This piece poses the following problem: In the face of the worst recession of the post-WW2 period, a recession whose effects were mitigated only through unprecedentedly massive government bailouts and stimulus, at a time when there is a danger of the recession’s becoming “double-dip” and prospects for long-term economic growth are far from robust, the policy impetus within the European-American ruling class(es) is oriented toward government budget-cutting and fiscal austerity. Why?
It seems to me this is a real question, and Doug Henwood’s speculations seem hardly adequate. I’m hoping some who read khukuri might propose, or discuss, some reasons for this phenomenon.
Reprinted from the recent Left Business Observer #128.
Jonesing for a slump
by Doug Henwood
Having successfully avoided depression through a massive, largely coordinated, stimulus program, the world bourgeoisie now looks ready to reverse it—some because they think it a success, and others because they think it was a failure. This is a very dangerous business.
Abroad, the austerity party is led by Germany, with some neighboring allies, whose approach to the Eurocrisis is to put the depressed periphery through the wringer and cut budgets modestly at home. So far, the German economy has been holding up well, and German capital seems not to fear a hit to exports coming from a deep recession at the fringes of Europe.
At home, orthodox types across the political spectrum are now obsessing about the horrors of mounting U.S. indebtedness. Although the Obama administration isn’t embracing the austerity agenda passionately, they are taking it far too seriously.
The nearby graph, based on projections from the Congressional Budget Office (CBO), looks alarming, with U.S. debt rising steadily for the next 75 years to levels, when measured against GDP, haven’t been seen since the end of World War II.
No alarm
This sounds alarming, but there are reasons to hold off a call to 911. The big increase that came from the Great Recession, the bailouts, and the StimPak is largely over. It took federal debt held by the public from 37% of GDP in 2007 to a projected 65% next year, when the emergency spending will peter out.
But debt, by the CBO’s reckoning, doesn’t begin to rise seriously again until the 2020s. The main culprits are, as anyone familiar with this territory can easily predict, “entitlements,” meaning Medicare, Medicaid, and other health spending, and, to a much lesser extent (though this comparison is often elided in the more heated commentaries), Social Security. Expressed as a percentage of GDP, total health care spending is slated to rise by 11 points, and Social Security, by 1 point. Even if the Social Security projection is correct—and, as LBO has been arguing for years, there are many reasons to believe that that it’s cracked—a point over seven decades is nothing to worry about. Health care’s 11 points are a problem, but they’re a product mainly of our crazy health care financing system—still as crazy as ever, despite “reform”—and not a problem to be addressed through fiscal hysteria.
And, as with the official Social Security projections, the CBO assumes an extremely low trend long-term growth rate. After a not-so-vigorous recovery from the recession running through 2015, the CBO projects that the U.S. economy will grow at an average of 2.0% a year for the next seven decades. As was pointed out in the last issue, productivity guru Robert Gordon projects the U.S. economy growing at a trend rate of 2.4% a year over the next several decades, or 1.5% per capita. We’ve never had sustained aggregate growth rates as low as Gordon’s projections since decent numbers begin in the early 19th century, and per capita rates that low only at several points during the 19th and early 20th centuries. (Population growth was often rapid in those days, which transformed impressive aggregate growth rates into underwhelming per capita rates.) The CBO’s numbers are even lower—lower than anything we’ve seen in more than a century.
Long-term projections like this are risky. Who knows what technological breakthroughs, ecological disasters, or political transformations might radically change our growth prospects between now and 2084? But let’s for a second assume that there’s some truth to the forecasts. If there is, then we can assume that the Great Recession was merely an overture to the worst performance the U.S. economy has exhibited in at least 200 years. Shouldn’t that be what we’re talking about, and not the need to hack away at entitlement spending?
But that’s not all, as they say on TV. Recall that CBO’s projections of serious structural budget problems don’t kick in for more than a decade. Yet the orthodox are now trying to organize a budget-cutting party on the basis of graphs like the one above. There are at least two sets of reasons to find this worrisome—one short-term, the other long.
The short-term issue is, of course, that the economy is struggling to get off the mat, and not doing a very impressive job of it. After a burst of strength in job growth and consumer spending in the first months of the year, things faded notably as spring turned into summer. There are no signs yet that the economy is slipping back into recession—though the ECRI leading index (see graph nearby), 
which anticipates broad economic trends three to six months out, is falling back to the zero line after a strong showing late last year and early this. This suggests that the slowdown will be sticking around. And while the index has issued false alarms in the past, should it penetrate seriously below the zero line, the likelihood of another leg of recession would rise to near-certainty. Yet in the face of this, much of the business elite and the people they pay to think for them are calling for aggressive deficit-cutting, and using dubious forecasts of our fiscal fate in 2084 to scare a confused public into assent.
The public is very confused on the debt issue, as any review of the polling evidence would reveal. It’s rarely volunteered as a leading problem, but people will express appropriate concern if they are asked specifically about it. But what worries them exactly? There’s certainly a moral disapproval of debt—a disapproval that doesn’t always extend to their own private affairs—and it’s a prominent symbol of economic ills. Yet when asked specifically if they approve of cutting Social Security or Medicare to balance Washington’s books, they do not. In fact, respondents tell Kaiser pollsters that they’d rather increase taxes on the rich to pay for Medicare than put the squeeze on benefits. And support for Social Security is both broad and deep.
