Wednesday, February 4, 2009

Commentary on Yesterday's Article

Hey Scott! Here you go! (I was thinking that I'd be too busy to fulfill my desire to add commentary today, but what dee hell ...)

As far as the extent of this crisis goes, ...
Our way of life is over. Our profligate consumption is finished. Our children will never have the standard of living we had. And poverty and despair will sweep across the landscape like a plague. This is the bleak future. There is nothing President Obama can do to stop it. It has been decades in the making. It cannot be undone with a trillion or two trillion dollars in bailout money. Our empire is dying. Our economy has collapsed.

It's possible. I first got interested in political-economy in 1993 and as the weakness and insanity of the world economy became clear to me I was always predicting collapse just around the corner. After two or three false prophecies, I decided that I underestimated the sources of strength of the capitalist economy and that I should be more circumspect. (The difference between my thinking on the capitalist economy and Rush Limbaugh on Obama's economic policies is that I don't "hope" the capitalist economy fails, I just expect it to, whereas Limbaugh "hopes" Obama fails because it will validate his beliefs.) So, now they're saying that this is going to be the big one. That this is the one where the bottom is a long way down. Paul Krugman even described the numbers for the USA and world economy as "terrifying." It's plausible.

My beliefs about the world economy is that the long-term story has been one of decline. Whatever would have happened without it, World War I caused an enormous shock to the capitalist world economy. The United States (already a leading economy) became a powerful creditor nation and was forced to prop up the bankrupted nations of Europe. Inexperience and indifference to the role of world leader caused the USA to retreat from its responsibilities and dabble in financial speculation and the crushing of the working class consumer base which brought on the Great Depression. The Great Depression of the 1930s discredited generally unregulated capitalism (I hesitate to call it "free-market" capitalism) and forward thinking politicians, economists and intellectuals agreed to allow increased public sector activism, trade unionization and income-maintenance programs to save the system from itself.

The viability of this option was first tested during WW II to rave reviews. Its application in the post-1945 era proved a resounding success until the contradictions of profit maximization and social welfare became too great to paper over and the unsustainable system of the United States as perpetual patron of Europe and Japan unravelled. The 1970s was a crisis of conflicting demands between labour, capital and the global South with capital coming out the winner politically. The 1980s was a period of neoliberalism, involving the elimination of profit-limiting regulations and trade union powers. The 1990s was the era of globalization, wherein the remnants of the social welfare states were avoided as corporations became mobile, setting up shop wherever regulatory and labour standards were the lowest, creating a "race to the bottom" in material living standards.

Throughout this period, "developed" country capitalism engaged in "financialization" wherein the difficult process of building tangible things and selling them was rejected in favour of "investing" in stocks, bonds and derivatives that had a negligable (if any) connection to the economy of real things. All the while, the populations of the developed countries were to maintain their function as consumers of real things (now produced elsewhere) and they were to do this by utilizing debt (referred to nowadays as "credit") which made up for their lost wages. Their maintenance of their living standards was assisted by the fact that, thanks to neoliberalism and globalization, many of the necessities of everyday life were cheaper.

So, of course I found this system unsustainable. But I neglected to look at how this extra profit and this "alchemy of finance" and this debt-fueled growth could provide opportunities for some that would allow the system to persist for years and years. Now though, the overhang of capital that cannot find profitable investment opportunities as met the ruinous burden of over-extended consumers to produce the calamity now upon us.

That's it for today!

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