I attended two sessions discussing the current credit crisis at the conference on 9-11 November sponsored by Historical Materialism magazine. The two sessions offered very different views on the crisis, with disappointingly little interaction.
No speaker in either session was confident enough to give a definite yes or no on whether the credit crisis will snowball into a sizeable crisis of trade and production. Robert Brenner, in the second session, ventured a prediction that it will snowball, but made it clear that was only a best guess.
The big difference between the two sessions was in their epochal views. The speakers in the second session - Brenner, Chris Harman, and Makoto Itoh - held that capital has been in a "long downturn" for 30-odd years, and is probably heading for worse. The first session tended more to the view that we are in an epoch of capitalist expansion.
Of course, a credit crisis in a period of downturn may turn out to be only a limited credit crisis; and a credit crisis in an era of expansion may exploded into a full-scale slump...
First session:
Ricardo Bellofiore
Bellofiore looked at the question - much discussed in the financial press these days - of whether we have a "Minsky moment".
The basic ideas here have been well summarised by Money Week magazine.
[The economist Hyman] Minsky is most famous for the idea that ‘stability is unstable’. In short, unusually long periods of economic stability lull investors into taking on more risk. This leads them to borrow excessively and to overpay for assets. Minsky suggested three main types of borrower, increasingly risky in nature.
Hedged borrowers can meet all debt payments from their cash flows. Speculative borrowers can meet their interest payments, but have to keep ‘rolling’ the debt over to pay back the original loan. Ponzi borrowers (named after the notorious American pyramid-scheme conman) can repay neither the interest or the original debt, and rely entirely on rising asset prices to allow them continually to refinance their debt.
The longer a period of economic stability lasts, his argument goes, the more society moves towards being full of Ponzi borrowers, until the entire economy is a house of cards, built on excessively easy credit and speculation.
Atthe "Minsky moment", the house of cards falls, and even sound borrowers can't get credit.
Bellofiore ended up concurring with the UBS economist George Magnus. According to Magnus, there are three reasons to believe that we don't (yet) have a Minsky Moment. First, housing problems take a while to unfold. Second, capitalist corporations have been making high profits recently and do not owe a lot of money to financiers. Third, there is still a lot of spare cash in the world system. For example, the oil prices mean that oil-exporting states have masses of dollars they want to lend at a good rate of return.
Bellofiore argued that the recent capitalist expansion has been carried forward by "financial Keynesianism" - financial engineering which has allowed household consumption, in the USA in particular, to rise unprecedentedly above the level of disposable income, and so allowed an expansion of markets for capital with a much more modest rise in investment than would normally be required for expansion.
However, said Bellofiore, we have seen a relative collapse of that sort of "consumer bubble economy" before, around 2001. It was contained by traditional Keynesian methods and by yet new financial-markets innovation.
Jim Kincaid
Jim Kincaid was the "economic expert" of the SWP (then IS) in the 1960s, but has moved away from the SWP, while remaining on the Marxist left. He stated plainly that he was out to challenge the "stagnationist vision" - the argument, currently among many Marxists, that the last 30 years or so have been dominated by capitalist stagnation, with only occasional and secondary up-ticks.
The argument is based on the contention that average rates of profit are much lower than, say, in the 1960s. Fred Moseley, the third participant in the session, challenged the factual basis here, arguing that in the USA, at least, profit rates have got back to the levels of the "Golden Age", thanks to an increase in the rate of exploitation from about 1.5 to 3.
The problem here is that there are several different measures of average profit rates, and you get a different answer depending on which measure you favour. For myself, I lean towards Moseley's assessment.
In any case, said Kincaid, the system is not driven by average rates of profit but by dynamic excess profits which pull capital into innovative enterprise.
He could also have pointed out that there is nothing in the basic logic of capitalism which defines one rate of profit as "high" and another as "low". If the current average rate of profit is indeed lower than the (exceptionally high) rates of the Golden Age, it may still be "high" for the purposes of capital accumulation today.
As well as studying rates of profit, argued Kincaid, we should look at how capital has speeded up its operations in recent decades, and how it has hugely increased in scale, doubling the world wage-labour force from about one billion to two billion.
Investment is not regulated by profit rates alone, said Kincaid. That is true. Capitalist investment, in the last analysis, has to be capitalisation of surplus value, but by no means all surplus value appears as profit. It may appear as interest, dividends, rent, taxes, etc., yet flow through those channels into new capitalist investment. Or not.
For myself, I suspect the recurrent fixation of Marxist economists on profit rates as arbiter is a carry-over from the great influence, at various times, of the idea of the "tendency of the rate of profit to fall".
As for the current credit crisis, Kincaird reckoned it would not be as easy for capital to surmount it as the stock market crisis of 1987. But the system has got through large financial losses before without a big downturn in trade and production, for example in the early 1990s US Savings and Loans crash. There is a vast expansion worldwide of financial capital, and with increased oil prices there will be a pool of (on some estimates) an extra $600 billion ready to lend. And the productive sector enters the crisis in fairly robust condition (relatively high profits, relatively low debts).