Moaning in Aspen
But when folks like Obama advisor David Axelrod say that the administration has to respond to “people’s” concerns about debt and deficits, he may not mean the broad population. He may mean people like attendees at the Aspen Ideas Festival, a joint venture of the Aspen Institute and Atlantic Monthly magazine, where, as Lloyd Grove reports in The Daily Beast, there was much worry about all that red ink. The odious historian Niall Ferguson complained that Obama was turning the USA into a European-style welfare state. (If only.) He further worried that by extending unemployment benefits, the government is “encouraging laziness.” If there were any justice in this world, Ferguson would be forced to live on $307 a week (the size of the average benefit check). But instead he can feed his paymasters with fantasies of working class leisure—paymasters like Mort Zuckerman, who moaned in Aspen that Obama’s economic policies are so hostile to business that they’re turning the U.S. into a “second-rate power.”
A diminution of U.S. power would be deeply welcome, but it is delusional to call Obama & Co. hostile to business, and weird to indict the stimulus program, which could well have saved us from economic collapse, for doing us in. You have to wonder—what’s driving this lunacy?
In the European case, there is a materialist rationality: the Old World elite would like to crack what remains of working class strength and pare back the welfare state, and the current crisis offers a lovely pretext for pursuing that agenda. In the U.S., however, the working class is powerless and the welfare state virtually nonexistent. Rational reasons for debt phobia don’t spring immediately to mind.
It may be wrong to look for purely rational reasons, however. Anxiety about debt may be a displacement of an anxiety about the underlying health of the U.S. economy. If we are indeed facing unprecedented decades of stagnation, it might require a serious rethink of the entire U.S. economic model. Since that sort of thing is essentially unthinkable in orthodox circles, anxiety collects around the symbol of the problem—indebtedness, especially to China, the rising rival—rather than the problem itself.
Vulgar material
Perhaps that’s too psychological. Maybe there really are some more vulgar materialist explanations. Some elite pundits think that the economy has survived its brush with death and it’s time for a return to normalcy. Related to that is the perpetual fear that deficits will lead to inflation. That seems far-fetched with the economy as deeply weak as it is, but if you think the weakness is merely transient, there’s no reason to fear deflation. Still, despite that farfetchedness, the fear has some powerful adherents.
And then there’s the fear that Greece is our future: a serious funding crisis in which lenders refuse to buy any more U.S. bonds. But there’s not even the remotest sign of that. And the evidence is that countries don’t face sovereign debt crises until their debt/GDP ratios break 100%. On the eve of its crisis, Greece’s ratio was 125%. Even on the CBO’s hysterical projections, the U.S. won’t cross 100% until 2074. Italy’s ratio is well over 100%, and Japan’s is approaching 200%, yet neither is circling the drain.
It’s long been LBO’s position that over the long term, deficits do matter. Building up large stocks of debt means paying rich people lots of interest instead of taxing them to fund more noble pursuits. For the next few years, though, the economy needs the stimulus of a deficit. And over the longer term, we desperately need a new economic model—a more equitable distribution of income, so that people aren’t forced to borrow to stay afloat, and more ecologically sustainable ways of living. Taxing and spending are the only roads to that better future. Both the short- and long-term perspectives make austerity the enemy of human progress.
No related posts.
John Steele on 
»The Global Reserve Army of Labor and the New Imperialism« « Subprole on 
Don Hamerquist on 
db on 
er cooper on 
don on 
In response to your question regarding austerity I think it is twofold, at least here in the United States. In practical terms many Ameicans (myself included) have had to “tighten our belts” and not spend on such “luxuries” as going to a movie or perhaps driving less. Many of those fortunate enough to still have a job perceive the government’s spending as somehow unseemly, or even profligate. i think this is perhaps a more psychological explanation. The more important one is what David Harvey has referred to as accumulation by dispossession. The elites see the crisis as a moment to increase concentrations of wealth and establish a new base level of what is considered normal. As mainstream an economist as Paul Krugman has recently wrote about how elites in Washington are coming to the view that high unemployment is a “structural issue” and there is nothing from a policy stand point to be done.
A couple points on Al’s response (and I hope others will come in on this question as well).
The “response to seeing government spending as irresponsible or unseemly” explanation does not take us very far, I think, just because this isn’t a government in which the course of state action is determined by the feelings or wishes of the people, generally. And I don’t believe class actions are determined by psychological reactions, generally. (Isn’t it more the case that psychologies are more determined by practices, often class-based, than vice versa?) It’s often been reported in liberal sources that polls in which the question is not framed negatively show that a majority of Americans favor a “single payer” publicly-run health care system, and that’s probably true, but it has little to do with what actually gets established, as we’ve just seen. It’s true that particular popular feelings may be mobilized and focused by factions of those in the ruling class, as a means of attempting to pushing things in a particular direction, and indeed something like this is a necessary feature of relatively stable bourgeois hegemonic rule.
An explanation in terms of “accumulation by dispossession” and the establishment of a “new normal” is more promising, just in the sense that it goes to questions of structure and class struggle. But it raises the question of why this should be the sort of response taken up by the bourgeoisie at this time. As Henwood puts it, although in Europe this may offer “a lovely pretext” for attacking what remains of working class strength and paring back the welfare state, in this country those objectives have long since been accomplished. So why should fiscal austerity be the agenda here (especially given the fact, unmentioned by Henwood, that truly immense military and security-state expenditures are burgeoning rather than being cut back)? Remember too that the “new normal” appears to include, not just further cut-backs in social-needs expenditures, but an economic growth rate if 2% – 2.5%. This is a time of crisis, deep and probably long-term for US and world capitalism, and the further question would be, what are the structural-dynamic reasons for the severity of this crisis and the difficulty of recovery?
The question I was trying to raise in my introduction was just that if governmental austerity seems to be irrational as a response to the crisis, is there another perspective from which it may appear as rational? Of course one may answer that they are simply behaving irrationally, perhaps in the grip of pure greed, or some rightist ideological mania, but this is in effect just to give up the attempt to explain, unless it can also be explained why and how this irrationality became the dominating motivational force.
