The economic crisis is nearly two years old. I like to call it the Second Great Contraction, to borrow a term from a mainstream economist, to distinguish it from other postwar economic downturns.
Notwithstanding the "good" reports on GDP, employment and personal consumption growth, there is plenty of reason to be uneasy about the economy.
Investment is sluggish, trillions of dollars in real and fictitious capital have disappeared and will not return, and exploitation increases and wages fall. The housing crisis has eased a bit, but the foreclosure rate and the number of houses underwater are still enormous. Consumer spending remains low as households begin to work off their debt. State and local government spending is declining, even though it should be increasing to counter downward economic pressures. Income inequality is worsening, debt levels remain enormous, manufacturing is limping along; export growth is weak and poverty is ratcheting up, particularly in the racially oppressed communities and among single moms.
And no one should expect China to become a buyer of last resort in global markets.
The one indicator that shows some rebound is – you guessed it – corporate profits, especially in the financial sector. With no shame, management committees at the biggest financial institutions are awarding themselves a huge payout in salary and bonuses. Just when you thought the criminals on Wall Street might lie low, they come out in the open and flaunt their new wealth with supreme arrogance.
By most standards, the recovery falls somewhere between modest and stalled. To say the economy is getting back on its feet is to look at the economic indicators selectively.
Many mainstream economists fail to appreciate that the Second Great Contraction is different in its origins, magnitude and resistance to quick fixes, compared to earlier crises.
If history is any guide, the return to normality following a crisis of this kind will be slow. And still within the realm of possibility is not only a new downturn – a double dip, as it is called.
Furthermore, because of the hyper-connectivity of global markets, the power of bondholders/finance capital, the socialization by taxpayers of losses of "too big to fail financial institutions," and the buildup of external and internal debt in most countries prior to and after the crisis, one can't rule out a financial crisis breaking out in one or a few countries and potentially spreading worldwide.
Capitalism, says David Harvey, doesn't resolve crises so much as it moves them around.
So far the financial crisis has been contained here, but no one should sleep soundly. The notion that it "can't happen here" has been pulverized by events.
Even if it is contained, the mushrooming of debt is becoming the new instrument to bludgeon working people worldwide, as is evident in Greece. "Tighten your belt and rein in your expectations" are the new clarion calls of deficit hawks worldwide. As if it didn't get enough, the investor/finance class wants more surplus value from the working class and people in the form of lower living standards and fewer social benefits.
Here there is talk of social security and Medicare reform. And the current budget gives the green light to discretionary spending cuts. What is missing in the dialogue is any talk of a deep going change in the tax structure, reductions in the military budget, and a debt moratorium for ordinary Americans and state and local government.
As long as this out of the conversation, the solution to indebtedness will fall on working people and the poor.
To make matters worse, the endless talk of fiscal responsibility conceals the underlying causes of the crisis: income inequality, the rise of finance and financial liberalization, the hollowing-out of the manufacturing sector, the undermining of working-class power, the entry of new competitors in the global economy, and chronic overproduction in world commodity markets.
No solution to the nation's economic and financial woes that doesn't address these fundamental causes of the dire economic situation stands "a snowball's chance in hell" of succeeding.
Financialization
From the standpoint of the top layers of financial institutions – Bank of America, Citigroup, Goldman Sachs, JPMorgan Chase, Morgan Stanley and Wells Fargo – the current legislative struggle over financial regulation is but one battle, albeit a crucial one, in an ongoing struggle to fully restore themselves to the preeminent position they occupied in the global economy for the past three decades.
After sitting at the pinnacle of power, seeing their wealth multiply exponentially, and shaping the dynamics and contours of the world economy, they are not about to easily yield – or even slightly diminish – their power and privileged position.
Call the financial czars here and elsewhere whatever you like, but they are well aware of their class interests. What is more, they are mindful that the New Deal hemmed them in for roughly four decades. Admittedly none of them starved, but neither did they enjoy the nearly unchallenged political and economic sway as they have in recent decades.
