re: the profit rate & recession

["Devine, James" <jdevine@xxxxxxx>]

Fred, thanks for your thoughtful comments. (For those who haven't been
paying attention, we are discussing only the United States in this thread,
using the BEA data.)

1. I said: >>I should acknowledge that if I recalculate the trend profit
rate in a few years, the trend will probably be different, maybe even
falling down in 1997 or so. That would change my view. But I'm trying to
give the best interpretation I can given the information I have.<<

Fred writes: >We already have a good idea of what the rate of profit will be
in 2001 (based on the first three quarters) and even a pretty good idea for
2002. So we don't have to wait for two years to do at least a preliminary
reexamination of the data. <

My reply: the problem with bringing in 2001 and 2002 in order to figure out
the trend is that they bring in the realization crisis ("recession," slowing
circulation of commodities & falling capacity utilization rates) of 2001 and
after as part of the trend, while I'm trying use the trend to figure out the
historical origins of that crisis (the era up to and including 2000). (I
presume that the fall in the profit share during recessions isn't due to
successful working-class resistance as much as realization problems.)

To truly figure out the trend, we'd want to bring in data from 2003, 2004,
etc., especially if these involve a recovery of capacity utilization rates
(and thus of profit shares). If the Wall Street Wonks are right that a
recovery is just around the corner, then we might be able to get some idea
of the trend rate of profit in the near future (though I doubt we will).

(This is a similar to issues of the "new economy": was there an upward
ratchet in the rate of growth of labor productivity in the 1990s of the sort
that occurred in the late 1920s -- or was the productivity surge merely a
cyclical phenomenon? or was it a statistical fluke? We won't know until the
recession is over, just as we couldn't be sure whether the surge of the
1920s was permanent until after the 1930s.)

The trend profit rate (or profit share or K/Y ratio) was calculated to try
to iron out the wiggles due to temporary demand-side recessions and
supply-side squeezes on profits (bottlenecks, temporary cyclical wage
hikes). It is thus similar to, though not the same as, the estimates in my
RRPE paper on stagflation, in which I calculated "the full capacity profit
rate" (r*) by dividing the actual profit rate by the rate of capacity
utilization.

This effort to figure out the trend is part of an effort to glean what's
going on beneath the surface statistics. Unfortunately, it's iffy and will
always be so. The problem is the two-way feed-back (dialectic, if you will)
between the cycle and the trend, with both helping to determine each other.
Dialectical processes are inherently hard to pin down using quantitative
methods.

Fred continues: >Assuming that the share of profit falls from 0.17 in 2000
to 0.14 in 2001 (as discussed in my last post) and that the capital-output
ratio remains the same (a conservative assumption, since the capital-output
ratio usually increases in a recession, which would further depress the rate
of profit), then the rate of profit will decline from 0.086 in 2000 to 0.071
in 2001.

>For 2002, since the rate of profit will almost certainly continue to
decline in the first half of the year, it is unlikely that the rate of
profit will increase for the year as a whole, and more likely that the it
will fall further in 2002. But assume that the rate of profit in 2002 stays
the same as in 2001.

>Jim, would you please add these two additional data points to your
regression equations, in order to see what is left of the "upward trend" in
the rate of profit [ROP] from 1980 to the present. <

I looked at the graph, and it's true that it ends the "upward trend" in the
ROP goes away as I calculated it before (using a fifth degree polynomial
regression). In fact, the "trend" ROP peaks in 1996, strangely before the
1997 peak in the non-trended data. However, the upward trend since the 1980s
re-appears if we do a second- or third-degree polynomial to calculate the
trend. This isn't conclusive but instead indicates the difficulty of the
project.

>Adding these two years is also a more appropriate way to estimate the
trend, because the beginning and end points of the time period [since the
1980s] are at roughly the same point in the cycle - the bottom. Your
estimates through 2000 compare the bottom of the cycle with a mid-point
between the peak and the bottom, which biases the estimates upward. No
matter what the regressions say, the fact remains that the rate of profit
today is only slightly higher (at best) than it was in the trough of the
early 1980s (0.071 compared to 0.062). <

This is, in general, a valid point. However, whether 7.1% is "slightly
higher" than 6.2% or not depends on one's perspective. For many, 15% higher
is not "slightly": I can imagine that during a recession, capitalists grasp
at any penny of profits they can receive. (BTW, you may be right that the
profit rate is only slightly higher in 2001 than in the early 1980s, since I
think it's quite possible that the rapid fall in capacity utilization rates
caused a greater fall in the rate of profit than you estimate.)