My own thinking is that there are reasons, both for this crisis and for their difficulties in responding to it, and that these reasons have a relation to the transnationalization of capital (the subject of several posts here), and to the contradictions arising from the articulation of the national and transnational with or into each other. In thinking about US governmental actions and responses, I also think we have to keep in mind that the US, or more precisely the US ruling class and its state structures, plays a very particular role within the emerging transnational capitalist class and its quasi-state structures. This makes for particular stresses and contradictions in US state actions, between its role as a territorial national state and its more submerged but strong (and ascendent?) role as nascent state of trasnsnational capital. (Don Hamerquist’s posts on this site have explored some of these tensions and contradictions.)
Obviously the above leaves almost everything still to be said. I will be exploring these themes more in the future, hopefully before too long. In the meantime, I hope others will jump in.
John I appreciate your thoughtful response. I have a couple of quick thoughts.
I didn’t mean to suggest that the governing elite are somehow trying to placate for lack of a better term, the “Tea Party Bourgeoisie” or ,are somehow simply irrational. What I was trying to point out is that ficsal conservatism has always been a strain in American politics and the elite are trying to exploit this in their move toward austerity.
As regards “accumulation by dispossession,” while it is certainly the case that the welfare state has largely disappeared in the US, there is still the little matter of social security, medicare and medicaid. These are truly the last remnants of the social safety net and I think it is clear the ruling class sees the opportunity in the crisis for a final death blow.
But I agree with you that this isn’t a sufficient explanation for policies that will further retard economic growth. And I look forward to your future posts. Thanks.
It does seem that overall the majoirty of the ruling class is going for more austerity, however, there are voices in the ruling class reflected in media figures like Chris Matthews and Ed Schultz at MSNBC who have been calling for big job creating iniatives from the Obama administration. A typicle rallying cry is that “America needs to start manufacturing again.”
A big reason why this may be hard and perhaps not possible, or in any event very unattractive to big capitalists is that they have been so successful on a global scale in driving down labor cost.
It does not seem feasible, from a capitalist point of view, to promote manufacturing to prop up the core if the threat to capitalist rule does not seem imminent.
Thus the globalization of industry has perhaps led to a situation where it does in fact seem rational to allow for more competition internationally, creating cheaper labor pools for capital and in the process driving down living standards of workers in the core capitalist geographies. Obviously this has been going on for the past 40 years, though it doesn’t necessarily follow that capitalists will immediately see the need to concede to some welfare state demands simply due to the current crisis. It was indeed an economic crisis in the 70s that precipitated the very rise of neo-liberalism. Further with no potential obstacles presenting a challenge to capital coming from the woorking class in the cores, a return to Keynesianism seems unlikely. I think that Tea Party Libertarianism fits pretty nicely with the economic wants of a TCC unless they begin to agitate for a “buy America” policy aligning themselves in such a scenario with the liberal figures mentioned above, though a move to force corporations or as government to create American manufacturing jobs may go against the right libertairan principles of the leadership of that movement (I’m less sure about the base).
The class struggle element is always there, however without a viable alternative to unfettered rule by capital (which existed in the 30s), the need to make concesssions to workers is not present and thus policies of austerity need not change even in the face of crisis. I think John is correct when relating this phenomena to the changing composition of the capitalist class and globalization, and I also think the stance taken by capital of continued austerity for those at the bottom creates potential oppportunities for revolutionary communists even though they havn’t bore fruit up to this point.
I just want to say I’ve also wondered about why the austerity push when it risks another deep depression, appreciate the comments by Al, John, and Nat – and endorse Nat’s interest in the relation between austerity and communist revolution – and look forward to more analysis from people who know what they’re talking about (I’m not sure I do). I don’t have any answers I’m confident in, so I’ll just make some scattered, probably simple-minded comments based on what’s been said so far.
There’s a crisis of financialization as a model of accumulation, and a globalized financial stratum of capital in deep doodoo is trying to get as much as it can to save itself, even if it imperils the larger system. That’s one simple thought, but here’s more.
John rightly criticizes irrationality and ideology as ultimate explanations (they may be at play, but what underlies “irrationality” and outmoded ideology). One question for me is: how rational about its long-term interests is, or how rational can be, the bourgeoisie, or its leading sectors? Don has emphasized that the left shouldn’t underestimate conscious ruling class organization and planning, and I agree, but are there “objective contradictions” or structural conditions in capitalism that bind up even the most class-conscious ruling classes? “People make their own history, but not under conditions of their own choosing.” For example, the collapse of the nation-state model of the ruling class’s “executive committee” while a transnational alternative has yet to be constructed and the difficulties in doing so are immense. Although these difficulties are more historical “superstructural,” not in the fundamental dynamics of production and accumulation, which is what I’m driving at. There’s the class struggle, and the ruling class’s attempts to use opportunities provided by economic crisis to strengthen its position; intertwined with an “objective,” contradictory accumulation process which is a source of compulsion on the ruling class.
This leads me to consider the question of the nature of the economic crisis – in the sense of the cyclical crises of capitalism as analyzed by Marx in Capital v.3, as distinguished from the secular crisis theorized by Marx in the Grundrisse, and by Don, Wallerstein, and others. Although the cyclical crisis and capitalist responses cannot be analyzed independently of the secular crisis, if one believes the latter exists. Al approaches the issue in terms of one variant of marxist crisis theory, Harvey’s (and others) over-accumulation of capital position, and his argument that “accumulation by dispossession” has been a major ruling class response to the crisis. I lean strongly towards something like Harvey’s position, but also like what Loren Goldner has written on the crisis and fictitious capital, which has similarities to Harvey in Goldner’s emphasis – both draw on Luxemburg on this – on the continuing importance of “primitive accumulation” in contemporary capitalism and as a major check on the tendency of the rate of profit to fall. (Goldner also argues that capitalism remains in the “imperialist stage,” that contradictions between nation-state centered capitalisms remain primary in global capitalism, which I don’t agree with.)
