The first intellectual consequence of the economic crisis was to undermine neoliberalism—or the belief in the sufficiency of markets to secure human welfare—as the age’s default ideology.
The second was to prompt a hasty resurrection of Keynes. “We are all Keynesians again!” the ghost of Richard Nixon might have declared as Gordon Brown and Barack Obama, leaders of the nations most squarely behind the neoliberal push of the last thirty years, changed the Anglo-American tune and, this past winter, begged their European colleagues to stimulate the Continental economy with borrowed money. The crisis also made the economists Paul Krugman and Nouriel Roubini into the ﬁrst Keynesian superstars since John Kenneth Galbraith. Their recommendations, on their invaluable blogs, of still vaster countercyclical spending and the temporary nationalization of banks were not taken up by the Obama administration, but they did confer new respectability on the idea of close state involvement in the economy.
But the Keynesian revival, so far, is partial and expedient rather than thorough-going. Keynes’s “somewhat comprehensive socialization of investment” remains taboo, and when Hyman Minsky’s famous reinterpretation of Keynes was rushed back into print last year (Minsky developed through Keynes a theory of bubbles and their bursting), the author of the preface to the new edition assured readers that Minsky’s own advocacy of public-led investment could be ignored. There are at least two Keyneses: the tinkering inspiration for the so-called neo-classical synthesis, who demonstrates the ultimate viability of capitalism in spite of bouts of crisis; and the suave radical whose call for the “the euthanasia of the rentier” doesn’t stop far short of taking the rentier out to be shot. This second Keynes lives next door to the Marx who in the Manifesto insisted on the “centralization of credit in the banks of the state,” and hasn’t been heard from much lately.
For the moment, the neo-Keynesian blog posts bear the same relationship to the crisis as cognitive behavioral therapy does to a patient’s troubles. Here is something insightful, helpful; listen carefully and it might save your life. But when the acute pain passes you will be left with the chronic problem of who and what you are. The suffering individual has psychoanalysis to turn to. In economics, the analogous route is Marxism, which like psychoanalysis has a dubious reputation—and an explanatory power and long-term perspective that its rivals can’t touch. With luck, the next intellectual consequence of the crisis will be to pry the lid off Marx’s tomb, since it is only from a Marxian standpoint that the recent credit bubble can be understood in terms of the structural problems it affected to solve as well as those it has created.
From the first there were confused signs of a hunger for Marxist thought. Back in the clammy depths of the market’s autumn plunge, Robert Kuttner of the determinedly liberal American Prospect acknowledged that in light of Treasury’s rescue plan the “Marxian cant” designating the government as “the executive committee of the ruling class” sounded perfectly just. And John Lanchester in the New Yorker wanted to know, “Are there any unreconstructed Marxists left, anywhere in the wild? (Universities don’t count.) If there are, now would be a good moment for one of them to publish a book saying that the man in the beard would regard himself as having been proved right.” Here was a call for Marxist ideas that simultaneously reimposed their ban. We might require authors of Marxist tomes—but professors don’t count, only freelancers. (Such a guy would be worth a New Yorker profile: for instance, who loans him his shoes?)
Of course there are reasons for being suspicious of Marxism. During the Third International and in the scattered sectarian life it has led outside the universities since the Second World War, Marxism has shown a susceptibility to dogma hardly equaled outside of American economics departments. But the ideological rout that Marxism began to suffer in the ’70s did what periods in the wilderness are supposed to do: it discouraged bandwagon-jumpers and enforced a new seriousness on those who stuck around. The truth is that since the neoliberal era began thirty years ago, Marxism has yielded some of its most formidable monuments of economic thought. Two in particular are David Harvey’s abstract and categorical Limits to Capital (1982), which as the restatement and completion of a great thinker’s project easily outclasses Minsky’s John Maynard Keynes (1975), and Robert Brenner’s narrative and empirical Economics of Global Turbulence (2006), which barely mentions Marx while vindicating, through an analysis of the postwar American, German, and Japanese economies, the idea Marx took from David Ricardo and made his own: the tendency of the rate of profit to fall in a situation of free competition.
The need for a Marxist macroeconomics is patent in one small line from Paul Krugman’s Return of Depression Economics: “In the early 1970s, for reasons that are still somewhat mysterious, growth slowed throughout the advanced world” (our italics). And growth had stayed slow, for reasons that to a mainstream economics confessedly “shy of the grandest themes” (as the founder of general equilibrium theory once put it) remain a baffling mystery.
The global rate of economic growth has declined from about 3.5 percent annually in the ’60s, to 2.4 percent in the ’70s, to 1.4 percent and 1 percent in the ’80s and ’90s, to 1 percent in this decade—much of which single paltry percentage turns out to have been illusory. Meanwhile, financial services, starting in the early ’80s, took a larger and larger share of total income and total profits in the world’s largest economy, until finally finance had become, by last fall, the largest American industry, accruing to itself a quarter of all US profits. This combination of declining overall growth with burgeoning finance suggests that the connection between finance and investment can’t have been the alleged one: the direction of capital to its most productive uses. So there must be a better way to characterize a situation—that of the last decades—in which vast quantities of overaccumulated capital (the neo-Keynesian’s “excess of desired savings”) circle the globe in search of profits, while the vitality of capitalism as a whole steadily diminishes.
