Mid September marked the fourth
anniversary of the Lehman Brothers bankruptcy, widely viewed as the final
trigger of the global economic collapse, a shock that remains the dominant
factor in global economic life. Friday, October 19 brought a dramatic drop in
US equity values, caused, commentators speculate, by dismal reports of US
corporate earnings. The most observant of these commentators did not fail to
point out that Friday was also the twenty-fifth anniversary of the largest US
one-day percentage drop in stock values. The fact that such an anniversary came
to mind reflects a general and widespread fear that more economic turbulence is
forthcoming.
The growing gloom overshadows the
glowing September report of retail sales released earlier in the week. Despite
stagnant or slipping incomes, the US consumer turned to the credit card to
boost purchases at retail stores, online, and in restaurants. Signs of an
improving housing market also fueled optimism.
Opinions change quickly. A week
earlier---Tuesday, October 9---the International Monetary Fund released its
World Economic Report. While raising fears of a global downturn, the report cut
the probability of a US recession by nearly a quarter from its April forecast!
Taken together, the sentiments of the
last two weeks demonstrate widespread confusion and uncertainty.
Big
Problems, Little Ideas
Most of the conversation about the
global economy, about capitalism, is shaped by ideological bias, academic
dogma, distorted history and wishful thinking.
The global economy has never
“recovered” from the shock of 2008. Nor does it teeter on the edge of another
recession. In fact, it is fully in the grip of a profound systemic crisis, a
crisis that has no certain conclusion. In this regard, the crisis is very much
like its antecedent in the 1930s. The popular picture of The Great Depression
as a massive collapse followed by the New Deal recovery is myth. Instead, like
our current economic fortunes, it was like climbing a metaphorical grease pole—
repeatedly advancing a few feet and then slipping down. Serious students of the
Great Depression understand that its “solution” was World War II, with its
state-driven, planned, military “socialism.”
Of course war itself is no solution,
but the organized, collective, and social effort that capitalism only
countenances for violence and aggression
is a solution. Similarly, the success of the People’s Republic of China in
sidestepping the harsh edges of the 2008 collapse is due to the remaining features
of socialism—public ownership of banks, state enterprises, and economic
planning. Never mind that much of the PRC leadership hopes to jettison these
features, the advantages are there for all to see. Yet few see.
Distorted history begets foolish theory.
The two ideological poles that dominate economic discussion—classical
liberalism and Keynesianism—both owe their claimed legitimacy to favored, but
mistaken views of the source and solution to the Great Depression. While
expressions of these poles are found across the political policy spectrum,
classical liberalism—often called neo-liberalism—is generally associated with
the political right.
Political liberals and the left, on the other hand, often
advocate for the analyses and prescriptions of the school associated with the
views of John Maynard Keynes.
Since classical liberalism has been the
dominant economic philosophy governing the global economy for many decades,
common sense would dictate that, after four years of economic chaos and general
immiseration, neo-liberalism would be in disrepute. But thanks to the tenacity
of ruling elites and the profound dogmatism of their intellectual lackeys, the
market fetish of neo-liberalism still reigns outside of Latin America and a few
other outliers.
But Keynesianism—broadly understood as
central government intervention in markets—enjoys a growing advocacy,
particularly with liberals, leftists, and, sadly, “Marxists.” Centrist
Keynesians advocate intervention in markets from the supply side, most often
through credit mechanisms and tax cuts that encourage investment and corporate
confidence. Liberal and left interventionists argue for stimulating economic
recovery and stability by generating consumption and expanding demand from
government-funded projects or government-funded jobs.
The panic of 2008 turned most policy
makers toward flirtation with supply-side intervention and generally meager
demand-based stimulus, a fact that liberal Keynesians like Paul Krugman are
fond of pointing out. Only China adopted a full-blown demand-oriented stimulus
program. Yet that tact also brought a host of new contradictions in its wake.
