Charles Brown Wed, 18 Feb 2009 17:04:17 -0800
In Defense of Washington and Wall Street
Robert Fitch
1. The Crisis of 2007-2008
THE VERY ELDERLY ARE PRONE TO FALL. And
unlike infants who also tumble frequently, each time seniors stumble, they risk
a disabling or even a fatal injury.
On August 9th 2007, after an unparalleled quarter century long expansion, which
had been checked in the developed
countries only mildly and briefly, capitalism finally tripped and lost its
balance with predictable results: banks tottered, while credit and commercial
paper markets writhed in paralysis.
After about a month, though, notwithstanding
the failure of the markets to unfreeze, the crisis was declared over. The
palsied patient was deemed well enough to
resume normal activity -- a diagnosis apparently confirmed when two months
later, on October 9th, the Dow Jones
Industrial Average reached 14,164, an all time high.
The March 2008 meltdown of two hedge funds
belonging to Bear, Stearns suggested otherwise. A pillar of the "shadow banking
system" that had emerged over the
last two decades, Bear was forced into liquidation, sold to J.P. Morgan for
$256 million. Scarcely more than a year
earlier it was said to be worth $68.7 billion. Yet this stunning write-down
barely moved Wall Street's needle.
The market continued to move choppily until September 14th 2008, when Mr. FIRE
(as in finance, insurance and real
estate) fell again, with even more dire consequences. That Sunday, Lehman
Brothers filed for bankruptcy. Later in
the day, Merrill, Lynch announced its liquidation. Just two days later, AIG,
the world's largest insurance company,
was taken over by the government. This time, Wall Street had suffered the
equivalent of a broken neck.
Even in the immediate aftermath of the
1929 Crash, the biggest Wall Street banks didn't fail. They continued to lend.
(The wave of failures by thousands
of heartland banks came later.) But in 2008, it was precisely the big banks
which formed the leading vector of
the collapse. Within a period of 200 days, the five biggest U.S. investment
banking houses -- the institutions
that since the Reagan era had given Wall Street its swagger and identity -- had
either gone bankrupt, or forced to find
a merger partner or re-organized themselves as bank holding companies.
Whenever the spinal cord is severed at the
top two vertebrae, i.e., at the neck, the greatest immediate peril is that the
victim stops breathing. The September
2008 crisis was marked by increasingly desperate measures to keep big FIRE from
asphyxiation. The measures taken included
flooding the system with liquidity -- almost unlimited loans and loan
guarantees. The Bush Administration came up
with a $700 billion plan to deleverage the banks (i.e., raise their dangerously
low ratio of equity to debt) by
buying their bad mortgage-backed securities. And when that didn't work, passed
legislation which amounted to a
semi-nationalization of the remaining big banks -- the equivalent of cutting a
hole in the patient's trachea.
By October's end FIRE was breathing, albeit
with a tube provided by the U.S. guarantee of inter bank loans. But breathing
is not walking. A financial system
in which banks lend only to other banks refusing to act as intermediaries to
the non-financial sector-- is still non-functional.
In the midst of the anarchy, the headline
"Capitalism in Convulsion" appeared not in The Militant or The People's World,
but in the August, salmon colored pages
of The Financial Times.1 Unlike the Long Term Capital Management (LTCM) crisis
or the dot.com bust which were more or
less confined to the G-7 countries, or the Asian, Mexican, Argentinean crises
-- which remained localized within the
Third World -- the crisis of 2007-8 was truly global. It spread from America to
Europe to Latin America to Asia
and even to remote Iceland which was all but officially bankrupt and forced to
await rescue from the IMF. Nor was
the crisis confined to capitalism's financial sub-system. Production was
shrinking, consumption was off. Even foreign
trade, the main driver of the world economy, was contracting. "There is a real
possibility of a real, deep, international
depression," said one senior monetary official at a G20 meeting in Dubai who
spoke on the condition of anonymity, calling
the crisis "the worst in 100 years."2
2. The Meaning of the Meltdown
IN 1989, THE FALL OF THE BERLIN WALL was widely
interpreted as a failure of the Communist system. But not by its supporters.
