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A Man on a Limb: A Short Analysis of the Current Economic Crisis
by Brad Forrest
21 Aug 2013
The current crisis of the global capitalist system is shaping up to be one of the worst since the Great Depression of the 1930’s. U.S. Gross Domestic Product grew by an anemic 1.8 percent in the first quarter of 2013, and only 0.4 the previous quarter. U.S. capitalists and their political representatives in the Democratic and Republican parties have got themselves in a real mess, with no end in sight.
The contradictions in the system are piling up and forcing the government to act, but they only have two options: fix the deficit or try to stimulate the economy using Keynesian methods that had been thrown in the scrap heap after the stagflation fiasco of the seventies. They must do one or the other; they can’t do both, and this is the main contradiction of the current crisis. All attempts to fix the deficit by reducing spending will depress economic activity, since it will take money out of the economy. If they opt for stimulating the economy via government spending, the deficit will grow. The rich capitalists are like a man sawing away at a branch they are standing on.
Nobel Prize winning economist Paul Krugman has written a new book entitled, “End This Depression Now!” where he argues that people aren’t spending enough — personal consumption isn’t large enough to buy the goods produced for the market. This notion is a hoary old hobbyhorse of liberal economists. The main historic figure behind this idea is the British economist John Maynard Keynes (who explicitly stated that in the class struggle you would find him supporting the capitalists, as also would Krugman).
So the Great Depression got Keynes thinking, and he wrote a big book known as “The General Theory” which advised governments to step up state spending to increase consumption and get the economy moving in an upward direction. What are the specifics to this Keynesian idea? Nothing simpler than this: When a slump is underway the state is supposed to cut taxes, increase spending, for example, through unemployment insurance for workers who have lost their jobs, and lower the central bank interest rate.
These measures would make up for the lack of consumer spending. Conversely, when the economy really gets heated up, government should try to prevent a bubble — and thus a crash — by raising taxes, cutting spending and raising the banks’ interest rates. These measures, trumpeted as the saving grace by liberals ever after, were supposed to either vanquish or greatly mitigate the boom slump cycle that is an integral component that is naturally produced under capitalism.
At bottom, capitalism is production for profit, and the basis of profit is worker exploitation. For example, capitalists purchase the labor power of workers through wages, but most workers are aware that they produce more profit for the company than they are paid in wages. Karl Marx called this extra value “surplus value” — workers spend a small part of their day creating the value that equals their wages, and the rest of the day they are forced to make profit for the capitalist. This is why the capitalist “accumulates” wealth while the workers stays on the same low level. The chasm between the two grows ever wider.
Over time, this gap expresses itself through “overproduction,” meaning that workers produce more value for the market — in the form of goods and services — than they can buy with their meager wages.
While Keynes and Krugman bemoan the “underconsumption” of the masses, they forget that it is an inevitable fact under the capitalist system, the motor force of which is the competition between capitalists for their own maximization of profits at the expense of their rivals: capitalists are forced via competition to produce as many goods as possible and sell them for less than their competitors in order to boost profits, which allows them to expand at the expense of their market rivals. The mass production this entails combined with the pressure to reduce wages — which boosts profit — inevitably results in overproduction and its byproduct, recession, or worse, depression.
As the capitalists are fighting for higher profits, the workers fight for higher wages. What’s good for one class is bad for the other.
The capitalists try to gloss over this fundamental contradiction of their system by calling overproduction “over capacity” which is a little different but basically the same thing. They also look at “capacity utilization” which shows the difference between what they could produce and the amount they are actually producing.
The average economy-wide capacity utilization rate in the U.S. since 1967 was about 81.6%, according to the Federal Reserve measure.
As of June 2012, capacity utilization went down to 77.7.
This means that the capitalists are veritably choking in their capacity to overproduce!
In a market economy, all taxes must come from either the wages of the workers or the profits of the capitalists. Workers generally spend all the meager income they get, so it would be pointless to tax them at a substantial rate. If the state decided to tax the profits of the capitalists, there would inevitably be an investment strike (capitalists hoarding their wealth instead of investing in production), or capital flight to a region with lower taxes. As the so-called middle class (read working class) quickly vanishes, the tax base of the United States dwindles evermore.
As Marx pointed out long ago, a modern capitalist government is essentially the executive committee of the nation’s ruling class, so it is hardly possible that they would advocate taxing themselves. Quite the contrary, the battle cry of the capitalists is “lower taxes” and “cut spending!”
Through the bi-partisan sequester cuts, the government has opted to put the entire crisis on the backs of the workers by advocating cutting the social safety net (Social Security and Medicare, etc.). And Obama has “promised” to do even more in the near future. At the same time taxes on corporate income decreased $10.5 billion in the first quarter of 2013, followed by a decrease of $4.4 billion in the fourth. They have no civic conscience at all; they just live for profit while arrogantly repeating the Reagan era lie of trickle down economics. But we now know that after decades of Reganomics the money only trickles up.
So where is this mysterious money for the state to spend supposed to come from if it’s impossible to get it in sufficient amounts from workers or from capitalists? The answer is that the state will have to borrow or print money (now known as “Quantitative Easing”). Since the root of the crisis is due to overproduction, it’s obvious that borrowing and printing money can only halfway work in the near term. In the long run the state will end up with a monstrous debt by borrowing and/or massive inflation by dollar printing.
And that is in fact what’s happened to the United States since the end of World War II, as a consequence of constantly battling overproduction. The public debt has ballooned to over $16 trillion, while the dollar continues to inflate, and while overproduction is also attacked by signing anti-worker free trade agreements combined with prying open the markets of foreign nations that have been closed to U.S. products.
Instead of listening to liberals like Krugman, who are wholly living on the unsound ideas of yesterday, the capitalists and their representatives are firmly set on cutting the deficit. Does this mean the capitalists don’t understand how their system works? Nothing of the kind. The American ruling class, like their compatriots in other countries, are embarking on economic warfare on an international scale.
The American capitalists are using mass unemployment to drastically lower the wages of the working class so as to conform to a policy of deflation, meaning they want to lower wages and therefore commodity prices to make American goods cheaper than their competitors, a policy that will make starvation wages the “new norm.” This is why neither the Democrats or the Republicans are advocating a federal jobs program or raising the minimum wage — both of which would increase demand in the labor market and thus raise wages — while also advocating a policy of increasing U.S. exports, which can only compete with China, India, and other poorer nations if U.S. workers make drastically less in wages than they do now.
The capitalists are assisted in this policy by “Quantitative Easing,” which is printing money to bail out the banks and relieve them of their sub-prime loans that have gone bad. Printing money debases the currency and leads to the de facto devaluation of the dollar, another way of undercutting foreign competition on the global market. It also leads to inflation in the U.S., which eats into the workers’ paychecks.
It’s not in the interest of the working class to go through inflation or deflation, or any other policy aimed at propping up the capitalist system.
In the near term workers must fight against the above plan by demanding and fighting for a federal jobs program, which would solve the jobs crisis and increase wages for all workers. But such a plan must be accompanied with a plan to overcome the inherent obstacles of the capitalist system by taking production out of the hands of the individual capitalists, and instead creating a democratic economy run by the vast majority of workers themselves, for the benefit of everybody.
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