The crisis that won’t go away

The economic crisis that began in 2008 is getting worse—but it's finally sparking a fight back in the U.S.

IT’S BOTH an exciting and a sobering time to be a socialist in the United States or, for that matter, almost anywhere else in the world. Exciting, of course, because for the first time in 40 years we are seeing a sustained increase in activism and class struggle around the globe, from mass student demonstrations, to general strikes, to revolutionary uprisings in Tunisia, Egypt, and several other countries in the Middle East. A year that began with the downfall of Ben Ali and Hosni Mubarak may yet still end with the overthrow of Syria’s Bashar al-Assad.

Here in the United States, mass labor protests in Wisconsin last February and March failed to stop the state’s Republican governor from eviscerating collective bargaining rights for public employees and enacting savage budge cuts. But since then there has been a significant rise in strikes and worker militancy across the country, often inspired by or learning lessons from the Wisconsin struggle. And as a I write this column, the occupation of a public park next to Wall Street by young activists has led to similar encampments in dozens of other US cities, targeting the top one percent who control over 40 percent of the country’s wealth, and who use their power to control the two major political parties. Most promising of all, the demonstrations have won the support of both organized labor and of a significant portion of the general public.

But the situation is also sobering, because underlying the rise in struggle is the continuing global economic crisis, with its devastating impact on hundreds of millions of people. Capitalism has brought the world economy to the brink of disaster, and it looks a distinct possibility that in the near future things are going to get worse rather than better.

Meanwhile, internationally and in the United States, the organized forces of the left are tiny. True, there are still large social democratic parties in many countries, but even when they still call themselves socialist, their policies in government are little different from their right-wing opponents, and are designed to defend the status quo. It is so-called socialist governments in Greece and Spain, for instance that have been implementing harsh austerity programs on their populations, with the aim of protecting the assets of wealthy investors and big banks.

The need for a different kind of economic system has never been clearer, but the kinds of organizations that could knit together the many different struggles that the crisis has thrown up into a coherent challenge to the system as a whole do not yet exist. That means that such organizations need to be built or rebuilt around the world as attacks on the working class accelerate, a task that will by no means be an easy one.

I’ve never seen any research on the question, but my guess is that the seriousness of an economic crisis is directly proportional to the number of times that Karl Marx is mentioned in the mainstream media. When the current crisis began in the fall of 2008, there was widespread panic among political and economic elites. The danger signals had been present for at least the previous eighteen months for anyone who wanted to see them, with a string of major banks, hedge funds and investment companies announcing huge losses or declaring bankruptcy. But blinded by the belief that markets are always self-correcting, mainstream economists concluded that major crises were no longer possible. They dismissed the warning signals as minor aberrations and they had no idea of what was about to happen. 

Then, in the summer of 2008, the huge housing bubble that had been inflating for most of the past decade, burst. In July, Fannie Mae and Freddie Mac, the biggest mortgage lenders in the United States lost half their value, and at the beginning of September the Bush administration stepped in with $200 billion to bail them out. But it declared that this was a one-off intervention, and that any further problems in the financial industry would have to be solved by the market. Immediately the investment bank Lehman Brothers—valued at $635 billion—announced it was on the verge of bankruptcy. This time the federal government refused to intervene and on September 15, Lehman collapsed.

The rest, as they say, is history—although a history that many politicians and economists are now eager to forget. The entire tightly integrated financial system—heavily based on exotic financial instruments like collateralized debt obligations and credit-default swaps—began to melt down. Within 24 hours, the Treasury Department reversed itself and stepped in to save AIG, the world’s biggest insurance company. Total collapse was prevented only by the biggest government bailout in history. The final global price tag was over $20 trillion, with the United States responsible for most of that amount.

Suddenly, Marx was being taken seriously again. In February 2009, he appeared on the cover of Time magazine with the headline “What Would Marx Think?” The article inside discussed Marx’s “trenchant diagnosis of the underlying problems of a market economy that is surprisingly relevant even today,” and which “is almost uncannily prescient about globalization’s costs and benefits.” In the same month, Newsweek declared on its cover “We Are All Socialists Now,” and in March the Financial Times ran a series on “The Future of Capitalism,” admitting by implication that the whole system was in danger.

But no sooner was the financial system bailed out at public expense, than old myths started to return. The meltdown of 2008, stoked by three decades of deregulation by both Republican and Democratic administrations, ought to have driven a stake through the heart of neoliberalism—the belief in privatization, deregulation, tax cuts, and sharp reductions in social spending—and the ideology of free-market fundamentalism. An article in the New Yorker, shortly after the November 2008 presidential election, declared: “The faith that unfettered markets and minimal taxes on the rich will solve every domestic problem … is dead for a generation or more.” But within eighteen months, neoliberalism was back with a vengeance.