They favored minimalist interpretations.
Liberal Stalinists saw it as a reaction to certain overzealous GDR officials
in the security apparatus; conservatives
as the failure of those same officials to contain the illegal exodus. Still
others blamed Soviet Premier Gorbachev's
blundering efforts to deregulate the Soviet system, which they insisted was
still fundamentally sound.
Similarly, the present crisis can be interpreted
in various ways. Not as the result of inherent, structural, repeated, and
irredeemable tendencies within the capitalist
system. But as altogether something more surmountable. Democrats have pointed
to a failure of capitalism's financial
sub-system, i.e., of Wall Street -- where greed ran amok -- and in Washington
where officials refused to rein in
the Street's wildest propensities. By repealing the depression era
Glass-Steagall Act in 1999, the argument runs,
Congress demolished the pillar of the old regulatory architecture. And it
declared off limits any supervision of the new,
escalating trade in opaque forms of over-the-counter derivatives.3
Republicans, while not immune to the widely
popular "greedy" banker trope, tended mostly to blame capitalism's regulators
-- above all blundering by Fed
Chairman Alan Greenspan, who allegedly, in the aftermath of the 2001 dot.com
collapse, held interest rates "too low,
too long." He should have kept his hands off the monetary joystick.
The implosion interrupted what might be called
"The Big Sleep of the American Left": our failure to exert a detectible
influence on working class institutions or on
American political life as a whole. The sleepy time coincides roughly with the
quarter century long boom which began in
1983 with the recovery from the stagflation crisis of the seventies. Throughout
the period, as the global economy
continued its unparalleled dizzying ascent, 19th century supply side economics
experienced a revival. Not just the
napkin version preached by Arthur Laffer, who argued that if you want to
increase tax revenues, cut tax rates. But an
over-arching argument about the nature of capitalism and its powers of
adjustment.
The 19th century classic writers -- James Mill,
J.B. Say, David Ricardo -- taught that market failures or "gluts" were
impossible. Temporary over-supply in this or
that market for shoes or hats or handkerchiefs, yes. A generalized over-supply,
of shoes, hats and handkerchiefs all
at the same time, no.4 So absent meddling by government authorities,
depressions were not a possibility. Markets
would always self-adjust because market agents -- suppliers of labor and
capital -- would behave rationally. Workers,
seeing that they had priced themselves out of the market, would work harder
and lower their wages. Holders of capital
would lower interest rates, which would reduce saving and spur investment.
Acceptance of the simple supply side formula,
"supply creates its own demand" bred confidence among the believers. The
concerns of Keynes, who worried about "effective
demand," and the notions of Marx, who argued that the scramble for profits
created its own barrier, could be dismissed
as groundless. And as America's ruined central cities sprang back to life from
the arson and abandonment of the seventies
and the stores filled up with cheap Asian goods and American designed
microchips powered a global technoboom, with
unemployment falling to record lows, a lite version of supply side economics
quietly permeated the Left -- in the
assumption that "post-industrial" capitalism was more or less impregnable in
its First World stronghold.
Perhaps understandably, sections of the Left
began to lose interest in the struggles going on in the material world around
them, re-grouping around the priority
of culture wars and even for some science wars. And while economic radicalism
didn't disappear, the burden of its
critique lay in the idea of an unequal exchange between first and third world
countries, which prevented less developed
raw material producing nations from industrializing. The idea of class wars
within nations gave way to the notion of
"proletarian nations."5 Socialism became strictly a Third World option. The
Left could try to assist the special victims
of First World capitalism -- blacks, women, minorities, immigrants. But not
American workers. As Michael Kazin observed,
very few American leftists invoked the link between labor and the creation of
wealth and capital and the appropriation of
that wealth which had been at the core of American radicalism from the 19th
century to the 1940s.6 Speculation about
transforming first world capitalist institutions became about as respectable as
spoon bending.
One consequence of the 2007-8 economic tsumani
is to wash away the foundations of the intellectual world of the sensible
center.7 But much of the Left's outlook rested
tacitly on those same foundations. As well as its secret sense that it had no
genuine vocation for politics except on the
margins of American life.
