The
reason for virtual disappearance of great depressions is the new attitude of the
electorate… [E]conomic science knows how to use monetary and fiscal policy to
keep any recessions that break out from snowballing into lasting chronic slumps.
If Marxians wait for capitalism to collapse in a final crisis, they wait in
vain. We have eaten of the Fruit of the Tree of Knowledge and, for better or
worse, there is no returning to laissez faire capitalism. The electorate in a
mixed economy insists that any political party which is in power—whether it be
the Republican or the Democratic, the Tory or the Labor party—take the
expansionary actions that can prevent depressions. Economics, 8th Addition,
Paul Samuelson (1970, McGraw-Hill), p. 250.
Since
Samuelson---probably the most influential bourgeois economist of the post-war
era---died at the end of 2009, we will never know if he would now retract these
statements. Every claim in the above quote is false, and false in a way that
sheds light on where we are today. And
because every claim is false, policy makers are in a hell of a mess.
The reason for virtual disappearance
of great depressions is the new attitude of the electorate……
[E]conomic science knows how to use
monetary and fiscal policy to keep any recessions that break out from
snowballing into lasting chronic slumps.
In
1970, when the 8th edition of Samuelson’s iconic textbook was
published, nearly everyone did share the belief that government had access to
tools that could reverse any slump. Even the old red-baiting Cold Warrior
President, Richard Nixon, embraced Keynesian prescriptions at that time.
But
matters changed quickly in the 1970s. A long period of inflation and stagnant
growth settled in, seemingly immune to fiscal and monetary therapy. The loss of
the “stimulus” of the war in Vietnam and a restructuring of energy prices
challenged the consensus celebrated by Samuelson. Many economists identified the
soaring inflation with union and other cost-of-living escalators; consequently,
a dampening of wages and benefits was urged, a tendency that continues unabated
today. By the end of the 1970s, Treasury Secretary Volker’s shock therapy to
contain inflation brought the US economy into deep recession. The Reagan victory
in 1980 signaled a loss of confidence in government intervention and the rise of
a competitive ideology. Some called it “voodoo economics,” but it proved to have
amazing resilience: it turned away from the Keynesian toolbox, and it
established a new consensus.
We
have eaten of the Fruit of the Tree of Knowledge and, for better or worse, there
is no returning to laissez faire capitalism.
By
1980, the “Fruit” was less than appetizing. Reagan’s election (and Thatcher’s
before him) signaled a return to the gruel of laissez faire under the cheery brand
description, “neo-liberalism.” A whole new set of popular terms like “supply
side,” “trickle down,” etc. were created to sell the new thinking, while the
“deep” thinkers of academia, cast off the economics of aggregates and the
priority of demand for the micro-foundations of Hobbes and his selfish, but
rational animal dominating his/her living space. By 1992, with both the collapse
of European socialism and the election of a “New Democratic” President, the
“Tree of Knowledge” was a mere stump and neo-liberalism had penetrated nearly
every aspect of life in the most advanced capitalist countries. Laissez faire returned with a vengeance
and enjoyed even greater dominance than in its original incarnation. And the
restored economic doctrine saw no need for the tools of repair since it saw the
capitalist market as self-correcting.
The electorate in a mixed economy
insists that any political party which is in power—whether it be the Republican
or the Democratic, the Tory or the Labor party—take the expansionary actions
that can prevent depressions.
This
unassailable truth of 1970 has proven to not only be assailable, but down right
false. The political parties mentioned by Samuelson – the dominant parties in
the US and UK – did not vigorously defend the value of “expansionary actions;”
rather, they fled from the policy as though it were radioactive. With William
Clinton’s ascendancy to the Presidency at the head of the old New Deal party,
advocates of expansionary government intervention had been largely purged from
prominence in the Democratic Party. Likewise, Tony Blair’s rise to Prime
Minister in the UK signaled the Labour Party’s wholesale embrace of
neo-liberalism.
Of
course Samuelson’s claim that the “electorate… insists…” on these policies was
never tested because the electorate was never asked — elites settled the matter
for them. In 1970, prominent intellectuals still believed that important matters
were decided through the electoral process; surely few share that illusion
today, when political actors persistently ignore the will of the electorate on
matters like taxing the rich or shoring up social programs.