I also confess to agreeing with a “breakdown” interpretation of Marx’s theory of the falling rate of profit, but not the “automatic breakdown” scenario – the capitalist ruling class, and the working class, will have to fight, no matter the rate of profit, and there are barbarous alternatives to socialism.
So, alongside the ruling class using an opportunity to whack whatever’s left of the welfare state to get more profits and gain an even stronger position in the class struggle: could the austerity drive be in part necessitated by a profitability crisis so deep that surplus value must be extracted by any means necessary, even if that means risking exacerbating the slump? (I’ve spared people a tangent about “the economics of German fascism” as argued by Alfred Sohn-Rethel, and Ernest Mandel on “the rise of fascism [as] the expression of a severe social crisis of late capitalism” in his edited collection of Trotsky on fascism. I’m not saying there’s a ruling class drive for fascism, but pondering the kind of severe economic crisis which exposed the historical limits of capitalism, as expressed in Nazi Germany. Other marxists have considered Nazi fascism in these terms.)
When Nat notes that “It was indeed an economic crisis in the 70s that precipitated the very rise of neo-liberalism,” I’m brought back to the issue of whether that crisis was ever truly overcome, and to Goldner and Harvey’s argument about the role of primitive accumulation/accumulation by dispossession in neoliberalism’s strategy.
(For the views of a leading spokesperson for US financial capital, Sabastian Malaby of the Council on Foreign Relations, on why a double-dip recession is less risky than upsetting the bond markets, see http://www.cfr.org/publication/22743/forget_jesus_and_ask_the_hedge_funds.html.)
I also agree with “what John says” on the transnationalization of capital, but don’t know how it exactly relates to austerity, except to point to the predicaments of transnational financial capital. I like John’s statement on the “particular role (…) of the US ruling class and its state structures” and contradictions in the development of a TCC. I agree that the transnationalizing elements of the US ruling class have what Nat W. elsewhere referred to as a national and transnational face (not his exact words), and maybe John’s saying that the economic stability of the US nation-state is a unique problem for the US segment of the TCC and hence less enthusiasm for austerity.
Nat mentions that some bourgeois commentators diverge from the austerity consensus, for example in calling for more manufacturing jobs in the U.S. I agree with his doubts that a transnational ruling class would support such a program given the cheaper labor available with the globalization of industry. Its notable that even prominent ruling class voices for “reindustrialization” support austerity: earlier this year, Thomas Friedman (New York Times, 2/21/10), in a call for “nation-building at home” and a high technology and green “regeneration” of the US economy, also wrote that the US is “going from the age of government handouts to the age of citizen givebacks,” an era, (quoting someone in the foreign police elite), “where the great task of government and of leadership is going to be about taking things away from people.” (The Friedman material was originally posted at 3 Way Fight, on Don’s “Barack, Badiou, and Bilal al Hasan.”)
Finally, on Al’s point that much unemployment is now considered by elites to be “structural,” about which there is little that can be done. The emergence of “structural unemployment” in the core capitalist regions has been recognized as a problem by many bourgeois experts since the seventies, and the current slump may take it to a qualitatively as well as quantitatively higher level. This relates to a secular crisis view, as formulated by Don, in which capitalism’s expansion is increasingly generating a permanent “surplus population.” I’ve tried to raise this issue in previous posts on this site. I think the unemployment rates produced by the recession, and which aren’t going down, and the fact that the US economy created no net jobs during the 10 years or so leading up to the crisis, point us to “the structural limitations on capitalist accumulation” exposed by the “serious cyclical crisis,” and “the emergence of the issues of the gap in the core” (d.h., “Barack…”, second “working hypothesis”).
Some sense that some ruling class elements are concerned about how the recession is bringing marginalization in the core more into the open can be found in an article in Time magazine by Joshua Cooper Ramo, which asks, “Is Double-Digit Unemployment Here To Stay?” (http://news.yahoo.com/s/time/20090910/us_time/08599192143900). Cooper, who is a member of Henry Kissinger’s consulting firm, Kissinger Associates, believes the answer could be yes, and argues that a government jobs program on the New Deal model won’t be effective given the capital-intensive nature of many infrastructure projects. (He then offers various solutions which might have appeal on the reformist left although unrealistic, like encouraging lending at the local level to reemploy skilled workers like machinists in the rust belt.) Here’s a quote from Ramo that invokes “the gap”: “it’s not hard to imagine … a country sprouting listless Obamavilles: idled workers minivanning aimlessly through overleveraged cul-de-sacs with no way to pay their mortgages, no health care, little hope of meaningful work and only the hot comfort of angry politics.”
Doug Henwood’s LBO article lays out two alternative courses of action for pulling out of the current crisis. One is more stimulus, which he favors, and the other is austerity which he critiques. For me these are not appropriate alternatives for the Left. Behind this approach is the notion that we are presently experiencing a sort of super recession (“The Great Recession”) or as some put it: “the greatest recession since the Great Depression.” The limitations of this formulation and the related focus on stimulus as well as an explanation of why the right wing is pushing for austerity requires a brief historical examination of the distinction between business cycle downturns and capitalist crisis and how capitalism has renewed itself after crises in the past.
