The current global crisis is a manifestation of a fundamental problem in the process of the accumulation of capital. The problem is the lack of surplus value production. This contradiction has been concealed by decades of accumulating debt. Burgeoning financialisation involving bull runs since the 1980s have helped disguise the long-term weakening of the advanced capitalist economies. Economic performance in the United States, Western Europe and Japan has deteriorated since about 1973. The years since the start of the current cycle, which originated in 2001, have been worst of all.
The declining economic dynamism of the advanced capitalist world is rooted in a major sustained fall in profitability, caused primarily by the secular over-accumulation of capital. This problem goes back to the early 1970s. By 2000 in the United States, Japan and Germany, the rate of profit of private industrial capital had yet to make a comeback, rising no higher than that of the 1970s. With reduced profitability, capitalists had smaller surplus value to add to their labour processes. The perpetuation of reduced profitability since the 1970s has led to a steady falloff in accelerated capital accumulation across the advanced capitalist economies. The economic interventionism of the capitalist state have obstructed the realisation of the conditions for the necessary radical devalorisation of capital. Consequently economic downturn has not been precipitous enough to bring about a full recovery involving a restoration of profitability. The outcome is sustained stagnation.
To counter this persistent stagnation states, led by the United States, have been forced to underwrite ever greater volumes of debt through ever more varied and exotic financial forms. Initially, during the 1970s and 1980s, states were obliged to incur ever larger public deficits to sustain growth. But while provisionally keeping the economy relatively stable these deficits also rendered it increasingly stagnant. They thereby promoted the continued stagnation of capital by preventing capital proceeding through its “natural” cycle involving sharp downturns. This interventionism obstructed the return of accelerated capital accumulation. The state is now securing progressively less growth for any given increase in borrowing.
States, in the early 1990s, sought to overcome the problem by a budget balancing policy. Deficit reductions brought about by budget balancing resulted in a significant fall in aggregate demand. Consequently during the first half of the 1990s both Europe and Japan experienced devastating recessions that turned out to be the worst of the post-war period. The U.S. economy, itself, experienced the so-called jobless recovery.
Since the middle 1990s, the United States has been obliged to resort to more powerful and risky forms of stimulus to counter the tendency to stagnation. This is why public deficits were replaced with private deficits and asset inflation. In the great stock market run-up of the 1990s wealth on paper, fictitious capital, massively expanded. This development entailed a record-breaking borrowing increases. Consequently a powerful expansion of financial capital and consumption was sustained.
Government financial policy together with the general neo-liberal agenda of the bourgeoisie led to the historic equity price bubble of the years 1995-2000. Equity prices rose as a response to the law of the tendency of the general rate of profit to fall. New investment, free from significant technical composition of capital increases, exacerbated the prevailing over-accumulation of industrial capital. This was followed by the stock market crash and recession of 2000-2001.This development depressed profitability in the non-financial sector to its lowest level since 1980.
Greenspan countered the new cyclical downturn with another round in the inflation of asset prices. By reducing real short-term interest rates to zero for three years, he facilitated an historically unprecedented explosion of household borrowing. This contributed to and fed on rocketing house prices and household wealth. The world housing bubble between 2000 and 2005 was one of the biggest of all time. It made possible a steady rise in consumer spending and residential investment which together drove the expansion. Bush’s budget deficits together with record household deficits succeeded in obscuring the weakness of the underlying economic recovery by creating the appearance of sustained economic prosperity. The rise in debt-fuelled consumer demand as well as super-cheap credit superficially and provisionally revived the American economy. It also led to a new surge in imports and the increase of the balance of payments deficit to record levels.
Simultaneously, instead of increasing investment, productiveness and employment to increase surplus value, individual capitals sought to exploit the hyper-low cost of borrowing to improve their own and their shareholders’ position by way of financial manipulation — paying off their debts, paying out dividends, and buying their own stocks to drive up their value. This financialisation created a fictitious prosperity The same sort of things had been happening throughout the world economy — in Europe and Japan. In the United States and across the advanced capitalist world since 2000, the contradiction has been as follows: The slowest growth in the “real economy” since the 1970s and the greatest expansion of the fictitious economy in U.S. history.
