Just a few years back, business and economic pundits were falling over themselves in the mainstream press to offer belated warnings of the coming financial melt-down. Out of the blue, it seemed, was the sudden awareness that the plethora of fictitious financial products had no real value underpinning them, that the bubble of absurd expectations was fast approaching something sharp, and that those with a bit of sense were dumping their liabilities.
The crisis it seems, like many before it, approached with little warning and caught everyone unawares. At least, that's the popular story. The randomness of the business and trade world meant that crises were always possible if we weren't on our guard against it. And of course, when crisis strikes, those whose guards were down are the natural scapegoats. And those who made rash claims about years of uninterrupted growth were particularly exposed.
But the fact is that the crisis wasn't at all unexpected and it didn't come suddenly out of the blue. It actually developed over the last 30 years. Richard D. Wolff has now issued, in Capitalism Hits the Fan, a collection of his articles first published in Monthly Review which serves as a remarkable record of just how blind conventional economics really is, and also as a practical guide to how a real analysis of the crisis shapes up.
Between 1850 and 1975 in the U.S., the real incomes of working people pretty much kept pace with increases in productivity, which was good news for the owners of industry and the workers because the additional goods could be bought with the additional demand. Workers were earning enough to buy an increasing amount of the goods they produced. But then the link was broken in the mid-'70s and the power of the corporations forced down real wages.
As productivity outstripped real wages, profits of course rose as the cash that would have ended up in employee pay-packets ended up in the bank accounts of the owners where by and large it didn't get spent buying up the now surplus products. So there was insufficient demand for the surplus goods being produced. And we all know that crisis of overproduction led to falling prices and falling profits. How then to keep the demand up but without giving workers an increase in their real wages?
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Article comments
1 - John Wilson
Good article. Very astute.
Soon capitalism will join that other great fraud, communism, in the dumper. Maybe we have the courage to contrive something else, but I fear we will sink deeper into feudalism.
2 - Bob Lloyd
For communism, read Stalinism? I think it's worth making the distinction because Russia, China, Cuba et al were state capitalist regimes and still are.
Stalinism, despite some very ill-informed commentaries, was not based on a workers' state but on the exploitation of workers by a bureaucratic class. It's still a popular distortion to claim that communism is the same as Stalinism, that socialism is the same as Russian state capitalism, etc.
Most people never bother to find out and just repeat the same old misinformed prejudices. But there was a movement which argued "Neither Washington Nor Moscow", clearly rejecting Stalinism as having nothing to do with socialism.
3 - Cindy
Good article Bob. I watched Prof. Wolff's video by the same name. Now I am taking one of his free online courses in Marxian class theory. He also has one on Marxian economics and one on the economic crisis and globalization. Great stuff.
4 - Bob Lloyd
Another excellent source is David Harvey who is a political geographer. His analysis of globalisation is very clear. Some of his videos are at davidharvey.org.
5 - Geri A. Mellgren-Kerwin
Yeah man, we know what happened. If the employer class hadn't been cheap, insistant upon fighting unions and keeping American workers under their heel, these same employers would have realized that the "master stroke" of borrowing against assets instead of raising wages wasn't such a master stroke after all. Sooner or later, the piper (in this case, the bank) must be paid. The capitalist had a DAMN GOOD THING in the pre-l970's economy. The true master stroke would have been a return to it. Every economic idea since l970 has been a loser for Americans, supply-side, trickle-down, free-trade, globalization, no regulation, no social safety net, all of it disasterous. We have the proof. I can only hope this global economy collapses so we can go back to sensible economics and revive the United States.
6 - Geri A. Mellgren-Kerwin
Economics may be the dismal science, but it isn't that hard to understand. If you have an economy based on consumerism (as in the pre-l970's US) you must keep the consumer (who is also a worker) healthy so she) can work and well-paid so she) can buy the products produced. It is so simple, how could they have gotten it so wrong? They got greedy, they wanted it all. When you want it all, you won't let anybody have any.
It was another generation, the baby-boomers who invented the concept of maximizing profits which become the law. Putting number one first is another baby-boomer maxim that was followed to the letter. Put both together along with a weak social conscience or respect for law, and you have the l970's and beyond picture, a few people making mega-fortunes at the expense of all the rest.
7 - Bob Lloyd
Maximising profits is a compulsion in capitalism because of the dictates of the market. No capitalist has a choice about it so they have to compete with other capitalists and that forces the chasing of higher profits, cutting costs, increasing market share and all the rest. The pre-70 US was also crisis-ridden but was able to expand thanks to absolutely massive spending on arms.
It's the madness of market competition that causes crises, and capitalists don't have any choice in the matter. Sure, there's greed but every small-time capitalist follows the same rules - expand or go under. Capitalism doesn't solve its crises, it just moves them around. Globalisation is just one way the US economy is trying to do that.