It
bears reflecting upon the words of the Nobel committee in awarding the prize in
economics to Samuelson in the same year as the publication of the 8th
edition: “More than any other contemporary economist, Samuelson has helped to
raise the general analytical and methodological level in economic science. He
has simply rewritten considerable parts of economic theory.” Unfortunately, the “general analytical
and methodological level” has proven to be unhelpful in understanding the course
of economic history.
If
Marxians wait for capitalism to collapse in a final crisis, they wait in
vain.
Samuelson’s peculiar coinage of the
term “Marxians” suggests that he seldom engaged Marxists to solicit their
opinion. Of course one does encounter Marxist-poseurs who frequently and loudly
predict an apocalyptic final collapse of capitalism just as one hears of
half-baked fans who believe the Chicago Cubs will win the World Series—it’s
possible, but not likely.
Capitalism will assuredly disappear
as a result of “a final conflict” (“C’est la lutte finale” in the original words
of the Internationale) and not a
final economic crisis. Yet there is a relationship between economic and social
crises and the final conflict that will push capitalism into the fabled historic
dustbin. That is just to say that wars, economic calumnies, or political
paralysis are almost always the immediate and decisive causes of revolutionary
risings.
We
cannot give Samuelson this point, however, because he meant to deny both that
(1) economic crises will not alone bring down capitalism and that (2) no
economic crisis – like the Great Depression—can again shake the foundations of
the capitalist edifice. On the later, all (authentic) Marxists are in agreement:
capitalism cannot, from its internal logic, escape serious economic turmoil;
crises are inescapable partners of the accumulation process.
With
capitalism’s foundations seriously buffeted by the last four years of bank
failures, housing foreclosures, mass layoffs, financial scandals, shrinking
wealth, stagnant incomes, dwindling social services, and a host of other blows,
few would want to stand on the ground carved out by Samuelson in 1970. What may
have appeared to be transparently obvious in 1970 is now decidedly questionable
in the light of the protracted economic crisis that we have endured since late
2008.
The
Next Step?
I have
written often and confidently that we have only seen the first act of a
continuing severe structural crisis of global capitalism. Regardless of policy
initiatives, there is much more pain and economic chaos ahead. Contrary to the
most esteemed minds of the economic profession, there are no quick or decisive
solutions to be found from either the market fundamentalists or the Keynesian
heretics opposing them. And their political expressions—conservative and social
democratic parties – are equally bankrupt, offering no real exit from the
looming disaster. Thus, both the seriously damaged economic engine and impotent
political institutions combine to guarantee that the crisis will be with us for
some time to come.
For the
moment, Europe is the locus of the global crisis. The European Union project,
realized in an era of great optimism and capitalist triumphalism, is in imminent
danger of collapsing; its vulnerability to predatory financial capitalism has
left its constituent countries, particularly its weakest countries, in immediate
danger of reversion to nineteenth century standards of development and living.
The global market mechanism has determined that Greece, Portugal, Ireland, Spain
and probably Italy have no essential role in the global economy except for
nostalgic tourism and retirement villas.
The
illusion of a unified Europe, devoid of borders and with a shared standard of
living, is just that—an illusion. The old economic and social relations of
dominance and exploitation did not evaporate in Europe because politicians voted
in idyllic times to create a union. And with a profound global crisis, the
weaknesses of this unsteady union became the target of the bond vultures that
turn hardship into profits. In the beginning, these bond vultures swooped down
upon Greece, capturing its economy for the big banks and handing its sovereignty
to the European imperial centers. I wrote of the weakness and vulnerability of
this union often in 2008 and 2009. I returned to this theme in November, 2011:
“one might conclude that unification – mutually beneficial combinations of
national entities—is extremely unlikely to be successful with capitalist social
and economic relations intact. Conversely, socialist social and economic
relations, linked with an internationalist perspective hold the only real,
lasting opportunity for unity among diverse states.”
The
Great Debt Dilemma
The
foreclosing of a bourgeois solution to the European crisis arises from the
dominance of finance capital in the world economy. That is to say, no real
solution is available through policy initiatives crafted by bourgeois economists
or advocated by politicians who are intent upon keeping state-monopoly
capitalism unchanged while ignoring the predatory role of the financial sector.