Historically there have been times when the contradiction of global capitalism between forces and relations of production heightens to the extent that normal nation-based fiscal and monetary policies to stimulate the economy are insufficient to save the system. When that has happened there have been periods of churning and flailing about for a new direction that has included intense social movement activity, experimentation and new thrusts from various blocs of capital and sometimes war. I believe we are at such a juncture today.
During such periods there have been both worker struggles against the system as it is and conflicts among blocs of capital for a direction forward. The Left in my opinion has tended to side with the most benign form of capitalism rather than putting a socialist alternative on the table. The push for stimulus today is in this category. What has emerged after all the churning and flailing has been a new “mode of accumulation” that enables the system to begin anew. During the time I have been on the planet, I believe there have been two such periods: 1929-45 and 1965-85.
The new mode of accumulation that emerged around 1945 was codified in the Bretton Woods Agreement. It included a shift of the center of global capital to the U.S. and the formation of the U.S./NATO bloc that emphasized large scale “Fordist” production, unimpeded raiding of the developing world for their resources, and the taming of labor by sharing the spike in value production with a segment of (white) producers, and gaining organized labor’s support for production continuity and foreign policy needed for the new mode of accumulation. This mode began to unravel in the 1960s due to the re-emergence of the classic capitalist contradiction in the wake of challenges from the liberation movements in the developing world to the looting of their lands and movements of workers of color in the U.S. and industrial workers generally in parts of Eurpoe who had not been part of the post WWII deal.
The churning and flailing period from around 1965 – 85 began with an intense period of both social movements in the U.S. , other industrial nations and the developing world. But it also began with intense discussion and debate among ruling elites about what to do to stop falling profit rates and curb the social movements. I think most of us missed the second thing. In the ‘70s there were a flurry of essays and meetings about strategies to solve the problem of falling profit rates and rising worker militancy in such venues as the Tri Lateral Commission and the OECD. As we on the left supported the worker struggles at the “point of production” we stood helpless watching the ruling class destroy the point of production in the U.S. with factory shut downs, increased capital mobility, the creation of a huge debt in developing nations, and the emergence of derivative markets without a clue that these developments represented a remarkably coherent strategy for global capital. What emerged was something very new that was recently addressed on the pages of Khukuri by Francesca Bria’s review of C. Marazzi’s book. LBO and others never agreed that what some called “globalization” or “neo liberalism” was anything new. And thus Dourg sees nothing in the crisis we are experiencing today but a really bad recession in need of more stimulus.
My view of the period emerging in the mid 80s is that it included new techological developments that made it cost effective to break up “Fordist” mass production, producing things in a variety of locations and enhancing the mobility of capital. This enabled the implementation of a program of “flexible manufacturing and flexible labor” which not only cheapened labor power, but increased surplus value through a modern form of primitive accumulation. WTO, bi lateral and multi lateral trade Agreements, a new role for the IMF to enforce structural adjustment programs helped institutionalize the new order.
But the new order also needed surplus value to put this plan into action – surplus value that wasn’t available. The answer was the creation of massive amounts of fictitious capital. The heart of the new financial order was turning debt into a commodity that had no intrinsic value. Cyrus Bina writing of the financial crisis on the pages of Khukuri made the useful observation that what fictitious capital (debt and various derivatives) does is to stretch and churn value produced in the past. By churn he meant redistribute. The financial system gave additional political power to the elites in the financial sector. Fictitious capital was both the fuel that powered this new order and its Achilles heel. Stretching value produced in the past has its limits.
This, in my view, is where we stand today. The system of global capitalism that has been in place since the mid 1980’s is beginning to unravel and capitalism’s classic contradiction between forces and relations of production is once again appearing.
In this context, increased stimulus isn’t wrong but it is a misplaced emphasis for the Left. The right’s push for fiscal austerity will indeed make things worse quicker, but a push for increased stimulus spending won’t work either because the capitalist system needs a new mechanism to accumulate surplus value. Fictitious commodities like credit default swaps and collateralized debt obligations have stretched value created in the past as far as it will go. And this problem, moreover, is now global.
I believe that one outcome of the present crisis is that the U.S. will lose its hegemony over the capitalist system to the extent that living standards will decline. Obama and the Democrats are desperately attempting to hold on to a dying system with a feeble stimulus package while waging war against nations outside of the orbit of the global order. The Right in the U.S. , also fearful of domestically declining living standards, is using the notion of “big government,” nationalism and immigrant scapegoating to protect the position of nation-based elites. To the extent that there is any rational explanation for the “austerity” program here and in the NATO bloc nations, it can be viewed as a part of the flailing on the Right. But the answer to this is not to save the capitalist system by stimulus.
All of this has profound implications for our work today. But the point of this post is that the answer to austerity is not stimulus.
This is an important discussion. I want to comment on some of the points raised.
It’s true, of course, that there are voices in the ruling class (as Nat W raised) calling for big job initiatives, just as there are voices (like Paul Krugman, Joseph Stieglitz, and a number of others) for renewed stimulus, against the austerity push. Nat W goes on to raise some reasons why “why this may be hard and perhaps not possible,” and I think that’s the key question. And I think the key to understanding why this is so has got to lie in the structural contradictions of capital today, rather than in the preferences or ideal plans even of those who are very highly placed in the ruling order of things.
In other words, although of course they plan and implement policies, they are pushed and compelled by the structures and dynamics of capital, which define the field of possibilities open to them. And by this point, I believe, the transnationalization of capital has reached the point of no return, such that it makes impossible (whatever the desire) the reversion to nationally based capitals in any but a minor role.
It’s something along these lines, I think, that’s responsible not only for the relative impossibility of rebuilding manufacturing in the US, but for the growing structural unemployment in this and other core economies, cited by Al and Nick.
