Busted: Stories of the Financial Crisis | The Nation

The problem with the economy, is that no one is willing to come to terms with the failures of Capitalism:

This raises our last question; fittingly, it is the same as the first, the part Lanchester never quite answers. We know why everyone owes everyone: because there was fresh dough to be made in extending credit, until there wasn't. What we don't know is, Why can't anyone pay? Why didn't property values ascend forever? Why didn't the market just keep expanding? This is not a question answered by Johnson and Kwak either. It is, let's say, above their pay grade (or perhaps far below). To tell the story, one would need an account of where value actually comes from. This is not impossibly complex; unlike the niceties of derivatives, it's not rocket science. If value is generated by people laboring to produce stuff that gets sold, and profit comes from exploiting the productive value of labor—this is a simplification, of course, but not a mistake—sooner or later people will have to labor productively to make good on any extended credit. By people I mean people.

But this becomes decreasingly likely, until it is impossible. Promises to do all that work later will reach limits, particularly as companies cut labor costs, replace workers with machines and outsource work to overseas markets. New value, arising only from the discrepancy between wages and productivity, appears elsewhere when it appears at all (witness the growth of India and China). Or it appears to glimmer in the future: credit is the name for spending it now. But even the future has a limited number of hours, technically. Meanwhile, over in the finance sector, where the money seemed so recently to reside, there is only a genteel, bloody struggle over how existing value is divided; no new value is created. The gap between value that can be realized and "fictitious capital"—claims on future value, all those derivatives purling through the purportedly new economy—has become a chasm. No one can vault over it any longer.

But the economy made its tiger's leap out of the stale factory and into the open air of finance for a reason; we can't just return to the fading industrial base with an oops shrug. We have no new line of widgets to labor over and sell. This is why ours is a real crisis, not just a panic. This is why we have seen exactly what the analysis grimly promised: shortages cheek by jowl with surpluses, unemployed workers stacked up next to unused factories. We deferred this reckoning once, twice, three times, depending on your measure. Certainly the most recent credit bubble was pure deferral, pure delusion: Wile E. Coyote out over the gap, legs spinning. He hovered there for a while, and lots of people pretended the laws of physics had been revised, even as he started to plummet. Boom. By boom I mean bust.

Versions of this plaint have been made frequently enough by "mainstream" economists, seemingly unaware they're borrowing the lineaments of an account they've spent careers disavowing as a mystery cult. Well, there are no atheists in foxholes. Or, as a friend says, Marxism is like gold; in an economic crisis, everybody runs to those who have it. Not surprisingly, economists cannot borrow, even at low levels of interest, the insights most needed: the basic understanding that capitalism's flaws are internal to its own logic and can't be whisked away by another round of financial regulation or everybody promising to be less of a creep. It is indeed a compulsion, and it ends poorly.

n 1: On Your Marx

We are all Marxists now -- which is to say, we are all keen observers of the failure of capitalism and free markets in the age of peak oil, government bailouts, and corporate incompetence:

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.