By now, the failure of the global economic recovery following the 2008 crash has become so obvious that even economists have started to notice it. The latest to have an aha moment is Martin Wolf, whose most recent piece for the Financial Timesstruggling with the great contraction” has been racing round the intertubes.

The article is worth reading for its peerless demonstration of the nature of inflation — in this case, reputation inflation of mainstream commentators. For if economics is the naked emperor of the social sciences, Wolf is its big swinging dong. Commentators queue up to pay obeisance to Wolf as the “most peerless of financial journalists”, “the seer”, etc, etc.

But for decades he has been — like most financial journalists — fatally addicted to fashion. He was a social democrat up to the early ’70s, at which point he became a fervent Hayekian. In 2004, he published In Defence of Globalisation, the most gung-ho defence of the process, more cheerleader than chapbook. And after 2008, he became — surprise surprise — a neo-Keynsian, rounding on his former classical liberal friends for their insistence on fiscal austerity.

In his article, Wolf states what should be obvious — that there is no double-dip recession because there was no real recovery. Things simply became less worse for a while, than they were in 2008, and that relieved a sense of deep crisis. But Western economies did not return to their pre-2008 levels, despite significant stimulus — which should have been a clue — and now they are failing again.

For Wolf this represents the threat of a repeat of the Great Depression, a real and barely remediable repeat of 1929. Indeed, so alarmed is he that he quotes Nouriel Roubini, the Eeyore of globalised capitalism. Roubini is famed for “predicting” the crash of 2008, as if that event — predicted by every Left or socialist paper worth its salt — was a long shot.

That brings us to our second naked emperor, for Roubini is now in the public prints arguing that “Marx was right”. We are now in a second great depression, Karl was spot on about capitalism being auto-destructive, we need to pump prime an investing state to get us out of this mess, etc, etc.

God help us. There is an anthology to be made simply out of the articles financial journalists have written about what they thought Karl Marx said — it would be the ideal stocking filler for leftists, a guaranteed laugh-out-loud volume of projection, misunderstanding and sheer guesswork. Roubini’s particular take is that:

“So Karl Marx, it seems, was partly right in arguing that globalisation, financial intermediation run amok, and redistribution of income and wealth from labour to capital could lead capitalism to self-destruct (though his view that socialism would be better has proven wrong).”

Four lines, 38 errors to paraphrase Castoriadis. Marx never thought that the global spread of markets, or the financial system, or the “redistribution” of income led to crisis. He wrote of high capitalism before the spread of the limited company (i.e. the modern corporation), dominant finance capital, or the rise of trade unions and the global unevenness that made high wages possible. He based his theory of capitalist crisis not on these factors but on the deep structure of capitalism, and three mechanisms in particular — overproduction, anarchy of production and the falling rate of profit.

It is worth considering these, but before I do so, it is worth pointing out one fact — when those devoted to defending the current system talk of Marx, not only as a great philosopher of injustice blah blah, but as a technical guide to system management, then the game really is up. But it is up for capitalism and big-M Marxism — as the Left-Communist writer Paul Mattick noted in his book Marxism — Last Refuge of the Bourgeoisie?, revolutions become counter-revolutions instantly, if they take on the role of maintaining the system’s core features.

Thus Roubini wants to take what he thinks are the ideas of Marx to defend a system Marx thought would end from its own contradictions. Yes, there is nothing that could possibly go wrong there. What Roubini argues for is:

“The right balance today requires creating jobs partly through additional fiscal stimulus aimed at productive infrastructure investment. It also requires more progressive taxation; more short-term fiscal stimulus with medium- and long-term fiscal discipline; lender-of-last-resort support by monetary authorities to prevent ruinous runs on banks; reduction of the debt burden for insolvent households and other distressed economic agents; and stricter supervision and regulation of a financial system run amok; breaking up too-big-to-fail banks and oligopolistic trusts.”

Whatever that is, it is not a program derived from thinking that Marx was right: it is one created out of the idea that with enough patches on patches, strictly framed markets, etc, etc, the system could somehow be kept going in a consensual fashion. It is, actually Nordic social democracy, but hilariously, Roubini, like most Americans, is so unwilling to admit that Europe has won the argument, that he would prefer to identify with Marx than with Sweden.

