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The Global Capitalist Crisis:: Its Origins, Nature and Impact
The Global Capitalist Crisis:: Its Origins, Nature and Impact
$80
$18
4 cents
$40
$5
$1
4 cents
$55
$26
$2.68
$1,450
$1,0000
$600
$22
$50
$22
20 cents
$70
$63
$32
31 cents
Source: U.S. Bureau of the Census, Current Population Reports, P60-235, August 2008;
Statistical Abstract of the United States, 2012, Table 694, p. 454.
Table 2. Distribution of Wealth in the United States, 2007, by Type of Asset
(in percentages)
__________________________________________________________________
Investment Assets Top 1% Top 10% Bottom 90%
__________________________________________________________________
Stocks and mutual funds 49.3 89.4 10.6
Financial securities 60.6 98.5 1.5
Trusts 38.9 79.4 20.6
Business equity 62.4 93.3 6.7
Non-home real estate 28.3 76.9 23.1
__________________________________________________________________
Total for group 49.7 87.8 12.2
__________________________________________________________________
Source: Edward N. Wolff, “Recent Trends in Household Wealth in the United
States: Rising Debt and the Middle Class Squeeze,” Working Paper No. 589 (March
2010), p. 51.
How Did All This Happen?
According to Prof. Richard D. Wolff
Department of Economics, University of Massachusetts at Amherst
Richard D. Wolff, “Capitalism Hits the Fan,” in Gerald Friedman et al. (eds.), The Economic Crisis Reader (Boston: Dollars & Sense, 2009).
$ 70
WASHINGTON (AP) -- Strong second-quarter earnings from McDonald's, General Electric and
Caterpillar on Friday are just the latest proof that booming profits have allowed Corporate America to
leave the Great Recession far behind.
But millions of ordinary Americans are stranded in a labor market that looks like it's still in recession.
Unemployment is stuck at 9.2 percent, two years into what economists call a recovery. Job growth has
been slow and wages stagnant.
"I've never seen labor markets this weak in 35 years of research," says Andrew Sum, director of the
Center for Labor Market Studies at Northeastern University.
Wages and salaries accounted for just 1 percent of economic growth in the first 18 months after
economists declared that the recession had ended in June 2009, according to Sum and other Northeastern
researchers.
In the same period after the 2001 recession, wages and salaries accounted for 15 percent. They were 50
percent after the 1991-92 recession and 25 percent after the 1981-82 recession.
Corporate profits, by contrast, accounted for an unprecedented 88 percent of economic growth during
those first 18 months. That's compared with 53 percent after the 2001 recession, nothing after the 1991-
92 recession and 28 percent after the 1981-82 recession. (For full text of this article, see the appendix at
the end of this power point presentation).
A Second Great Depression, or Worse?
SIMON JOHNSON, Thursday, August 18, 2011
Simon Johnson, the former chief economist at the International Monetary Fund, is the co-author of "13 Bankers."
With the United States and European economies having slowed markedly according to the latest data, and with global growth
continuing to disappoint, a reasonable question increasingly arises: Are we in another Great Depression?
The easy answer is "no" - the main features of the Great Depression have not yet manifested themselves and still seem unlikely.
But it is increasingly likely that we will find ourselves in the midst of something nearly as traumatic, a long slump of the kind
seen with some regularity in the 19th century, particularly if presidential election-year politics continue to head in a dangerous
direction.
The Great Depression had three main characteristics, seen in the United States and most other countries that were severely
affected. None of these have been part of our collective experience since 2007.
First, output dropped sharply after 1929, by over 25 percent in real terms in the United States (using the Bureau of Economic
Analysis data, from its Web site, for real gross domestic product, using chained 1937 dollars). In contrast, the United States had
a relatively small decline in G.D.P. after the latest boom peaked. According to the bureau's most recent online data, G.D.P.
peaked in the second quarter of 2008 at $14.4155 trillion and bottomed out in the second quarter of 2009 at $13.8541 trillion, a
decline of about 4 percent.
Second, unemployment rose above 20 percent in the United States during the 1930s and stayed there. In the latest downturn, we
experienced record job losses for the postwar United States, with around eight million jobs lost. But unemployment only briefly
touched 10 percent (in the fourth quarter of 2009; see the Bureau of Labor Statistics Web site).
