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The Economy in a World of Trouble

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The Economy in a World of Trouble Derro/iers seeking job applicaiions at the post office. The city has an ofßdai unemployment rate of 16.2%. Jirti WesI / www iimwestpholo.com An interview with Robert Brenner The Economy in a World of Trouble ROBERT BRENNER, AN editor of Against the Current and the the 1960s.The failure of the rate of profit to recover is all the author of The Economics of Global Turbulence (Verso, 2006), more remarkable, in view of the huge drop-off in the growth was interviewed by Seon^in jeong for Hankyoreh, Korea's leading of real wages, over the period. daily newspaper.This interview was published on Jonuary 19, 2009 The main cause, though not the only cause, of the decline ar)d has been slightly edited for publication here. in the rate of profit has been a persistent tendency to over- Song/in Jeong: Most media and analysts label the current crisis capacity in global manufacturing industries. What happened as a "fmancial crisis." Do you agree with this characterizaVon? was that one after another new manufacturing power entered Robert Brenner It's understandable that analysts of the the world market —• Germany and japan, the northeast Asian crisis have made the meltdown in banking and the securities Newly Industrializing Countries (NICS), the southeast Asian markets their point of departure. But the difficulty is that they Tigers, and, finally the Chinese Leviathan. have not gone any deeper. From Treasury Secretary Henry These later-developing economies produced the same Paulson and Fed Chair Ben Bernanke on down, they argue goods that were already being produced by the earlier devel- that the crisis can be explained simply in terms of problems opers, only cheaper. The result was too much supply com- in the financial sector. At the same time, they assert that the pared to demand in one industry after another, and this forced underlying real economy is strong, the so-called fundamentals down prices and in that way profits. The corporations that in good shape.This could not be more misleading. experienced the squeeze on their profits, moreover, did not meekly leave their industries; they tried to hold their place by The basic source of today's crisis is the declining vitality falling back on their capacity for innovation and speeding up of the advanced economies since 1973, and, especially, since investment in new technologies. But of course this only made 2000. Economic performance in the United States, western overcapacity worse. Europe, and Japan has steadily deteriorated, business cycle by business cycle in terms of every standard macroeconomic Due to the fall in their rate of return, capitalists were get- indicator — GDP, investment, real wages and so forth. Most ting smaller surpluses from their investments.They therefore telling, the business cycle that just ended, from 2001 through had no choice but to slow down the growth of plant and 2007, was — by far — the weakest of the postwar period, and equipment and employment. At the same time, in order to this despite the greatest government-sponsored economic restore profitability, they held down employees' pay, while stimulus in U.S. peacetime history. governments reduced the growth of social expenditures. SJ: How would you explain the long-term weakening of the real But the consequence of all these cutbacks in spending has economy since 1973, what you call in your work "the long down- been a long-term problem of aggregate demand. The persis- turn"? tent weakness of aggregate demand has been the immediate RB: What mainly accounts for it is a deep, and lasting, decline source of the economy's long-term weakness. of the rate of return on capital investment since the end of SJ: The crisis was actually triggered by the bursting of the his- AGAINST THE CURRENT» 15 toric housiryg bubble, which had been RB: The current crisis is more expanding for a full decade. What is serious than the v^orst previous your view of its significance? recession of the postwar period, RB:The housing bubble needs to be between 1979 and 1982. and could understood in relation to the suc- conceivably come to rival the Great cession of asset price bubbles that Depression, though there is no the economy has experienced since way of really knowing. Economic the middle 1990s, and especially the forecasters have underestimated role of the U.S. Federal Reserve in how had bad it is because they nurturing those bubbles. have overestimated the strength of the real economy and failed to Since the start of the long down- take into account the extent of its turn, state economic authorities dependence upon a buildup of debt have tried to cope with the problem that relied on asset price bubbles. of insufficient demand by encourag- ing the increase of borrowing, both ln the United