the profit rate & recession

[Rakesh Bhandari <rakeshb@xxxxxxxxxxxx>]

Jim D states his big idea:

 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.

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.
__________
what matters is the return on the marginal investment, not average
profit or the the statistical artefact of the BEA return.

 And new investments weren't paying; companies had thus been
'investing' massively in their own shares for some time; NASDAQ
plunged because leading high tech companies did not this time support
their own stock  knowing full well that earnings were quite weak
going forward, i.e., the refusal of buy back was the signal that
profitability was collapsing;  companies were simply hiding
profitability problems by cooking the books (esp software companies
and of course so called trading companies); and the effects of the
Fed's cheap money after the Asia Panic were also petering out;

 New investments tapered off in the face of declining profitability
on new investments and that declining profitability  was then
projected forward (Keynes so called marginal efficiency of capital).
The demand for money and credit thus weakened, which added a dose of
deflationary pressure which has had the effect of making enormous
private debt unmanageable.

At any rate, the crisis hit Dept I first. Consumption was not a
problem. We also know Marx's famous vol II passge in which he
criticizes underconsumption. Consumption will now give.

Capital's way out of a crisis is only one: mutual destruction and
annihilation and counter-revolution against the working class.

If we don't like the news, then we're going to have make some of our own.

__________



Jim D writes:

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.)
__________
i don't think the analogy is helpful in understanding the cyclical
health of the organism.

____________
Jim D writes:

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.
______________
Some imbalances are overcome in different and more painless fashion
than others. So we need a typology of imbalances in terms of how they
are overcome.
_________

 Jim D writes:


(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.)
________
so you do advocate a less crude underconsumption theory?
___________
Jim D writes:

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."
____________
see grossmann for why a decline in profitability manifests itself as
a speculative bubble.
____________
Jim D writes:

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.
_________
why EXACTLY couldn't they be sustained?
____________
Jim D writes:

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.
____________
if the US runs deficits and raises its interest rates to do so, it
can suck capital from elsewhere, thus not overcoming problems but
exporting them. This is even more true of neo mercantilist trade
policy.
_________
Jim D writes

One thing I didn't
see in CAPITAL was a clear link between the profit rate and fixed
investment.
_______
This is a good point. As Marx emphasized (drawing from Richard Jones)
a falling rate of profit can indeed be accompanied by a quickening in
the rate of fixed captial accumulation. Grossmann's extension of
bauer's scheme shows how this is possible until the MASS of surplus
value becomes insufficient vis a vis accumulation requirements.
______

Jim D writes
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.
_______
You've got that right, Jim.

_______



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
_______

This is truly bizarre.

Rakesh