More importantly, I think it's better to avoid the hypothetical data (the
0.071 = 7.1%). So, let's look at peak years. In terms of the standard
business cycle periodization, the peak years in the period under discussion
are 1979 and 2000. During this period, the BEA's non-trended profit rate
rose from 7.5% to 8.6%, again a 15% improvement. Or we could compare
profit-rate peak years (1978 and 1997), between which the profit rate rose
from 8.5% to 9.5%, a 12% improvement. As I said in the talk notes, this
isn't a return to the "golden age" of profitability (the ROP equalled 13.1%
in 1965), but it is a step in the right direction (from the capitalist
perspective).

Another way to look at trends is to examine averages over longer periods.
The BEA itself shows that the average for the 1970s and that for the 1990s
were the same (8.3%) with a dip in the 1980s to 7.4%. This fits with Fred's
view, but it also isn't really comparing business cycles and thus doesn't
control for the effects of the cycle. Let's compare the profit rate from
trough to peak (1975 to 1979 vs. 1991 to 2000) and peak to peak (1973 to
1979 vs. 1990 to 2000). Unfortunately we don't have monthly data, so there's
a problem of the calendar years not being identical to the peaks and
troughs.

trough to peak
avg. rate of profit, 1975-79: 8.0%
avg. rate of profit, 1991-2000: 8.3%, a 4% improvement.

peak to peak
avg. rate of profit, 1973-79: 8.1%
avg. rate of profit, 1990-2000: 8.3%, a 2% improvement.

BTW, I think that the law of large number suggests that the longer the
periods being compared, the smaller the differences should be (all else
constant). Nonetheless, these comparisons do show an upward trend in profit
rates, though clearly not enough to make the capitalists happy.

>Attached to this message is a graph of the rate of profit, extended through
2002. This doesn't look like a "sustained upward trend" to me. Rather, this
looks to me like cyclical ups and downs, up from the bottom of the early
1980s and then almost back down to the same bottom. It is even clearer that
there has been no sustainable increase in the share of profi-t since 1980.
As already mentioned, the share of profit is even lower today than it was in
1980.<

see above.

But what are the implications if there is no upward trend in profitability
after 1980 or so? do you think that (1) the neo-liberal onslaught had no
distributional impact (because of successful working-class resistance)? or
that (2) this impact isn't accurately measured by the share of profits? Or
that (3) every time the ruling class shifts the income distribution in its
favor, capacity utilization falls, counteracting its effects? (The last is
one version of underconsumptionism, akin to that of Baran and Sweezy.) Is
there a fourth alternative explanation why the capitalists have been
laboring like crazy to squeeze the workers and have only produced a pea?

One alternative, that I suggested in the talk I gave in Sacramento, was that
the capitalists did succeed in shifting the income distribution in their
direction, but that the sweetness of their victory was made somewhat sour by
the continuing rise in international competition.

>Also attached to this message is a graph of the share of profit, with the
assumption that the share of profit will = 0.14 in both 2001 and 2002 (as
above). The share of profit seems to be especially relevant to your
underconsumption thesis, which argues that consumer demand is insufficient
because wages have increased slower than value added, which implies an
increase in the share of profit. But there has been no lasting increase in
the share of profit since 1980. <

As discussed in the original talk notes, there are reasons to think that the
BEA data are capturing only part of what's going on. The one-sided class war
against labor is happening in most or almost all countries all over the
world, while the rapid increase in upper corporate salaries is not counted
as part of profits. (So in my previous paragraph, I'm saying "partly yes" to
question #2.)

More importantly, as noted in my notes, my "explanation" of the upward trend
in profit rates (R/K) relies more on the fall in K/Y (the fixed
capital-output ratio) than on the fall of R/Y (the profit share). The fall
in K/Y means that the growing K allows greater production, so that demand
must accelerate compared to the case where K/Y stays constant. Realization
problems thus become more likely.

BTW, I object to the phrase "underconsumption thesis" as referring to my
ideas, since (as I noted), I reject classic underconsumption of the sort
that Bleaney describes and destroys in his book on the subject. (Also,
so-called "orthodox Marxism" shows utter disdain toward
"underconsumptionism," showering the latter with all sorts of negative terms
even though the two schools are often equally illogical or
counter-empirical.)

