With forces of capitalist recovery exhausted

Data on economic crisis show only one solution

By Fred Goldstein

It is becoming clearer every day that the capitalist class has no solution to the present crisis, either short term or long term. The short-term stimulus will not work and the long-term forces that have in the past pushed capitalism forward are exhausted.

It is clear from this that the multinational working class, through independent mass action, is the only force that can intervene to stop the layoffs, foreclosures and evictions and that the workers must do so in order to save themselves from being driven deeper into poverty.

Right now the mood of the capitalist class and its advisers and commentators has gone from panic and shock to gloom and despair.

Just as in the Great Depression, the financial system—the heart of capitalism, which pumps money through its arteries—has seized up in bankruptcy. When it is working normally, this heart pumps money into the system of industry, services and commerce to finance the exploitation of the workers and the sale of the products of their labor. From this exploitation profits flow back in the form of money into the treasuries of finance capital, and from there the money recirculates in order to finance more exploitation and bring in more profits.

The crisis of overproduction has slowed the normal circulation of profits back to the financial heart, leaving the system in desperate need of sustenance to keep functioning. To make matters worse, not only has this normal flow of the profits from exploitation back into the coffers of the banks dwindled, but their arteries are clogged with undetermined trillions of dollars of bad debts acquired in wildly excessive lending and secured by fictitious paper assets—fictitious because they have no underlying real value.

The financial authorities have tried with all their might to get this heart running again through bailouts—injections of money, loan guarantees, forced mergers—but the vital organ of banking still shows only a faint sign of life.

Why ‘nationalization’ is on the table

Both major schools of capitalist economic practitioners and advisers, including liberal neo-Keynesians like Paul Krugman and reactionary, supply-side Milton Friedmanites like Alan Greenspan, are now converging, under the pressure of the crisis, toward concluding that there is a need to “nationalize” the biggest banks, which everyone knows are insolvent. Nationalization, in the version being proposed, amounts to the seizure of the banks by the government, the nationalization of their bad debts, and then the return of the debt-free banks back to the hands of the parasitic financial swindlers.

But even if this could be agreed upon and carried out, the ruling class fears, correctly, that lending during a capitalist depression is like “pushing on a string.” Lending to companies that have no markets for their products brings no profit. Lending to workers who have lost their jobs or are surviving on low pay brings no profit. Lending to students who won’t have a job when they graduate will bring no profit. So the “nationalization” of the banks is an attempt to treat a financial symptom when the disease itself is overproduction as a result of the system of production for profit.

It is beginning to dawn on the bankers, brokers and bosses that they are staring into the void of an economic crisis in which, more and more each day, the protracted forces of economic downturn seem to completely overwhelm the prospects for recovery. Each economic stimulus or bailout measure announced by the Obama administration seems to be immediately dwarfed by announcements on the growing magnitude of the crisis.

Can’t find an engine for recovery

Pessimism is mounting because none of the experts can discern an engine for a recovery, even three or four years in the future. By April, this will be the longest continuous downturn since the Great Depression, surpassing the recessions of 1973 to 1975 and 1980 to 1982, and there is no real end in sight.

Those who predict that growth will return at a given time—say the end of 2010 or the end of 2011—are whistling in the dark and they know it. They have had to change their predictions downward over and over again since the crisis started in December 2007. They cannot see into the next quarter, let alone two years hence.

This is because the system of private property is anarchic and unplanned, based on corporate secrecy and the unbridled rivalry for profits.

The ruling class, government officials and bourgeois economic “experts” have endured so many sudden catastrophic drops in the stock market, so many mortgage company failures, so many reports of the biggest banks asking for and getting untold sums of money, so many profit declines, so many grave unemployment reports, so many foreclosure reports, etc., that they seem to alternate between panic over what’s happening at the moment and a state of long-term gloom and despair over the future.

Take this article in the Washington Post datelined Feb. 18:

“Markets around the world plunged Tuesday as evidence mounted that the global economic crisis is worsening.

“Japan is suffering its worst downturn in 35 years. The British economy is facing its sharpest decline in almost 30 years. Germany is slumping at its worst pace in nearly 20 years. Meanwhile the job market in the United States, at the epicenter of the global downturn, is the worst in decades. And emerging economies are contracting at a pace few had predicted just months ago. ...

