Published online 22 January 2009.
This is a brief rundown of some recent doomsaying: although we might predict that the visionaries would suggest that the game is up, we’re also seeing this from portions of the mainstream. This runs counter to the common wisdom that predicts economic boom in the hopes that such predictions will morph into self-fulfilling prophesies, and should be an indication that we’ve entered a new era in economic thought.
(crossposted at Docudharma)
So, finally, here we are, in the new era of Obama. The legacy we’ve inherited is a grim one. For the past three decades, at least, we’ve had a global economy characterized mainly by what economist Harry Shutt called a “capital glut.” See, back in 1998, Shutt argued that there was not enough of a market for real profit out there, Shutt argued, to satisfy the glut of capital, and so the capitalists have had to take what in Star Trek they called “evasive maneuvers” in order to avoid the “effective devaluation of capital within the market economy.” Here’s what he said about the ability of the corporate sector to do this:
This task, of course, is a twofold one in that it requires:
- The identification of profitable new outlets for investment to absorb the growing supply of capital, and
- The maintenance of an acceptable rate of return on the stock of capital already invested as well as on new investments.
It will be readily apparent that, as long as the growth in real demand for investment capital is tending to weaken while the rate of return sought by investors remains high, the fulfilment of these mutually interdependent objectives is bound to prove ultimately self-defeating. This is because the inevitable consequence of maintaining a high rate of return on the capital stock as a whole is that yet more investible funds will be generated for which outlets must be found. Moreover, as already noted, in a globalized economy increasingly geared to anarchic speculation there is a natural tendency for investors to push their demands for return on capital higher still. Hence the effort now needed to sustain the market value of capital resembles the futile labour of Sisyphus… (p. 111)
See that stock market arrow, going down 116 points? There it is, the effective devaluation of capital. It’s happening right now. Sisyphus failed.
As the phenomenon the capitalist system, with its protagonist “capital,” grows, and as more and more investors crowd the scene looking for profits within a finite planet Earth, the system must do one of two things. Either
- it must shrink, and reduce the population of capitalists to a level appropriate to the actual global economic growth rate, or
- it can attempt to “lie its way out” of the contradiction, creating “virtual growth” which exists on paper but which is not backed by the actual global growth rate. While it’s doing this, it can attempt to sponge off of the government and the mass public to the greatest extent possible.
Now, skeptics might ask, “what’s the real growth rate?” There’s a convenient graph given in “Chart 1” of Minqi Li’s essay of last April in the Monthly Review. Take a look at that, for a start. Trust me, the investment bankers want more than 4% return. In Li’s most recent book, p. 75, there’s also a graph of average profit rates for the past thirty years, drawn from these statistics — they’ve hovered between 10% and 15% over the same time period, with a dip to about 7% in the recessionary period around 1982. Real growth doesn’t support that big of a profit rate.
So, then, for the past thirty-plus years, we’ve been doing Option Number 2 here on Earth. This brings to mind the epic conclusion to Robert Brenner’s The Economics of Global Turbulence:
The odds therefore favour a still further opening up of the already enormous chasm between the income and profits actually produced by the world economy and the paper claims generated by it. (343)
And at this point the ability to pursue Option Number 2 appears to have maxed out. The consuming public is broke, the government is printing trillions of dollars just to save the banks and the corporations, and the lie that was “virtual growth” appears to have been found out. The banks, in the words of Jerome, are “deleveraging” as quickly as they possibly can. So we are “back to the real economy” in the words of Foster and Magdoff, and it’s off to Option Number 1. The proclaimed global capitalist economy will shrink to the size of the real global capitalist economy.
Now, needless to say, the fact that we’ve passed an economic “tipping point” is going to affect a lot of predictions of the future. And one can expect the visionaries to predict doom. The abovementioned Harry Shutt, for instance, says this in a recent interview:
‘Over the last 30 years you’ve had a progressive postponing of the evil day,’ he says. ‘1974/5 was the first financial crisis since the second world war, then you had the 1987 crash, which was inflated away by pumping lots of money into the banks. Then it was shifted offshore. We’ve had the Mexican crisis, the East Asian crisis and the Russian crisis. The big one was the dotcom bubble eight years ago. And since then, we’ve been building up to this one.’
What the prolonged amassing of this huge surplus of capital cum fraud-driven credit bubble, means, according to Shutt, is the inevitable crash – the inexorable end of the business cycle – is going to be far more severe that it would otherwise have been. ‘I think we are looking at negative growth, for an absolute minimum of two or three years and I wouldn’t be surprised if it’s five or ten. That would be a depression,’ he says.
The socialist James Petras tells us:
There is no pre-determined point at which sufficient political pressure might arise to reverse the predominance of military imperial priorities over the civilian domestic economy. How many imperial wars of what duration will be counterposed to what percentage of unemployed and underemployed workers to set in motion a political shift to confronting the domestic recession/depression? Will it be 2 or 3 wars versus 20-30% unemployment and underemployment? What is certain is that there is absolutely no pressure from within the Obama Presidency or among the Democratic and Republican members of Congress to reverse the supremacy of empire building over the domestic economy. The Imperial Wars will go on; the domestic economy will continue to decline.
Meanwhile, gjohnsit astutely reminds us that the UK is collapsing. So the visionaries are telling us that it’s going to be bad, really bad. That we can expect. But we’re starting to see doomsaying even in the
apologist“mainstream” papers as well. Here we have Peter G. Gosselin of the Los Angeles Times telling us (with a background chorus of investment analysts) that:
The prospects are so gloomy, according to a recent study, that unemployment may be slightly higher by the time President-elect Barack Obama’s first term ends.
The damage done by plunging house and stock prices, the failure of other major economies to be independent sources of growth and hidden weaknesses in America’s past performance have crippled nearly every actor in the nation’s economic drama.
None — save perhaps the government — retains the power to push the economy back to speeds it regularly achieved during much of the last generation, economists say.
The result: An economy that once averaged 3% or better annual growth would be lucky to grow 2% a year during the entirety of the new president’s term.
Now wait a minute! Aren’t these guys supposed to be predicting the coming boom period? Aren’t they supposed to say that everything will be great soon, so as to support “investor confidence” so that money will go into capital and stimulate growth?
If there’s any indicator out there that we’ve entered a new era, it’s articles like the Los Angeles Times piece above. Will the new era bring new thinking? That’s up to us, the bloggers.