Summers is a super-star of bourgeois economics. He has held leading
positions at the World Bank, the US Treasury Department, and most
recently in the Obama Administration. Besides teaching and
administrative posts, he has consulted and worked for financial
institutions. His advice has been sought by governments and
corporations. And he doesn’t shy away from contrarian positions.
the 2008 crash, mainstream economists have retracted their worst
fears to now characterize the event as an unusually sharp downswing
in the business cycle. Of course economists were then scrambling to
explain the virtual collapse of the financial sector, the panic, and
the evaporation of trillions of nominal dollars.
the time, there was a general despair, a widespread sense of
impending doom. But with fading memory, economists have reconstructed
the event as a severe, but manageable (and managed) periodic
adjustment to the normal course of capitalism.
the wake of the crash, commentators have acknowledged a slow
“recovery,” but nonetheless concur that the global economy is
back on course.
dissents from this view, as he should.
Summers, stubbornly weak productivity, long-term low, negative
interest rates, sluggish growth, deflationary episodes and other
economic shortcomings are signs of something chronically wrong with
the global economy, something more systemic than the ordinary
business cycle. He sees the economy caught in a rut (to borrow an
expression from a Bloomberg
Businessweek article), a rut of
“secular stagnation.” Now “secular stagnation” is an old term
Summers appropriates from Great Depression era economist Alvin
Hansen, who saw the period after the 1929 crash as one of chronic
a period of serious intellectual denial, injecting Hansen’s
observation into the current discussion is a radical move. It
challenges the notion that the economy is healthy; it challenges the
notion that the economy is self-correcting (given a little tune up!);
and it challenges the notion that the current course of monetary
manipulation (ultra-low interest rates) will be sufficient stimulus
to overcome the inertia of eight years of low, faltering growth.
instead, argues that “secular stagnation” is the new normal-- a
kind of stunted-growth equilibrium. For the world economy, this means
insufficient growth to raise living standards, attack inequality,
support investment, and maintain and improve infrastructure. As for
capturing and describing the current state of the global economy,
Summers’ snapshot is not too far off the mark: global economic
activity has been tepid since the twenty-first century crash.
as it stands, it’s just a snapshot-- a perhaps accurate
observation-- and not a theory. Of course it’s a far more accurate
depiction of the world economy than that of most of his colleagues
who see recovery unfolding. To assert a theory, Summers needs an
independent variable-- a cause or set of causes-- that account for
the prevalence of “secular stagnation.” He needs an explanatory
account that reveals how “secular stagnation” came to plague the
believes he has located that independent variable, the cause
of “secular stagnation,” in an insufficient
demand for goods and services and an
accompanying propensity to save
rather than invest.
of this sort are not new, either. They became common after the Great
Depression and under the influence of John Maynard Keynes’ work.
Since that time, Say’s Law, the purported universal law that the
supply of all goods and services will find a market-clearing level of
demand, has been discarded by nearly all economists (of course Marx
challenged Say’s Law nearly a century before! And Malthus before him!). Academic
economists, as well as many latter-day Marxists, fell under the spell
of “underconsumptionism”-- the view that capitalist crises are
generated by an imbalance between what the economy produces and what
its consumers want or can afford. Accordingly, they attributed
economic downturns to the lack of sufficient demand to support
existing supply or the growth of supply.
adherents to this theory attributed the post-World War II decades of
relative economic stability to capitalist managers “solving” the
problem of imbalance through various mechanisms: the welfare state,
military spending, a contract between capital and labor, capitalist
planning, state intervention, etc. All of these presumptive solutions
to economic disruptions (or capitalist crisis) pre-suppose that the
problem to be solved is insufficient demand.
theory is attractive on several accounts. First, it is easy to
understand: it recognizes a potential disparity within capitalism
between the productive potential of the economy and the purchasing
potential of consumers who are also exploited workers, a disparity
that intuitively looks like a plausible problem for capitalism’s
it is agreeable to all those who defend capitalism: for every
shortfall in demand, there is a potential policy prescription that
can inject demand into the economy in keeping with any and every
political stripe. From war and military spending to massive
government welfare or infrastructure spending, for fascism to left
social democracy, there exists a remedy to insufficient demand. Until
the stubborn “stagflation” of the 1970s, nearly all the
politico-economic/ideological wars were fought over the best, most
efficient, or socially just solutions to the problem of demand
(including, I repeat, among many Marxists).
the “underconsumptionist” theory locates dysfunction-- crisis--
on the surface of the capitalist system and not in its deep
structure. The analytic tools of bourgeois economics frame the
dynamics of the system strictly in terms of the interaction of supply
and demand. And these tools are most convenient and self-assuredly
searches deeper into the structure of capitalism for its well spring;
Marxism rejects the tools of bourgeois economics; Marxism understands
capitalism, not as a system that
might suffer disruptions, but one
Marx and subsequent Marxist thinkers probed deeper into the
capitalist mechanism to locate the fundamental process that powers
capitalist production and reproduction. He discovered that
fundamental process in accumulation,
the socially and legally sanctioned distribution of a growing
quantity of society’s wealth into the hands of those possessing or
controlling the material means of production. Capitalism runs
smoothly if and only if the process of accumulation functions well.