Perhaps the collapse of financial markets hasn't
yet produced a mass market for ideas about democratic control of the economy.
Yet there appears at least to be a
niche. Are markets always wiser than majorities? Would the majority of
Americans have voted in a plebiscite for
deindustrialization? At a minimum, now that a Republican administration has
ordered a semi-nationalization of banks
and insurance companies, the supply side era is over, creating the potential
for a Left socialist revival. But
not without challenging the minimalist interpretations of the great meltdown
put forward by the two mainstream political parties.
3. Three Things I Learned About Crises From Marx
THE DEPTH AND SCOPE OF THE MELTDOWN have
made Marx fashionable once again at least in Europe, the BBC reports.8 But
acquiring the intellectual resources
for the challenge is not simply a matter of mining Marxian texts. If there is a
Marxian road to understanding the crisis,
it's a cloverleaf highway - with many ways to get on and get off, and each
turn-off resulting in a different political
direction. There are many Marxist schools. And each explains crises in
different ways - as the result of underconsumption;
of overproduction; in terms of the falling rate of profit; or as a consequence
of the disproportionality between
growth rates in consumer and producer good sectors.9
Notwithstanding the impossibility of establishing
a true Marxist interpretation of the crisis, his powerful, suggestive, but
mostly undeveloped crisis analysis contains
three contentious insights which provide a scaffold for grasping the present
events. The first might be called the
"universal dynamism" thesis. Supply-siders accept it but most modern Marxists
don't. Marx portrayed capitalism as an
inexorable accumulation machine whose dynamism is fed by the behavior of
multiple competitive capitalists all forced
to consume productively rather than personally, all relentlessly recycling
their profits back into the enterprise. All
searching for a way to reduce costs. This feature turned capitalism into a
uniquely dynamic and expansive system: one
whose dynamism could not be confined to its Western countries of origin. The
spread of English commerce, he argued,
albeit restricted at first to opium, would "lay the material foundations of
Western society in Asia."10
At the same time -- and here's where supply siders
get off the bus and neo- Marxists get back on -- Marx recognized capitalist
development traced no smooth, upward,
untroubled arc. Growth was achieved only through system shattering crises --
"business cycles" -- which proved comprehensively
destructive.11 In the abrupt swing from world prosperity to world depression,
tens of millions were doomed to
unemployment and the dole; economic upheaval would shatter normal trade
relations, freeze immigration and promote economic
nationalism and political dynamite -- in the form of left/right polarization
leading to dictatorship, fascism and war.
Finally, there's the least accepted Marxian
argument about crises: his claim that they have their origin in the "real"
sector of the economy - where commodities were
produced -- not in the financial sector where the crisis almost invariably
breaks out. "At first glance," Marx writes,
"the whole crisis seems to be merely a credit and money crisis." But look
again, he advises, and you see that the unsaleable
securities represent unsaleable commodities. Or in our own immediate case the
oversupply of mortgage backed securities
represents the oversupply of houses, and ultimately an oversupply of capital in
general. In this way, the crisis
expresses in a violent way capitalism's fundamental conflict: Capitalism
develops awesomely large productive forces
whose limits are checked by the requirement that production be profitable.12 To
avoid depressing the profit rate, productive capital saves instead of
investing, transferring its
saving from the productive sphere, seeking shelter in the financial system
where productive capital is turned into credit
or financial capital. Indeed, too much. "But credit," Marx wrote, only
"accelerates the violent outbreaks of the crisis."13 To accelerate something is
not to cause it.14
4. Explaining The Meltdown
THE PROXIMATE CAUSE OF THE 2007-8 CRISIS was
the imploding of what Yale Professor Robert Shiller called the greatest real
estate bubble in U.S. history or possibly
even world history. Between 1996 and 2005, house prices nationwide increased
about 90 percent. In the five years
between 2000 to 2005 alone, house prices increased by roughly 60 percent.15
That hadn't happened even in the
real estate boom of the 1920s, whose premonitory bust in 1926 gestured wildly
but vainly at the still greater
collapse to come in 1929. While the inner mechanics of the individual parts
that make up the self-destructive bubble
apparatus are famously complex -- the SPVs SIVs, the CDOs, CDSs and other
"financial dark matter" -- the mechanics
of the collapse itself are fairly straightforward.
