Subject: [OPE-L:1669] is a crisis in the US economy immanent?
From: Gerald Levy (glevy@pratt.edu)
Date: Sat Nov 13 1999 - 12:47:56 EST
Last month we were discussing this question, partially in connection with
the discussion of Japan's financial crisis. You will probably recall
comments by Fred and questions by Alejandro VB on this subject.
What do you think about the argument in the following article, published
in _LM_ magazine?
In solidarity, Jerry
----------------------------------------------------------------------
> In love with disaster
> by Doug Henwood
>
>
> Back in 1992, I wrote an article in the newsletter I edit
> <http://www.panix.com/~dhenwood/Financial-crisis-averted.html> saying
> that it was pretty likely that the U.S. financial system wasn't going
> to implode. After the roaring eighties peaked around 1989, the U.S.
> economy fell into stagnation, and bank failures and bankruptcies
> reached frightening proportions. Since by most ordinary measures, the
> financial structure was as bad as or worse than 1929's, it wasn't at
> all alarmist to fear the worst.
>
> But George Bush's government came up with hundreds of billions (no
> one really knows for sure how many) to save the wrecked savings &
> loan industry, and Alan Greenspan's Federal Reserve pushed real
> interest rates down to 0% and kept them there for years. State action
> saved capital from itself, and I thought it was time to say that
> there would be no second Depression. Saying so evoked a fair amount
> of mail and phone calls, ranging from those expressing concern about
> my sanity to those expressing outright hostility.
>
> Last fall, I said pretty much the same thing about the Asian
> financial crisis - that, thanks to state intervention (mainly an
> indulgent U.S. Fed and the ministrations of the IMF), the worst of
> the 1997-98 melodrama was probably behind us. I made it clear that I
> didn't think the worst was over for the workers and peasants of Asia
> - - just that the systemic meltdown of the global financial system was
> looking pretty unlikely. This too evoked reactions similar to 1992's
> all clear.
>
> I recount this not to brag about my prescience; I've made lots of bad
> calls in my life too, though they're a lot less pleasant to think
> about. One of those bad calls was to take the 1987 stock market crash
> all too seriously - I thought it was the overture to a rerun of the
> 1930s, when it turned out to be the financial equivalent of a summer
> thunderstorm. That made me think a lot about catastrophism.
>
> The left, Marxist and non-Marxist, has long shown an unhealthy
> affinity for disaster. Bank runs, currency crises, oil spills get
> radicals' blood running. But this hasn't proved a very fruitful
> passion. Of course it goes without saying that a system so prone to
> crisis - where it's become routine that a major country go under
> every couple of years - has, by definition, serious systemic
> problems. But despite the turmoil and misery that come with these
> crises, capitalism has shown a remarkable capacity to heal itself,
> and even to turn crisis to its advantage. The bourgeois state has
> become remarkably skilled at socializing losses, and shifting the
> burdens of adjustment onto the poor and the weak. The terminal
> crisis, the death agony of capitalism, just refuses to arrive.
>
> Let's think back for a moment on some of the great financial
> disasters of the last 20 years.
>
> * There was the Third World debt crisis, that even respectable people
> thought might be a system breaker. Instead, the creditor countries,
> led by the U.S. Treasury and the IMF, used the crisis to force debtor
> countries to dismantle protectionist development machinery, open up
> to foreign trade and capital flows, and privatize state enterprises.
> The human consequences have been severe - massive impoverishment and
> polarization - but the system emerged not merely intact but
> strengthened.
>
> * There was the (now-forgotten) U.S. leveraging mania of the 1980s,
> which I mentioned at the beginning of this article. Not only were
> several hundred billion dollars of public money expended with almost
> no debate - at a time when we were constantly told there was no money
> available for social spending - the Fed's low-interest-rate policy
> set the stage for the great bull market in stocks of the mid- and
> late-1990s. That bull market has not only greatly enriched the 5% of
> shareholders who hold 95% of all stock, it's also contributed to the
> broad prestige of U.S. capitalism. That prestige and the bull market
> probably won't last forever, but it's been quite a lovely run so far.
>
> * And there were the two great "emerging market" disasters - Mexico
> in 1994-95 and Southeast Asia in 1997-98 - both of which looked like
> potential system-breakers, especially the Asian melodrama. But again,
> the combination of emergency funding and engineered depression in the
> crisis countries kept the system together. Mexico was further
> "liberalized," and the developmentalist state regimes of Southeast
> Asia, particularly Korea, have been placed under siege. It's too
> early to tell whether Asia will undergo a complete neoliberal
> renovation, the way Latin America did during its years of crisis, but
> Western banks and multinationals have been buying up choice
> properties that were long off-limits to foreign investors.
>
> Now I'd never want to argue that this approach to crisis will work
> for all time. Capitalism has throughout its history has gone through
> quite a few smashups, and the dismantling of a lot of the stabilizing
> mechanisms of the Keynesian era may eventually take a toll on the
> system's capacity to reproduce itself. But it's important both
> theoretically and practically to recognize that despite many claims
> to the contrary coming from both Marxists and Chicago-school
> free-marketeers, state bailout managers have become quite
> accomplished at forestalling the day of reckoning that many persist
> in declaring inevitable.
>
> So does that mean I've made peace with capitalism? No, far from it.
> It's still a system that produces poverty alongside wealth, and
> alienation even among its winners. Bailouts frequently require that
> productive capacity be destroyed and real incomes be halved to
> preserve the paper wealth of the creditor class. Many catastrophists
> share this analysis, but I think they let their desires get the
> better of them: because they hate the system, they embrace disaster
> scenarios. They feel politically powerless to transform the system
> they hate, so they posit its inevitable self-destruction.
>
> That faith in inevitable self-destruction has deeply unfortunate
> political consequences. You end up looking profoundly silly for
> saying that the sky is falling when the firmament remains
> well-attached. In the 19th century U.S., about half our economic time
> was spent in recession or depression - but since World War II, only
> about a quarter of our time has been. If you don't have a critique
> adequate to periods of expansion, chances are three to one you're
> going to sound pretty off-key. And the belief that hard times will do
> good revolutionary work lacks empirical support. There was a lot more
> troublemaking going on during the Golden Age of the 1950s and 1960s
> than there's been ever since, and the depression endured by much of
> the so-called Third World since the early 1980s has sparked little
> discernable political resistance. If you find capitalism appalling,
> and you can't tune your critique to those moments when it's working
> reasonably well, you might as well give up.
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