Even by the highest estimates - which include people discouraged from looking for a job, thus not registered as unemployed -
the jobless rate reached around 16 to 17 percent. It's a jobs disaster, to be sure, but not the same scale as the Great Depression.
(For full text of this article see the Appendix at the end of this power point presentation).
Which Way Out of the Crisis?
Economic remedies to save the system from collapse
are bound to fail so long as they remain within the
framework of the existing capitalist system
Changes that are required to revitalize the economy
and turn things around point to a redistribution of
wealth and income to increase mass consumption
This would increase demand for consumer goods,
hence increase production, and create jobs for the
unemployed, as well as raising revenue for the state
through corporate and individual income taxes
All these would require a restructuring of the economy
away from failed neoliberal corporate capitalist policies
and toward a new set of priorities that promote the
interests of working people
Such restructuring requires the transformation of our
current capitalist economic system and the existing
social order in the direction of providing greater rights
and benefits to working people
And this would, in turn, benefit society greatly and set
us on a prosperous course that would vastly improve
living standards and pull us out of the economic crisis
But, who listens ?
Thank You !
Appendix
Calculation of Rate of Surplus Value and Labor’s Share of Production,
U.S. Manufacturing Industry, 1984 (in billions of dollars)
__________________________________________________________
E-mail:
berchb@unr.edu
Web Pages:
www.unr.edu/cla/soc/berchb.htm
Appendix
A boom in corporate profits, a bust in jobs, wages
Economic disconnect: Corporate profits surge while jobs and wages remain
at recession levels
Paul Wiseman, AP Economics Writer, Friday July 22, 2011.
WASHINGTON (AP) -- Strong second-quarter earnings from McDonald's, General Electric and
Caterpillar on Friday are just the latest proof that booming profits have allowed Corporate America to
leave the Great Recession far behind.
But millions of ordinary Americans are stranded in a labor market that looks like it's still in recession.
Unemployment is stuck at 9.2 percent, two years into what economists call a recovery. Job growth has
been slow and wages stagnant.
"I've never seen labor markets this weak in 35 years of research," says Andrew Sum, director of the
Center for Labor Market Studies at Northeastern University.
Wages and salaries accounted for just 1 percent of economic growth in the first 18 months after
economists declared that the recession had ended in June 2009, according to Sum and other Northeastern
researchers.
In the same period after the 2001 recession, wages and salaries accounted for 15 percent. They were 50
percent after the 1991-92 recession and 25 percent after the 1981-82 recession.
Corporate profits, by contrast, accounted for an unprecedented 88 percent of economic growth during
those first 18 months. That's compared with 53 percent after the 2001 recession, nothing after the 1991-
92 recession and 28 percent after the 1981-82 recession.
What's behind the disconnect between strong corporate profits and a
weak labor market? Several factors:
-- U.S. corporations are expanding overseas, not so much at home. McDonalds and
Caterpillar said overseas sales growth outperformed the U.S. in the April-June quarter.
U.S.-based multinational companies have been focused overseas for years: In the 2000s,
they added 2.4 million jobs in foreign countries and cut 2.9 million jobs in the United
States, according to the Commerce Department.
-- Back in the U.S., companies are squeezing more productivity out of staffs thinned by
layoffs during the Great Recession. They don't need to hire. And they don't need to be
generous with pay raises; they know their employees have nowhere else to go.
-- Companies remain reluctant to spend the $1.9 trillion in cash they've accumulated,
especially in the United States, which would create jobs.
Still, the U.S. economy is missing the engines that usually drive it out of a recession.
Carl Van Horn, director of the Center for Workforce Development at Rutgers
University, says the housing market would normally revive in the early stages of
an economic recovery, driving demand for building materials, furnishings and
appliances -- creating jobs. But that isn't happening this time.
For now, corporations aren't eager to hire or hand out decent raises until they
see consumers spending again. And consumers, still paying down the debts they
ran up before the recession, can't spend freely until they're comfortable with
their paychecks and secure in their jobs.
A Second Great Depression, or Worse?
Simon Johnson, the former chief economist at the International Monetary Fund, is the co-author of "13 Bankers."
With the United States and European economies having slowed markedly according to the latest data, and with global growth
continuing to disappoint, a reasonable question increasingly arises: Are we in another Great Depression?
The easy answer is "no" - the main features of the Great Depression have not yet manifested themselves and still seem unlikely.