It's not necessary to understand quantum
mechanics to grasp why an apple falls to the ground. Newtonian mechanics will
suffice. Nor do we need to study the
structure of DNA to know why old people fall -- they take slower and shorter
steps. Similarly, by concentrating
on the intricacies of frenzied finance on Wall Street and faulty regulatory
mechanisms in DC, we lose perspective
on the ultimate as opposed to the proximate causes of the world crisis.
The ultimate cause of the 2007-8 crisis was
not the pricking of the real estate bubble in the United States, but the
implosion of the greatest and longest global
expansion in the history of capitalism going back to the first industrial
revolution (1760-1830). The rapid transformation,
particularly of the Chinese and Indian economies, produced a super boom that
blew away all norms for economic
expansion.16 World GDP rates rose to unprecedented levels - peaking at 6
percent in 2007, six times higher than the rate
during the first industrial revolution.
And what drove the boom? Notwithstanding the
core claim of the sensible center that the nature of the period was defined by
the rise of post-industrialism
and the fall of the blue collar worker who would go the way of the peasant, the
boom was shaped by record rates
of manufacturing growth and even higher rates of growth in manufacturing trade.
The increase in manufacturing itself
was fed by a world-reshaping, mass migration of manufacturing capital from the
more developed to the less developed countries.
Capital was attracted by appalling, but ultimately ravishingly high rates of
labor exploitation -- to India, which was
emerging as the world's back office, but above all to China, which became the
world's workshop, employing 109 million
manufacturing workers. (Versus 53 million in the G7 countries.)17 In the United
States, median hourly manufacturing
wage was $17.85 an hour.18 In China, manufacturing workers in the coastal
provinces earned 91 cents an hour at productivity
rates increasingly converging with those in the United States19 (inland workers
earned 57 cents an hour.)20
The long boom that began in 1983 saw astonishing
reversals of economic structure -- particularly in the United States where the
FIRE industry displaced manufacturing
and all others -- as the leading industry by GDP share. In 1983, at the
beginning of the boom, manufacturing was still
larger than FIRE. By 2007, the FIRE sector had become 1.8 times the size of the
manufacturing sector.21 There were equally
bizarre reversals of economic fortune, as the United States once the world's
prime creditor nation, became its greatest
debtor nation, with poor nations -- most prominently China -- among its
largest creditors.
Yet despite these startling novelties, the
present boom has ended in overproduction and over-consumption just like the
classic booms of the past. Consider the
world depressions that began in 1837, 1873 and 1929. For these crises, like the
implosion of 2007-08, the following
seven stage sequence can serve as a model:
A fall in the rate of accumulation, or at least
a fall in the rate of acceleration; actual profit rates may even rise just
before the collapse; but the high rates are
sustained by a slowing down of accumulation rates.
Formation of surplus capital hoards. Unable to
return "home" for productive re-investment, the surplus seeks to preserve
itself by moving into financial channels.
Capital over-supply forces down interest rates,
clearing the way for asset inflation and financial excess. First because low
interest rates automatically increase the
value of fictitious capital in land and in securities; and second because low
interest rates cause risk premiums to fall,
promoting riskier behavior as rentiers chase yield.
Asset bubbles form as speculators are attracted
by the seemingly inexorable rise in asset prices. Prices accelerate further
because of rampant bubble psychology.
The chain letter snaps. Housing prices burst
the bounds of household incomes. Stock prices soar far beyond historic
price/earnings ratio. Prices collapse. A local
financial crisis breaks out among the most vulnerable borrowers, who can no
longer re-finance, leaving the most recent
round of developers and mortgage holders unable to pay off their loans, and/or
stock speculators can't cover margin
calls from their brokers. Asset prices collapse, taking down credit suppliers.