I agree, of course, that the choice of stimulus and austerity are not “appropriate alternatives for the Left,” as Dave Ranney raises, and that far too often the left during a time of capitalist crisis “has tended to side with the most benign form of capitalism rather than putting a socialist alternative on the table.” Henwood’s framework is clearly liberal/social-democratic. My point in putting up the piece was to raise the question of explaining the ruling-class move toward an austerity program at this point, not to recommend that we should be fighting for a stimulus.
On this particular point, I don’t think we’ve yet come to a truly plausible answer. Dave Ranney comments:
But I don’t think this explains why this should become the general ruling-class policy. The question is why the right’s policy would be that taken up by the ruling class as a whole, particularly if it seems bound not to ameliorate, but rather to exacerbate, the severity of the crisis.
The other explanations pointed to or sketched above, pertaining to the crisis generally, are what has made this discussion so meaty, though, and I want to get into those a bit.
Nick says
I think Nick has mentioned this before, but I’ll confess to not understanding what’s being projected here very clearly. That there are “barbarous alternatives to socialism,” yes, I think so too; but what I’m looking for more on is what the “breakdown” of capitalism would mean, exactly. (Wallerstein puts forward a similar scenario, of a breakdown of the capitalist world-system, and I have the same difficulty there.) Would the breakdown of capitalism mean that commodity production or the sale of labor-power as commodity would no longer overall characterize the production process? If so, what sort of production processes, mode or modes of production, would take its place? What is envisioned?
I can see possibilities of widespread chaos (or zones of chaos), the rise of rightist or fascist state or non-state structures or dominant movements, all of this plenty barbarous (or should we say, even more barbarous than what exists now overall), but this doesn’t necessarily equate at all to the breakdown of capitalism. In fact the world at present has its zones of semi-chaos, areas controlled by warlords or gangster groups or rightist populist groups or governments opposed in some way to the present world order, all without operating outside of global capitalism. (Maybe this description is a contentious point.)
Nick also distinguishes between cyclic and secular crisis, and puts forward that we’re in the throes now of the latter, not the former. This is intermeshes with Dave Ranney’s explanatory sketch:
Ranney goes on to trace the contours of such world systemic crises and renewal-after-restructuring in the 20th century. These would be periodic crises, but sharply distinguished from periodic downturns. I find this general picture very convincing and illuminating, and I hope that Dave will delineate this historical sketch in more detail soon, if he hasn’t already.
In the explanation of the present crisis, there are some points in Ranney’s analysis that I think need more discussion and probing. I think that the “financialization” of the past 20 years has been more functional than seems to be seen in the emphasis on it as “fictitious capital.” That is, finance or financial capital, often working closely with the US state, has underwritten and provided a framework for the great neoliberal expansion. (A lot of this is shown and spelled out by Leo Panitch and his associates, whose research can be found in the recent edited volume American Empire and the Political Economy of Global Finance.) This has been a real expansion for capital, even though fraught with great instabilities and dangers, and even though finance has been not only the savior of capitalism in this period but the Achilles heel, as Dave says, of the new order.
On the basis that world capitalism needs a basic sort of restructuring in order really to resume profitable accumulation, I agree that “a push for increased stimulus spending won’t work either because the capitalist system needs a new mechanism to accumulate surplus value.”
But I am unclear as to the basis of Dave Ranney’s conclusion:
I can certainly see that the decline of living standards is a very probable outcome as this crisis develops further. But how does this equate to a decline in US hegemony within the world capital order?
I want to clarify my concept of the “breakdown theory of crisis” in my comment because I’ve used the term “breakdown” differently in other posts dealing with the idea of a secular crisis in capitalism. In the latter, I think I was quoting Marx in the Grundrisse on how science and technology were qualitatively replacing direct labor in the capitalist production process so as to undermine “the exchange of living labour for objectified labour,” “production resting on value”: The worker “steps to the side of the prodution process instead of being its chief actor. In this transformation, it is neither the direct human labour he himself performs, nor the time during which works, but rather the appropriation of his own general productive power, his understanding of nature and his mastery over it by virtue of his presence as a social body – it is, in a word, the development of the social individual which apears as the great foundation-stone of production and of wealth. The theft of alien labour time, on which the present wealth is based, appears a miserable foundation in face of this new one, crated by large-scale industry itself.… production based on exchange value breaks down, and the direct, material production process is stripped of the form of penury and antithesis” (pp.704-705). Marx isn’t clear on whether he thought this “break down” would occur as a result of communist revolution, allowing for time free from necessary labor to develop human potentialities or whether elements of “breakdown” would start to appear in the capitalist mode of production; and if the latter, what that breakdown would look like isn’t spelled out. Based on things Don has written in the past, I think there is a theory of crisis to be found here, but Marx, writing before the age of computerized automation, simply didn’t have the concrete developments at hand in order to elaborate such a theory. I think the growing, permanent marginalization of populations from pre-capitalist and capitalist production relations throughout the world is an expression of the tendency Marx projected in this important passage.
In my comment in this thread, “breakdown” was used in different way, although related to the same revolutionizing of the social productivity of labor discussed in the above Grundrisse quotations. Can capitalism reach a stage of development where a crisis can occur in which both the rate of profit and the mass of profit decline to a degree that regardless of “countervailing tendencies,” capital accumulation cannot be sustained at some necessary level for the system to function. Speculations along these lines can be found in Harvey’s discussion of low growth rates in the world economy due to the overaccumulation of capital. In this scenario, increasingly savage attempts to extract surplus value, or resorting to primitive accumulation, would be on the agenda.
