Like all other forms of capitalism, neoliberalism is fundamentally animated by the ongoing accumulation of capital. What marks neoliberalism as economically different from other regimes of accumulation is its particular solution to the problem of maintaining profits as capital cycles thru the realms of production and consumption.
Every producer needs to find a consumer willing to buy his or her product. This is a common-sense observation, but it runs into some tricky problems under capitalism. The issue is that, since the 1950s and the advent of a mass-consumer society, most of consumers' buying-power has been represented by wage earners rather than the wealthy, other businesses, or the state. That means businesses have to pay their workers enough money so they can afford to buy those businesses' products.
In the 1950s and 1960s, businesses did just that. As workers became more productive, their wages increased in tandem. The economy produced more goods, but with higher wages workers could afford to buy them. Productivity was increasing so fast in this period that businesses could continuously increase wages even after taking a hefty share for themselves in profits. This was a key pillar of the system known as Fordism, which produced still-unmatched rates of growth, plummeting poverty rates, and prosperity around the globe.
But by the late 1960s this system was starting to break down, and had entered full-blown crisis by 1973. A declining rate in the increase of productivity was a key underlying cause of the crisis, and together with growing macroeconomic disorder doomed the practice of steadily raising wages while maintaining profitability. One of the two had to give, and under capitalism the only sine qua non is profits.
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Increasing levels of government debt also played a key role in keeping the economy going, but that will have to be left for another post. And there is much more to be said about how Americans were convinced to take on ever higher levels of debt, but for now let the brute fact suffice:
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Of course, ever-increasing levels of personal indebtedness is an unsustainable sales strategy. As the burden of debt grew heavier and heavier, the only question was what sector would set off the crisis. Since the speculation on mortgage debt was pursued with the most abandon (figure 4), it's hardly surprising that housing was where the crisis hit first.
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