Just as the stock market bubble of the 1990s eventually burst, the housing bubble eventually deflated. As a consequence, the house-driven expansion during the cyclical upturn moved into reverse. Just as the positive wealth effect of the housing bubble drove the economy forward, the negative effect of the housing crash drove it backward. With the value of their household residences declining and household borrowing collapsing households were forced to consume less. The sub-prime crisis arose as a direct extension of the housing bubble. Because of the ensuing enormity of the banks’ losses credit froze up at the very moment of the slide into recession.
It is clear from the above argument that it does not necessarily follow, as held by much of the Irish Left, that stimulus provided by the capitalist state to the domestic economy is not a prescription for providing a way out of recession. Indeed the argument above teaches the lesson that “artificial stimulus” can constitute a factor that sustains or encourages recession. Most of the Irish Left, including the less passive trade union UNITE, focus its efforts on campaigning for a solution within the framework of capitalism through the medium of the capitalist state which they misidentify as an eternal nanny state. They thereby sustain the illusion that capitalism is potentially a system that can serve the interests of the working class. If this utopianism of the Left were true then there would be no need for communist society.
The Euro crisis is a general a product of the conditions that contributed to the Great Recession. After the crash of 2008 the contradictions of the Euro grew increasingly visible. Consequently the market increasingly discovered its shortcomings. This manifested itself in the growing economic and financial problems of the so called peripheral states within the Euro zone. States such as Greece, Portugal and Ireland. These economies were running growing budget deficits. This meant that they were compelled to increasingly borrow on the financial markets. But because of the worsening economic conditions under which they were forced to do this, together with other factors, the interest rates at which borrowing was possible for them became increasingly usurious. No longer were they really in a position to borrow on the bond market. This meant they were left with merely two options: a bailout from the EU or default. In this way the economic crisis for these states became a growing problem for the EU itself culminating in a collapse of the Euro and its banking system.
One thing needs to be made clear. The Irish economy did not collapse because of irresponsibility regulation, banking and unscrupulous bankers. Pinning the blame on the aforementioned is a form of populism that distracts the attention of the working class from the real problem –the contradictory limits of capitalism. It is because the generation of surplus value within the reproduction process was the central problem facing the Irish economy that the bubble was created involving vast amounts of debt. To compensate for the absence of economic growth based on profitable industrial production bubble conditions were created that inevitable burst.
The banks of the core Euro zone were bloated and sitting on mountains of toxic debt collected from its periphery and elsewhere (the United States included). Consequently the core was vulnerable to collapse too. Because the core members were not prepared to let their banks collapse they imposed draconian conditions on the states that received financial help from them. This forms part of an attempt to protect its banks by rescuing funds from the periphery that was owed to the core of the European banking system. But the real aim of the markets was not merely to force the peripheral states into default. The underlying aim was to collapse of the Euro itself thereby bringing about the reconfiguration of the European capitalist system.
Ultimately the source of the Euro crisis is not, as some argue, its flawed architecture, rampant financialisation nor the Great Recession itself. Nor was the Euro crisis itself due to reckless spending by both the public and private sectors of Greece, Portugal and Ireland.
These latter factors and the Euro crisis are the result of the failure of the valorisation process to produce surplus value on a scale sufficient to provide accelerated accumulation of capital. Because of this failure capitalism has been compelled to conduct itself in a way that has led to massive financialisation involving copious credit culminating in financial crisis, crash and economic recession. Debt is not indefinitely sustainable when there obtains abject failure by the system to produce surplus value (profit) on a sufficiently large scale. As I have indicated before, the failure of capitalism to bring about an adequate restoration of profit during the 1974/75 crisis marked a turning point that resulted in the sustained stagnation of capital. The 74/75 dip was not sufficiently deep to overcome the crisis of capitalism. Consequently even if the ECB was to currently dish out mountains of Euro the problem would only partially sort itself out in the short term. In the long term it would lead to a much more acute problem.