A spreading of the financial ripples outward
from their point of origin, as asset deflation produces a global panic. And
finally -- but not yet of course in 2007-08:
Protracted economic stagnation; widespread
double-digit unemployment rates; falling wages and commodity prices; growing
economic nationalism and a tendency
towards "organized capitalism."
There are two main differences between this
seven step scenario and the mainstream accounts. Regulatory and monetary
explanations see the problem as U.S. centered.
Obviously the United States can't be ignored -- the meltdown began here. But
the emphasis must be on global imbalances.
True, the United States is over-consuming. But the rest of the world is
over-producing. The second difference is the
emphasis on how excesses in the real sector -- the capital glut and the
resulting low interest rates -- produce wilding
in the FIRE sector. By contrast, mainstream models
reverse the causal arrow so that financial and real estate excess bring down an
essentially healthy real sector.
Except for the wrongheadedness of Greenspan or
the antics of a comparative handful of hedge fund operators, mainstreamers then
see no reason why the expansion should not
go on indefinitely. They don't look at a twenty-five year expansion as being
the equivalent of a twenty-five year old
dog. The bubble simply erupted. But whence? Either exogenously -- outside the
system -- by dodgy regulators who disrupted
the economy's natural path towards self-correction -- in the Republican
version; or in the Democratic version the bubble
is produced endogenously -- in the FIRE sector -- aided by dodgy regulators who
look the other way at speculative excess.
The Democrats cite a whole host of regulatory
failures. There's the problem of fragmented regulation -the Fed regulates
banks; the SEC stocks; the states insurance
companies. They point to de-regulatory measures like the repeal of
Glass-Steagall. Then there's the embarrassment of
private regulation -- ceding securities rating to the conflict-of-interest
laden private rating agencies. Even more serious
perhaps is the absence of new regulation for new institutions -- e.g., failure
to bring Over -the-Counter derivative
trading under control; ditto the emergence of a shadow banking system, which
created "a de facto assembly line for purchasing, packaging, and selling
unregistered, high- risk securities."22
The Republicans -- along with their economic
mentors in academia -- supply-siders, monetarists, Austrians and Chicagoans --
often talk about too stringent
regulation -- like the passage of the Community Reinvestment Act of 1978. The
Democratic Administration, they allege,
allowed community groups like ACORN to coerce giant banks into making hundreds
of billions of dollars in loans to
unqualified minority borrowers. But mostly they focus on the interest rate
activism of Alan Greenspan. The "too low too
long" mantra -- the fed funds rate, they point out, remained below two percent
from 2002-2004.
One problem with the explanation is that the
bubble didn't start in 2002. It was already underway in 1996. As Robert
Shiller points out, it lasted three times
longer than the period of monetary laxity. Bubble growth continued to
accelerate even in 1999 when the Fed was
tightening. Moreover, 30 year mortgage rates were mostly unresponsive to Fed
moves at the short term end of the interest curve.23
What's more, if the U.S. bubble was simply
the result of a Fed policy error -- why did real estate bubbles form all around
the world? Bubbles in Spain, Ireland,
U.K. and perhaps the mother of all bubbles in Shanghai, where 1 million
apartments were built in a single year -- as
opposed to 2 million in the peak year for the entire United States. And the
average apartment was $300,000 in a city
where the median household income is $2,000.24 By comparison, the median
household income in Queens is $42,000. If the
same income to housing price ratio obtained in Queens, the average housing
price would be $6.3 million.
Perhaps even more challenging to the Greenspan
as the Grinch Who Stole Prosperity model is the comparable behavior of German
bank regulators. Roughly speaking between
2002-4, overnight interest rates charged by German banks were only about a
percent higher than the federal funds rate.
German rates were kept low for longer than in the United States. Yet there was
no German real estate bubble. The same
could be said for Switzerland and Austria: very low interest rates, no real
estate bubble.
What German banks, along with their Swiss,
Austrian and west European counterparts, do have instead is an emerging market
nations bubble: $4.7 trillion in
cross-border bank loans to Eastern Europe, Latin America and emerging Asia
extended during the global credit boom.
It's a sum, according to a Bank for International Settlements reckoning, that
"vastly exceeds the scale of both the
U. S. sub- prime and Alt-A debacles."25
There are many ways to build a bubble.
