[Marxism] How much is enough?

[Anthony Boynton <anthony.boynton@xxxxxxxxx>]

How much is enough?



By Alan Freeman, University of Manitoba



7th February, 2009



How much is needed to get us out of the crisis? From the historical
evidence, a lot more than we've seen so far.



Obama's stimulus, at five per cent of GDP, outstrips all others in the
Western world – which on its own sheds doubt on them. Yet even this may not
be enough.



All but the willfully stupid now know this is no 'ordinary' recession.
Downturns like 1974 pale into insignificance beside it.  Only two crises in
modern history  – 1929 and 1893 – compare with it. With few exceptions,
economists in Bush's inimitable words 'misunderestimated' this from day one.



It is driven, like those of '29 and '93, by a failure of investment, in turn
caused by a system-wide crisis of profitability. When the return on capital
sinks to present levels, investors simply retreat from productive investment
into ever more irrational speculation.



This occurs rarely, but when it does, the conventional belief that 'the
market always works' is worse than useless. One must be guided not by
doctrine but the facts. It is an open secret that Obama has expressed more
interest in the 1933 US 'New Deal' than in the views of his closest economic
advisors. So let's take a look at it.



Who blessed America?



By 1933, US unemployment reached the unprecedented level of 25%. It's not
hard to see why: capital stopped investing. By 1932, private investment of
all types had fallen to the all-time low of 2.2 per cent of GDP, from 15.9
per cent only three years earlier.



An investment failure goes beyond lack of demand. You can cut taxes and
interest rates as far as you like, but unless investors put their money
where their large mouths are, the economy goes nowhere fast. The state has
to step in directly. In words used by Keynes but conveniently ignored by his
recent converts, it must 'socialise investment'. But on what scale? Like
Obama – but two years too late – the New Deal hiked state spending by five
per cent of GDP, cutting unemployment to 16 per cent until the
mini-recession of 1937-38.



Cool – but not a recovery. The 'golden age' boom of 1942-1968 finally saw
the back of the depression. It dates not from the New Deal, but the War.
Between 1938 and 1944, government spending trebled, approaching half of GDP
– compared with a miserable three per cent from private investors. And when
the war was over, state investment stayed at double its prewar level despite
repeated foolish attempts to cut it back. This was what it took,
economically, to 'solve' the crisis.



It's common to speak as if the war was 'economically abnormal'. Well, so is
the present situation. So here's an 'uncomfortable truth': before the US
economy saw a meaningful recovery, the state took over half its economy,
supplanting private investment for three years, and following that, retained
both investments and spending which were double their prewar levels.



And it happened in wartime, when private investors accepted measures they
would not tolerate in peacetime. That's food for thought. It means the way
out of the crisis involves something never seen before – wartime state
involvement on a peacetime basis.



In simultaneous polls in the USA and Canada, two-thirds of those interviewed
said that they wanted direct state spending instead of tax cuts – a historic
shift of opinion. North American economists haven't caught up and, according
to the Wall Street Journal, are still arguing for tax cuts – which just
means they want the poor to pay. This is so last Millenium. As France and
Iceland show, it won't play in Peoria.



Maybe it's time the politicians stopped listening to their economic
ill-advisors, and started listening to their own people – and the lessons of
history. Capital, move over. Public, move in.
________________________________________________
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