My theory is one of over-accumulation (or rather, over-investment, since I
stress the importance of fixed capital). Like Marx, and unlike the
underconsumptionists, I think that capitalist accumulation normally tends to
drive ahead, pulling the economy along and trying to transcend all barriers
in its path. In this view, an underconsumption undertow is just another kind
of barrier, and like many others is created by capital itself. Like
"supply-side" barriers (raw material shortages, rising mechanization not
counteracted sufficiently by labor productivity growth, environmental
destruction), the effort to surge beyond this kind of barrier creates
imbalances which bounce back to hurt the accumulation process.

(According to Simon Clarke's 1993 book, _Marx's Theory of Crisis_ (London:
Macmillan), both Marx and Engels dabbled in a kind of "underconsumption
theory" that's similar to -- but cruder than -- what I advocate.)

>2. Furthermore, the long-run trend in the rate of profit should be
considered in terms of the ENTIRE POSTWAR PERIOD, not just the last two
decades since 1980. As is well known, the rate of profit declined
significantly in the 1960s and early 1970s (roughly 50%). Jim and I have
both argued that this significant decline in the rate of profit was the main
cause of the "stagflation" of recent decades - resulting in both higher
unemployment and higher inflation.

>I would argue, from this perspective of the entire postwar period, that the
very small increase (at best) in the rate of profit since 1980, is only a
VERY INCOMPLETE RECOVERY of the prior decline in the rate of profit in the
early postwar decades. The problem which caused stagflation - low rate of
profit - has not yet been solved!<

I said something like that in the talk I gave in Sacramento. In the notes
that appear on-line, I said: "From capital's point of view, we still haven't
seen a return to the "golden age" of profitability seen in the 1960s.
However, the profit rate's rise does represent the rational basis for the
stock-market surge in the1990s, until it became a speculative bubble at the
end of the decade."

>The overall trend of the rate of profit for the entire postwar period is
clearly negative. The rate of profit today remains about 30% below its early
postwar peak. The decline in the rate of profit is not just a "short-run
phenomenon", but is instead a very long-run phenomenon, beginning in the
1960s. The recent cyclical decline since 1997 is only the latest phase of
this long-run phenomenon, which demonstrates vividly that the long-run
problem of insufficient profitability has not been solved. <

I don't think our differences concern the entire postwar period. Rather, the
relevant issue is whether or not the profit rate rose during the era after
the 1970s up until 2000 (prior to the recession). Or rather, it concerns the
extent to which the profit rate rose during this period.

When we get into talking about what period should be considered, maybe we
should consider the range that Gérard Duménil and his colleagues. (One
paper, that was published in a book co-edited by Fred Moseley, goes from the
U.S. Civil War to 1989!) But I don't emphasize their time-frame because I
don't think capitalists or their state policy-makers think in this way. They
care about relatively short-term trends and immediate events. In the 1950s,
they were responding to the events of the 1930s & 1940s, for example. In the
1970s, they were more concerned with the immediate problem of profit-rate
falls. In the 1980s and after, the neo-liberal period, they're responding to
the past profit rate fall by working as hard as they can to reverse the
trend. As for policy-makers, if they're dealing with difficulties, they tend
to act like stereotyped French generals, fighting the last war. (So, for
example, the Democrats currently want to balance the budget.) If they're
doing well, they continue what they've been doing. (So, the GOPsters push
for _more_ or _faster_ tax cuts for the rich.)

>The "triumph of neoliberalism" (the "weak labor regime"), as Jim calls it,
has indeed reduced wage growth, but it has not succeeded in restoring the
rate of profit. The "triumph" in the end is no triumph at all. Therefore,
stagflation is likely to continue, most likely in the form of stagnation
(deeper recessions and higher unemployment). <

I agree that it wasn't a "triumph" in terms of profitability measures except
in the sense of a Pyrrhic victory. They got the profit rate up, though not
enough (by their standards). And this encourages the underconsumption
undertow I discussed (though my emphasis was on a world-wide phenomenon),
which dragged down the profit rate in 2001 and presumably 2002, when the
countervailing factors that allowed the boom to continue to 2000 (private
fixed investment, credit-based consumer spending) couldn't be sustained.