“The sharpness of the global slowdown has alarmed economists, who see no obvious engine for recovery.” Absolutely nothing to drive a recovery!

Paul Krugman’s column published Feb. 19 in the New York Times was tellingly entitled “Who’ll Stop the Pain?” Referring to the minutes of a recent meeting of the Federal Reserve Board, he wrote that his eye was caught “by the following chilling passage. ... ‘All participants anticipated that unemployment would remain substantially above its longer-run sustainable rate at the end of 2011, even absent further economic shocks; a few indicated that more than five to six years would be needed for the economy to converge to a longer-run path characterized by sustainable rates of output growth and unemployment.’”

Krugman is a Nobel Prize winner in economics and a neo-Keynesian advocate of even greater government stimulus spending and nationalization of the banks. He said he has been obsessing lately over “What’s supposed to end this slump? No doubt this too will pass—but how, when?”

To find a model that he hoped would eventually work to get U.S. capitalism out of the crisis, Krugman had to go back to the recovery from the crash of 1873. That was in the era of competitive capitalism, before the dominance of monopoly and finance capital.

Another comment in the Federal Reserve minutes that bears noting is that once the economy starts expanding again, it will be an “unusually gradual and prolonged” recovery.

This gloom is based upon the mounting figures surrounding the crisis. The International Labor Organization based in Geneva said that if unemployment continues at its present rate of growth, 18 million to 30 million workers worldwide could lose their jobs in 2009. But if the situation deteriorates, the number could rise to 50 million. The IMF has predicted that world output will fall in 2009 for the first time since World War II.

The ruling class concern over the economic crisis has nothing to do with sympathy for the workers and oppressed who suffer the pain. A protracted depression means a decline in production, which means a decline in profits, a rise in unemployment and the prospect of eventual working-class rebellion. This is the double nightmare that haunts them about the future.

Comparisons to Great Depression

Many comparisons are made with the Great Depression. The pundits console themselves with the drastic number of 25 percent unemployed at the depths of the depression in 1933 and an average of 17 percent for the decade. Compared to those numbers, they say, we are a long way from the Great Depression.

But a numerical comparison cannot be made at this point. The major financial authorities, including the Federal Reserve Board, the IMF and, recently, the attendees at the elite World Economic Forum in Davos, are coming to agree that this is still the early stage of the crisis.

Another comparison can be made that comes closer to the essence of the present crisis and the prospects for recovery.

The Great Depression came three decades after U.S. capitalism had first entered a period of crisis, inaugurated by the depression of 1893 to 1897. Long-term growth factors consisting of the building of the railroads, the brutal removal of the Native people in order to expropriate the land, the annexation of half of Mexico and the conquest of the so-called “frontier,” among other things, had exhausted themselves. Capitalism was unable to regenerate through the normal cycle of boom-bust-recovery. It took the rise of U.S. imperialism, signified by the Spanish-American War, to rescue the system.

The war brought a surge in the export of capital and in imperialist superprofits extracted from the superexploited people in the colonies: Cuba, Puerto Rico, Central and Latin America, the Philippines, Guam, Samoa, Hawaii, China and elsewhere. Imperialist expansion was the underlying factor that gave U.S. capitalism restored profitability and the material basis for recovery. This is what allowed a new surge in the development of technology and the productive forces.

The development of the assembly line, standardization and interchangeability of parts, and further electrification of the country gave rise to mass production industries. Automobiles, radios, refrigerators and other appliances were produced in the U.S. alongside a growing export of capital.

World War I and U.S. loans to Europe after the war brought in profits. A postwar slowdown was overcome by the brief but wild prosperity of 1923 to 1929, fostered by credit and speculation in land and stocks. But the long-term factors of development were exhausted when the worldwide crisis of overproduction finally brought the system down in 1929. The ruling class was never able to mount a sustainable capitalist recovery.

The bourgeoisie now senses, although they cannot precisely articulate it, that the present crisis resembles the Great Depression not just in the growing unemployment, the financial crisis of the banks and the bursting of the speculative bubbles, but in the fact that both crises came as all the driving forces of capitalist recovery had exhausted themselves. Therein lies the fundamental similarity.

Next: The Great Depression and World War II.

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