If finance capital is able to reconstitute its power, the prospects of working people here and elsewhere are bleak. If, on the other hand, its power is progressively curbed, as it can be in the course of successive and contentious struggles, the future of the multiracial working class and its allies is far brighter.
Tough regulation and reduction in bank size are critical, but not enough.
In a larger sense the struggle is to change the whole social structure of governance and process of accumulation. For more than three decades, the main contours, dynamics and interrelations of the U.S. economy were shaped by finance capital and an exploding and nearly autonomous financial sector.
In previous periods of capitalist development, financial bubbles occurred at the peak of the business cycle. Today, however, financial bubbles are better seen "as manifestations of a longer-term process of financialization, feeding on stagnation rather than prosperity."
In contrast to conventional wisdom, the severe erosion of the manufacturing sector was not a product of financialization, but the other way around in the early going. New conditions and contradictions – intense price competition, entry of new producers in the global marketplace, high unit labor costs in American manufacturing relative to their counterparts elsewhere, and the consequent difficulty of maintaining adequate levels of profitability in the 1970s – combined with de-regulation and a recession (engineered by the Reagan administration) to stimulate the flight of capital out of the manufacturing and other sectors of the real economy.
Most of it ended up in speculative channels, while some went to plant relocation in countries abroad where costs were cheaper. The center of economic gravity shifted from industry to finance and over time the wheels of financialization, greased by both parties, brought the country to ruin, the likes of which we haven't seen since the Great Depression.
Much of what is now taking place in the political arena is driven by the battle to reconstitute the economy and along what lines - labor or capital. Or said another way, the corporations or the people.
Labor is prior to, and independent of, capital; that, in fact, capital is the fruit of labor, and could never have existed if labor had not first existed; that labor can exist without capital, but that capital could never have existed without labor! (Abraham Lincoln)
A New New Deal
The Obama administration's immediate challenge will be to revive the economy. The question is how? Where will economic dynamism come from in the near term? What change in political and economic structures and property relations are necessary?
Part of the answer is massive fiscal expansion, that is, large injections of money from the federal government into the is no answer to growing joblessness.
According to conventional wisdom and mainstream economists, near-full employment and healthy profit rates are the normal condition of a capitalist economy. Perhaps that was the case at an earlier stage of capitalism's development, but not now. Indeed, one has to wonder what the long-run prospects of U.S. and world capitalism are.
The collapse of Lehman Brothers and the near meltdown of the financial system announced the death knell of capitalism, as we know it. What the future holds no one knows for sure, but it does look dim for working people if the economy is allowed to run its course.
It is hard to draw any other conclusion, given the fragility of the world economy, the incredible debt that has built up worldwide, overcrowded and hypercompetitive world markets, the emergence of the Asian tigers and now the BRIC countries – Brazil, Russia, India and particularly China, the entry of hundreds of millions of people into the workforce, and the resistance of many sections of the capitalist class to structural economic change.
New model of economic governance
What is needed is a new model of political-economic governance at the state and corporate level that favors working people, the racially and nationally oppressed, women, youth, seniors, small business people and other social groupings.
This new model of governance won't be socialist, but like the New Deal, it would make substantial inroads into corporate power, profits and prerogatives; democratize state and quasi-state structures like the Federal Reserve; give communities, workers and small businesspeople a say in corporate decision-making, encourage small and medium size businesses and new forms of social property such as cooperatives; place energy, finance and transportation in the public domain; demilitarize and green the economy; deepen and extend equality, and reconfigure our government and nation's role in world affairs.
Furthermore, militarism and militarization of the economy are incompatible to a peaceful world and a people friendly economy.
Yes terrorism is a problem, but projecting U.S. military power overseas and frightening the American people is no solution; its solution requires police action, intelligence sharing, and a more just world.
In any event, class and democratic struggles over the direction of the economy will intensify and will be resolved ultimately in the political arena. These struggles and capitalism's growing incompatibility with human aspirations and the future of the planet will reveal the new necessity of socialism, to which I now briefly turn
Photo by AFL-CIO, courtesy Flickr
