PEN-L message, Re: [Pen-l] As capitalism stares into the abyss, was Marx righ

On Fri, Mar 13, 2009 at 11:38 AM, Charles Brown <cdb1003@xxxxxxxxxxx> wrote:

Does a bear s___ in the woods ?

^^^^^^

Stephen King: As capitalism stares into the abyss, was Marx right all along?
We may avoid a 1930s Depression but the best we can hope for may be a 1990s Japan
Monday, 2 March 2009

http://us.mg204.mail.yahoo.com/dc/launch?.partner=sbc&.rand=c27i56kobk3ja

"Modern bourgeois society ... a society that has conjured up
such gigantic means of production and of exchange, is like the
sorcerer who is no longer able to control the powers of the nether
world whom he has called up by his spells."

Those of you with revolutionary zeal will immediately recognise
these words. Penned by Karl Marx in 1848, they form part of the
Communist Manifesto. Marx, like Adam Smith before him, had
a historical view of society's development. Capitalism, with its
bourgeoisie, had replaced feudalism, but capitalism, according
to Marx, would be replaced by communism. Capitalism was inherently
unstable, as Marx noted later in the same paragraph:
".....the commercial crises... by their periodical return,
put the existence of the entire bourgeois society on its trial,
each time more threateningly. In these crises, a great part not
only of the existing products, but also of the previously created
productive forces, are periodically destroyed. In these crises,
there breaks out an epidemic that, in all earlier epochs, would
have seemed an absurdity – the epidemic of over-production."
Whatever else one thinks of Marx, he certainly knew a thing
or two about the business cycle. Were he alive now, he would
surely claim his theories were being vindicated. We are, after all,
witnessing the most remarkable collapse in economic activity
around the world. Take Japan. In November, industrial production
fell 8 per cent. That was bad enough. In December, production
dropped another 9 per cent. That was even more remarkable.
January's production figures, though, are simply eye-wateringly
awful, showing a further 10 per cent decline. Production, then,
is down almost 30 per cent in just three months, a pace of decline
unprecedented in Japanese post-war economic history.
Or how about the US, where we discovered last week that national
income contracted in the final quarter of last year at an annual
rate of more than 6 per cent, the biggest drop since the early
1980s. Then there's Taiwan, where exports have been in freefall
in recent months. Not to mention dear old Blighty, where the
economy might end up shrinking by approaching 4 per cent this year.
The pace of decline in global economic output is extraordinary.
On virtually any metric, we are seeing the worst global downturn
in decades: worse than the aftermath of the first oil shock in the
mid-1970s and worse than the early-1980s downswing, when the
world economy had to cope with a doubling of the oil price, the
tough love of monetarism and the onset of the Latin American
debt crisis. Moreover, this time we cannot use the resurgence
of inflation as an excuse for lost output: the credit crunch in all
its many guises has seen to that. Instead, we have a world of
collapsing output combined with falling prices: a world, then, of depression.
For many years, Marxist ideas appeared to be totally irrelevant.
The collapse of the Berlin Wall in 1989 brought to an end the era
of Marxist-Leninist Communism, while China's decision to join the
modern world at the beginning of the 1980s drew a line under its
earlier Maoist ideology. In western economies, Marxist ideas were
at their most potent after the First Word War when the likes of
Rosa Luxemburg could smell revol-ution in the air and as the
Roaring Twenties gave way to the Great Depression of the 1930s.
I'm not suggesting we're entering revolutionary times. However,
it seems increasingly likely that the economic landscape in
the years ahead will be fundamentally different from the landscape
that has dominated the working lives of people like me who entered
the workforce in the 1980s. We've lived through decades of plenty,
where incomes have risen rapidly, where credit has been all too
easily available and where recessions have been mostly modest
affairs. Suddenly, we're facing a collapse in activity on a truly
Marxist scale. It's difficult to imagine the world's love affair with
free markets being sustained under this onslaught. The extreme
nature of this downswing will change our lives for decades to come.
The first change relates to the allocation of capital. Increasingly,
policymakers are accepting that market forces, left to their own devices,
will lead to a race to the bottom. The dangers are becoming greater
by the day. Interest rates are close to zero while prices and wages
are in danger of declining. If deflation takes hold, real interest rates
on cash will start to rise, creating perverse incentives in capital
markets. Why bother to buy equities or corporate bonds if you are
nicely rewarded for hanging on to an entirely risk-free piece of paper?
The efforts to stop this vicious circle are increasingly focused on
bypassing the banking and financial system. As central banks
widen the assets they are prepared to purchase to maintain the
flow of credit to the economy at large, they are increasingly getting
into the capital allocation game. They, and not the market, will at the
margin decide whether companies and households are creditworthy.
And as governments increase their spending plans to ward off a
catastrophic loss of demand, they, rather than companies, will
decide on how our savings should be allocated.
The second change relates to an increased national bias in the
allocation of capital. As Nicolas Sarkozy, the French President,
pushes to offer government funding to French car companies on
condition they don't outsource French jobs abroad, as US Congress
signs off a stimulus package with more than a hint of a "Buy American"
policy, and as the UK Government pushes to encourage bailed-out
banks to lend domestically as opposed to internationally, we appear
to be turning our backs on the previous world of heightened
cross-border trade and capital flows. While these flows have
undoubtedly been volatile, they have nevertheless allowed emerging
economies, in particular, to gain a foothold on the development ladder.
Are we about to cast these countries asunder in our desperate
attempt to fix our domestic problems?
The third change relates to interference in the price mechanism.
When it comes to Sir Fred Goodwin's pension, this isn't so surprising,
but the price mechanism extends far and wide. At the microeconomic
level, we'll enter a world of subsidised loans with murky political
undertones. At the macroeconomic level, countries may take the
opportunity to manipulate their exchange rates in an attempt either to
gain a competitive advantage or to "default" to foreign creditors.
Some of these changes may be absolutely necessary to prevent
an outright collapse in global economic activity (although the rise
in protect-ionist pressures is surely a retrograde step). They also
suggest, though, that there will be no return to "business as usual" for
market forces. The cost of avoiding depression is a heightened
level of state intervention on a scale unimaginable for those who
believe in the virtues of free markets. While such intervention may
help prevent the worst ravages of economic collapse, it will ultimately
do little to foster the entrepreneurial spirit and risk-taking behaviour
which have, in the past, contributed so much to rising living standards.
We may avoid a 1930s Depression but, increasingly, we may find the
best we can hope for is a 1990s Japan. Not quite a Marxist revolution,
then, but certainly a lasting sea-change in economic performance.
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Re: [Pen-l] As capitalism stares into the abyss, was Marx right all along? ( Yes)