Different countries have different architectural styles. America, with the
most advanced entreprenurial culture,
has the most complex: a financial engineering industry -- the United States
invented such financial gimmicks as
securitization, the Special Purpose Vehicles (SPVs), and the Collateralized
Debt Obligations (CDOs).
But the central European method, while more traditional, works just as well.
Austrian bankers simply lend huge
amounts to their favorite clients, the Hungarians. Lending money to Hungarians
who can't pay them back is an
Austrian tradition that goes back to the early 19th century when the Rothschild
Creditanstalt no sooner financed
the Hungarian railway system when it abruptly failed. Hungarian loans were a
major factor in the collapse of Creditanstalt
again in 1931 which took down an estimated 60- 80 percent of Austrian industry
triggering the European great
depression.26 This time Austrian banks have lent 85 percent of their GDP to
Hungarians, who have an external debt worth
about 100 percent of their GDP.
Ideally, strict, comprehensive, incorruptible
regulation could have stopped all this over-lending to under- qualified
borrowers dead in its tracks. But in what world
do regulatory bureaucrats, barking and snapping like Welsh corgis herding
cattle, determine the moves of bankers? Certainly
not in ours, where the relevant laws that create the framework for regulation
are passed by legislatures influenced
not by concerns for macro-economic stability, but by the strength of relevant
lobbies. In our world, the FIRE lobby is
the largest by far.27
Even if the regulators had more power, and there
were a lot more of them, it's not clear how they could be so effective as to
prevent another Long Term Capital Management
(LTCM) from happening. LTCM showed that one renegade hedge fund, is all it
takes to ignite a crisis when the fields of
capital are very dry. What regulator would second guess a team of Nobel Prize
winners or fathom their formulas for risk
or even decipher their complex trades?28 And even if legislators and
regulators somehow summoned up the political
will and financial sophistication to tame rogue genius lenders, why wouldn't
the traders who like to discount risk
simply de-camp for some less regulated place? As Chairman Bernanke observed in
the immediate aftermath of the
Bear Stearns collapse: "The oversight of these firms must recognize the
distinctive features of investment banking
and take care neither to unduly inhibit efficiency and innovation nor to induce
a migration of risk-taking activities
to institutions that are less regulated or beyond our borders."29
Historically, the influence of regulators is
pro-cyclical, least evident when it's most needed. Regulations are strictest
in the aftermath of a collapse,
weakest during the manias. Glass Steagall, comprehensive legislation taming the
securities behavior of big banks,
passed in 1933; it was repealed in 1999 at the height of the dot.com boom.
Evidently, what chiefly regulates bankers'
behavior is not regulators but conditions in the money market. What the great
depressions of 1837, 1873, and 1929
share with the present crisis is a huge inflow of surplus capital into
financial centers which drives down interest
rates and alters banking standards and norms.
That such a surplus formed prior to the 2007-8
crisis there is little doubt. A big policy debate broke out in 2005 involving
Bernanke, and critics of U.S.
monetary policy over its provenance and meaning.30 Both pointed to the U.S.
current account deficit as proof of the
surplus. But Fed critics called it a "liquidity glut." The hundreds of
billions flowing uphill each year from poor
Asian countries to wealthy America were driven by the hydraulics of U.S.
monetary policies. Overly stimulative U.S.
policies enabled the U..S. to over consume and over borrow. Martin Wolf, editor
of the Financial Times, noted that the
United States had absorbed 70 per cent of the rest of the world's surplus
capital, while its consumption accounted for
91 percent of the increase in gross domestic product in this decade.31Bernanke, who in 2005 was just a Fed governor,
defended U.S. posture and policies. He took note of the bizarre role reversal
-- Scrooge borrowing from Tiny Tim --
but argued that the surplus took the form of a "savings glut." And the Chinese
were its agents. The United States was
just reacting to the Chinese decision to save so great a portion of their
income. Well over a trillion was now mostly
invested in U.S. Treasuries and government sponsored enterprises. China's
savings rate -- managed by the state -- had
reached a staggering 50 percent. Even Chinese households on their comparatively
tiny incomes saved 30 percent.
