From Bob's archive: Three notes on the 2008 financial crisis
A long time ago, I used to regularly schedule reposts of some of the better old content on my blog whenever I was switching off for a couple of weeks. Nowadays, I've more or less switched off for several months, but in 2024 I'm trying to schedule at least one post from the archive a month. When I did it before, I had reached 2008 in my archive, so I've decided to pick up again there.
This is an extract from an October 2008 post on the credit crunch. I've edited it slightly to bring out some of the key points, as I think that what happened in 2008 helps explain the victories of the right in the US and the UK in 2016, at a time when
In Bush's America, however, there has been a dramatic drop in wages, in both absolute and relative terms, for a huge proportion of citizens, and it is this that has made sub-prime mortgages problematic. Even more striking - as this graph shows - is the growing gap between wages and productivity in America in the 2000s (especially for non-college graduates), an indicator of massive intensification of exploitation and elite abandonment of working people, who have fallen out of a zone of basic security, where even a roof over your head is no longer a reasonable expectation. Harnessing the anger and dispossession of the formerly secure waged sections of the workforce will be key to the politics of the coming period.
2. The financial crisis makes clearer the nature of neo-liberal globalisation. To quote an old blog post of mine: contemporary forms of economic inequality are driven by what Peter Ryley calls "a specific model of global capitalism that was not based on free markets, as often stated, but on markets fixed and governed by powerful multi-lateral institutions, which were rapidly transforming societies and destroying communities". The idea, the ideology, of the "free market" has been powerful in the long Thatcherite years we've been going through. This has seduced some leftists into imagining we live in a world in which the nation-state is increasingly irrelevant. In fact, the financial crisis shows how dependent the corporations are on the nation-states, and on the multi-lateral institutions which the states anchor. Neo-liberal states don't just provide security for their "free" competition, but bail them out when it goes wrong. Risks are socialised while gains are privatised. The propping up of big finance by states and multi-lateral institutions will lead to distrust of these institutions among those affected that might benefit a populist backlash - but will this distrust be channelled into false "libertarian" narratives that will ultimately benefit capitalism, or into social democratic forms of intervention that provide a safety net for people instead of corporations?
3. The crisis shows that Marxism remains a useful - indeed essential - tool for understanding the world. I don't fully understand Marx's theory of the falling rate of profit, which he took from Adam Smith and other classical economists, and I know that most mainstream economists and many Marxists no longer fully accept it. It is nicely summarised here:
firms are required to maximize profits; they have the opportunity of introducing capital-intensive technologies that lower costs, thereby increasing profits in the short run; competition with other profit-maximizing firms pushes prices down to the new cost of production; the rising capital-labor ratio in industry creates a falling rate of profit.
2. The financial crisis makes clearer the nature of neo-liberal globalisation. To quote an old blog post of mine: contemporary forms of economic inequality are driven by what Peter Ryley calls "a specific model of global capitalism that was not based on free markets, as often stated, but on markets fixed and governed by powerful multi-lateral institutions, which were rapidly transforming societies and destroying communities". The idea, the ideology, of the "free market" has been powerful in the long Thatcherite years we've been going through. This has seduced some leftists into imagining we live in a world in which the nation-state is increasingly irrelevant. In fact, the financial crisis shows how dependent the corporations are on the nation-states, and on the multi-lateral institutions which the states anchor. Neo-liberal states don't just provide security for their "free" competition, but bail them out when it goes wrong. Risks are socialised while gains are privatised. The propping up of big finance by states and multi-lateral institutions will lead to distrust of these institutions among those affected that might benefit a populist backlash - but will this distrust be channelled into false "libertarian" narratives that will ultimately benefit capitalism, or into social democratic forms of intervention that provide a safety net for people instead of corporations?
3. The crisis shows that Marxism remains a useful - indeed essential - tool for understanding the world. I don't fully understand Marx's theory of the falling rate of profit, which he took from Adam Smith and other classical economists, and I know that most mainstream economists and many Marxists no longer fully accept it. It is nicely summarised here:
firms are required to maximize profits; they have the opportunity of introducing capital-intensive technologies that lower costs, thereby increasing profits in the short run; competition with other profit-maximizing firms pushes prices down to the new cost of production; the rising capital-labor ratio in industry creates a falling rate of profit.
For Marx, this was not a "law" but a tendency: there are countervailing tendencies which offset it, like increased rates of exploitation, the globalisation of capital and the shift of money out of industry into finance. The play of these tendencies is precisely what put us where we are today.
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