Panitch and Gindin’s theses on the crisis

Leo Panitch and Sam Gindin, who I have an awful lot of respect for, have just put out a little essay: “From global finance to the nationalisation of the banks: eight theses on the economic crisis”. Quite a few wildly different schools of thought on the crisis have emerged in radical circles, so breaking the argument down into eight discrete points is really helpful for focusing debate. In particular, this will attract flak from certain circles: “Even though the spheres of capitalist finance and production are obviously intertwined (in significant ways today more than ever before), the origins of today’s US-based financial crisis are not rooted in a profitability crisis in the sphere of production, as was the case with the crisis of the 1970s, nor in the global trade imbalances that have emerged since.”

As it happens I’m pretty much behind the Panitch and Gindin school. I’ll post the points here as a spark for discussion, but go check out the whole document.

1. The current economic crisis has to be understood in terms of the historical dynamics and contradictions of capitalist finance in the second half of the 20th century.

2. The spatial expansion and social deepening of capitalism in the last quarter century could not have occurred without innovations in finance.

3. The competitive volatility of global finance produced a series of financial crises whose containment required repeated state intervention.

4. Both finance’s central role in the making of global capitalism and the American state’s role in sustaining it produced the bubble that emerged inside the US housing sector.

5. The inevitable bursting of the housing bubble had such a profound impact because of its centrality to sustaining both US consumer demand and global financial markets.

6. The crisis reinforced the centrality of the American state in the global capitalist economy while multiplying the difficulties entailed in managing it.

7. The scale of the crisis today is such that nationalization of the financial system cannot be kept off the political agenda.

8. The call for nationalization of the banks provides an opening for advancing broader strategies that begin to take up the need for systemic alternatives to capitalism.

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Published in: on 26 February, 2009 at 2:01 pm  Comments (5)  

Doug Henwood now in blog form

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.

Published in: on 12 February, 2009 at 7:28 pm  Leave a Comment  

Natural disaster

In this study, the potential impact of climate change on southeast Australia is estimated. Simulations from two CSIRO climate models using two greenhouse gas and aerosol emissions scenarios are combined with historical weather observations to assess the changes to fire weather expected by 2020 and 2050. In general, fire weather conditions are expected to worsen. By 2020, the increase in ΣFFDI is generally 0-4% in the low scenarios and 0-10% in the high scenarios. By 2050, the increase in generally 0-8% (low) and 10-30% (high). The largest changes are expected in northern New South Wales. Little change is expected in Tasmania. With this increase in ΣFFDI, a larger number of days with a Fire Danger Rating of ‘very high’ or ‘extreme’ are also expected. The number of ‘extreme’ fire danger days generally increases 5-25% for the low scenarios and 15-65% for the high scenarios. By 2050, the increases are generally 10-50% in the low scenarios and100- 300% for the high scenarios. The seasons are likely to become longer, starting earlier in the year.

These results are placed in the context of the current climate and its tendencies. During the last several years in southeast Australia, including the 2006-07 season, particularly severe fire weather conditions have been observed. In many cases, the conditions far exceed the projections in the high scenarios of 2050. Are the models (or our methodology) too conservative or is some other factor at work?

Examining longer-term observations at eight stations, back to the early 1940s in many cases, reveals considerable inter-decadal variability. Periods of increasing and decreasing fire weather danger are apparent in the record. The peaks of these ‘cycles’ occur roughly every 20 years and the time series might suggest that we are at (or near) a peak, although there is no physical basis on which to estimate when or to what extent a decrease might occur.

There is also evidence for anthropogenic climate change being a driver of this upswing. The current peaks in ΣFFDI are much higher than observed in past instances. There are also a greater number of VHE days at many locales. There is also the suggestion that the fire season is starting earlier. Finally, the severity and length of the recent drought [e.g. Nicholls 2006] and the associated fire danger has not been seen in the available records.

The hypothesis posited in this study is that the naturally occurring peak in fire danger due to interdecadal variability may have been exacerbated by climate change. The test of this hypothesis comes over the next few years to decades. If correct, then it might be expected that fire weather conditions will return to levels something more along the lines of those suggested in the 2020 scenarios. If fire danger conditions stay this high, then the conclusion must be that the models used to make these projections are too conservative. Whatever the case, continued observation, as well as improved modelling are required to resolve this question.

What of the human impacts of these projected changes? The last few years, particularly the 2006-07 fire season, may provide an indication for the future. Early season starts suggest a smaller window for pre-season fuel-reduction burns. Logically, more frequent and more intense fires suggest that more resources will be required to maintain current levels of bushfire suppression. Shorter intervals between fires, such as those which burned in eastern Victoria during 2002-03 and 2006-07, may significantly alter ecosystems and threaten biodiversity. It is hoped that planning authorities can use this information in the development of adaptation strategies.

– Lucas, Hennessy, Mills and Bathols [2007]: “Bushfire weather in Southeast Australia: recent trends and projected climate change impacts”, Bushfire CRC, Australian Bureau of Meteorology and CSIRO Marine and Atmospheric Research. [Cheers for the link from Clive Hamilton in Crikey!]

Published in: on 10 February, 2009 at 11:55 am  Leave a Comment  

Balanced budgets and the technocratic imperative

For ages we’ve seen an alliance between a pragmatic, basically scientific technocratic economics and conservative pseudo-economics. The former has always been essentially neo-classical-Keynesian and fairly empiricist. The impact of monetarism and the ‘new classicals’ on technocratic economics – the economics of Treasuries, central banks, the IMF, etc. – has been much exaggerated. But for a long time there wasn’t much of a difference between the technocrats’ practical policy and that of the conservative ideologues. What we’re seeing now is a divergence, and we see that the real power lies with the technocrats; conservative pseudo-economics falls whining to the roadside.