Marxists differ in the details of their accounts of the postwar economy, but the story, which ends for now in the cliffhanger of the first contraction of the world economy since 1945, goes something like this: The so-called Golden Age of postwar capitalism from 1950–70—a time of rising wages, profits, and investment—was the product of special and perishable circumstances. The wartime destruction of the Japanese and German productive base meant that, with the resumption of peace and renewed growth in demand for non-military goods, all the major industrial economies could for a time thrive without threat to one another. But the maturation of European and Japanese industry toward the end of the ’60s spelled the return of mutually destructive competition. Firms producing internationally tradable goods (cars, electronics, et cetera) could only survive by reducing prices, which in turn reduced profitability. And yet the capital sunk in manufacturing plants was enough to make capitalists reluctant to exit a given product line in spite of reduced profitability. Besides, governments don’t like to see big firms fail even when they can’t compete. (The Obama administration has lately proved almost as indulgent of GM as the state-directed Japanese banks have always been of Japanese industry.) And the more recent advent of China as a manufacturing power only exacerbated the situation, as the Chinese (to quote Brenner) “continued to expand capacity faster than it could be scrapped system-wide and to rain down torrents of redundant, increasingly high-tech goods upon the world market.”
The orthodox story blames declining profitability (and price inflation) during the ’70s on the excessive demands of labor—a plausible enough explanation until you consider that the worldwide defeat of labor since the ’80s has failed to restore prior levels of growth. The high wages of the early ’70s are long gone. What has endured and intensified since then is a systemic bias in favor of short-term financial speculation over longer-term productive investment. The replacement of the gold standard by floating currencies encouraged capital to flit from country to country in search of returns magnified by any temporary overvaluation of this or that national fiat money. At the same time, information technology sped transactions along at a new rate and volume. What in 1983 was a daily mass of $2.3 billion in international financial transactions had become $130 billion by 2001. Only about 2 percent of the same sum would be necessary to maintain international trade and productive investment.
Meanwhile production is guided by the search for low wages. The export-led growth of first Germany and Japan, then the “Asian Tigers,” then China with its endless reserve army of labor has flooded the world with cheapening goods; and between 1985 and 1995 the US itself staged a manufacturing revival through the exporter’s proven formula of cowed labor and an undervalued currency. But this is supply: what about demand? The fundamental problem with workers (to whom as much money as possible should be denied if commodities are to be affordable) is that they are also consumers (to whom as much money as possible should be supplied if they are to buy commodities). Marxists aren’t kidding when they talk about the contradictions of capitalism. In the end, as Marx wrote, “the ultimate reason for all real crises always remains the poverty and restricted consumption of the masses.” The result of declining or stagnant real wages since the ’80s has been global industrial overcapacity: too much plant turning out too much stuff for not enough buyers.
The structural solution to this dilemma was as ingenious as it was unsustainable. If the global wage-bill couldn’t cover all the world’s gimcrack goods and coastal vacation properties, then consumers—especially American, but also European—had to be extended a new line of credit. They would borrow money to buy houses, and then borrow more money, to buy other stuff, against the rising value of these houses! Of course many new home-buyers plainly couldn’t pay their mortgages; the mortgages were granted on the assumption that someone else ultimately could and would. So present consumer demand was leveraged against a future demand for which there was no plausible source. For mortgage brokers operating under the originate-and-distribute model this didn’t matter; they had already pocketed their commissions. And those bundling iffy mortgages into securities comforted themselves with a rhetorical question: What was the likelihood of homeowners defaulting en masse?
The venality and self-deception of the brokers, rating agencies, and bankers are now notorious. By comparison, David Harvey’s most audacious theoretical move, in Limits to Capital, seems sensible enough: How can Marx’s labor theory of value (which identifies value as “socially necessary labor time”) be reconciled with land prices, given that land is obviously not the product of human labor? Harvey’s answer was that under capitalism land becomes “a pure financial asset”; land price is a claim on future revenue treated as a present-day asset. “Mortgages,” Marx said, “are mere titles on future rent.” And Harvey completes his thought: “Land price must be realized as future rental appropriation, which rests on future labor” (our italics). The big risk, naturally, is that you will attribute to real estate far more present-day value than can later on be returned to it by labor (in the form of the portion of total income devoted to housing). A bubble occurs not when people pay for real estate with money they don’t yet have—as always happens, given the availabilty of credit—but when they pay with money they will never have, out of wages they will never receive—out of wages no one will ever receive. This past fall the papers were full of “analysts” wrapping their heads around a new idea: “Home prices,” said one, “are going to have to start reflecting people’s income.”
In the world at large, if not always in the bubble-addicted US, recessions have been deeper and longer and recoveries ever more feeble since 1973. Already the recovery after the recession of 2001–02 was the weakest on record, adding virtually no new jobs to the rolls. The main stimulus to consumption was the confection of fantastic, improbable, and finally fictitious paper assets. And as Brenner wrote in 2006—were he not a Marxist he would be counted among the prophets of the crash—“the US Fed’s continuing dependence on cheap credit and asset-price bubbles to provide the subsidy to demand to keep the economy turning over appears to have only delayed, but not really avoided, the economy’s obligatory responses to the over-capacity, fall in profitability, and asset-price crash of 2000–01.” In this way alone—alas—the Bush Administration never happened.
The motor of accumulation has been sputtering for nearly four decades, and its coughs can be heard again now that the roar of combusting paper wealth is dying down. This doesn’t mean capitalism or even growth is at an end. Economists of all kinds have pinned their hopes on the transformation of laboring and saving Chinese into hardy consumers. In any case, the US consumer—a ravening appetite in a paper house—appears to be finished as the world’s buyer of last resort. It would add a nice dialectical twist to the future history of our period if it could be said that, around the time the post-Maoist Chinese took up shopping, the post-bubble Americans turned to studying Marx.