The following is from the Communist Party USA convention discussion website. Sam Webb is chair of the CPUSA. Under the slogan, “People and nature before profit,” the CPUSA will meet in Chicago June 13-15 for its 30th national convention. It will be live streamed and peoplesworld.org will provide coverage. Join the conversation on Twitter #cpusa95 or on Facebook.
Several months ago Lawrence Summers, a major economic thinker in establishment circles and leading operative in the Clinton and Obama administrations, in a short speech to the International Monetary Research Conference made some startling observations:
“We have all agreed,” Summers said, “…that a remarkable job was done in containing the 2007-2008 crisis; that an event that (was) worse than the fall of 1929 and the winter of 1930, ended up in a way that bears very little resemblance to the Great Depression.”
But there is, Summers went on to say, “another aspect of the situation that warrants our close attention… and it is this: the share of men, or women, or adults, in the United States, who are working today, is essentially the same as it was four years ago… I remember, at the beginning of the Clinton administration, we engaged in a set of long-run global economic projections. Japan’s real GDP today is about half of what we believed it would be… It is a central pillar of both classical models and Keynesian models that it is all about (economic) fluctuations around (full employment)… (but) I wonder if a set of older ideas that went under the phrase ‘secular (long term and persistent) stagnation are not profoundly important in understanding Japan’s experience, and may not be without relevance to America’s experience” (my italics).
And then Summers going further said that long before the current crisis “a vast amount of imprudent (reckless) lending was going on,” but the economy was no way near operating at full capacity. “…even a great bubble,” he concludes, “wasn’t enough” to produce anything close to a full recovery. Paul Krugman, Nobel prize winning economist and op-ed columnist of the New York Times, quickly picked up on Summers’ analysis of the current dynamics of the economy.
“We now know that the economic expansion of 2003-2007 was driven by a bubble. You can say the same about the latter part of the ’90s expansion; and you can in fact say the same about the later years of the Reagan expansion, which was driven at that point by runaway thrift institutions and a large bubble in commercial real estate.”
“So how can you reconcile repeated bubbles with an economy showing no sign of inflationary pressures? Summers’s answer is that we may be an economy that needs bubbles just to achieve something near full employment.”
“And this hasn’t just been true since the 2008 financial crisis; it has arguably been true… since the 1980s.”
In a later New York Times op ed column, “A Permanent Slump?” Krugman elaborated on his earlier observations.
“But what if the world we’ve been living in for the past five years is the new normal? What if depression-like conditions are on track to persist, not for another year or two, but for decades?
“You might imagine” he continued, “that speculations along these lines are the province of a radical fringe. And they are indeed radical; but fringe, not so much. A number of economists have been flirting with such thoughts for a while. And now they’ve moved into the mainstream.”
“And if Mr. Summers is right, everything respectable people have been saying about economic policy is wrong, and will keep being wrong for a long time.”
This, Krugman concluded, is “amazing stuff.” And he’s right. It is “amazing stuff,” coming from insiders in the economic establishment. Talk about economic stagnation hasn’t been part of the conversation in “respectable economic circles” for approximately seven decades. It was, as Krugman mentions, only on the agenda of the “radical fringe.” The last time it showed its face in mainstream conversations was during the Great Depression, when John Maynard Keynes, the great British economist, challenged the conventional wisdom of that era.
He argued that once the economy went into a nose dive, there was no self-correcting and automatic mechanism that would first cushion, then halt the downward fall, and finally, after a short interlude, power the economy back to full employment and a full recovery.
Alvin Hansen, his follower at Harvard at the time, argued similarly, that is, the economy’s structure and tendencies made persistent stagnation as distinct a possibility as dynamic s growth and full employment.
But with war mobilization and the special conditions that took shape at the war’s end, a long, and historically unprecedented, boom – what some called the “Golden Age of capitalism” – ensued and talk of stagnation quickly disappeared from official circles.
