Inflation likely to rise again
Almost all the press says that price inflation will slow down. Prices for basic raw materials - oil, metals, wheat - have already fallen, and in the coming months that will work through to finished-goods prices.
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But meanwhile the governments and central banks are doing exactly what they have long said is certain to increase inflation - pumping masses of cash and credit into the economy.
It is not always true that more money-production by central banks means more inflation. But there is a correlation.
The governments and the central banks are desperate to avoid deflation. Falling prices, as in the USA and Japan in the 1990s, encourage the postponement of spending and make already-contracted debts ever more burdensome, so tend to lead to big, long depressions.
A bit of inflation will worry them much less. It is very unlikely that they can calculate the cash-pumping exactly so as to avoid deflation yet not cause inflation. In any case, the timescales are different. The cash is being pumped in now to stop the banking system seizing up now. The price-rise effects follow after a lag of (so it is reckoned) between 18 and 36 months.
So, don't believe it if your employer says that inflation is no longer a problem and small wage rises will do..
One journalist in the mainstream press has flagged up the problem - Matthew Vincent in the Financial Times (17 October). "Another financial crisis is looming...
"While the consumer price index may have peaked this week at 5.2 per cent, the effect of 'printing money' to bail out the banks will have more lasting effects... inflation will accelerate... it’s sowing the seeds of huge inflation problems..."
"Keynesian" policies? But what sort?
The government says it will bring forward big public projects from 2010-11 to boost public spending this year and thus counter the economic downturn in a "Keynesian" way.
That is difficult. The government's own Department for Children, Schools, and Families, for example, has "dismissed" the idea that it can speed up the government's huge school-rebuilding project enough to make any difference.
But the government could pay more money to teachers, civil servants, and health workers straight away.
Why doesn't it? Increasing public sector workers' pay would raise the baseline for workers' expectations in the next upturn. Rebuilding schools quicker wouldn't. It is simple class calculation.
Is the big argument "who pays?" Or, "who controls?"
After two decades of "the markets rule", the crisis has put social regulation of the economy centre-stage.
It poses the questions: who regulates? With what aims? Just to scrape through the crisis, before returning to much the same regime that generated the crisis, or long-term? Does it make sense still to be privatising and contracting out health care, education, and utilities, when the banks are being nationalised? Shouldn't democratic control and social regulation apply to the whole economy?
Some people on the left, however, have chosen to focus not on those questions, but on the "unfairness" of billions being put into bailing out banks while working-class households sink without any such help. They prefer slogans like "make the rich pay".
But to agitate only about the distribution of income within the existing system, not about the more fundamental question of how society and the economy are organised, doesn't pick up on what is new about the crisis. "Unfairness" and increasing inequality have been glaring facts about the long economic upturn since the early 1990s, long before the current crisis.
In fact, the inbuilt tendency of capitalist crisis itself is to reduce inequality and "make the rich pay" somewhat (profits fall, in crises, more than wages). How that works out depends on class struggle: the bosses will push the other way, and try to use the crisis to impose lasting changes in the balance of class forces (like the anti-union laws and the speed-ups and privatisations of the 1980s) which will be continuing benefits to capital in the subsequent upturn.
The governments have extended billions of extra credit to banks to stop the banking system seizing up, and because the seizing-up would paralyse the whole system, not just to help out the bankers with their personal luxury spending. The desirable alternative to capitalism with the banks bailed out is not capitalism with the banks not bailed out, i.e. chaos, but a socialist reorganisation of the economy, and in the first place a fight for workers' control at every level.
The end of IMF law?
The big nationalisations and government bail-outs of financial firms have moved the sharp end of the crisis somewhat, to point at governments rather than banks.
So Iceland and Ukraine have already got bail-outs from the IMF, and Hungary is negotiating one. Other governments will follow.
IMF bail-outs are not new. Britain had one in 1976. But two things are new.
First, not every government can get help from the IMF. This financial crisis is so big that the IMF's resources are puny by comparison - about $250 billion in available cash.
Second, governments can go elsewhere for help. As David Rothkopf notes in the Financial Times (22 October): "When Iceland’s economy started to spiral downwards its leaders, frustrated by the lack of swift help from western allies, turned to Russia... To whom did Pakistan turn in its hour of need? ... Beijing... Oil-producing nations of the Persian Gulf have agreed to discuss a 'friends of Pakistan' bail-out with China...
"Well before the crisis, the Chinese lent billions to Africa..."
Today China and Japan have the world's biggest foreign-currency reserves. Two-thirds of the world's stockpiles are held by six countries: China, Japan, Taiwan, South Korea, Russia, and Singapore.
In return for loans, the IMF demands social spending cuts and privatisation. China and Russia do not. They may want some advantages for their businesses, or some diplomatic payback, but many governments will see that as a smaller price than the IMF's demands.
Despite many predictions to the contrary, the main trend of the last twenty years has been for the world market to become a single arena, rather than a terrain dominated by large relatively walled-off competitive blocs. The crisis could be the start of an about-turn.
What was Marx's special theory about crisis?
In his longest discussion of the question (he never completed a systematic account of capitalist crises for publication) Marx concluded:
"Over-production is specifically conditioned by the general law of the production of capital: to produce to the limit set by the productive forces... constant reconversion of revenue into capital, while on the other hand, the mass of the producers remain tied to the average level of needs, and must remain tied to it according to the nature of capitalist production".
In other words, capitalist booms necessarily, inherently tend to overshoot, as the capitalists scramble competitively to be the first to grab the apparently continuing and expanding profit openings.
Engels put it more crisply in Anti-Duhring:
"The ever increasing perfectibility of modern machinery is, by the anarchy of social production, turned into a compulsory law that forces the individual industrial capitalist always to improve his machinery, always to increase its productive force... The extension of the markets cannot keep pace with the extension of production. The collision becomes inevitable...
[After each downturn] little by little the pace quickens. It becomes a trot. The industrial trot breaks into a canter, the canter in turn grows into the headlong gallop of a perfect steeplechase of industry, commercial credit, and speculation, which finally, after break-neck leaps, ends where it began - in the ditch of a crisis. And so over and over again..."
This general explanation of crises from the anarchic, competitive, and profit-grabbing nature of capitalism leaves much room for, and mandates much investigation of, variation in the way that "the collision" happens in each crisis.
This crisis has the oddity that "the collision" originated only in the financial sector, at a time when profits were good and steady, and debt levels were generally moderate, in material production. Industrial sectors (like cars) are revealed to have "over-produced" only in hindsight, only as a result of the effects of the financial crisis. The crisis comes after a whole era in which finance has grown much faster than production, and to unprecedented proportions.
Marx's comments on credit are illuminating:
"The credit system appears as the main lever of over-production and over-speculation in commerce solely because the reproduction process, which is elastic by nature, is here forced to its extreme limits... The credit system accelerates the material development of the productive forces and the establishment of the world-market... At the same time credit accelerates the violent eruptions of this contradiction - crises - and thereby the elements of disintegration of the old mode of production. The credit system... develops the incentive of capitalist production, enrichment through exploitation of the labour of others, to the purest and most colossal form of gambling and swindling..."
Many Marxists feel that all this sounds too much like more modern economists, mavericks but still basically "mainstream", like John Maynard Keynes and Hyman Minsky. They desire a more "iron-law"-like "Marxist theory", and seek to build it on Marx's remarks about a tendency of the rate of profit to fall.
Whatever the general merits or demerits of the "iron law" approach, it does not help with the current crisis, because it erupted at a time when profit rates were relatively high.