Commentary on Political Economy

Monday 3 October 2011

Theories of Overproduction and Underconsumption - Part 2

The response of capitalist governments to the growing proportion of public debt and of the share of government spending in the economy (now nearing 100%) was a deliberate and radical attempt to turn the tide of the apparent “socialisation” of capitalist production in the 1980s and 1990s through an aggressive program of “privatisation” of state industries and services as well as the “liberalisation” (a relaxation of government-political controls and regulation) of several areas of capitalist production – and in especial mode of the financial “industry” (banking and other financial services). This was exemplified dramatically in the US with the repeal of the Glass-Steagall Act, a mainstay of Roosevelt’s New Deal reforms. All these measures (or “reforms”) were designed and intended to reverse the tide of “socialisation” of the capitalist economy in the wake of the inflationary crisis of the 1970s. But in reality the apparent “success” of this strategy was due in large part to the epochal reversal of politico-economic policy operated by the Chinese dictatorship in the early 1980s which resulted in what has been called “the Great Moderation” in Western capitalist countries characterised by steady inflation-free growth nearly everywhere.
We have often visited these matters on this site and we do not wish to revisit them here. But, as we know, the net result of the Great Moderation was not “the end of history”: rather, the underlying social antagonism brewing in Western capitalist economies was swept under the carpet through the lowering of the nominal cost of real wages due to cheap imports from China predominantly, which meant that the profits generated by the absolute exploitation of hundreds of millions of Chinese workers could then be recycled in the West through the extension of increasingly unsustainable “loans” for house-building and consumption. Instead of wage inflation, the capitalist West was fuelling enormous debt bubbles with asset-price inflation that were certain to explode in due course and send the whole system into the greatest crisis since the 1930s. And this is what we are witnessing now.

What Bernanke is asking in his speech is for the “emerging market economies” to expand domestic consumption by appreciating their currencies and diverting their export-oriented industries toward wage goods so that Western capitalist countries may be able to compensate for and resolve its present seemingly insurmountable antagonism through exports to those countries. The chief difficulty with this proposition, as may be already evident, is that any expansion of employment in Western countries will result in much higher social antagonism – which is why Bernanke is also suggesting that the West must imitate and replicate “the fiscal rectitude” of the emerging countries so as to contain what he expects will be social explosions in the West.

In our next intervention we will examine how and why the present asset of capitalist institutions is unable to contain the antagonistic push of workers’ social needs without a repressive turn to right-wing policies aimed at smashing the social network of solidarity that was established as a result of the New Deal in the US and its extension to Western Europe and Japan after World War Two. In the process, we will take a rapid look at the cavernous idiocy of even the best-intentioned bourgeois economic theoreticians and analysts from Minsky to Krugman (and Kalecki and Keynes earlier) in terms of their infantile theories of overproduction and underconsumption as explanations for the current epochal crisis of capitalism.

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