In its place, the old economic orthodoxy returned to its unchallenged perch – smug as before, but updated, quantified, and more convinced that steep and protracted downturns were a thing of the past. Cyclical movements of the economy were not ruled out entirely, but the conventional wisdom was that they would be shallow, rare, and followed in short order by a fresh and sustained surge in production, employment, income, and growth to levels surpassing the pre-crisis peaks. Typical of this attitude was former Federal Reserve Chairman Ben Bernanke’s speech in 2004 titled “The Great Moderation.”:
“One of the most striking features of the economic landscape over the past twenty years or so has been a substantial decline in macroeconomic volatility… Several writers on the topic have dubbed this remarkable decline in the variability of both output and inflation ‘the Great Moderation.'”
Mind you, this was only a few years before the biggest economic collapse since the 1930s, in the midst of a jobless recovery, and on the long heels of three decades of wage stagnation and growing income inequality. But for Bernanke and others of his craft, the only remaining chore was to squeeze any remaining “variability” out of the movement of the economy. The observations of Summers and Krugman, therefore, are a crack, if not a rupture, in the official orthodoxy has finally occurred from within establishment circles. (NOTE: This article is based on a report to the National Board of the Communist Party last December, months before the release of the new book by French social scientist Thomas Piketty. Piketty too challenges the official orthodoxy in general and to neoliberalism orthodoxy in particular, but with much greater reach than either Summers or Krugman.)
Indeed, in making the claim that stagnation could well be the capitalism’s new template – not dynamic growth lifting all boats – Summers and Krugman are opening up analytical, programmatic, and political-practical space for liberals, progressives, socialists, communists, and the broader people’s movement to reach a far bigger audience with respect to the causes and solutions to the twin crises of growing joblessness and rising economic inequality.
I suppose it’s obvious, but let me say, our response to the new insights of Summers and Krugman (and now Piketty) shouldn’t be offhandedly and arrogantly dismissive. Smugness has no place in a modern and mature Party of the 21st century. We shouldn’t be in the business of scoring points and posturing.
In fact, if truth be told, we didn’t always distinguish ourselves in disclosing the actual dynamics, contradictions, and interrelations of the economy in recent decades either; we didn’t hawk “The Great Moderation” nor conceal the exploitive and unjust nature of capitalism to be sure. But we did predict on more than on occasion deep going crises that never materialized. And when they didn’t, we barely paused to catch our breadth before predicting another steep economic plunge in the not too distant future.
Our mistake was twofold: political and methodological. Politically, our desire for radical change was so acute that we simply saw any negative turn in the economy as a sure sign of a coming economic breakdown, which in turn triggered in our fertile imagination a mass rebellion from below.
Methodologically, we became trapped in Marxist theoretical abstractions and models that should be no more than an entry point and window to study the “on the ground” movement and contradictions of the capitalist economy. But we turned them into an end point rather than a point of departure of economic analysis, and thus gave them an explanatory and predictive power that they were never meant to possess.
In other words, we either forgot, or never fully learned, that the laws and categories of capitalist development are effective analytical tools only to the extent that they come in contact with concrete material reality and its inevitable messiness and contradictions.
Indeed, they gain their explanatory power in a fulsome sense only when and to the extent that they intermingle with competing economic tendencies and actual economic processes, clashing political currents, the scope, depth, and direction of the class and democratic struggle, and a range of unforeseen developments.
That capitalism experiences periodic crisis – some cyclical and temporary, others more deep going and longer term – is indisputable. But that reality doesn’t relieve us, anymore than it relieved Marx, Engels, Lenin, and other Marxists, from a concrete and systematic study of capitalism’s movement and contradictions, which we failed to do.
There were some exceptions – one being Vic Perlo. Perlo was more sober minded – not to mention studied closely some of the new economic phenomena in the 1980s that are topics of discussion today (profits of control, rising economic inequality, economics of racism, privatization and dispossession, power of finance capital, etc.).
But perhaps none inside the Marxist tradition analyzed stagnation and its dynamics more or as early as the late Paul Sweezy and Harry Magdoff, the former editors of Monthly Review. In a series of articles, Sweezy and Magdoff revealed painstakingly and in a notably accessible style that the tendency toward stagnation and slow growth was present, pronounced, and internal to functioning of capitalism.
To read the entire article go to cpusa.org.