3. I also argued: >> I wasn't arguing that stagnant consumption was the
proximate or efficient cause of the recession. Instead, we might see
stagnant _wages_ (relative to productivity) as the structural cause (or what
Aristotle called material and formal causes). Stagnant wages might be seen
as being like the termites eating the house. Other factors, such as gravity,
bring the house down. <<

>Jim, you agree that the "proximate" cause of the recession was a decline in
investment spending, not a decline in consumer spending (indeed C has not
declined). But you argue that stagnant wages leading to an "underconsumption
undertow" is a "structural cause" of the recession. I don't understand how
this "underconsumption undertow", which doesn't manifest itself in a decline
of consumer spending, could have caused the recession. <

The basic idea is that if potential GDP (Y*, measured at full capacity
utilization, not full employment of labor, since it's from the capitalist
perspective) rises relative to the wage bill, then workers' consumption
(assuming that workers don't borrow) rises less than Y*. To allow the
realization of Y* (the attainment of full capacity utilization), either
workers have to borrow to spend more, capitalists have to consume a larger
percentage of their income, or the latter have to accumulate faster. If
these fail, government deficits or a trade surplus can fill the bill.

Anyway, all of this implies that it's possible that actual GDP (Y) could
rise as fast as Y*, despite a stagnant wage bill, but that the growth of Y
becomes increasingly fragile, susceptible to shocks. (It's sort of like
having one's immune system deteriorate due to HIV, which makes one more
likely to get sick and for sicknesses to be serious.) One additional problem
is the fall in the trend K/Y ratio, which in turn implies a speed-up of the
growth of Y*.

In my 1994 article in RESEARCH IN POLITICAL ECONOMY, I present a very simple
model of the Harrod-Domar type that summarizes this in a more complete way
-- bringing in a capacity utilization-corrected profit rate (r*) as the key
variable. If r* rises, as it did (I presume) during the 1920s and 1990s,
then either fiscal deficits, trade surpluses, the growth rate of the fixed
capital stock, or the share of consumption in value-added has to rise to
keep the rate of capacity utilization equal to some constant level. In that
paper, I discuss the limitations of each of these possibilities for the
1920s. I interpret the 1990s (and 2000) as being similar in many ways to,
though not the same as, the 1920s. (Among other things, we don't know for
sure if we're to see a replay of the 1930s or not.)

(BTW, this theory is vaguely similar to Minsky's theory of financial
fragility, except that it's about the fragility of the economy's
macro-growth process, the ability to keep real growth going.)

>You suggest that one way the "underconsumption undertow" has caused the
recession is the following: <

>>My point is that the underconsumption undertow (or termites) made the U.S.
economy excessively dependent on business fixed investment (and rich folks'
consumption). In a different conjuncture, a fall of investment of the sort
you describe would have had a smaller effect. BTW, I doubt that we've seen
anywhere near the full effects of this investment fall yet. <<

>I do not understand how a decline in investment spending under different
circumstances would have a smaller effect than it has had so far in the
current recession. As discussed in my last post, consumer spending has
remained strong in recent quarters, with a savings rate almost zero, so that
the multiplier effect of the decline in investment spending so far has been
SMALLER than usual, not bigger than usual. <

I wasn't referring to the multiplier effect. Rather, the idea is that if the
growth process as a whole is more like a "house of cards," i.e., more
fragile, a fall in investment is more likely to have a big effect.

Of course, having close-to-zero saving implies a real problem, because
consumers are digging themselves deeper into debt. This encourages them to
eventually raise their saving rate significantly, lowering the multiplier
and depressing the economy. (For a given level of autonomous spending, a
lower multiplier depresses the economy.) I thought I made it clear that this
process hasn't been a big part of the actual recession yet. (The rate of
growth of real consumer spending has been falling since the middle of 2000,
though.)

(BTW, I assume that the average propensity to consume is highly correlated
with the marginal propensity to consume, so that the low savings ratio (high
propensity to consume) implies a high multiplier. A lower propensity to
consume would lower that multiplier.)

>Or perhaps you are arguing that the EVENTUAL RETRENCHMENT of consumer
spending, that will be necessary because of the high level of household debt
(itself the result of stagnant wages), when it comes, will MAKE THE
RECESSION WORSE. <

that's it!