Austerity
versus Growth
Pundits like Krugman and politicians
like Francois Hollande posture the theoretical divide as one between austerity
and growth, a choice between rational growth stimulation and the irrationality
of shrinking government spending to reduce debt. In an idealized classless
world, this point would be well taken—austerity is an enemy of growth. However,
it is naïve and misleading to fantasize such a world.
In our era of global capitalism, the
idea of cutting government spending and lowering taxes makes all the sense in
the world to the ownership class. The resultant transfer of value counts as a
significant element in restoring profit growth and expanding accumulation. In a
real sense, the popular and apt anti-austerity slogan-- “we will not pay for
your crisis”-- tells only half the story. The other half should be “we will not
pay for your recovery.”
In the end, it is profit that
determines the success and failure of the capitalist system. Accumulation of
economic surplus—the value remaining after the bills are paid--is the engine of
capitalism, necessary for its motion and its trajectory. The dramatic drop in
the Dow Jones industrial stock averages resulting from poor earnings this past
Friday only underscores this point. Those who see consumption as the critical
element in growth and recovery should recognize that this loss of momentum is
independent of, as well as more decisive than, the September report of strong
retail demand.
The
Tendency of the Falling Rate of Profit
The central role of profit, its growth
and momentum in understanding capitalism and its recurrent structural crises
has been overshadowed, even among most Marxists, by the infection of left
thought with Keynes’ crisis theory. Theories of crisis that rest on
underconsumption, overproduction, or imbalances reflect this infection and
reduce political economy to the study of business cycles and avoidable and terminable
economic hiccups—consumption can be expanded, production can be regulated, and
balance can be restored. These are the assumptions of social democratic theory
and what divides it from revolutionary Marxism.
Marx saw crisis as fundamentally
embedded in capitalism’s structure. Processes in the capitalist mode of
production unerringly bring on crises. And he locates the most basic of these
processes is the mechanism of accumulation, a process that tends to restrain
the growth of the rate of profit.
While it is good to see a rebirth of
interest in and advocacy of Marx's law of the tendency for the rate of profit
to fall, most of its worthy supporters remain needlessly confined to Marx’s
expository formulae that serve well in revealing the anatomy of capitalism, but
less so in exposing its disorders.
Yet the intuition behind Marx’s law is
easily grasped. When unmediated by the encroachment of working class forces,
the capitalists’ accumulation of surplus results in the extreme concentration
of wealth, a concentration that reduces the opportunities to gather the
expected return in the next and each successive cycle. Whether restrained by
the physical limitations of workers, the potential length of the work day,
diminished return on physical investment, rapacious competition, super-inflated
investment reserves, or the myriad other possible forces or factors, the rate
of profit is under constant and persistent duress.
Leading up to the 2007 economic
slowdown that presaged the 2008 collapse, the enormous pool of capital
available for profitable investment was acknowledged by all reporters. Its
sheer volume alone depressed interest and profit rates in the face of limited
productive investment opportunities. The desperate search for a rate of return
drove investors toward riskier and riskier ventures that generated the
financial collapse which has been well documented. It was the pressure on
profits—an expression of the tendency—that drove the investor class to a
lemming-like indulgence in arcane financial wizardry.
The neglect of Marx’s tendential law
since the popularity of Keynes and underconsumption/overproduction crisis
theories has retarded Marxist and Communist understanding of capitalist crisis
while bolstering reformist policies within the Communist movement. Happily,
there is a renewed interest in Marx’s law, though a full and satisfactory understanding of its
application to and operation within contemporary capitalism is yet to be given.
At any rate, the decline of earnings
now emerging in the latest financial news indicates that counter-crisis and
counter-tendency measures are now exhausted in the US. Despite the euphoria of
rising consumption spending and housing sales, the profit-driven engine of US
capitalism is slowing, likely allowing the US economy to drift closer to the
whirlpool already drowning the European economies.
Tough times are ahead, but a fertile
period to plant the seeds of socialism.
Zoltan
Zigedy
zoltanzigedy@gmail.com
