Coming of out of crisis

[Lyev]

I have been thinking about globally how the current slump is being addressed by policymakers. Basically, as I understand, within the logic of capitalism there are two options: "destruction of capital" or austerity. The former is something that Andrew Kliman often talks about. There is a good paper, from early 2009 on it here (http://sites.google.com/site/radicalperspectivesonthecrisis/finance-crisis/on-the-origins-of-the-crisis-beyond-finance/kliman%E2%80%9Cthedestructionofcapital%E2%80%9Dand thecurrenteconomiccrisis). There is a very good graph (and a different second one that is a bit blurry) on how the average global growth rate of GDP (excl. China) between 1973-2003 is barely half of the growth seen in the 1950-1973 period.

It seems that the results of austerity will "[continue] relative stagnation and further debt crises down the road, not [create] a sustainable boom", which Kliman follows shortly with, "unless sufficient capital is destroyed, profitability cannot return to a level great enough to usher in a boom". The basic premise of this is that, for example, "if a business can generate $3 million in profit annually, but the value of the capital invested in the business is $100 million, its rate of profit is a mere 3%. But if the destruction of capital values enables new owners to acquire the business for only $10 million instead of $100 million, their rate of profit is a healthy 30%."

I'm not sure exactly how capital -- concrete & physical or "fictitious" -- is destroyed, short of another world war, which is really what lifted the 1930s out of depression and stagnation. This also accounts for the post-war boom. Another question to stimulate debate: do you think the fact capitalism has only been able to recover, almost paradoxically, from its worst crisis through a world war corroborates the theory of capitalist decadence, specifically the Left-Communist variant (especially that capitalism as a social system has been "in decay" since the 80s)? So in this current crisis how would capital be destroyed? (And maybe, just as a passing thought, there something dialectical in the way recovery has come through destruction. Is this "negation of the negation"?)

Oh yes, something I almost forgot mention is an interesting passage from this Kliman paper. The current economic crisis started with "with and remains centered in the crisis in the U.S. housing market"; so, with fears of America falling into double-dip (or has it already?) does this indicate, because it's so deeply rooted in the U.S housing market, that the light at the end of the tunnel is still far, far away? I heard on the news a few weeks ago that house prices in America are now at all time low, or at least lowest since the 30s, or something like that.

Secondly, on austerity, I find it interesting how even the bigwigs of such institutions as the IMF are saying cutting jobs and public services is often not smartest road to recovery. I think also publications like The Economist and Financial Times have warned against severe austerity measures. Why is it, then, that the ruling class and policymakers continue to just pump credit, and throw government rescue packages, into the system and at banks, when it is clear that in the long-run it's often counter-productive, or lengthens crisis? I think it is perhaps because the bourgeoisie are short-sighted, and only have in mind their immediate class interests. But I don't for sure, it's something we could discuss. Also, if you read the Kliman and find anything else worthy of mention then bring that up as well. Anyway, what are anyone else's thoughts?

[robbo203]

I have been thinking about globally how the current slump is being addressed by policymakers. Basically, as I understand, within the logic of capitalism there are two options: "destruction of capital" or austerity. The former is something that Andrew Kliman often talks about. There is a good paper, from early 2009 on it here (http://sites.google.com/site/radicalperspectivesonthecrisis/finance-crisis/on-the-origins-of-the-crisis-beyond-finance/kliman%E2%80%9Cthedestructionofcapital%E2%80%9Dand thecurrenteconomiccrisis). There is a very good graph (and a different second one that is a bit blurry) on how the average global growth rate of GDP (excl. China) between 1973-2003 is barely half of the growth seen in the 1950-1973 period.

It seems that the results of austerity will "[continue] relative stagnation and further debt crises down the road, not [create] a sustainable boom", which Kliman follows shortly with, "unless sufficient capital is destroyed, profitability cannot return to a level great enough to usher in a boom". The basic premise of this is that, for example, "if a business can generate $3 million in profit annually, but the value of the capital invested in the business is $100 million, its rate of profit is a mere 3%. But if the destruction of capital values enables new owners to acquire the business for only $10 million instead of $100 million, their rate of profit is a healthy 30%."

I'm not sure exactly how capital -- concrete & physical or "fictitious" -- is destroyed, short of another world war, which is really what lifted the 1930s out of depression and stagnation. This also accounts for the post-war boom. Another question to stimulate debate: do you think the fact capitalism has only been able to recover, almost paradoxically, from its worst crisis through a world war corroborates the theory of capitalist decadence, specifically the Left-Communist variant (especially that capitalism as a social system has been "in decay" since the 80s)? So in this current crisis how would capital be destroyed? (And maybe, just as a passing thought, there something dialectical in the way recovery has come through destruction. Is this "negation of the negation"?)

Oh yes, something I almost forgot mention is an interesting passage from this Kliman paper. The current economic crisis started with "with and remains centered in the crisis in the U.S. housing market"; so, with fears of America falling into double-dip (or has it already?) does this indicate, because it's so deeply rooted in the U.S housing market, that the light at the end of the tunnel is still far, far away? I heard on the news a few weeks ago that house prices in America are now at all time low, or at least lowest since the 30s, or something like that.

Secondly, on austerity, I find it interesting how even the bigwigs of such institutions as the IMF are saying cutting jobs and public services is often not smartest road to recovery. I think also publications like The Economist and Financial Times have warned against severe austerity measures. Why is it, then, that the ruling class and policymakers continue to just pump credit, and throw government rescue packages, into the system and at banks, when it is clear that in the long-run it's often counter-productive, or lengthens crisis? I think it is perhaps because the bourgeoisie are short-sighted, and only have in mind their immediate class interests. But I don't for sure, it's something we could discuss. Also, if you read the Kliman and find anything else worthy of mention then bring that up as well. Anyway, what are anyone else's thoughts?

Without having read the Kliman paper you refer to (so my comments might be quite inapt) my initial reaction is that he appears to attach too much weight to the mere "destruction of capital" overlooking the importance of a number of other factors (listed by Marx) that likewise counteract against the tendency of the rate of profit to fall.

Im not convinced by the suggestion that you seem to moot (or at least allude to) that wars are in some sense engineered as a primary means of effecting the destruction of capital. Though I dont want to put words in your mouth, that seems to me to smack a little too much of conspiracy theory. But, beyond that, there seems to lurk in the background to all this a hint of "underconsumptionism" and the notion that capitalism will collapse of its own accord. Hence presumably the supposed need to detroy capital via war to avert such a collapse in an era of "capitalist decadence".

But of course there is no reason to believe that capitalism will ever permanantly succumb to recession as Engels fondly imagined back in the 1890s. Nor is there any reason to suppose that the falling rate of profit will not be countered by various means I referred to and that all we will have to look forward to (sic) is a third world war to ensure the return of an economic boom in its aftermath. If any of us survive such a war to enjoys its aftermath , that is.

Booms may not be indefinitely sustainable as Klliman suggests but neither are economic slumps. The history of capitalism clearly demonstrates the operation of a fundamental trade cycle, alternating between booms and slumps and there is no reason to think that this has come to an end.