>The reduced consumption spending will result in a higher multiplier effect
of the decline in investment spending. I agree that this is a strong
possibility. But it hasn't happened yet. It seems to me that your argument
confuses the initial cause of the recession with its subsequent propagation.
The initial cause of the recession was the sharp decline of investment
spending, which itself was caused by the even sharper decline in the rate of
profit. <

I agreed that the direct, proximate, cause of the recession was a fall in
fixed investment. Where I disagree is that I just don't think that the fall
in the rate of profit caused the fall in investment. I don't think that the
rate of profit as even the BEA measures it -- and they are clearly looking
for a measure of the rate of return from the business point of view --
doesn't have that much of an impact on fixed investment. I once talked to
Ricardo Caballero of MIT about this. He had presented a paper in which he
argued that it was very hard to find an impact of interest rates on fixed
investment without "torturing the data until they screamed." It turns out,
however, that if one brings in the role of capacity utilization in a
relatively sophisticated (non-linear) way, interest rates do have a role. I
asked him: how about the impact of profitability measures? he answered that
profitability only played a role if a similar approach was applied. The key
variable dominating the determination of investment is capacity utilization,
so that the accelerator effect rules. This fits with my reading of the
literature on this matter. (BTW, housing investment doesn't seem to follow
the profit rate at all.)

Further, beyond issues of cash flow (which are highly connected with
capacity utilization), the important role of profitabilty is via determining
_expectations_. Capitalists don't just invest according to current
profitability, like rats continuing to push levers after getting pieces of
cheese for doing so in the past. Rather, what's important is the "state of
long-term expectations" (Keynes). Profitability has its impact on that --
but only if the changes in profitability are perceived as "permanent" (cf.
Friedman). That's why I emphasize the _trend_ profitability rather than
actual profitability. And I don't see trend profitability as falling unless
we bring in numbers from after the recession started.

>Jim, you seem to say that the initial cause of the recession was exogenous
"shocks", such as the bursting of the stock market bubble or Sept. 11. But I
argue that the recession was not caused by such exogenous shocks, but was
instead caused by a key internal dynamic of capitalist economies: a falling
rate of profit leading to a decline of investment spending. <

See the above.

BTW, the US has had a bunch of recessions since WW2. But (according to the
business press) this one seems to be the only one led by fixed investment
spending. I think that it has a lot to do with the fact that if the boom of
the 1990s was to continue, it had to be based on a surge of investment and
credit-based consumption (since government deficits and export surpluses
were ruled out). That is, the boom -- if it were to exist at all -- had to
be based on over-investment in telecom, movie screens, etc., etc. Such
over-investment -- especially in crucial sectors such as telecom and
infotech -- in turn encouraged a broader decline in fixed investment.

I think that the fall in the stock market was more intimately tied to the
previous fall in the (non-trend) profit rate than was fixed investment,
since price-earnings ratio is so crucial. However, recent experience
(including current experience) indicates that price-earnings ratios are
still much too high, i.e., that the stock market is still "defying gravity"
and acting on a bubblish way. I think this reflects the still-exalted level
of the state of long-term expectations (compared to the 1970s, not the
1960s), which in turn reflects the trend in profit rates since the "Reagan
revolution."

>4. The difference between our two explanations of the current recession can
be further clarified by examining the question: would a significant increase
of wages end the recession? Your underconsumption explanation would seem to
imply that such an increase of wages would end the recession, because it
would reduce or eliminate the "underconsumption undertow" that caused the
recession. <

I think that this kind of counter-factual is excessively hypothetical, since
wages can't simply rise or fall like a rheostat is turned. Rather, what
would be needed is a _regime change_, or in less academic language, a sudden
counter-attack by the world's workers and other dominated groups, an end to
the one-sidedness of the class struggle. (This seems a good idea, no matter
what one's theory of crisis is.)  I don't see this as likely as yet, though
it could happen in a few years.

Even if it were to happen, I don't see this as ending capitalist crisis
tendencies. It would only change the form of crises, as we would be shifting
back to a "strong labor" regime without abolishing capitalism. It might be
an improvement -- it definitely would be so -- but it would be to labor's
credit, not capital's.

>By sharp contrast, the classical Marxian explanation that I have presented
(based on the falling rate of profit) implies that an increase of wages
would NOT end the recession. Such an increase of wages would perhaps boost
consumption in the short-run, and thus would lessen the multiplier effect of
the decline of investment spending. However, such an increase of wages would
exacerbate the problem that caused the recession in the first place -
"rapidly deteriorating profits" that led to a sharp decline in investment
spending - and thus would make a sustainable recovery from the recession
less likely. <

So are you blaming the fall in the (non-trend or trend) rate of profit on
wages being "too high" during the 1990s and 2000? This suggests that if we
want to end the recession, we should side with the capitalists in their
efforts to push wages down relative to productivity, doesn't it? (Of course,
this involves the same silly counterfactual as the "rising wage" case.) You
say below that you're not in favor of cutting wages, but symmetry and
fairness suggests that if you see wage hike as the panacea for
underconsumption tendencies, then wage cuts are the solution to "classical
Marxian" tendencies.

