltry percentage turns out to have been illusory. Meanwhile,
> financial services, starting in the early ’80s, took a larger and larger
> share of total income and total profits in the world’s largest economy, until
> finally finance had become, by last fall, the largest American industry,
> accruing to itself a quarter of all US profits. This combination of declining
> overall growth with burgeoning finance suggests that the connection between
> finance and investment can’t have been the alleged one: the direction of
> capital to its most productive uses. So there must be a better way to
> characterize a situation—that of the last decades—in which vast quantities of
> overaccumulated capital (the neo-Keynesian’s “excess of desired savings”)
> circle the globe in search of profits, while the vitality of capitalism as a
> whole steadily diminishes.<
With lower over-all profit rates, one way for capitalists to feel
better (and earn a higher profit rate on paper) is to leverage capital
a lot. Of course, greater leverage means more risk, while all the
leverages can't realize the paper earnings at the same time without
causing a financial crisis.
> Marxists differ in the details of their accounts of the postwar economy, but
> the story, which ends for now in the cliffhanger of the first contraction of
> the world economy since 1945, goes something like this: The so-called Golden
> Age of postwar capitalism from 1950–70—a time of rising wages, profits, and
> investment—was the product of special and perishable circumstances. The
> wartime destruction of the Japanese and German productive base meant that,
> with the resumption of peace and renewed growth in demand for non-military
> goods, all the major industrial economies could for a time thrive without
> threat to one another. But the maturation of European and Japanese industry
> toward the end of the ’60s spelled the return of mutually destructive
> competition. Firms producing internationally tradable goods (cars,
> electronics, et cetera) could only survive by educing prices, which in turn
> reduced profitability. And yet the capital sunk in manufacturing plants was
> enough to make capitalists reluctant to exit a given product line in spite of
> reduced profitability. Besides, governments don’t like to see big firms fail
> even when they can’t compete. (The Obama administration has lately proved
> almost as indulgent of GM as the state-directed Japanese banks have always
> been of Japanese industry.) And the more recent advent of China as a
> manufacturing power only exacerbated the situation, as the Chinese (to quote
> Brenner) “continued to expand capacity faster than it could be scrapped
> system-wide and to rain down torrents of redundant, increasingly high-tech
> goods upon the world market.”<
There's more to the "golden age" than this Brenner story. For example,
the US had hegemony in the capitalist imperialist system (in
competition with the old USSR's empire). This spawned wars and the
warfare-welfare state. Part of the warfare state were things that
promoted US supply-side growth, such as the Interstate Highway system
and the GI Bill. This meant that within the US, wages weren't just a
cost to business but also increasingly the basis of the domestic
market. So organized labor could be tolerated (just as businesses with
no real concern about macroeconomics -- i.e., almost all of them --
tried to get around unions by "going South," etc.)
"mutually destructive competition" is a good phrase, describing the
Bukharin/Lenin picture of imperialism. But unlike in their era,
intra-imperialist competition doesn't have much of a military edge
(except maybe China vs. US?)
> The orthodox story blames declining profitability (and price inflation)
> during the ’70s on the excessive demands of labor—a plausible enough
> explanation until you consider that the worldwide defeat of labor since the
> ’80s has failed to restore prior levels of growth. The high wages of the
> early ’70s are long gone. <
CB: >> "High" wages is the capitalists's version. Our version is that
wages weren't high enough. Underconsumption is the cause of crisis.
<<
As far as I can tell from my studies, underconsumption wasn't the
cause of the crisis of early 1970s. It's only in the last three
decades that it started playing a major role (as part of the
"undertow") as the distribution of income and wealth became
increasingly unequal. The crisis of the 1970s involved wages being
"too high" from capital's perspectitive. But they only were "too high"
once the model of accumulation that promoted the "golden age" became
obsolete, as labor productivity growth slowed and the effects of
overaccumulation (including the international aspects that Brenner
points to) kicked in. Suddenly capitalists saw wages more of a cost
and less as a source of demand, not only because of increased
international competition but also as opportunities for moving to
low-wage pastures rose, encouraged by the neoliberal policy revolution
of Reagan & Thatcher (following Pinochet's lead).
> What has endured and intensified since then is a systemic bias in favor of
> short-term financial speculation over longer-term productive investment. The
> replacement of the gold standard by floating currencies encouraged capital to
> flit from country to country in search of returns magnified by any temporary
> overvaluation of this or that national fiat money. At the same time,
> information technology sped transactions along at a new rate and volume. What
> in 1983 was a daily mass of $2.3 billion in international financial
> transactions had become $130 billion by 2001. Only about 2 percent of the
> same sum would be necessary to maintain international trade and productive
> investment.<
it was the abolition of capital [hot money] controls that allowed
capital to "flit from country to country." Of course, the capital
controls seemed to be a necessary part of the fixed exchange rate
system (which was based on the dollar being tied to gold). By the way,
those capital controls were increasingly ineffective as the late 1960s
and early 1970s went on... It's hard to imagine that the fixed
exchange rate of the "Golden Age" could have lasted forever,
especially with the US having higher inflation rates than its trading
partners (due to the Vietnam war).