Public nor private debt is not the problem. Public/private debt is a product of the problem of profitability. Because of the lack of profitability debt has ballooned thereby reinforcing the problem. For capitalism to economically recover a very deep depression involving massive reductions in the value of wages and social welfare spending is a necessity. The only other (authentic) option is communist revolution.
As the Greek government implemented austerity measures in response to a financial crisis, Greek suicide numbers doubled last year. And in London, tuberculosis rates grew by 8 percent from 2010 to 2011, a result of increased homelessness and drug use during the Great Recession. In “The Body Economic: Why Austerity Kills,” Oxford political economist David Stuckler and Sanjay Basu, an epidemiologist at Stanford University‘s Prevention Research Center, argue that austerity measures have public health consequences, including HIV outbreaks and increased rates of depression, suicide and heart attacks. The authors recently spoke with U.S. News about the relationship between fiscal policy and public health. Excerpts:
Why connect public health with austerity?
Basu: In the 1990s, there was an astounding series of studies that said, What if everybody had perfect health insurance? How many premature deaths in the U.S. among people less than 75 years of age could we prevent? And it turned out that the answer was only about 15 to 20 percent. The other 80 to 85 percent can’t be affected by medical care, meaning that health doesn’t start on the exam table in the ICU, but in our homes, in our neighborhoods, whether we smoke or drink too much, and the quality of our air, food and safety. One of the biggest determinants therein is the state of the economy and, in particular, whether we have safety nets during hard times.
How does austerity lead to a loss of life?
Stuckler: When effective services and supports that sustain health are withdrawn, they pose a direct risk. A clear example can be seen in Greece today. To meet the deficit reduction targets, the health sector in Greece has been cut by more than 40 percent. HIV infections have more than doubled as effective needle exchange program budgets were cut in half. There was a return of malaria after mosquito spraying programs to prevent the disease were also cut, covering the southern part of the country. Deep reductions of a pharmaceutical budget led several pharmaceutical companies to leave the country. There was subsequently a 50 percent increase in people reporting being unable to access medically necessary care.
What surprised you most in your research?
Basu: That there are some very well-researched, effective programs out there that can benefit both public health and the economy, but the academic research is so far afield from the public discourse. A lot of the discourse just assumes that the only way to reduce deficits is to cut budgets in the short term, and it’s quite hard to explain why that’s a bad idea and actually increases long-term budgets. That counterintuitive problem has created a lot of fallacies and makes it difficult to translate research into practice.
Do you expect to see public health consequences to spending cuts in the U.S.?
Basu: We already see them if we compare state-based responses to different kinds of unemployment crises since 2007. We can, controlling for pre-existing conditions, compare states that underwent more extensive budget cuts versus those that didn’t; and [we] saw a rise in suicide among those who were denied unemployment benefits.
Which current policies are most harmful to public health?
Basu: I think the indiscriminate cuts to safety net programs among the poor are particularly easy to implement and particularly dangerous for public health. [And] cuts to our nation’s best defense system against epidemics, the Centers for Disease Control [and Prevention] are particularly dangerous. We recently had the fungal meningitis outbreak, and without the CDC, it would’ve been hard to conceive of how we would’ve protected ourselves from having a dramatic expansion of that epidemic.
Are there any economic policies that don’t have daunting human costs?
Basu: In many areas of the world, we see pretty effective policies that simultaneously improve health and the economy. For example, in Sweden and Finland there are active labor market programs. They help enroll the newly unemployed into supportive job retraining and re-entry, and work with both firms and the newly unemployed. As a side effect, they seem to reduce suicide, depression and alcoholism, while also stimulating the economy and being, in some cases, net cost-saving.
Why should President Obama read your book?
Stuckler: The book shows that there is an alternative to austerity that’s grounded in evidence. And when governments pursue it, they can pave the way to a happier and healthier future for people. By making smart, evidence-based investments, not only is it possible to protect people’s most valuable asset – their health – but to chart faster economic recoveries and address fundamental threats of deficits and debt. A simple answer is because his choices and those of Congress are matters of life and death for millions of Americans.