The era, said Kincaid, is not one of stability, but not one of stagnation either.
Fred Moseley
Moseley is well-known for his work on the relative increase in capitalistically-unproductive sectors within capitalism, a trend which (so he argues) puts the major pressure on profit rates.
But for noe, he said, an increased rate of exploitation has in fact restored the profit rate in the USA to high levels.
His talk was an exposition of the financial mechanisms by which the "subprime mortgage" boom happened, turned into crisis, and has had wide repercussions. "My hunch", he said, "is that it's going to be very big".
Robert Brenner
The first speaker in the second session was Robert Brenner, a member of Solidarity-USA, originally a medieval historian by academic trade, but author of the widely-discussed book The Economics of Global Turbulence.
His thesis, in brief, is that an acceleration of global capitalist competition from the late 1960s became "ruinous competition", and left large chunks of productive capital limping along with low profit rates. This "underlying problem of [global] manufacturing overcapacity" remains a blight.
From about 1990, he said, capitalist governments had moved towards more balanced budgets. That, however, tended to keep consumer demand down, and thus encourage stagnation. Deficit spending by governments was replaced by "asset-price Keynesianism", or "bubble-onomics". Growth has been driven by economic "bubbles" created by easy credit, such as the recent house-price bubble in the USA, now burst.
The 2001-2 recession initially saw very steep declines in production, but those were short-lived because Federal Reserve chair Alan Greenspan reduced real interest rates below zero for three years. Then housing accounted for 30% of all US GDP growth in the early 2000s. Productive capital investment, employment, and real wages all grew very slowly; overall, the growth of GDP in the relative "boom" has been the lowest for any business cycle since World War Two.
There has been "only a partial recovery of profitability", but the demand created by the bubble (so Brenner claimed) has allowed high-cost, low-profit firms to continue in business and so has deterred new investment.
Now the bubble has burst. Brenner, on the basis of his assessment that the US capitalist economy was in pretty poor shape even before the burst, expected a crash.
A comment by Ricardo Bellofiore in the discussion following the three speakers was relevant to them all. "The term downturn", as applied to the last couple of decades of capitalism, "comes", said Bellofiore, "from a comparison with the Golden Age [1945-73], which was quite exceptional".
In fact, capitalist growth in recent decades, if slower than in the Golden Age, has been fast compared to many previous eras of capitalism.
Chris Harman
Chris Harman of the SWP was the second speaker in the second session. He declined to make a specific prediction about the current crisis on the grounds that he and the SWP had too often in the past cried "crash".
But his stress was that the rise of very big firms, which "can't be allowed to go bust", had clogged up capital's own internal crisis-healing tendencies. "Ageing capitalism" has become "sclerotic". It would "require the bankruptcy of two or three major economies to clear out the system".
In the meantime, Harman said, we have "masses of capital wandering around the world looking for outlets... funds which cannot be absorbed by the system".
As against exaggerated claims for globalisation, Harman claimed that individual states are still very important, and important specifically to their "own" transnational corporations, most of which retain a very significant "home" base.
The rise of China, in his view, "destabilises the state system", while not yet generating sufficient new demand to give large new dynamism to the whole world economy.
Thus, the general bad condition of capital leads (said Harman) to sharpened conflict between the big capitalist states. He said that the Iraq invasion was a "proxy war" by the USA against the EU and Japan.
I've criticised the "proxy war" theory elsewhere. The notion of sharpened conflict between the big capitalist powers runs counter to the facts of increasing clout for international capitalist institutions like the G8, IMF, World Bank, EU, etc. Sharpened conflict between the big powers remains a real possibility, and maybe one that will be accelerated by the USA's setbacks in Iraq, but it is not what has happened over recent decades and it is not yet what is happening now.
The idea of "funds which can not be absorbed by the system" is a bit of an optical illusion. Capital can multiply itself by creating "fictitious capital", by "doubling" the actual productive capital in the form of shares, bonds, etc.
In the last decades, that "doubling" and "redoubling" has increased enormously. The ratio of global financial assets to annual world output (and thus probably also to world physical capital stocks, which are harder to measure) multiplied by a factor of three between 1980 and 2005.
It is not that there is a fixed number of dollars, and too small a number of buckets to put them into. It is that the volume of "fictitious capital" has risen enormously faster than the volume of "real" capital. Not that the system can't "absorb" funds, but that, in a certain sense, it creates extra funds.
Makoto Itoh
The final speaker was the Japanese economist Makoto Itoh. On his own account he was presenting a version of the ideas of the British economist Andrew Glyn. Once the "economic expert" of Militant (now the Socialist Party), Glyn became well-known for his thesis that the core problem of British (and perhaps world) capital in the 1970s was a "profit squeeze" generated by "wage push". The thesis has been widely (and I think rightly) criticised.
There is a summary of the book on the Socialist Review website.
Itoh, like the other two speakers, spoke about a "long downturn" (though not for China and other rising powers). But he noted that in the Japanese economy huge financial crashes have happened with fairly limited repercussions on trade and production.
