Re: "crisis theory" [was: What is Marx's view of fiscal policy?]

[Jim Devine <jdevine03@xxxxxxxxx>]

On 6/6/07, s.artesian <sartesian@xxxxxxxxxxxxx> wrote:
> Perhaps this might become more clear if you could explain
> the "secular trend" and "underconsumption" in relation to
> the US economy in recent history, let's say 1994-2000, the
> recession in 2001, and the recovery to 2006.

I don't know if this is aimed at me or not, but I'll assume that it
is, just because I'm feeling electronically loquacious today.

[for a longer, historical, presentation of my theory, see
http://myweb.lmu.edu/jdevine/JD-1994-Depression.pdf, which aims to
understand the Great Collapse of 1929-33.]

> At least to me, none of that has anything to do
> with the workers' ability to purchase commodites.

First of all, I reject classical underconsumptionism (as defined by
Michael Bleaney's book a few years ago). The underconsumptionists
posited that consumer demand (C) was the main, if not the only, factor
determining aggregate demand (AD). I think that Marx and Keynes had it
right, that there are more factors determining AD than simply C.

Even the underconsumptionists were willing to accept the role of the
extension of credit as a force that (temporarily) breaks their posited
link between C and AD. That is, working people can consume more than
seems justified by their incomes by borrowing a lot (as during the
period since 1994 or so). There can even be overconsumption! Of
course, eventually debt service (interest + principal repayments)
weigh heavily on spending, ending this role of credit in delaying any
crisis caused by low C.

And as Keynes suggested, AD is also directly determined by government
borrowing, private fixed investment spending (Marx's capital
accumulation), and net exports. The extension of credit can be behind
any of these.  I'd agree with Marx that in the longer tun, it's
accumulation that rules AD.

Because of this, I reject the second main underconsumption view -- as
defined by Bleaney and seen very clearly in the work of Baran and
Sweezy -- that capitalism normally gravitates toward stagnation,
depression.

However, during a period such as the neoliberal era since 1980 or so,
the US has seen what I call an "underconsumption undertow," due to the
widening income gap between capitalists and workers. Unlike for
underconsumptionists, I do not see this as the normal state of
capitalism, but instead the result of one specific era of capitalism,
the results of what might be called the neoliberal policy revolution
or the one-sided class war. In other eras, like the 1960s, there was
no underconsumption undertow.

The undertow means that though it's quite possible for the economy to
boom (as in the late 1990s and to a lesser extent since 2002),
consumer credit expansion and other kinds of aggregate demand must
substitute for the direct effects of consumption. With a widening
income gap between classes, as we've seen in the last couple of
decades, there has to be more and more substitutes for the direct
effect of consumer demand.

Now get to specifics. In the period of 1994-2000, the boom was not
built on government borrowing, since the Clintonoids did more than
balance the budget. Instead it was based on investment -- driven first
by rising profit rates and then (after 1997) by hope, credit, and some
bubbles (fiber optic cable, Silicon Valley, dot-coms, etc.)
Consumption also rose, driven by credit. The credit largely came from
abroad: net exports were negative, corresponding to an inflow of
capital funds. To a smaller extent, it came from the government's
surplus of funds.

In 2001, the results of over-investment hit (as the big profits in
fiber optics, etc. turned out to be largely illusory), causing a
sudden dive of fixed investment. This would have caused a major
recession (not only for labor but for capital) but this was
counteracted by the Fed, which started the major phase of the housing
bubble.

This gave way to the recent boom, which was driven by government
deficits (the wars, tax cuts for the rich, etc.), investment (rising
profits), and consumer demand (home equity loans, etc.) Consumer
demand seems based on the housing bubble -- and on a startling
increase in luxury spending out of surplus-value.

I cannot predict the future, but except for the government deficit, it
seems to me that this is a "bubble economy," based on extremely flaky
spending (investment, luxury spending, credit-based consumption). It's
also based on a massive inflow of foreign capital funds, which seems
unsustainable. This suggests that if the economy goes into a
recession, it will be a steep fall. Of course, as the hegemonic
imperialist power, the US may be able to foist off the costs on the
rest of the world...
--
Jim Devine /  "Segui il tuo corso, e lascia dir le genti." (Go your
own way and let people talk.) -- Karl, paraphrasing Dante.