So Left Business Observer‘s Doug Henwood has started publishing textual versions of his weekly radio commentaries on the American economy here, and sprinkled in some plain regular blog posts too. It’s great stuff, and worth reading back through the archives (it only goes back to November) to see how things have been unfolding. Henwood is the only person (to my knowledge) doing this kind of credible, consistent, sober, week-to-week economic journalism from a radical perspective. I’d like to do this kind of thing for Australia, if only I didn’t have a thesis to finish.
A couple of highlights: First, this passage from 20 December gives a good description of the Federal Reserve’s venture into longer-term debt markets, which I alluded to in comments the other day:
Historically, in conducting monetary policy, they’ve dealt only in short-term U.S. Treasury paper. When they want to tighten policy, they sell bills and notes in the market; banks buy them, and cash is drained out of the system. When they want to loosen, they buy bills and notes, using money created out of thin air, and add cash to the system. These moves have a strong influence on short-term interest rates, but not long-term rates. Long-term rates are generally set by bond traders, bsaed on their evaluations of the future course of the economy, interest rates, and inflation. When the Fed is tightening, long-term rates usually rise, and when it’s loosening, they often fall, but not always. Recently, traders have been so nervous about the future that long-term rates didn’t come down anywhere near as much as short-term rates have. And since long-term rates have a profound influence on mortgage markets and corporate investment, that stickiness has hindered financial and economic recovery.
So the Fed is plunging directly into the long end. They’re already buying up mortgage bonds issued by Fannie Mae and Freddie Mac; this has helped bring mortgage rates down. Of course, it’s really hard to get a mortgage, and few people are dying to buy houses, so the effects of lower rates are limited, But they’re pushing things as hard as they can. And it’s also likely that they’re going to buy long-term government bonds too, if rates don’t come down. They have come down in recent weeks, but if they kick back up, the Fed will buy with both hands to push them back down.
In the jargon of the trade, these bond purchases are called “quantitative easing.” The Bank of Japan did a lot of this in the 1990s, when that country was suffering from a long stagnation after their 1980s credit bubble burst. You frequently hear market pundits say that this policy didn’t work for Japan. Didn’t work compared to what? Yes, it didn’t generate prosperity, but let’s look at the record. After a speculative mania of world historic proportions led to a bust of equally impressive magnitude, Japan suffered not a depression, but a decade of stagnation. The unemployment rate, as computed by our Bureau of Labor Statistics to conform to U.S. definitions, maxed out at 5.4% in 2002. The 1992-2007 average was 4.0%. Over that same period, the U.S. jobless rate averaged 5.3%, a hair under Japan’s worst, and hit a high of 7.7% in 1992, more than 2 points above Japan’s worst. Our latest reading is 6.7%, almost a point and a half above Japan’s worst. According to the OECD, Japan had a poverty rate of 15.3% in the late 1990s (in a bust), vs. 17.0% in the U.S. (in a boom). Oh, and its auto industry never teetered on the verge of bankruptcy. If that’s what “didn’t work,” means, we should be so lucky.
And another great passage takes on people who have somewhat devalued the word ‘crisis’ by implying that crisis is a permanent state for capitalism:
Some go further and claim that the crisis is already here. Writers like my friend Patrick Bond argues that capitalism has been in crisis for something like the last 30 or 40 years, after the postwar boom began to fray. Since the postwar boom lasted about 25 years, that would mean that capitalism has been in some sort of crisis for something like 50 out of the last 75 years, a period when real GDP grew by almost 1300%. Raising Bond considerably, James O’Connor, a man I admire a great deal for his writing on fiscal politics and political ecology, once told me that capitalism has been in crisis since the 13th century.
I don’t get this. How a system that has transformed the world utterly, for century after century for something like the last seven, can be described as being in a crisis is beyond me. The thing is often brutal and viciously unstable, but that’s not its crisis, that’s its version of health.
And despite the crisis tendencies of so many Marxists, Marx himself wrote this in the Grundrisse: “Those economists who, like Ricardo, conceived production as directly identical with the self-realization of capital — and hence were heedless of the barriers to consumption or of the existing barriers of circulation itself…having in view only the development of the forces of production and the, growth of the industrial population — supply without regard to demand — have therefore grasped the positive essence of capital more correctly and deeply than those who, like Sismondi, emphasized the barriers of consumption…. The former more its universal tendency, the latter its particular restrictedness.” Apologies for the fragmented nature of that—the Grundrisse, though a glory to read, is a set of notebooks, not a polished work of prose. But the point is that capitalism, throughout its history, has always managed to overcome the barriers to its expansion, as impossible as that might have seemed at times. That’s worth remembering now that the system looks to be in a box. And it’s worth remembering when you hear people say that capitalism can’t overcome the environmental crisis. Maybe—nothing is forever. But if capitalists can find a way to make money off solving the environmental crisis, that may be in accord with what Marx called capital’s universal tendency. What capitalism can’t solve are poverty, maldistribution, and alienation; those are also part of its universal tendency. Those can only be solved by politics—by wrestling those universal tendencies to the ground.