|TOM IS QUITE right to challenge the prevailing view that we are not already witnessing many of the manifestations of depression that were the hallmark of the depression of the 1930s. (By the way, I wonder why no one has mentioned the ‘great depression’ in Britain after the financial crash in 1873 until circa 1896?) Still, that is not my point. We will not relive the depression of the 1930s for a number of reasons that have been mentioned on this list. But, equally, we will not relive the recovery of the ‘40s, ‘50 and ‘60s. The whole discussion of Fed and US gov’t policy that I see in the financial press and on the media and even see on this list seems to me to be an Alice in Wonderland dreamscape because it assumes that once we settle the subprime debt problem and get the housing market back on course and get consumers buying (on the cuff) again, the economy can resume its upward and onward course without major deviations from the path of the last half-century. Nothing could be more delusionary because it ignores several immutable facts:
global warming, peak oil, peak water, peak food (and other commodities), overpopulation, deforestation, etc. etc.
Let me be more explicit. The 1930s were, as Keynes clearly pointed out, a period of insufficient demand, and indeed the whole canon of Keynesian thought pushed for supplementing aggregate demand with government expenditures, tax cuts, investment incentives, redistributive transfers – anything to increase C + I + G + (X-M) in the classic Keynesian formulation. But fundamental to this prescription was the underlying understanding of insufficient aggregate demand relative to excess aggregate supply. Many Marxists, including our Jim, attribute it, at least in part, to an ‘underconsuption undertow’ resulting from an increasingly unequal income distribution which robbed the working class of the ability to consume. One should also, of course, mention the collapse of international demand that resulted when Germany’s access to borrowed funds to pay Britain and France its war reparations were cut off. Certainly, in Canada’s case, it was the collapse of export markets for our commodities, in particular, grains, which triggered the depression.
The 2nd World War ‘solved’ the problem for North America by creating excessive aggregate demand (‘military Keynesianism’) but, what is readily apparent, is that this massive increase in aggregate demand (gov’t expenditures approaching 50% of GNP) was relatively easily met with existing resources and capital stocks. That is, there was massive excess capacity in both capital and in commodity resources. There was some rationing and inflationary pressure but, in general, macroeconomic balance was maintained and, when the war was over, capacity was switched to consumer products – and to capital goods to restock Europe --with relative ease. Productivity increase prompted by the war, unions and the ‘labour-management accord’ meant that for the majority industrial workers, income increases were sufficient to absorb the increased output of US industry and to the extent it was not, the government expenditure on the military for the ‘cold war’ sufficed. Hence the ‘golden age’, otherwise known as ‘mass-production for mass-consumption.’
However, this was coming to an end in the late 1960s. Though much of the analysis of this period stressed the re-emergence of excess capacity or, the other side of the coin, falling profits, little attention has since been paid to another phenomena that caused considerable comment among post-Keynesian economists at the time, the secular rise in real commodity prices. Though the increase was fairly widespread, it was the rapid jump in oil prices in 1973-4 accredited to OPEC that caught the attention of most. Over the next half decade or so the battle between capital and labour over who was to absorb the cost of oil rents paid to the mid-east oil barons resulted in inflation which again accelerated in 1978 with the second oil shock. This necessitated, from capital’s point of view, the destruction of labour’s countervailing power and the virtual destruction of the labour movement, at least in the capitalist surplus value sector. This was accomplished by monetarism and the severe recession of the early 1980s. It is no coincidence or accident that real wages have remained stagnant (or declined for the lower waged and minimum waged workers) since the mid-1970s. Family wages have increased marginally entirely due to increased female participation and longer hours worked by both men and women which allowed consumption to increase even as income distribution became more and more unequal.
The ‘70s seem to me to be a kind of pivotal decade in the post-war period. As mentioned real commodity prices began to rise even before the OPEC oil crises, real wages peaked and began falling, Bretton Woods was abandoned, the unions entered a secular decline in the face of a monetarist-neoliberal response to stagflation. At the same time Ehrlich published his “Population Bomb” (1968) and the Club of Rome, “The Limits of Growth” (1972) which highlighted for the first time since Malthus the physical resource limits to economic expansion and population growth. Malthus’ prediction was countered by colonial expansion opening up the food resources of the new world. Ehrlich’s and the Meadow’s projections were countered by North Sea and other non-OPEC oil discoveries, the ‘green revolution’ in agriculture (made possible by the expansion of fossil fuel availability) and a renewed expansion of mineral discovery and development. This made possible the demand-led recoveries from the ‘81-‘83, ‘91-‘94, and 2001-‘02 recessions based on easy credit and monetary expansion and ridiculously low prices for oil.
These conditions have changed since 2002. Oil and commodities are no longer in elastic supply (ie real commodity prices are rising along with resource rents redistributing income from resource poor countries which now includes the United States to resource rich countries and regions) and the ‘green revolution’ is failing, in part due to global warming, a growing shortage of water, soil degradation, rising resistance to pesticides, herbicides, and the rising cost of fossil fuel based fertilizer.
This implies that we can not expect a Keynesian ‘demand side’ solution to the current slump/crisis nor that we can ‘grow’ (invest, consume) our way out of a recession-depression. It also suggests that any longer term solution must involve both a declining population and a major redistribution of (a declining) GDP, as well, of course, of a major change in our ‘style’ of living necessary to offset the increase and impacts of global warming, never mind of peak oil.
Any short term ‘fix’ of credit and consumption expansion will immediately run up against rising real energy (and food) costs, inflation, rising emissions (and hence climate change) and, even in the short run, increased shortages of water (it takes thousands of litres of water to produce one litre of ethanol; 3 to 6 barrels of water to produce one barrel of synthetic crude, etc.)
In view of these realities, I think we have to look at a quite different family of policies to get us out of the current recession. What is perhaps the most disheartening is that in the current presidential primary debates, one hears next to nothing from Clinbama indicating even an awareness of the problem. (This is not to say that in Canada there is any greater awareness. The Harper conservative government has its head firmly buried in the sand with its backside facing south.)