[Marxism] FT columnist frets over the "crisis of capitalism"

Louis Proyect lnp3 at panix.com
Mon Sep 12 08:25:52 MDT 2011

(The author was one of the bourgeois pundits pondering Marx that I 
blogged about a few days ago. Hat tip to Doug H. on FB.)

Financial Times, Sept. 12 2011

Markets are reacting to crisis of capitalism

By George Magnus

Financial markets have had a torrid summer of breaking news about 
slowing global growth, fears over a new western economic contraction and 
the unresolved bond market and banking crisis in the eurozone.

But these sources of angst have triggered turbulence before, and will 
continue to do so. Our economic predicament is not a temporary or 
traditional condition.

Put simply, the economic model that drove the long boom from the 1980s 
to 2008, has broken down.

Considering the scale of the bust, and the system malfunctions in 
advanced economies that have been exposed, I would argue that the 
2008/09 financial crisis has bequeathed a once-in-a-generation crisis of 
capitalism, the footprints of which can be found in widespread 
challenges to the political order, and not just in developed economies.

Markets may actually have twigged this, with equity indices volatile but 
unable to attain pre-crisis peaks, and bond markets turning very 
Japanese. But it is not fashionable to say so, not least in policy circles.

Recognition would be a good start and it was refreshing that the new 
head of the International Monetary Fund, Christine Lagarde, recently 
called for co-ordinated macro policies to support economic growth and 
the mandatory and substantial recapitalisation of European banks. But 
this clarion call is not being heeded.

It is a crisis of capitalism because our economic model and policy 
settings cannot produce sustainable growth, adequate income formation or 
employment creation. We have lost the housing, financial services and 
credit creation growth drivers and been left with excessive levels of 
personal and government debt to unwind, a dysfunctional financial 
system, and weak labour markets.

The capacity to produce and sell goods and services has outstripped that 
of consumers to borrow and spend. Without credit and jobs, other fault 
lines have been exposed, including the long stagnation of real wages and 
extremes of inequality. It is truly a crisis of aggregate demand.

The latest US employment data, for example, showed that the level of 
employment in the US is no higher than it was in 2004. The proportion of 
the population aged over 16 in work is the same as in the 1950s.

Nominal gross domestic product is stagnant and levels of real GDP and 
personal income (excluding government transfers) have stalled just below 
their peaks in early 2008. New housing construction and automobile sales 
are 75 per cent and 30 per cent, respectively, below their 2006 peaks.

What to do? With governments embracing austerity, voluntarily or under 
the IMF, and with seemingly irreconcilable divisions over policy in the 
eurozone, the focus has returned to monetary policy – the one straw at 
which markets can clutch.

The European Central Bank is committed to backstopping the Italian and 
Spanish bond markets, the UK Monetary Policy Committee may be shifting 
towards another round of quantitative easing (QE) and currency 
interventions by the Swiss and Japanese central banks are just printing 
money by another name.

Now, after the US employment figures, the Federal Reserve will most 
likely announce new measures following the September FOMC meeting. These 
could include asset purchases and operations to lower long term bond 
yields relative to short-dated securities.

While these forms of QE can liquefy financial sector balance sheets and 
possibly push investors to take risk they will not do much for the 
lending and spending that drives aggregate demand. Major governments 
have to re-engage with economic growth.

The litmus test of policy should be its relevance to employment creation 
and the embracing of fiscal, lending, investment and infrastructure 
initiatives, as well as measures to facilitate household deleveraging.

With a more nuanced fiscal stance, there is then scope for central banks 
to suspend inflation targets in deference to stable money GDP growth.

Sadly, these are ideas whose political time has not yet arrived. 
Immediately ahead, we shall see if President Barack Obama’s modest but 
appropriate $450bn jobs plan, much of which extends existing programmes, 
will be enacted by a hitherto hostile Congress.

Meantime, global markets have some anomalies to iron out, that may 
demonstrate or undermine this crisis perspective. Just over 16 barrels 
of oil can be bought with an ounce of gold, compared to a 50-year range 
between 9 and 30 with an average of 15.

Gold is not overvalued on this basis. The weathervane of global growth, 
the Australian dollar, is as strong as that of the flight-to-safety 
represented by the Swiss franc, even after last week’s policy shift by 
the Swiss National Bank. One of these is irrational.

The eurozone’s existential and default-centric problems have not 
prevented the euro from breaking out of a tight trading range against 
the US dollar. This is bizarre.

George Magnus is senior economic adviser, UBS and author of Uprising: 
will emerging markets shape or shake the world economy?

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