But it is increasingly likely that we will find ourselves in the midst of something nearly as traumatic, a long slump of the kind
seen with some regularity in the 19th century, particularly if presidential election-year politics continue to head in a dangerous
direction.
The Great Depression had three main characteristics, seen in the United States and most other countries that were severely
affected. None of these have been part of our collective experience since 2007.
First, output dropped sharply after 1929, by over 25 percent in real terms in the United States (using the Bureau of Economic
Analysis data, from its Web site, for real gross domestic product, using chained 1937 dollars). In contrast, the United States had
a relatively small decline in G.D.P. after the latest boom peaked. According to the bureau's most recent online data, G.D.P.
peaked in the second quarter of 2008 at $14.4155 trillion and bottomed out in the second quarter of 2009 at $13.8541 trillion, a
decline of about 4 percent.
Second, unemployment rose above 20 percent in the United States during the 1930s and stayed there. In the latest downturn, we
experienced record job losses for the postwar United States, with around eight million jobs lost. But unemployment only briefly
touched 10 percent (in the fourth quarter of 2009; see the Bureau of Labor Statistics Web site).
Even by the highest estimates - which include people discouraged from looking for a job, thus not registered as unemployed -
the jobless rate reached around 16 to 17 percent. It's a jobs disaster, to be sure, but not the same scale as the Great Depression.
Third, in the 1930s the credit system shrank sharply. In large part this is because banks failed in an uncontrolled
manner - largely in panics that led retail depositors to take out their funds. The creation of the Federal Deposit
Insurance Corporation put an end to that kind of run and, despite everything, the agency has continued to play a
calming role. (I'm on the F.D.I.C.'s newly created systemic resolution advisory committee, but I don't have anything
to do with how the agency handles small and medium-size banks.)
But the experience at the end of the 19th century was also quite different from the 1930s - not as horrendous, yet
very traumatic for many Americans. The heavily leveraged sector more than 100 years ago was not housing but
rather agriculture - a different play on real estate.
There were booming new technologies in that day, including the stories we know well about the rapid development
of transportation, telephones, electricity and steel. But falling agricultural prices kept getting in the way for many
Americans. With large debt burdens, farmers were vulnerable to deflation (a lower price level in general or just for
their products). And before the big migration into cities, farmers were a mainstay of consumption.
According to the National Bureau of Economic Research, falling from peak to trough in each cycle took 11 months
between 1945 and 2009 but twice that length of time between 1854 and 1919. The longest decline on record,
according to this methodology, was not during the 1930s but rather from October 1873 to March 1879, more than
five years of economic decline.
In this context, it is quite striking - and deeply alarming - to hear a prominent Republican presidential candidate
attack Ben Bernanke, the Federal Reserve chairman, for his efforts to prevent deflation. Specifically, Gov. Rick
Perry of Texas said earlier this week,,referring to Mr. Bernanke: "If this guy prints more money between now and
the election, I don't know what y'all would do to him in Iowa but we would treat him pretty ugly down in Texas.
Printing more money to play politics at this particular time in American history is almost treacherous - er,
treasonous, in my opinion.“
In the 19th century the agricultural sector, particularly in the West, favored higher prices and effectively looser
monetary policy. This was the background for William Jennings Bryan's famous "Cross of Gold" speech in
1896; the "gold" to which he referred was the gold standard, the bastion of hard money - and tendency toward
deflation - favored by the East Coast financial establishment.
Populism in the 19th century was, broadly speaking, from the left. But now the rising populists are from the
right of the political spectrum, and they seem intent on intimidating monetary policy makers into inaction. We
see this push both on the campaign trail and on Capitol Hill - for example, in interactions between the House
Financial Services Committee, where Representative Ron Paul of Texas is chairman of the monetary policy
subcommittee, and the Federal Reserve.
The relative decline of agriculture and the rise of industry and services over a century ago were long believed to
have made the economy more stable, as it moved away from cycles based on the weather and global swings in
supply and demand for commodities. But financial development creates its own vulnerability as more people
have access to credit for their personal and business decisions. Add to that the rise of a financial sector that has
proved brilliant at extracting subsidies that protect against downside risk, and hence encourage excessive risk-
taking. The result is an economy that is at least as prone to big boom-bust cycles as what existed at the end of
the 19th century.