[Marxism] Current economic crisis

Charles Brown charlesb at cncl.ci.detroit.mi.us
Wed Dec 3 14:06:21 MST 2008

Current economic crisis 
If there were such a thing as an economic tsunami, I would say we are
close to experiencing it. The housing crisis continues and shows no sign
of ending; credit and money markets are still tight; the stock market
gyrates while trending downward; unemployment climbs upward (sharply so
in the communities of the nationally and racially oppressed) and will
only get worse; wages are down and poverty is up; the level of
indebtedness is astronomical and difficult to reduce in the near term.
Consumer spending, the engine of economic growth in the 1990s, is
tanking. State and local governments are cutting back sharply on
services and jobs; deflation, which simply means falling prices over
significant sectors of the economy, is a creeping and perilous danger;
and financial markets have yet to stabilize as evidenced by the troubles
of CitiGroup. In short, not since the Great Depression has the economy
deteriorated so rapidly and broadly, leading many economists to predict
that the downturn will be L-shaped, that is, deep and prolonged. 

What is more, the world economy is contracting. At one time the main
unit of economic analysis was the national economy, but recent events
and trends point to the fallacy of this notion. Looking at the economy
and its prospects through strictly a national prism is conceptually
mistaken and thus bound to lead to imperfect analysis and ineffective
policy prescriptions. 

Financialization – two-edged sword 
While the present turbulence was triggered by the collapse of financial
markets, it is located first in the outgrowth of longer-term processes
of capitalism that go back to the mid-1970s and the systemic imperatives
of profit maximization and wage exploitation that are at its core. 

Thirty years ago U.S. capitalism was beset by seemingly intractable and
contradictory problems – high inflation and unemployment, declining
confidence in the dollar as an international currency, new competitive
rivals in Europe and Asia, a slowing of economic growth, and, above all,
a falling profit rate. And all of these problems occurred in the context
of and were shaped by overproduction in world commodity markets. 

Faced with this unraveling of the economy, a weakening of U.S.
imperialism and a profitability crisis, then-chairman of the Federal
Reserve Paul Volcker stepped into the breech and pushed up interest
rates to record levels. This spike in interest rates sent unemployment
rates to the highest level since the Great Depression, forced the
closing of scores of manufacturing plants and a great number of family
farms, brought incredible hardship to the working class, and especially
African-American, Latino and other racially oppressed workers, and
negatively impacted the global economy, particularly the developing
countries in Asia, Africa and Latin America. 

It also created, as we know too well, the conditions for a many-sided
attack on labor and its allies, the likes of which hadn’t been seen
since the pre-Depression era. 

At the same time (and of prime importance to Volker), it wrung
inflation out of the economy, restored confidence in the dollar
(investors are averse to holding dollars when inflationary pressures are
eroding their value), attracted and redirected domestic and foreign
capital abruptly and massively from the “real” economy into
financial channels where returns were higher. Volcker, as an experienced
banker, knew that the problem wasn’t too little money capital, but
rather too much and too few opportunities to invest and absorb that
capital profitably in the “real” economy. 

Once in financial channels, money capital stayed there, but not idly.
Financial agents of capital (banks, investment houses, hedge funds,
private equity firms and so on) intent on expanding their profits in a
very competitive and permissive regulatory environment raced at
breakneck speed into a massive buying and selling and borrowing and
spending spree for the next three decades — all of which led to an
explosion of the financial sector in terms of employment, transactions,
risky products, players and profits. 

In other words, financialization, which economist Gerald Epstein
defines as a process in which “financial motives, financial markets,
financial actors and financial institutions come to play an increasing
role in the operation of domestic and international economies”
proceeded at a feverish pace and with a broad sweep. (In
Financialization and the World Economy, Introduction, 2005) 

Capital that produces little, destroys much 
If the cause of financialization lies in the stagnation tendencies in
the material goods sector of the U.S. economy and the weakening of the
role of U.S. imperialism internationally, its lubricant is the
production and reproduction, seemingly without end, of staggering
amounts of debt — corporate, consumer and government. Debt is as old
as capitalism. But what is different in this period of financialization
is that the production of debt and accompanying speculative excesses and
bubbles were not simply passing moments at the end of a cyclical
upswing, but essential to ginning up and sustaining investment and
especially consumer demand in every phase of the cycle. Indeed,
financialization grew to the point where it became the main determinant
shaping the contours, structure, interrelations, evolution and dynamism
of the national and world economy. 

Without speculative bubbles, generated by the federal government and
Federal Reserve over the past 15 years in internet technology, then in
the stock market, and most recently, in housing – the performance of
the U.S. and world economy would have been far worse. But, as we are
painfully learning, financialization is a two-edged sword. While it
stimulated the domestic and global economy and reflated the power of
U.S. imperialism, it also left our nation with an astronomical pileup of
debt; introduced enormous instability into the arteries of the U.S. and
world economy; drained capital from private and public investment;
contributed to jobless recoveries and heightened exploitation in the
material goods sector of the economy; successfully engineered the
biggest redistribution of wealth in our nation’s history to the upper
crust of U.S. finance capital; made the U.S. economy dependent on the
willingness of foreign investors to absorb massive amounts of debt in
the form of short term government securities; and, finally, greased the
wheels for a hard economic landing and a much deeper crisis on the down
side of the economic cycle. 