The ‘balanced budget’ ideology has its roots in the naive view that government finances are analogous to private finance, that deficits are reckless ‘spending beyond our means’ that ‘the taxpayer’ is one day going to have to pay back, and so on. But governments don’t really face a budget constraint. In boom conditions, balanced budgets and surpluses were technocratically rational for macroeconomic reasons however, so spreading the false idea that always balancing the books was a good idea for common-sense prudential reasons was useful to the technocrats.

It’s no longer a useful idea, and the balanced budget ideology becomes a political drag. You can sense its presence in all the headlines that had Rudd ‘admitting’ there would be a deficit, despite the journalists being hard-pressed to find a credible economist who thought it bad policy. It has still, of course, been running rampant through the opinion pages. And no doubt there is a fairly large proportion of the population that believes this stuff, or at least has a gut feeling that there’s just something dodgy about government debt, whatever the economists say.

Then there are the more sophisticated economic arguments. These acknowledge that the battleground is not the government accounts themselves but their interaction with the whole economic system. The ‘crowding out’ arguments on so many tongues in the 1970s and 1980s held that government deficit spending would be macroeconomically useless because it would simply displace the same amount of private expenditure. It does this either financially, because the government is borrowing from a limited pool of funds, or in the ‘real economy’ by pulling workers and other resources away from private employment. In some conditions there is something to the crowding out argument, at least in the latter form, and no-one doubts that in conditions of full employment, extra spending will raise prices rather than output. (Though there are devils in the definition of ‘full employment’, and anyway, we might rather have the public spending than the private.) But in conditions where private investment is holding back, it doesn’t make any sense unless you deny the reality of involuntary unemployment.

Then there is the even less-convincing argument  from ‘rational expectations’: that deficit spending is useless because taxpayers anticipate the future repayment of debt via future taxes and save accordingly. Even if you think people generally behave in this way – and personally I think it’s ludicrous – it does not rule out an impact from the expenditure, because people can rationally expect the future taxes to come out of future higher incomes.

Anyway, these kinds of arguments have been valiantly put forward by certain economists and whole armies of credulous conservative op-ed writers the world over. But their star has been falling because the technocrats have better arguments, and because the deficits are coming anyway, no matter what policymakers think. This has emboldened the technocrats within academic economics to stick the knife into the crazier elements of their discipline, the monetarist remnants, the new classicals, Hayekians, and so on. Witness the open civil warfare which has broken out in big-name American economics between the ‘freshwater’ (i.e. Chicago and mid-Western) and the ‘saltwater’ (coastal) economists. Paul Krugman has been particularly merciless in persecuting the Chicago School likes of poor Eugene Fama, likening him to a biologist who is not only a creationist, but one who is completely unaware of the existence of evolutionist arguments.

What we’re seeing is not the ‘end of neoliberalism’, because most practical neoliberals never ditched the idea of stimulatory spending in a downturn. We’re just seeing the widening of a split between technocrats and ideologues. The ideologues have become an obstacle to policy which is functional for capitalism; they are being cast adrift, but no doubt they’ll be useful again.

Published in: on 9 February, 2009 at 11:32 am  Comments (10)  

My Minsky moment

So I’m going  to give a little introductory talk on Hyman Minsky next month here in Sydney. He’s been in the news a bit lately but, regrettably, everybody else misinterprets him grievously. All welcome, but it’s in a Surry Hills office building so let me know if you want to come and I’ll let you know the secret password – hand signal combination as well as the address. Also I can pass on the readings as pdfs. It’s a double bill with Steve Keen talking about Irving Fisher, and it’s a discussion group, so that after half-an-hour or so of us talking there’s an hour of sober discussion and then we go to a local pub. Here are the details:

MPS – Meeting XIII, Wednesday March 4 at 6.30pm

Selected Readings from Irving Fisher (1867-1957) and Hyman Minsky (1919-1996)
 
“Stock prices have reached what looks like a permanently high plateau. I do not feel there will be soon if ever a 50 or 60 point break from present levels, such as (bears) have predicted. I expect to see the stock market a good deal higher within a few months.”
– Irving Fisher, Oct. 17, 1929 
 
“A fundamental characteristic of our economy is that the financial system swings between robustness and fragility and these swings are an integral part of the process that generates business cycles.”
– Hyman Minksy, 1974
 
Reading:

Irving Fisher

The Debt-Deflation Theory of Great Depressions
The Stock Market Panic in 1929
Fisher and Debt Deflation Lecture

 Hyman Minsky

Inflation, Recession, and Economic Policy, articles 1, 3 & 9
Stabilising an Unstable Economy, first couple of chapters (or as much as you can get through!)

Guest Speakers: Assoc Prof Steve Keen, UWS and Mike Beggs, PHD candidate at the University of Sydney (Steve will focus mostly on Fisher and Mike on Minsky)
 
Biographical
Irving Fisher
http://cepa.newschool.edu/het/profiles/fisher.htm 
http://en.wikipedia.org/wiki/Irving_Fisher
Hyman Minsky
http://cepa.newschool.edu/het/profiles/minsky.htm
http://en.wikipedia.org/wiki/Hyman_Minsky
 
Questions:
1.      How do you understand Fisher’s theory of debt deflation?
2.      What are the main elements of Minsky’s Financial Instability Hypothesis?
3.      Are there any major differences between Fisher and Minsky’s analyses?
4.      How do these theories help us understand the present crisis?
5.      What are the public policy implications of these analyses?
6.      Prepare a question for the group to discuss.

Published in: on 6 February, 2009 at 9:54 am  Comments (2)