29 March 2011

The illusion of recovery

 Isn't a focus on the sources of the crisis only academic now? Isn't the economy back on track? It's seeing slower growth, to be sure, and faces a number of external shocks that threaten it (unrest in the Middle East, earthquake and nuclear fears in Japan), but the crisis is over, right?

Well, no. For one thing, events in the Middle East are a feature of the crisis, which has always been global in scope. But more to the point, the brave new era of slow growth and anemic job creation is not a "new normal", beyond our control or comprehension, as if the economy was a force of nature. They are evidence of the ongoing crisis, and a prelude to further breakdown.

It's true that the US economy has been growing for over a year and a half. The unemployment rate, stuck around 9.7 percent for most of 2010, has now declined three months in a row to 8.9 percent in February. Investment growth - a key barometer of the health of the economy under capitalism - has been rising for a year. Even consumer spending seems to be growing.

The short-term trend is clear, but the real question is how sustainable the "recovery" is. If the foregoing analysis is correct and the increasing exploitation of workers is the underlying cause of the crisis, then a true recovery is still well beyond our grasp.

First, there is some evidence that the improving figures are at least in part being driven by a return to debt-financed consumption. As the Wall Street Journal notes, "banks’ and investors’ charge-offs — the result of defaults — lopped $822 billion off [American] households’ debt load from mid-2008 to the end of 2010. In other words, net of defaults, consumers actually borrowed an added $163 billion."

So the problem of unsustainable levels of consumer debt hasn't been confronted at all. Even with large write-offs, total household debt in the US has only fallen to 116 percent of disposable income - that is, it's only down to the crushing level of 2004. Consumers simply aren't earning enough money to actually pay down their debts, and as credit starts to become available again they're already back to spending beyond their means.

Without a dramatic increase in wages that could simultaneously support rising consumption and lower debts, there are only two possibilities: consumers will pay down their debts and demand will stagnate; or consumers will return to borrowing and demand will grow in the short term, but once debt again reaches intolerable levels we'll see a collapse in demand and another recession.

The way the crisis has played out has, if anything, only exacerbated the massive imbalances that crippled the economy. The income generated by the economy can be divided between wages (going to workers) and profits (going to corporations and investors). Part of profits is paid out in taxes, which finances part of government spending (mostly consumption rather than investment). So the share of the economy taken by after-tax profits is a good indication of the balance between investment and consumption - the higher it is, the less money that can be devoted to buying the output of the economy.

This graph illustrates how severe this imbalance has become:
Figure 1: Source
Profits now occupy a postwar position of unprecedented strength against wages. Corporations took a hit from the financial crisis, but quickly recovered to extremely high rates of profit. In part this was fueled by the need to cut payroll and squeeze even more efficiency from the remaining employees just to survive the crash. This explains the leap in productivity that accompanied the recession - a measure that had been sliding for the previous seven years (figure 2 - see this article for a number of concrete examples in the Chicago area).
Figure 2: Source

The process behind this jump in productivity is the exact opposite of that behind the Fordist productivity increases: rather than being facilitated by rising wages, it was won thru the increasing insecurity and rising joblessness among workers. As such, it marks a deepening of the conditions that produced the crisis in the first place.

The other source of the profits recovery was the massive government bailout program and stimulus effort, including a huge injection of liquidity into the economy. The recipients of the bailout funds and most of the credit were corporations - especially the financial corporations, which account for a significant share of rising profits. The banks are back to the same share of corporate profits as a decade ago (figure 3), and that alone should set off warning bells.
Figure 3: Source
All this is to say that the tremendous destruction wrought by the crisis did nothing to address the underlying imbalances and dysfunctions. Rather than using it as an opportunity to restructure the economy and return it to growth on a new basis, the American state and corporate elite have simply sought to regenerate the old structures. Progressives, weak and confused, have done nothing. The Tea Party is stronger but, it goes without saying, far more profoundly confused.

But the popular forms of subjectivity that once made neoliberalism robust can no longer support the old structures. Consumers may, for the moment, return to debt-based consumption, but they will do so only tentatively, leaving demand feeble. The austerity mania that is now setting the political agenda will cripple the government demand that up till now has propped up the whole slumping edifice. State and local cut-backs will further decimate employment.

These dark prospects stand in sharp contrast to the incredible reemergence of speculative bubbles, in internet companies, farmland, and elsewhere. What the speculators still don't understand is that the incredible amounts of liquidity sloshing around the global economy - fueling not only their bidding wars but a destructive wave of inflation as well - mark the death throes of neoliberalism, not its regeneration. Their speculation has merely put off the final accounting.

1 comment:

  1. It seems like you're blaming the crisis on underconsumption, but another perspective is that the inequities in the current social system do not threaten value production directly, because what threatens value is increased efficiency in production. That is, profits decline due to decreased labor time, but destruction of capital and the introduction of inefficiencies can reset the system.

    So, in terms of value production, worker debt and other failures, are the solution. This destruction is the system resetting itself as prices for Capitalists fall.

    It may well be that the new sustainability in terms of Capitalist reproduction will include higher levels of unemployment and more misery all in all. The question isn't whether profits will be threatened by internal contradictions, but whether the working classes will organize actively to resist their immiseration. It could be argued that the reason for resisting a full fledged crisis with all its destruction is fear of political and social consequences, but not due to the wisdom of Keynesian economics or any other attempt to moderate Capitalism for economic reasons.