In other words, the growth of the financial sector was a parasitic and
temporary fix for a sluggish economy and a declining imperial power, but
as events have shown, it could not forever mask and compensate for slow
growth, deindustrialization, stagnant wages, jobless recoveries,
heightened exploitation, and a declining role internationally. A
Wal-Mart economy of low wages, meager benefits and mounting debt, even
when combined with massive military spending, is unsustainable and
eventually erupts into crisis. 

Of course, it took more than shock therapy in the form of high interest
rates and then financialization to effect changes of this magnitude and
usher in a new era of relentless attacks on the working class, the
racially oppressed, women and other social groups. If Volcker struck the
first blow, it was the Reagan administration, entering the White House
less than a year later, and then successive administrations that were
the main political agents of this upheaval in ideology, politics and

Reaganites – main agents of neoliberalism 
At the ideological level, the Reaganites said that government is best
that governs least, that markets are self-correcting and efficient, that
wealth is distributed according to work performed, that income
inequality is a good thing, that deregulation and privatization are the
best cures for what ails the private and public sectors, and that tax
cuts for the rich and wealthy trickle down to working people, thereby
lifting all boats. 

But the Reaganites didn’t stop here. At the political-economic level,
they dismantled the model of economic governance at the state and
corporate level, a model that had its origins in the New Deal and was
sustained and expanded by successive administrations in the next three
decades. It rested on a measure of class compromise, societal
obligations, union rights, formal equality and expansive macroeconomic
policies that favored broadly shared prosperity. 

In its place, the Reaganites built another model of governance
popularly called neoliberalism. Not only did this model facilitate a
reassertion and consolidation of power by finance capital at the expense
of other groupings of capital, but it also used its control of the state
apparatus to encourage deindustrialization and off shoring of
production, union busting, deregulation, low-wage labor, low inflation,
trade liberalization, the shrinkage and privatization of the public
sector, draconian control (to the degree possible) over cross-border
movements of labor, the re-embedding of racist and sexist practices into
the country’s political economy, massive wealth redistribution to the
wealthiest families and corporations, a stronger dollar, and the
restructuring of the state’s role and functions. 

This new model, combined with an increased readiness to use military
power, was created for the purpose of strengthening the position of U.S.
imperialism at home and abroad, radically changing the conditions of
exploitation to the advantage of the transnational corporate class, and
resubjugating the developing countries. But, as is said, the best laid
plans of mice and men and often come to naught, at least in the long

Offspring of capitalism 
The rise and fall of neoliberalism is organically connected to the
underlying dynamics of capitalism. While each required hit men in the
corridors of government and the suites of corporations and a set of
institutions (the Federal Reserve Bank and the International Monetary
Fund, for example) to grease the skids, it also is the indisputable
offspring of capitalism’s internal laws and tendencies. 

Although an anti-capitalist strategy would be premature at the present
conjuncture, the faith of millions of people in capitalism has been
shaken. People might defend capitalism if challenged, but not with the
same vigor and not without a sympathetic ear to measures that would curb
the power and profits of transnational corporations. Did we hear any hue
and cry coming from industrial centers when the federal government
partially nationalized some banks? And, I’m sure, if the government
insisted on ownership and control as a condition for assisting the auto
companies, few working people would complain. Most would say, “They
messed up. Why give something and get nothing in return?” In short,
the events of recent months and weeks constitute a profound defeat of
capitalism ideologically, politically, and economically. 

>From another angle (and I am not going to develop this point), the
implosion of Wall Street has delivered a debilitating body blow to the
hopes of U.S. imperialism for unrivaled dominance in the 21st century.
When combined with the Iraq disaster, the worldwide anger over
structural adjustment policies and unequal trade, the inattention to
global warming and world poverty, and the emergence of new global powers
in nearly every region of the world – China in the first place – it
signals a terminal crisis of U.S. imperialism’s dominance of the world
system of states. Or to say it differently, a unipolar world is giving
way to a multipolar world, which, I would add, presents both
opportunities and dangers to the new administration and humanity. 

In fact, an urgent question for the American people is the following:
Will U.S. imperialism adapt peacefully to new world realities or will it
employ massive force to maintain its standing in the world? Bush tried
force, but failed, and will leave the White House in January completely
discredited. There is good reason to believe that the new administration
will choose a different option. How far it will go is another question
that can’t be answered yet. Suffice it to say that the redefinition of
the U.S. role in the world community and demilitarization (including
denuclearization) are among the most compelling issues in the first part
of the 21st century, ranking in importance to combating global warming.
Unless attended to, both could endanger the survival of our species on
Mother Earth. 

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