[Marxism] Post on crisis

[bauerly@xxxxxxxx]

Their Crisis, Our Consequences: is this what 1931 looks like?
by Charlie Post (find original at Solidarity)
IS THE BANKING crisis the end of capitalism as we know it? Put simply, no.
Capitalism cannot avoid periodic short-term and long-term crises of falling
profits and economic stagnation. However, as Marx pointed out over 150 years
ago, capitalism has internal mechanisms ? driving down wages, reorganizing
work, massive bankruptcies ? that allow it to recover from these crises. There
will be no ?final? economic crisis of capitalism ? it will have to be
overthrown.

What do we make of the current financial meltdown? Clearly the collapse of the
subprime mortgage market was the immediate trigger for the crisis, although, as
Doug Henwood has pointed out, subprime mortgages make up at most about one
quarter of the mortgage market, and only 10%-15% of these loans are at risk of
default. The deregulation of the financial sector ? begun under Reagan and the
first Bush, and completed under Clinton ? has led to the mushrooming of
financial derivatives (hedge funds, mortgage-backed bonds, etc.) with little
foundation in real capital invested in buildings, machinery, equipment and
stocks of goods and services (the ?real economy?).

But the growth and collapse of fictitious capital ? what Marx called the
?circulation of property rights? ? is a feature of every capitalist business
cycle. As the business cycle passes its peak, capitalists look for new
profitable investments. Because profits are slipping in the production of goods
and services, capital flows into financial instruments that are claims on future
wealth ? speculative bets that the economy will continue to grow. Financial
bubbles inevitably burst as slowing economic growth in the real economy reduces
the value of the assets ?- such as housing - upon which fictitious capital
rests. The results are all too familiar ? investor panic, sharp drops in the
prices of stocks and other financial instruments, and a rising tide of
bankruptcies in the financial sector.

We have seen a number of these financial crises in the past 25 years ? the Stock
Market crash of 1987, the Savings and Loan collapse of the late 1980s and early
1990s, and the bursting of the ?Dot.com? bubble in the early part of this
decade. None of these financial crises, however, sparked a generalized collapse
? deep recession or even full-scale depression ? of investment and production in
the ?real economy.? With an infusion of funds from the capitalist state, the
financial sector was stabilized and growth, in both the ?real economy? and on
Wall Street, resumed after each of these panics.

Ultimately, the underlying health of the ?real? capitalist economy cushioned the
impact of these financial panics. A wave of bankruptcies and mergers and
acquisitions that eliminated inefficient fixed capital (devalorized capital),
?lean production? that increased labor productivity (the rate of exploitation),
and neoliberal capitalist state policies that deregulated capital and labor
markets, all stimulated rising profits. The ?long-wave? of expansion of capital
accumulation reduced the length and depth of financial crises.

The current financial meltdown, however, comes at a point when there are clear
indications that the U.S. and global capitalist economies are entering a new
long-wave of stagnation. The very growth of investment ? in particular the
increasing capitalization/mechanization of production ? in the real economy
during the long-boom of the past quarter century is now turning into its
opposite, pointing toward a long period of declining profits and stagnant
capital accumulation.

In the context of a new long-term fall in profitability, the meltdown that began
in the subprime mortgage market and has spread to the heart of Wall Street has
much more ominous implications for capital. The bankruptcies or near
bankruptcies at Bear Stearns, AIG and other firms and the instability in the
stock market are the ?fire alarm? heralding a sharp and deep recession. If
financial bankruptcies were to spread unchecked, a full-scale collapse of
production on the scale of 1929-31, the onset of the Great Depression, could
ensue.

A full-scale depression, however, is unlikely. The well-founded capitalist fears
of the political effects of a depression are leading both Democratic and
Republican politicians to abandon some of the orthodoxies of neoliberal
economic policy and to approve ? after some messy political bargaining, given
the deep popular anger - some version of Bush?s $700 billion bailout for the
former investment banks (now converted or absorbed into all-purpose banks) and
insurance companies. This subsidy, and a temporary and partial return to state
regulation, will probably stabilize the financial sector and reduce ? but not
prevent ? the depth and length of the coming recession. Meanwhile, other
corporate sectors are lining up at the trough for their share of the bounty of
?business Keynesianism,? notably the used-to-be-Big Three auto companies.
Capital as a whole will pay a price for this bailout. While a politically
disastrous economic collapse will be avoided, the underlying cause of falling
profitability ? excess fixed capital ? will remain after the bailout of the
financial sector. As a result, profits after a recession will remain too low to
encourage substantial new investment in the production of goods and services. At
the same time, the massive capitalist state infusion of cash into the banking
system, financed by growing federal deficits, will increase the supply of
money. The likely result will be too much money chasing too few goods ? a new
wave of inflation.

Whoever is elected President in November 2008 will likely face the same
?stagflation? ? the combination of price inflation and economic stagnation ?
that Nixon, Ford, and Carter wrestled with through the 1970s. For most of us,
an ever-sharper attack on working-class standards of living will be the main
consequence of the current crisis. Those of us on the revolutionary left can
only hope that a return of stagflation will also encourage a return of the
working-class and popular struggle of earlier decades.

There are some basic points for activists to raise in the current crisis. First,
Congress? plan privatizes the gains and socializes the losses from the current
speculative frenzy. But if there is anyone who should benefit from government
intervention it's ordinary citizens, particularly the millions of families at
risk of losing their homes because of exorbitant mortgages, and the newly
tightened bankruptcy laws.

If there?s money available to buy up and ?socialize? collapsing banking giants,
then those same resources can just as easily be used to restructure the
mortgages of struggling homeowners. There is also money for a jobs program to
build affordable and energy-efficient housing, hospitals, mass transit and
schools.

While we?re at it, why not put some of those funds towards protecting social
security, and ensuring universal health care through a single-payer system?
After all medical crises are the single biggest cause of bankruptcies in the
country. Single payer is a step towards stabilizing the housing market!

Secondly, the ?luxuries? our society really cannot afford are the costs of war
and empire ? George W. Bush?s Iraq war which will ultimately cost between one
and two trillion dollars, the U.S. military bases in 150 countries, or the six
percent increase in the Pentagon?s budget for fiscal 2009 which will now be a
tidy $621.5 billion, including $68.6 billion for the wars in Iraq and
Afghanistan (but not including all the ?emergency supplementary? allocations to
be demanded later for these imperial occupations).

Third, we need to explain why the government and the capitalist state respond to
the needs of capitalists, not to the wishes of the majority of people. The wave
of popular anger against the bailout for Wall Street forced the administration
and Congressional leadership to write into the legislation some timid
regulation and curbs on ?excess? CEO salaries at a time of rising inequality.
These gestures can?t hide the underlying reality that in times of crisis, the
state ?socializes? the risks for capital, while ?privatizing? the most
essential necessities for everyone else.



________________________________________________
YOU MUST clip all extraneous text when replying to a message.
Send list submissions to: Marxism@xxxxxxxxxxxxxxxxxxx
Set your options at: 
http://lists.econ.utah.edu/mailman/options/marxism/archive%40archives.econ.utah.edu