Essential to its function is a robust exploitation of workers, the
creators of society’s wealth; that is the “how” of
accumulation. And, of course, the “what” of accumulation is
profit or surplus value; that portion of society’s expanding wealth
that ends up in the hands of the capitalists.
in our necessarily simplified account of accumulation and its central
role in Marx’s theory of crisis, the harbingers of crisis are to be
found in weak profits or impediments to exploitation. Unlike the
episodic, periodic, and random economic disruptions caused by
economic “overheating,” imbalances, corruption, or non-economic
crises originate in the accumulation process. The necessity
of capitalist crisis springs from the limitless acquisition of
profits invariably outstripping the limited opportunities for
investment and the further generation of profits. As Maurice Dobb
explained, paraphrasing Marx: “...precisely because capitalist
production is production for profit, 'overproduction of capital'
becomes possible in the sense of a volume of capital accumulation
which is inconsistent with the maintenance of the former level of
crises (e.g. 1929, 2008) usually arrive at a time of
hyper-accumulation, with demand and investment bolstered by
heightened borrowing. To accommodate a growing mass of capital
(accumulated profits) in a context of limited or lower-yielding
investment opportunities, greater risk is taken on. Excessive debt,
precarious risk, and the prospect of even more debt and risk, is the
recipe for a crash, a feature of systemic capitalist crisis. Either
risk aversion sets in, leading to stagnation or economic retreat, or
debt and risk continue growing toward unsustainable heights.
the historic instances of systemic crisis, there is no evidence that
a crash-- a severe economic decline-- is consistently preceded by or
concurrent with a similar marked decline in demand. If the
“underconsumptionist” theory were credible, a persistent or sharp
decline in demand would be a causal antecedent of the crisis.
was, however, an oversupply of capital seeking dwindling yield
opportunities in the 2007-2008 bust. Many mainstream commentators
noted the “search for yield” in the preceding period. It is this
pressure on the rate of profit that signals the danger and potential
for crisis. Of course the crisis-- the downturn-- reduces demand as a
result of declining activity and unemployment; insufficient demand
but does not cause
a crisis. Summers’s demand-based causal explanation of what he
calls “secular stagnation” fails to fit the facts.
is not to deny, however, that generating new and greater demand--
stimulus-- plays a role in arresting the worst effects of economic
decline. The 2009 stimulus packages (especially the massive
investment programs in the PRC) generated enough activity to halt the
further decline of global capitalism. However, it failed to correct
the flaws in the accumulation process, flaws that are again coming
into deepening crisis mode today: declining rates of productivity and
profits, negative interest rates driving investors from safe havens,
bloated debt (automobiles, student loans), and risky investment.
history of the New Deal taught that public investment, as a remedy
for private sector stagnation, can only substitute for the
accumulation process and not restart it. The unexpected downturn of
1937-38 demonstrated that earlier public sector stimulation did not
put capitalism back on its feet and, without further public
investment, the system would again falter. And only war preparation
and the turn to a form of wartime state capitalism absorbed the
unemployed and revitalized the accumulation process by war’s end.
Summers stands apart from his colleagues who promote a pollyanna-ish
story of economic recovery and prosperity. They tout an artificially
ginned up stock market and a debt-inflated automobile bubble as signs
of success, when the signs indicate the opposite. Mainstream
economists hold their breath as profit rates, productivity gains, and
employment growth steadily decline.
the alarmist, knows better. He sees a faltering economy, but his
analysis, and prescriptions are faulty. The bromides sidestep the
fundamental failure of the global economy, a failure embedded within
the system and not resolvable short of replacing the system. Summers’
proposal of massive public investments in US infrastructure, green
energy, and education are worthy demands. Rousing a political
movement to fight for these demands would be a welcome development.
It would take some of the sting out of capital’s imposed hardships
as well. But it would not repair the accumulation process. It would
not “fix” capitalism.