When I spoke of the “breakdown” interpretation I was actually referring to a variety of positions that have in common the view – in contrast to the orthodox analysis of someone like Bina – that for Marx, the falling rate of profit due to the rise in the organic composition of capital was not only an explanation of severe cyclical crises but an argument about an ultimate limit on the development of the capitalist mode of production, its “merely historical transitory character” (Capital, v.III), as suggested in certain “catastrophist” passages in Marx’s writings where crises are described as increasing in intensity, e.g., in the Grundrisse (pp.749-750): “The growing incompatibility between the productive development of society and its hitherto existing relations of production expresses itself in bitter contradictions, crises, spasms.… explosions, cataclysms, crises, in which by momentaneous suspension of labour and annihilation of a great portion of capital the latter is violently reduced to the point where it [capitalism] can go on.… Yet, these regularly recurring catastrophes lead to their repetition on a higher scale, and finally to its violent overthrow.” The “violent overthrow” presumably is a political act arising from the ideological aspect of these crises: “The violent destruction of capital not by relations external to it, but rather as a condition of its self-preservation, is the most striking form in which advice is given it to be gone and to give room to a higher state of social production” (ibid). (Harvey, in his Limits to Capital, notes that “Marx himself is infuriatingly ambivalent” on this question, and quotes Marx from Theories of Surplus Value that crises are “transitory” and that “[p]ermanent crises do not exist” (pp.190-191).)
Henryk Grossman and Paul Mattick were notable early proponents of the interpretation that the falling rate of profit was a theory of a “tendency towards collapse,” “which is expressed through crisis [which] is nevertheless slowed down and temporarily halted by these very crises though they be the embryonic form of the final collapse; but the counter-tendencies are essentially of a temporary character. they can pospone the collapse of the system. If the crisis is only an embryonic collapse, the final collapse of the capitalist system is nothing else but a crisis fully developed and unhindered by any counter tendencies.… the tendency towards collapse is broken up into a series of apparently independent cycles” (Mattick, “the Permanent Crisis – Henryk Grossman’s Interpretation of Marx’s Theory of Capitalist Accumulation” The Council Communist Archive - http://www.kurasje.org).
So in my earlier comment in this thread “breakdown” did not mean a breakdown in commodity exchange or “the sale of labor-power as commodity would no longer overall characterize the production process” – although I would qualify this by pointing to the case of Nazi Germany, where there was a reversion to slave labor in significant parts of the organization of production. In light of the Grundrisse fragments on machinery, another qualification might come from further pondering the status of direct labor in automated and science-intensive spheres of production. And then there is the “free and equal exchange” business I blithered about in my comment on Don’s “crisis of the core capitalist states.”
There’s an obvious implication of Marx’s predictions on automation for a current cyclical crisis caused by a fall in the rate of profit: if there’s been a radical, qualitative shift away from the centrality of direct labor in production, a crisis-induced restructuring of production will not restore the rate of profit as it has in the past; the source of surplus value just won’t be there anymore on the scale required for accumulation to resume in some “normal” way.
Concerning one of the chief counter-tendencies to the falling rate of profit, the destruction of capital: In the now familiar story, state intervention has prevented the necessary destruction of outmoded capital through the bailout – “too big to fail” – and so instead of the “explosions” and “cataclysms” which revitalized accumulation in the past, we have this stagnant drift: the projected low growth figures cited by Henwood, which imply “that the Great Recession was merely an overture to the worst performance the U.S. economy has exhibited in at least 200 years” (Henwood). To allow the anarchic destruction of highly socialized productive forces through the market simply cannot be allowed; a planned, coordinated restructuring using state power will be necessary, but the legitimation problems both with respect to the capitalist class and the working class caused by the selective, discriminatory exercise of state power will be immense, and there is an absence of a legitimate and transnational center of state power to carry out such an operation at the global level.
John states that his point in posting Doug’s article was “not to recommend that we should be fighting for a stimulus.” I wasn’t recommending that either. My point is that because stimulus and austerity are false alternatives, we need to move beyond this debate by first arguing (which is what my last post was doing) that neither will save capitalism in the U.S. or the world and then going right to a set of demands in our practice that as a society we must meet all human needs for everyone. Otherwise we get caught up in a liberal coalition around stimulus packages.
With regard to the question of why austerity, I agree with John that much more needs to be said. One point is that it is important to distinguish between the international push for austerity and the debates in U.S. elections on this subject. The global push for austerity is being generated by the IMF who is dominated by the U.S. Dept of Treasury and their counterparts in other European nations. As Obama talks small stimulus, the real deal is what Treasury is doing – pushing austerity throughout the world. I think this represents the political power of the finance sector in the global capitalist class. The thing people making money with money fear most is inflation and the austerity proposals from the IMF are geared to dampen inflationary pressures and enable nations to pay off their debt even if this means unemployment and misery. We are familiar with this domestically as that has been the thrust of U.S. monetary policy since the 80’s when the U.S. industrial capitalist class closed the factories and the Federal Reserve instituted a regime of permanent tight money. A whiff of inflation and we tightened the money supply, accepting a high rate of (“natural” as they called it) unemployment. Right now in the U.S. these policies have been trumped by the fact that we are in a period of extreme crisis that is also a deflationary period. So Obama is allowed to do a bit of stimulus. But the anti inflationary needs of finance are always in the wings. The electoral debates and those in Congress, on the other hand, are opportunistically using the rising national debt to generate largely ideological fears of “big government”. And given what the U.S. government has done, this tactic has a great deal of political currency. I believe all of this is a grasping at straws even on the part of finance capital. So I suggested it represents the flailing about that has historically occurred when we are in a period of what is being termed “secular” crisis. And such flailing will continue until global capital pulls together for a unified assault on international labor.