The resort to Marx by a neo-Keynsian is interesting, because it lays bare a feature I’ve noticed in a lot of neo-Keynsians, especially the holy trinity of Paul Krugman, Brad DeLong, and John Quiggin. Their account of what is going on is infinitely better than that of the Right, but their understanding of the real depth of the crisis we face is minimal.

The neo-Keynsians have two models and neither of them work in anything but the short term — the first is that a real stimulus — i.e. something like $5 trillion across the US-European mega-economy, will raise wages, re-stimulate demand and get things going again, albeit by means of the ever-greater consumption of meaningless sh-t.

The second is that by means of raised taxes, huge production re-employment, etc, would be stimulated in the creation of mass infrastructure, particularly in the transition from a brown to a green economy. Both the process itself and the return to full employment and raised consumption would then re-float a robust economy.

Each of these has terminal problems that the neo-Keynsians cannot see, by virtue of their theory, and to a degree their personal orientation. The re-stimulus of personal spending would occur in an era that Western people are not only overspent, but to a degree exhausted by over-consumption. For the past 15 years, Western economies have run on the principle that consumption is an endlessly expanding field, rather than a parabola of diminishing returns. They imagine that if they restart the economy, and get beyond the point where people pay their debts back to a solvent position, it will all just begin again — we will change up our 128′ flat screens for 172″, and so on. We won’t of course — the frontier of total consumption was a one-time thing.

From the ’80s into the 2000s, Western economies were run on the sudden unlimited availability of sh-t that was hitherto strictly limited and rationed. A TV, a bedroom suite, a car — these were once bought on hire-purchase, serious buys, now they’re multiply recycled and discarded. Consumption economy is based on the carving up of time, space and existence into commodifiable objects, whether it’s a TV or a shiatsu massage or ads on a wall.

But such spaces are limited by the very nature of existence — we can only spend so much in a day, look at so many ads, admire so many branded products. So it becomes another diminishing return. If you want to understand what it looks like when that happens, check out Japan, the ’90s idea of the future. The place is in permanent stasis because no one wants to buy any more sh-t. They’ve reached the limits of an individual consumption-driven economy.

The other solution to that is the north European one. Run high taxes, limit individual consumption, gain consent and/or shape people’s personalities so that they identify with this. They understand that a system of “taxes buy civilisation”, “buy good roads and transport”, “a good hospital”. The neo-Keynsians such as Quiggin have referred to this in a greenish fashion by arguing for a “low-growth” economy.

That’s a good solution. But it takes decades to culturally engineer — as the northern Europeans did, through collective societies. In the Anglosphere, we have worked on the opposite — post-’60s capitalism has been sold not as a system of virtuous endeavour, but as a candy machine from which everyone can get a hit.

Once you’ve established that cultural process, it is very hard to undo it — and the neo-Keynsians do not recognise that dilemma. If the neo-Keynsians want to understand why a low-growth capitalist economy would be tricky, they should have less Kalecki and more Kardashian, and understand the fantasy that has taken root at the heart of everyday life.

That’s where the neo-Keynsians have not got the deep contradiction at the heart of our age. They simply have no model by which a hyper-growth economy — or the desire for such — could be “stood down” to an alternative model. Their analysis is preferable to the neoliberal neoconservative one, which assumes that resilient people will simply bear the brunt, and then bounce back to become entrepreneurs. But it errs equally in believing that people are infinite consumers who can be ceaselessly re-engineered for the needs of the economy.

This is the disease that affects every aspect of the economy and society to date — that it has transformed the way in which people live and dream, but without any way of delivering on it,or coming back from it. As capitalist societies overproduce, they face a collective problem. Then the anarchy of production takes over — profit-based firms will always act individually in the last instance.

Then declining profit takes over — as an economy shifts from physical production it can only retain profitability by commodifying new areas of life — leisure, base existence, etc. When that process begins to reach limits, then capitalism starts to stop. That is happening now. It’s measure of how far advanced that process is, that even financial journalists can now see it happening.

Peter Fray

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Peter Fray
Editor-in-chief of Crikey