Saturday, October 20, 2012

An even deeper layer of the crisis

Another letter to the investors, posted as a comment to:

   http://moneymorning.com/2012/10/18/qe-infinity-wont-work-but-heres-what-will/

..............................................................................................................

Good article, good discussion of the fantasy world of financial capital and how all the Fed's efforts to find a way out of the trap are only setting the stage for a financial panic.

Mr. Fitzgerald points to a root problem of consumers de-leveraging and corporations being afraid to invest in the real economy.  However I believe there is another deeper layer here.

The past 12 years and especially the past 4 have seen rapid increases in productivity even as wages and production have stagnated and declined.  The decline in the income of regular people - roughly the 90% - in both relative and absolute terms, taken together with their enormous debt burden and declining personal wealth, has resulted in an "accumulation trap", where any investment in economic expansion sufficient to increase employment comes up against the barrier that working people's purchasing power is insufficient to support any resulting increase in output.  With output stagnant, any investment in the "real economy" only goes into further lowering costs, especially wage costs, which drives us even deeper into the accumulation trap.  This accumulation trap is reflected also on the financial side, where claims against a stagnant real economy are proliferating.  The economic system is thus teetering on the brink of a massive implosion, which could take the form of

  #  a profound deflationary depression, which will go on until massive-scale corporate bankruptcies clear the decks for a new round of expansion, or

  #  an inflationary depression which wipes out all claims from fixed-principal instruments.

Either will come at a huge social cost.

Historically there have been three paths of escape from an accumulation trap:

  #  a World War vast enough to result in destruction of much of the world's physical capital;

  #   a revolution that liquidates the claims of all property owners on the economy; or

  #   a redistributive "New Deal" that taxes away much of the accumulated paper claims of the wealthy and allows worker organizations to win back their historic share of production, clearing the decks for a new round of the game.

A new world war would inevitably devolve into nuclear war, which would be unlikely to spare any advanced country from total destruction, and a revolution would be resisted bitterly and would almost certainly devolve into a nuclear civil war.  That leaves a new "New Deal" as not only the least destructive path in terms of lives and fortunes, but really the only one that makes any sense.  It would be a hard pill for the super-rich to swallow, but it would save the game they love, so they could play again.

Winning a New Deal would require a government, backed by an alliance of mass movements and far-thinking elements of the upper classes, with the capacity and will to force the winners of the current round of the game to turn in most of their winnings.

The current program of the Democratic Party gives lip service to this direction, but doesn't begin to go far enough to make a critical difference.  The Republican Party, representing apparently a clear consensus of the corporate rich, is committed to doing everything possible to prevent any form of government redistribution.  And we don't now have mass movements in the US capable of challenging the power of the elite in combination with dissident elements of it, such as happened in the '30's.

The outlook I fear is not good.


..............................................................................................................
ps I think it unlikely that this post on this site will change any minds.  I see organizing mass movements as the only possible path for the working people.  What path makes most sense will depend on the circumstances as they unfold.  And there is no alternative to playing the game as we find it, even as the unthinkable becomes the reality that's "on the table".
Post a Comment