While massive government intervention staved off a depression on the scale of the 1930s, economic recovery has been weak in the United States and Europe. In this country, the economy grew at a rate of less than 1 percent in the first half of 2011, and the official unemployment rate has remained over 9 percent. At current rates of growth, according to economist Dean Baker, “it will be around 80 years until the economy gets back to normal levels of unemployment.”

Yet instead of making job growth the center of economic policy, the Obama administration embraced the Republican idea that government budget deficits are the main problem and that cuts in government spending are an immediate necessity. The difference between Obama and the Republicans is about how much to cut and whether or not modest tax increases on the wealthy should be part of the package. When Obama finally did propose investment in infrastructure to create jobs, it was already too little, too late.

The underlying economic problems that led to the last downturn have not been solved, and Marx is suddenly making an encore appearance in mainstream publications. Nouriel Roubini, one of the few economists who predicted the last slump, told the Wall Street Journal in August, “Karl Marx had it right.”

At some point, Capitalism can destroy itself. You cannot keep on shifting income from labor to Capital without having an excess capacity and a lack of aggregate demand. That’s what has happened. We thought that markets worked. They’re not working. The individual can be rational. The firm, to survive and thrive, can push labor costs more and more down, but labor costs are someone else’s income and consumption. That’s why it’s a self-destructive process.

A few weeks later, George Magnus, senior economic adviser for UBS bank, wrote in an article for Bloomberg that “Policy makers struggling to understand the barrage of financial panics, protests and other ills afflicting the world would do well to study the works of a long-dead economist: Karl Marx.”

Both Roubini and Magnus take Marx seriously, but their aim is to use his ideas to save capitalism. If demand is low, then it needs to be boosted, and that can be done by increasing government spending, and putting more money into the hands of consumers by reducing the huge inequalities of income and wealth in the United States.

But while these measures would be welcome, neither Roubini nor Magnus addresses the political question of how it would be possible to institute such policies in the face of opposition from the establishment. More importantly, though, their understanding of Marx is rather superficial, meaning that their proposed solutions are too. First, lack of consumer demand due to falling wages and reduced purchasing ability is only one cause of overcapacity in the economy. A second is the unplanned nature of capitalism itself, which time and time again has resulted in an oversupply of capital as well as consumer goods, as separate producers each attempt to meet expected demand. Until this overcapacity is substantially reduced, investment will not pick up and the economy will not revive. In the past, this has required the destruction of excess commodities on a mass scale.

Second, Marx analyzed the way in which the rate of return on investment can be pushed down as a result of competition making production more capital intensive. Since profits ultimately depend on the valued added by labor performed in the work process, if the number of workers necessary to produce the same output declines, there would be a downward pressure on profit rates, once again deterring future investment. Capitalism can overcome this problem, but only by wrenching, devastating crises, which destroy excess capacity, ruin lives, and eventually set the stage for a new phase of growth.

The situation in the United States is not helped by the growing crisis in Europe. Governments stepped in to bail out the banks, but this only switched private debt into public hands, creating a sovereign debt crisis and the possibility that one or more European governments will be unable to repay its loans. The situation has only been made worse by austerity programs that have pushed down growth rates and thrown Greece into a full-scale depression. Now the continuation of the European common currency is in doubt, and a Greek default could precipitate another major financial crisis, which would pull the world economy back into recession.

In an article published on Forbes’ website in August, shortly after several days of rioting in London and other cities in Britain, the geographer Joel Kotkin took up another aspect of Marx’s thought. “Class rage,” Kotkin wrote, “isn’t unique to England; in fact, it represents part of a growing global class chasm that threatens to undermine capitalism itself.” He gives the following description of the United States:

Diminished prospects—what many pundits praise as the “new normal”—now confront a vast proportion of the population. One indication: The expectation of earning more money next year has fallen to the lowest level in 25 years. Wages have been falling not only for non-college graduates but for those with four-year degrees as well. Over 43 percent of non-college-educated whites complain they are downwardly mobile.

“Given this,” says Kotkin “it’s hard to see how class resentment in this country can do anything but grow.” And he concludes:

[E]conomic systems, to be credible and socially sustainable, must deliver results to the vast majority of citizens. If capitalism cannot do that, expect more outbreaks of violence and greater levels of political alienation—not only in Britain but also across most of the world’s leading countries, including the US.

However, the result of these sharpening class divisions need not be confined to violence and alienation. It can also give rise to political movements that start to question the status quo. That is precisely the backdrop to the wave or radicalization in the United States, which has contrasted the wealth and power of a tiny minority at the top with the rest of society. Whether the new movement has staying power, and whether it has the ability to pose a serious alternative to the root of the problem—capitalism itself—remains to be seen. There is a long way to go, but these recent developments are still an enormously promising first step.

 

Issue #84

June 2012

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An interview with Michelle Alexander
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