> Meanwhile production is guided by the search for low wages. The export-led
> growth of first Germany and Japan, then the “Asian Tigers,” then China with
> its endless reserve army of labor has flooded the world with cheapening
> goods; and between 1985 and 1995 the US itself staged a manufacturing revival
> through the exporter’s proven formula of cowed labor and an undervalued
> currency. But this is supply: what about demand? The fundamental problem with
> workers (to whom as much money as possible should be denied if commodities
> are to be affordable) is that they are also consumers (to whom as much money
> as possible should be supplied if they are to buy commodities). Marxists
> aren’t kidding when they talk about the contradictions of capitalism. In the
> end, as Marx wrote, “the ultimate reason for all real crises always remains
> the poverty and restricted consumption of the masses.” The result of
> declining or stagnant real wages since the ’80s has been global industrial
> overcapacity: too much plant turning out too much stuff for not enough
> buyers.<
it should be stressed that after 1995, the dollar rose again
(providing cheap imported consumer goods, which dulled the impact of
stagnant money wages). Also, the quote from Marx is hardly a complete
theory of crisis. Unfortunately, Marx never stated a complete theory
of crisis.
> The structural solution to this dilemma was as ingenious as it was
> unsustainable. If the global wage-bill couldn’t cover all the world’s
> gimcrack goods and coastal vacation properties, then consumers—especially
> American, but also European—had to be extended a new line of credit. They
> would borrow money to buy houses, and then borrow more money, to buy other
> stuff, against the rising value of these houses! Of course many new
> home-buyers plainly couldn’t pay their mortgages; the mortgages were granted
> on the assumption that someone else ultimately could and would. So present
> consumer demand was leveraged against a future demand for which there was no
> plausible source. For mortgage brokers operating under the
> originate-and-distribute model this didn’t matter; they had already pocketed
> their commissions. And those bundling iffy mortgages into securities
> comforted themselves with a rhetorical question: What was the likelihood of
> homeowners defaulting en masse?
> The venality and self-deception of the brokers, rating agencies, and bankers
> are now notorious. By comparison, David Harvey’s most audacious theoretical
> move, in Limits to Capital, seems sensible enough: How can Marx’s labor
> theory of value (which identifies value as “socially necessary labor time”)
> be reconciled with land prices, given that land is obviously not the product
> of human labor? <
this is no contradiction: _most_ prices deviate from values. And
that's a key part of the "labor theory of value."
(this is the end of my comments.)
> Harvey’s answer was that under capitalism land becomes “a pure financial
> asset”; land price is a claim on future revenue treated as a present-day
> asset. “Mortgages,” Marx said, “are mere titles on future rent.” And Harvey
> completes his thought: “Land price must be realized as future rental
> appropriation, which rests on future labor” (our italics). The big risk,
> naturally, is that you will attribute to real estate far more present-day
> value than can later on be returned to it by labor (in the form of the
> portion of total income devoted to housing). A bubble occurs not when people
> pay for real estate with money they don’t yet have—as always happens, given
> the availabilty of credit—but when they pay with money they will never have,
> out of wages they will never receive—out of wages no one will ever receive.
> This past fall the papers were full of “analysts” wrapping their heads
> around a new idea: “Home prices,” said one, “are going to have to start
> reflecting people’s income.”
> In the world at large, if not always in the bubble-addicted US, recessions
> have been deeper and longer and recoveries ever more feeble since 1973.
> Already the recovery after the recession of 2001–02 was the weakest on
> record, adding virtually no new jobs to the rolls. The main stimulus to
> consumption was the confection of fantastic, improbable, and finally
> fictitious paper assets. And as Brenner wrote in 2006—were he not a Marxist
> he would be counted among the prophets of the crash—“the US Fed’s continuing
> dependence on cheap credit and asset-price bubbles to provide the subsidy to
> demand to keep the economy turning over appears to have only delayed, but not
> really avoided, the economy’s obligatory responses to the over-capacity, fall
> in profitability, and asset-price crash of 2000–01.” In this way
> alone—alas—the Bush Administration never happened.
> The motor of accumulation has been sputtering for nearly four decades, and
> its coughs can be heard again now that the roar of combusting paper wealth is
> dying down. This doesn’t mean capitalism or even growth is at an end.
> Economists of all kinds have pinned their hopes on the transformation of
> laboring and saving Chinese into hardy consumers. In any case, the US
> consumer—a ravening appetite in a paper house—appears to be finished as the
> world’s buyer of last resort. It would add a nice dialectical twist to the
> future history of our period if it could be said that, around the time the
> post-Maoist Chinese took up shopping, the post-bubble Americans turned to
> studying Marx.<
--
Jim Devine
"Those who take the most from the table
Teach contentment.
Those for whom the taxes are destined
Demand sacrifice.
Those who eat their fill speak to the hungry
of wonderful times to come.
Those who lead the country into the abyss
Call ruling too difficult
For ordinary folk." – Bertolt Brecht.
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