Those who hope to return to the capitalism of Samuelson’s time are simply
delusional.
Market
fundamentalists who thought that the Euro-crisis would dissipate with a bit of
budget discipline, a heavy dose of government austerity, and perhaps a few
emergency loans have been thoroughly discredited by shrinking growth, even
greater debt burdens, and intense human suffering. The wholesale dumping of
political incumbents has signaled the bankruptcy of conservative answers to
those ruling elites who first chose this road.
In the
trail of this failure is the “I told you so” of the Keynesians and social
democrats. In truth, liberal economists were loud and outspoken about policies
that hung on a thin strand of hope rather than rational thought (Despite the
fact that policies of austerity made absolutely no sense, it drove the media and
politicians into a frenzy of advocacy—a tribute to the power of elitist wishful
thinking over common sense). Krugman, Stiglitz and a host of other economists
seek to bolster the social democratic case by advocating robust deficit spending
to re-kindle growth in the Euro-zone. They argued sensibly that austerity and
reduced government spending would only make matters worse. And they assumed that
the converse—more government stimuli—would therefore make matters better. But
this is a non sequitur.
Certainly more government spending
when directed towards programs that
benefit those suffering from the economic crisis is a justifiable social
good and urgently needed, though it does not follow that it is necessarily a
prescription for recovery. Neither the historical record nor theory demonstrates
that government spending is a sure-fire recipe for restoring capitalist growth
and profitability. It may help, it may not. And it will not in this case unless
we excise the influence of financial markets upon the fate of the
Euro-zone.
To hear
the social democrats, the answer to the European debt crisis is to reject
austerity in favor of growth. But they forget or choose to ignore the elephant
in the room: the international debt market. Bond vultures, their accomplices
--the credit rating agencies, and lending institutions-- pounce on even a hint
of deficit spending. The entire contemporary history of the European crisis is
that of a crisis engineered by debt holders who view any additional credit
extension or currency deflation as a threat to their existing debt holdings. And
they hold the power to enforce their interests through debt markets. Equally,
they have nearly all the European political forces in a strangle hold that
places the interests of the financial sector ahead of all else. That is the
demonstrated dominance of finance capital in the twenty-first century. We ignore
this at our peril.
The
facile answer of the social democrats—from the recent successful electoral
campaign of the “socialists” in France to the ascendancy of SYRIZA in Greece—is
to reject austerity and endorse growth. But this is no answer at all if it
depends upon the “good will” of financial markets that neither have a “will” nor
respect the social “good.” The dominance of finance capital cannot be wished or
negotiated away.
Nor is
exit from the Euro an option without a radical break from international finance.
Credit markets will be closed to any country that departs the zone without
guaranteeing the integrity of existing debt, a burden that leaves an exiting or
exiled country exactly where it was before it left.
Doom
or Promise?
The
debt dilemma poses an impossible challenge to those who wish to see Europe
governed as usual. It forecloses both a conservative and social democratic
answer to the current crisis ravaging Europe. Understandably, the habits of
decades of complacency and relative stability leave the electorate with a desire
to find an easy way out within the confines of the known rather than a leap into
the unknown. Embracing solutions beyond the habitual ones comes with great
difficulty even among the victims. But for four years, the habitual solutions
have failed and the debt dilemma gives us every reason to believe that they will
continue to fail.
Only a
vigorous people’s movement determined to overthrow the dominance of finance
capital will lead Europe (and the rest of us) out of the death grip of financial
markets. Central to that overthrow is the establishment of public ownership and
control over financial institutions and the removal of those institutions from
the market place. It is a nascent movement; we see its stirrings in the growth
of the Communist movement emerging around the ideological pole established by
the Greek Communist Party, a Party that refuses to compromise by joining a
doomed-to-fail coalition government with no answer to the debt dilemma. The era
of smug, smooth, and easy recoveries from the capitalist business cycle, as
announced by Paul Samuelson, is over. Likewise, the era of economic tinkering
and political self-satisfaction is inadequate for this moment. We enter a new
era with fear and uncertainty gripping most of the world’s population.
Therefore, the realization of the promise of the new era may be a while in
coming, but it's surely coming.
Zoltan
Zigedy
zoltanzigedy@gmail.com
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