This leads to a comment on “breakdown.” I thought Marx’s quote from the Grundrisse submitted by Nick was about a post-capitalist world, although I can see the ambiguity that Nick and David Harvey refer to. But here is my take on this. A falling rate of profit is initially generated by rising organic composition of capital but also is accelerated in a secular crisis by class struggle. The working class fights to improve and then maintain its living conditions – moving to lower the rate of exploitation as the capitalist class resorts to “savage attempts to accumulate surplus value” including primitive accumulation. This can lead to all sorts of terrible things framed by inter class and intra class conflict on the part of both capitalists and workers such as war, genocide and slavery.
In the past, much of the left has assumed that this would lead to the end of capitalism and when it didn’t, they sided, as I noted in my earlier post, with the most palatable form of capitalism. In the end, sections of the capitalist class have imposed ruling class unity either by war or the use of economic power, destroying some capital, destroying claims on surplus value and ultimately finding new means to accumulate value. In the last go around (70’s through early 80’s) the Vietnam War was part of a last gasp effort to hang onto the post Bretton Woods mode of accumulation. Then there was an all out assault on labor, destroying domestic capital by tearing down the factories, developing capital mobility-enhancing technologies, forcing the developing world into “debt slavery” toward the end of external control over national economies. This was an example of “savage attempts to accumulate” that Nick refers to. And policies to drive the peasantry off the land and into the factories in places like Mexico, Vietnam and China were a form of primitive accumulation.
Now as to the role of finance in all of this, I want to respond to the specific questions raised by John. Finance did “underwrite and provide a framework for neoliberal expansion.” But this was more than simply expansion. Financialization was the base of a totally new mode of accumulation that replaced Fordist mass production of the previous era. Finance underwrote this shift in several ways. It gave direct loans to industrial corporations and governments. It also wrote the rules (structural adjustment programs and “trade agreements”) that handed control of their economies to the IMF and the regional development banks which finance capitalists also controlled. And they set up credit systems in the industrial nations that enabled workers to go on consuming after the production of value had all but ceased. But these loans were at root a means to stretch value produced in the past and in this sense this whole era was based on the shifting sands of fictitious capital. Furthermore, the dependence of the neo liberal approach to accumulation on debt is ongoing even now that surplus value is being generated elsewhere once capital was destroyed in the industrial nations. To keep the system afloat, debt was turned into a commodity which was totally fictitious. Debt was bought and sold in the form of bonds and various “derivative products” that evolved further and further from any underling asset to the point that no one really knew how to price them. Credit default swaps were originally a devise that allowed finance capital institutions to hedge on loans to corporations. Then they became the basis for short positions on bonds representing pools of subprime mortgages allowing, as one trader put it, people to buy homes they couldn’t possibly afford. The point is that the functioning of global capital now is dependent on such fictions and the crisis shows that this is not sustainable.
Why, John asks, does this means a decline in U. S. hegemony within the world capital order? I think the decline is already happening. A number of posts on this and other websites point to the decline of the nation state – any nation state — as a basis for the governance of capital. This means that while the U.S. may be a player as a new mode of accumulation evolves (in the absence of a left or right revolutionary challenge), it can not be hegemonic. Presently, the system as a whole over which U.S. capital rules is no longer able to generate sufficient surplus value for the system to survive. The role that finance capital has played in stretching value is reaching or has reached its limits. Moreover, the entire order is being challenged militarily by those outside of neo liberalism’s core leading to vast resources devoted to warfare. Inside the U.S. the dependence on debt continues to grow, as the generation of new surplus value relative to human needs declines. For most of the working class this does not allow even the maintenance, let alone improvement, of basic living standards. In this context we are seeing the rise of a significant neo fascist movement which the ruling class will have to respond to and which presents a real danger to capitalism and to most of us. Meanwhile the populace as a whole seems to be questioning whether the system that includes the nation state can meet their needs.
Dave
Just a few quick comments on the financialization question, particularly in relation to what David Ranney says on this subject, and mostly to try to sort out some unclarities on my part as to what’s being said or proposed.
I take it that he’s referring, as the successor to Fordism, to what David Harvey has called flexible accumulation (and to which others have given other names). I agree that this new mode or regime of accumulation is what finance underwrote. That is (and disregarding the question of whether these terms are precisely the best or most accurate) the four phenomena of financialization, flexible accumulation, neoliberalism, and globalization, are all aspects of an overall process which enabled capital to escape its serious 1970s crisis.
Parenthetically, though, when Dave says, in explaining the move into this new mode of acumulation, “In the last go around (70’s through early 80’s) the Vietnam War was part of a last gasp effort to hang onto the post Bretton Woods mode of accumulation,” I can’t really see what’s meant by either the prosecution of the Vietnam War being part of the “70’s through early 80’s” period, or by “the post Bretton Woods mode of accumulation” (= Fordism? but if so how post Bretton Woods?).
I’m also not sure how literally to take Dave’s statement that “financialization was the base” of this emerging regime of accumulation. Is it meant that financialization is primary, the base on which the whole regime is erected? Or simply that financialization is basic (as I would agree) to this regime? I’m just not certain what’s being proposed here.
This whole question of the character of the period from the 1970s, which has reached a crisis point today, needs much more systematic discussion imo. I think that each of us has been commenting from a background theory on this crucial question, and I would like to work toward getting what has been presupposed and implicit in this discussion, made more explicit in a systematic way.
As a step toward lifting our discussion toward a level of greater generality, I will shortly be posting an important piece by Loren Goldner, whom Nick has been referencing for some time. But I would also like to urge that each of us strive to spell out our general theory as explicitly as possible. Khukuri would welcome essays on this subject from any and all of those who have been part of this discussion.