States, during the public and private. At first they recent business cycle of the years turned to state budget deficits, and 2001 -2007. GDP growth was by far in this way they did avoid really the slowest of the postwar epoch. deep recessions. But as time went There was no increase in private on, governments could get ever sector employment The increase § less growth from the same amount in plant and equipment was abouti of borrowing. In effect, in order to a third off the previous postwar s stave off the sort of profound crises low. Real wages were basically flat!. that historically have plagued the There was no increase in median I capitalist system, they had to accept family income for the first time ^ a slide toward stagnation. since WWII. Economic growth was I During the early 1990s. govern- driven entirely by personal con-1 ments in the United States and sumption and residential invest- file housing bubble marked the final uugc ol Lhe "boam.'lts ment, made possible by easy credit Europe, led by the Clinton admin- collapse is accelerating títe meltdown. istration, famously tried to break and rising house prices. their addiction to debt by moving together toward balanced Economic performance was this weak, despite the enor- budgets. The idea was to let the free market govern the mous stimulus from the housing bubble and the Bush admin- economy. But because profitability had still not recovered, istration's huge federal deficits. Housing by itself accounted the reduction in deficits delivered a big shock to demand, and for almost one-third of the growth of GDP and close to half helped bring about the recessions and slow growth between of the increase in employment in the years 2001 -2005. It was !99I and 1995. therefore to be expected that when the housing bubble burst, To get the economy expanding again, U.S. authorities ended consumption and residential investment would fall, and the up adopting an approach that had been pioneered by Japan economy would plunge. during the later 1980s. By keeping interest rates low. the SJ: Many assert that the current crisis is a typical financial crisis, Federal Reserve made it easy to borrow so as to encourage not a "Marxian" one of overproduction and falling profit, arguing investment in financial assets. As asset prices soared, corpo- that the financial speculatiorhbubble-bust has played the central rations and households experienced huge increases in their rote in this crisis. How would you respond? weaith, at least on paper.They v^ere therefore able to borrow RB: I don't think it's helpful to counterpose in that way the on a titanic scale, vastly increase their investment and con- real and financial aspects of the crisis. As I emphasized, it is a sumption, and in that way drive the economy. Marxian crisis in that it finds its roots in a longterm fall and So. private deficits replaced public ones. What might failure to recover the rate of profit, which is the fundamental be called "asset price Keynesianism" replaced traditional source of the extended slowdown of capital accumulation Keynesianism.We have therefore witnessed for the last dozen right into the present. In 2001, the rate of profit for U.S. non- years or so the extraordinary spectacle of a world economy financiai corporations was the lowest of the postwar period, in which the continuation of capital accumulation has come except for 1980. Corporations therefore had no choice but to literally to depend upon historic waves of speculation, care- hold back on investment and employment, further darkening fully nurtured and rationalized by state policy makers — and the business climate. regulators! — first the historic stock market bubble of the This is what accounts for the ultra-slow growth during the later 1990s, then the housing and credit market bubbles from business cycle that just ended. Nevertheless, to understand the early 2000s. the current collapse, you have to demonstrate the connection S/: You were prophetic in forecasting the current crisis as well as between the weakness of the real economy and the financial the 2001 recession. Whot is your outlook for the global economy? meltdown. The main link is the economy's ever-increasing Will it worsen, or will it recover before the end of 2009? Do dependence on borrowing to keep it turning over, and the you expect that the current crisis will be as severe as the Great government's ever greater reliance on asset price run-ups to Depression.^ allow that borrowing to continue. 16» MARCH/APRIL2009 The basic condition for the housing and credit market Resurgent" (Gerard Dumeni!) between the 1980s and the present bubbles was the perpetuation of low costs of borrowing. The What do you think of such a thesis? weakness of the world economy, especially after the crises RB: The idea of a finance led-capitalism is a contradiction of 1997-1998 and 2001-2002.
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