The U.S. private households, which at the beginning of the superboom were
saving nearly 10 percent, now have negative
savings. But Americans were making the best of a situation not of their making,
acting as Stakhanovite consumers in
order to promote the continuation of global expansion. U.S. borrowing was
necessary to protect the world from imminent collapse.
A striking feature of Bernanke's account --
as well as that of his adversaries who assert the liquidity thesis -- is that
neither think trade has anything to do
with the trade deficit. Explains Bernanke, "The U.S. trade balance is the tail
of the dog; for the most part, it has
been passively determined by foreign and domestic
incomes, asset prices, interest rates, and exchange rates, which are themselves
the products of more fundamental driving forces."
For the economists, the financial markets
determine the markets for commodities. Any nation could have a giant trade
surplus; it's ultimately just a policy choice
about savings behavior. The country with the giant surplus just happened to be
China. Utterly ignored is the fact that
trade surplus/ capital glut could never have formed without staggeringly high
rates of labor exploitation in the strict
Marxian sense: the ratio of value added by labor divided by wages.32 As far as
what drove the boom and what caused the
bust, it's the rate of exploitation that's the dog. The savings rate is the
tail.
Conclusion
MARX TALKS FREQUENTLY about the capitalist's
"wolfish hunger" for profit and his ravenous appetite for capital accumulation.
It's no small irony that the most
wolfish and ravenous capitalists in history should turn out to be Chinese
Communist Party officials trained to revere Marx. But that doesn't detract from
the serviceability of Marxian premises about
capitalist dynamics. Whose fault is the crisis? Chinese over-exporting or
American over-importing? "It should be noted in
regard to imports and exports," Marx observes, "that one after another, all
countries become involved in a crisis and
that it then becomes evident that all of them with few exceptions, have
exported and imported too much. So that they all
have an unfavorable balance of payments."33
Marx wouldn't have been surprised at the failure
of the once highly touted $700 billion Troubled Asset Relief Program. "The
entire artificial system of forced expansion of
the reproduction process cannot, of course, be remedied by having some bank,
like the Bank of England, give to all the
swindlers the deficient capital by means of its paper and having it buy up all
the depreciated commodities at their old
nominal values."34 Making the swindlers whole does nothing to restore
profitability in the real sector.
The global rupture that's taken place over the
last 15 months suggests a pattern of growth -- a global division of labor --
that has grown not just increasingly
unwieldy, but probably unsustainable. How can the "imbalances" be fixed unless
the United States becomes a producer as
well as a consumer of commodities? But how can the United States become a
producer on the world market given the vast
disparity in rates of exploitation? Only in a post-industrial world which never
existed. How can the United States
continue to consume Chinese products without Chinese credit -- which is
dependent on unsustainable American consumption?
No doubt adjustments can be made -- both China and the United States can
de-globalize. But such necessarily wrenching
transformations take time, more like decades than years.
No doubt there is something comforting about the
world of the sensible center where greedy bankers, bad regulators or too much
regulation brings doom and disaster. At
least we remain masters of our fate. At least the virtues still count -- if we
can only renew our commitment to them.
In the capitalist world as described by Marx -- and this is perhaps the insight
most in need of refurbishing -- we
think we're actors but we're not. Capitalism is the form of society that must
ruthlessly develop the productive forces,
but it develops them in a form that turns their agents into passive victims of
the process.
The reassuring side of Marx's view of capital
expansion and collapse is the opportunity it offers for a revival of the spirit
of resistance among the working people:
"Without the great alternative phases of dullness,
prosperity, over-excitement, crisis, and distress, which modern industry
traverses in periodically recurring cycles…with
the up and down of wages resulting from them …the working class… would be a
heart-broken, a weak- minded worn-out
unresisting mass whose self-emancipation would prove as impossible as that of
the slaves of ancient Greece and Rome."35
Class struggle is the best stimulus package.
