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No one has written more brilliantly or persuasively about the stagnation that grips mature capitalist economies that UCLA historian Robert Brenner. In the introduction to his 2006 book, "The Economics of Global Turbulence", Brenner explains the structural flaw inherent to capitalism which inevitably leads to crisis. Here's an excerpt (although the piece should be read in its entirety):
GREAT DEPRESSION PART TWO?
There are many similarities between today's crisis and events that took place during the Great Depression. As journalist Megan McArdle points out, the Great Depression also had "two parts"; the stock market crash of 1929 followed a year and a half later by the deeper dip in 1932. Phase 2 of the Depression began in Europe. Here's an excerpt from the article:
http://www.counterpunch.org/whitney05192010.html
"The fundamental source of today's crisis is the steadily declining vitality of the advanced capitalist economies over three decades, business-cycle by business-cycle, right into the present. The long-term weakening of capital accumulation and of aggregate demand has been rooted in a profound system-wide decline and failure to recover the rate of return on capital, resulting largely--though not only--from a persistent tendency to overcapacity, i.e. oversupply, in global manufacturing industries. From the start of the long downturn in 1973, economic authorities staved off the kind of crises that had historically plagued the capitalist system by resort to ever greater borrowing, public and private, subsidizing demand. But they secured a modicum of stability only at the cost of deepening stagnation, as the ever greater buildup of debt and the failure to disperse over-capacity left the economy ever less responsive to stimulus...."
To deal with pervasive stagnation, Brenner says that the Fed embarked on a plan that would use "corporations and households, rather than the government, would henceforth propel the economy forward through titanic bouts of borrowing and deficit spending, made possible by historic increases in their on-paper wealth. themselves enabled by record run-ups in asset prices, the latter animated by low costs of borrowing. Private deficits, corporate and household, would thus replace public ones. The key to the whole process would be an unceasing supply of cheap credit to fuel the asset markets, ultimately insured by the Federal Reserve." ("What's Good for Goldman Sachs is Good for America: The Origins of the Current Crisis", Robert Brenner, Center for Social theory and comparative History, UCLA, 2009)
The present crisis is not accidental. The system is performing as it was designed to perform. The low interest rates, lax lending standards, leverage-maximizing derivatives, even blatant securities fraud have all been implemented to overcome the basic structural flaw in capitalism --it's long-term tendency to stagnation. Naturally, this lethal policy-cocktail has generated greater systemic instability and increased the likelihood of another meltdown.To deal with pervasive stagnation, Brenner says that the Fed embarked on a plan that would use "corporations and households, rather than the government, would henceforth propel the economy forward through titanic bouts of borrowing and deficit spending, made possible by historic increases in their on-paper wealth. themselves enabled by record run-ups in asset prices, the latter animated by low costs of borrowing. Private deficits, corporate and household, would thus replace public ones. The key to the whole process would be an unceasing supply of cheap credit to fuel the asset markets, ultimately insured by the Federal Reserve." ("What's Good for Goldman Sachs is Good for America: The Origins of the Current Crisis", Robert Brenner, Center for Social theory and comparative History, UCLA, 2009)
GREAT DEPRESSION PART TWO?
There are many similarities between today's crisis and events that took place during the Great Depression. As journalist Megan McArdle points out, the Great Depression also had "two parts"; the stock market crash of 1929 followed a year and a half later by the deeper dip in 1932. Phase 2 of the Depression began in Europe. Here's an excerpt from the article:
The Great Depression was composed of two separate panics....the economic conditions created by the first panic were eating away at the foundations of financial institutions and governments, notably the failure of Creditanstalt in Austria. The Austrian government, mired in its own problems, couldn't forestall bankruptcy (and) the contagion had already spread. To Germany. Which was one of the reasons that the Nazis came to power. It's also, ultimately, one of the reasons that we had our second banking crisis, which pushed America to the bottom of the Great Depression, and brought FDR to power here. ("Why Should You Be Freaked Out About Greece? Remember, The Great Depression Had Two Parts", Megan McArdle, businessinsider.com)
With the implementation of austerity programs throughout Club Med (Greece, Portugal, Spain, and Italy) German surpluses will shrivel and the EU's GDP will shrink. Efforts to cool China's economy will have equally damaging effects on global growth by choking off liquidity and slowing overall investment. The constraints on spending will adversely impact fiscal stimulus in the U.S. and accelerate the rate of deterioration. The political climate has changed in the U.S. and there's no longer sufficient public support for a second round of stimulus. Without another boost of stimulus, the economy will lapse back into recession sometime by the end of 2010.http://www.counterpunch.org/whitney05192010.html
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