I have problems with the phrase "the classical Marxian explanation." Going
back to Marx, the classical Marxist, I don't see a coherent crisis theory or
business-cycle theory in CAPITAL. Though Marx had more insights into the
nature of the laws of motion of capital than any one else since his time, I
agree with Simon Clarke and some other observers that Marx left the job of
constructing a complete "crisis theory" undone. (Instead, there are three or
four or five different "crisis theories" that compete.) One thing I didn't
see in CAPITAL was a clear link between the profit rate and fixed
investment. It's clear that Marx thought that his posited (but not
well-argued or proven) tendency for the rate of profit to fall would have an
impact on capitalism in the long run -- but he didn't link this up to
business-cycle analysis. (So far, all we see since the late 1990s is a
business cycle downturn, not a structural crisis or a final crisis.)

Most often, the phrase "classical Marxian explanation" refers to an emphasis
on the rising organic composition of capital (though, arguably, there are
other theories that could vie for being just as "classical"). But for that
theory to have an impact on the rate of profit, the fixed capital/output K/Y
would have to rise (as the rise in K/L is not counteracted enough by the
upward trend in Y/L, labor productivity). But this ratio has _fallen_ during
the last two decades or so, contracdicting what's normally called the
"classical Marxian explanation." BTW, these data on K/Y seem to be much less
affected by the cycle (since the trend stays very close to the actual K/Y
line) than do the R/K and R/Y data.

> According to this classical Marxian explanation, a recovery of the economy
requires a revival of investment spending, which in turn requires a
restoration of the rate of profit. One of the main ways to increase the rate
of profit is to cut wages, not increase wages. <

As I understand it, the "classical" explanation would involve the
_destruction_ of a lot of fixed capital. "Classical Marxists" often point to
big blow-outs like the Great Depression and WW2 as examples of "necessary"
to destroy fixed capital in order to allow the revival of profit rates and
thus of capital accumulation.

> I am not of course suggesting that wages be cut. I am just pointing out
that Marx's falling rate of profit theory - which seems to explain the
current recession - implies that the way out of the recession (cutting
wages) will be painful for workers. Profits will be recovered off the backs
(or out of the pocketbooks) of workers. Your underconsumption explanation
[sic], on the other hand, implies that the way out of the recession
(increasing wages) would benefit workers, if only capitalists would
recognize that such an increase of wages is also in their interests. I wish
it were true, but I don't think it is. <

No, I don't rely on the capitalists recogizing that wage increases would be
in their interests. It's true that social democracy in Europe was better for
the capitalists there than neo-liberalism is, but social democracy is a
compromise or truce arising from severe class struggles. That is, it has to
forced on the capitalists. (History shows that the cappos look for ways to
up their profits by evading social democracy, so the system is historically
limited. The only way to keep social democracy going is for the left to keep
on struggling, but party and union bureaucrats resist this as much as they
can.)

Nor do I accept your vision, which implies (by the same logic that you apply
to my theory) that capitalists will lead recovery by recognizing that it's
in their best interest to cut wages.

In my general theory, cutting wages has two roles. In a "weak labor" era,
cutting wages relative to productivity implies a situation where a boom can
only continue by becoming increasingly fragile (see above). Second, in and
after a recession (caused by whatever), the efforts to deal with the
realization crisis, capitalists cut wages and speed up labor. If other
sources of aggregate demand are blocked (by unused capacity, extreme debt,
and pessimistic expectations) this leads to further falls in aggregate
demand by depressing consumption. But cyclical economic crisis can arise
from other events than wage-cutting, i.e., what I call "over-investment
relative to supply constraints," which I see as likely in "strong labor"
periods such as the 1960s in the U.S. This leads to a fall in the rate of
profit due to supply-side constraints, as in the 1960s and after. There's
always the possibility that labor will be neither "too strong" (the 1960s)
nor "too weak" (the 1990s) but "just right." But capitalism is well-known
for disrupting the _status quo_, even a _status quo_ from which it benefits,
so this situation is unlikely to last.

In sum, the real barrier to capitalist accumulation is capital itself.

Jim Devine jdevine@xxxxxxx &  http://bellarmine.lmu.edu/~jdevine