Notes
John Plender,"Capitalism in Convulsion,"
Financial Times, September 18, 2008. return
Thomas Atkins, "Depression overshadows G20 summit," Reuters, November 10, 2008.
return
See for example Joseph Stiglitz. return
See Capital, III, 251-2 for Marx's definition
of "absolute overproduction" and its cause. return
A core notion of Mussolini and various fascist intellectuals like Corradini,
re-cycled by Mao and filtering down
to the Third Worldist Left in the 70's. return
The Populist Persuasion, (New York: Basic Books,
1995). 273 return
A self-referential term used by such as The
Brookings Institution, the Democratic Leadership Council and Colin Powell.
return
BBC, "Marx popular amid credit crunch," Oct.
20, 2008. return
Michael Bleaney, Underconsumption Theories
(New York: International Publishers, 1976), esp. ch.6. return
"Future Results of British Rule in India,"
Portable Marx, 337; see also Capital, III, 333-334. return
Mainstream economics -- particularly "supply side" economics which flourished
during the Long Boom -- was able to grasp #1 but not #2. While acknowledging
problem of inequality, they
maintained that people were still better off than before; And insisted that
true system-shattering crises were
impossible. Economists influential on the American Left rejected both #1, and
#2. They saw capitalism sunk in protracted
stagnation; and argued, just like the Russian 19th century populists that the
only way to develop productive forces in
third world was some form of de-linkage. return
Capital, Vol III (Moscow: Progress Publishers,
1966), p.490. return
Vol. III, Ch.27, p. 441. return
A point made by an anonymous blogger who
insists that Marx is obsolete because he fails to realize that the crisis
really is caused by machinations of the
financial sector. return
Ben S. Bernanke, "Remarks on the economic o
utlook," At the International Monetary Conference, Barcelona, Spain (via
satellite), June 3, 2008. return
A genuine boom, marked by unprecedented growth
in productivity, and not a super-bubble, as George Soros argues. See The New
Paradigm for Financial Markets (New York:
Public Affairs, 2008) esp. ch.5 "The Super-Bubble Hypothesis" return
Judith Bannister, "Manufacturing Employment
in China," BLS, Monthly Review, July, 2005. return
BLS, "Earnings." return
RIETI, "Benchmarking Industrial Competitiveness
by International Comparison of Productivity," Dec. 26, 2006. return
Judith Banister, "Manufacturing Earnings and
compensation in China," BLS Monthly Labor Review, November 2005. return
BEA, Gross Domestic Product by Industry Accounts,
1947-2007. Between 1983 and 2007 financial profits rose from 17 percent to
nearly 40 percent of all corporate profits ERP,
Table B-91, 2008. return
Christopher Whalen, "Expanding Fed's Power is
Wrong Plan," American Banker, April 4, 2008. return
The Subprime Solution, 49. return
Don Lee, "A Home Boom Busts," Los Angeles Times,
Jan. 8, 2006. return
"Alt -A" stands for Alternative A. It's a euphemism
for mortgages slightly less dodgy than sub-prime mortgages. See here. return
Niall Fergusson, The House of Rothschild
1849- 1999. 465. return
Opensecrets.org credits FIRE with approximately
$2.76 in lobbying expenditures between 1996 and 2008. return
Roger Lowenstein, When Genius Failed,
(New York: Random House, 2000), 187. return
Ben S. Bernanke, "Financial Regulation and Financial Stability, July 8, 2008.
return
For savings glut thesis see here. For the
liquidity glut view see StanleyRoach. return
Martin Wolf, "Villains and victims of global
capital flows," Financial Times June 12 2007 return
In Marxian terminology, the ratio of surplus
value(s) over variable capital (v) or s/v.,
which is also the ratio of paid to unpaid labor. return
Vol. III, ch. 30, p. 491. return
Vol III, ch.30. p. 490. return
New York Daily Tribune, July 14, 1853, cited
in Lezek Kolakowski, Main Currents of Marxism, (New York: W.W.Norton, 2005),
248 return
BOB FITCH studied economic history at Berkeley
in the 1960s where he also co-founded the Vietnam Day Committee with Jerry
Rubin. His latest book is Solidarity For Sale
(Public Affairs, 2006).
Contents of No. 46
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