Crisis threatens to blow up again

The crisis of neoliberalism is intensifying. The Tea Party reluctantly gave up its attempt to bring down the global economy when Obama gave in to all their demands, but the withdrawal of government spending has further sapped confidence in the “recovery”. With revised numbers, we now know that the initial economic contraction was deeper than previously thought and the “recovery” more anemic: since growth resumed, it has proceeded no faster than population growth. In other words, the US economy is completely stagnant – and that assumes that the growth we’ve seen has been real rather than an artefact of speculative bubbles, which is by no means a safe assumption. The sole bright spot for the US? The unemployment rate fell by 0.1 percent last month – because 193,000 gave up looking for work and removed themselves from the labor force. The fact that the average duration of unemployment is now twice as long (40.4 weeks) as at any time in the 60 years preceding the crisis explains why they gave up.

Meanwhile, the situation in Europe is deteriorating. The EU’s attempt to staunch the crisis with new terms for Greece quickly proved completely inadequate as Spanish and Italian bond yields soared, threatening to make their public debt burden unsustainable. Thus far only the EU’s small economies – Ireland, Portugal, Greece – have been crushed by the bond markets. If either (or both!) of the much more significant economies of Spain or Italy were brought down, it would take the entire European financial system with it. With the European Central Bank committed to self-defeating neoliberal orthodoxy (bank head Jean-Claude Trichet “beseeched political leaders to speed up efforts to cut their budget deficits and remove impediments to growth, like overly protected labor markets”), and European national leaders at least as baffled as those of the US about what to do, no path out of the debt crisis seems available.

After months of dismissing the possibility, suddenly analysts are seriously considering the prospect of a “double-dip recession”. But that question, tho of considerable psychological importance, misses the point. Measures of GDP can only approximate the production of value in the economy – the fictitious value of an expanding speculative bubble, for example, exaggerates growth during its expansion, and exaggerates contraction when it bursts. For this reason, there is a very real possibility that, in terms of real value production, the economy has been contracting thruout the so-called recovery. A return to nominal recession would merely reveal this temporarily obscured reality.

The volatility in global stock markets may or may not be the trigger for a new downturn. The bigger question is whether any new, more adequate approaches to confronting the crisis are emerging or not. There are two directions that change could arise from: elite or popular forces. Thus far popular dissatisfaction has been directionless and thus ineffectual (in Europe), misdirected and thus unproductive of a new approach to the crisis (in the Middle East), effectively repressed (in China), or simply unexpressed (in the US and Japan). Political and business elites are split between extreme austerity advocates and those willing to pursue modest stimulus efforts, neither of which looks beyond the limits of neoliberalism. If the crisis accelerates in the coming weeks, we should watch closely for any change in these circumstances.