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The Great Financial Crisis: Causes and Consequences

From Monthly Review Press

Binding : Paperback
DeweyDecimalNumber : 330.90511
EAN : 9781583671849
ISBN : 1583671846
Label : Monthly Review Press
Manufacturer : Monthly Review Press
NumberOfPages : 144
ProductTypeName : ABIS_BOOK
PublicationDate : 2009-01-01
Publisher : Monthly Review Press
ReleaseDate : 2009-01-01
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Customer Reviews

Rating:
Summary: Contemporary sorcerers
Comment: "The reduction of wages and the redistribution of wealth upward (trough reduction of taxes and reduction in social services) - the result of class war waged unilaterally from above - have not been enough to guarantee an ever-increasing spiral of return on capital invested in the productive economy. Thus, continual recourse to new forms of gambling...." [pag. 61]

The key message of Foster and Magdoff seems to be the following:
1) Capitalism, as a procedure of accumulation of capital, has an intrinsic constraint in overweighting savings against consumption, the first on the exclusive benefit of the ruling class, the latter as a fair compensation of proletarian workforce.
2) The general slowdown of consumption in "mature" capitalist economies, driven by unashamed hyper-accumulation, brought an overwhelming imbalance in the demand side of market, resulting in structural stagnation and "financiarization" of late capitalism.
3) Such a Finance Capital overthrow the "real" economy (goods and services production and distribution), channelling any social resource in the "Great Casino" of asset bubbles, and the great financial turmoil we're witnessing in the last two years.
In order to contradict the first point, perhaps I should justify capitalism as a socio-political agreement, instead of a sheer procedure of self-perpetuating saving-investment trail, such effort seems to me untruthful (therefore unworthy). In the end I'm basically fine with Foster and Magdoff's simplistic picture of "unilateral class warfare", when they're sharing with us the views of Sweezy and Baran (and also the eminent Ernest Mandel, Robert Brenner, and David Harvey, rarely quoted in this work).
However I miss the second point, as the staggering surge of China model, seems contradicting the equation "underconsumption = stagnation", as the second world's economy, is facing this year a saving rate close to an half of its GDP (Fan Gang, Il Sole 24 Ore, Aug 17th 2010). Therefore I'd appreciated a more deep assessment of emerging countries path of development, as it's too easy the quick labelling of "imperialism" and "globalisation" provided by the authors on this topic.
The last thesis, unveil the fundamental dichotomy of contemporary mercantilism, stuck between "real" and "finance" economy. Such a decoupling of financial services by industrial production is well analysed in this work, endowed with a generous set of arguments, the most interesting, is in my view, is the marvel of securitisation, deployed in the last five years of "advanced economies". The review and update of this dichotomy, deep-rooted in the Marxist image of the apprentice sorcerer, is the main achievement of Foster and Magdoff's work.
"Modern bourgeois society, with its relation of production, of exchange and of property, a society that has conjured up such gigantic means of production and of exchange, is like a sorcerer who is no longer able to control the power of the nether world he has called up by his spells" [Karl Marx, The Communist Manifesto]
Rating:
Summary: Leftist Leanings
Comment: Very excellent discussion with abundant and well-presented data. Distracting, however, is the authors' insistence (in several chapter ends) that the only proper fix is to recast the system into socialism (abundant government control and wealth redistribution). At least they offer recommendations.
Rating:
Summary: Finally
Comment: Finally a review from an anti-capitalist viewpoint. Another great thing is that as a compilation of articles previously written(with some new stuff) these guys really saw the crisis before it unfolded. On the downside there were quite a few paragraphs duplicated from previous articles as reference to readers of the current article. Overall from a leftist(me) who doesn't understand the complicated in & outs of modern day economics this book was great. As a worker I understand the rampant exploitation but not the way the system functions
Rating:
Summary: Prescient
Comment: No need to repeat salient features pointed out by others, except to say the book is well worth the read. There is, however, an unmentioned point worth noting. The authors frequently allude to the "real economy", which they equate with the manufacturing sector. Intuitively, that makes sense since it's goods production that must satisfy our everyday material needs. The financial sector, on the other hand, is posited as dependent upon that "real" economy, to the extent that the financial sector cannot expand indefinitely without some corresponding degree of productive growth. That too makes intuitive sense since manufacture is a chief outlet for profitable financial investment. However, unless I missed something, the book simply posits that the financial sector cannot expand indefinitely apart from growth in the real economy. That may satisfy intuitively, but intuition does not rise to the level of persuasive proof. Yet, this dependent relation is a key assumption behind the authors' assessment of the current crisis.

Now it's probably not fair to require an anthology of Monthly Review articles to elucidate what's likely a pretty complex dependency theory. Nonetheless, some such confirmation is needed in order--I would think--to refute the monetarist approach, for one, to the meltdown. In the excellent Introduction, Hyman Minski is characterized as grappling with this issue by arguing that as the "lender of last resort", the government is in a race during binge periods to prop up financial bubbles before they collapse into a risky deflationary spiral. However, as an admitted lay-person, I see nothing in the book that demonstrates the impossibility of the government continuing this process indefinitely. Of course, the answer may lie with what happens in the real economy, depending on developments there. But even assuming no growth in the productive part, would an ever-expanding financial bubble be demonstrably impossible? Seems to me an important but unresolved consideration.

Anyway, the articles collected over a two-year period have proven remarkably prescient, and though the format leads to noticeable repetition, the work again shows how the best insights come from the margins and not from the mainstream.
Rating:
Summary: Marxist analysis of the financial crisis in real-time
Comment: Mainstream economic theory has always assumed that so-called free markets are self-regulating. In contrast, Marxist economics places the question of expanded reproduction at the center of analysis: how can a system based on competition, market anarchy and class struggle maintain stability and growth? In "The Great Financial Crisis," John Bellamy Foster & Fred Magdoff draw on a rich tradition of Marxist political economy to present a compelling analysis of the financial crisis that began in the fall of 2008 in the United State and continues to engulf the advanced capitalist economies in a deep, ongoing recession.

The analytical framework applied by the authors is a `stagnation-financialization' theory developed in the 1960s and `70s by American Marxist economists Paul Baran, Paul Sweezy and Harry Magdoff. Baran & Sweezy argued that the normal state of monopoly capitalism, which began at the end of the 19th century, is stagnation. In a mature economy with increasing productivity and an associated growing surplus, the capacity of the system far outpaces effective demand. With the opportunities for productive investment severely curtailed due to sufficient existing means of production (factories and equipment) and overcapacity, investment increasingly took the form of speculative finance. Thus began a trend toward debt buildup and increasingly serious financial bubbles.

The analysis begins with a capitalist contradiction. The economy depends on wage-based consumption to support growth and investment, but accumulation depends on keeping wages low. Despite decades of stagnating wages, however, overall consumption has continued a steady increase, made possible by growing consumer debt, primarily from home mortgages. Rising housing prices, along with the Fed's slashing of interest rates after the 2000 stock market crash, helped replace the stock market bubble with a housing market bubble. With an average of 81 percent of production capacity used over the last 30 years, financial capital increasingly turned from productive investment to speculation. With the increasing financialization of the economy, banks began to borrow to increase their speculative bets. Financial sector debt rose from 10 percent of total debt in the early 1970s to nearly a third by 2005. Through new financial instruments, including the securitization of mortgages, lending banks were able to transfer the risk of defaults, thus encouraging ever more questionable loans.

In the remaining four chapters, Foster & Magdoff trace the relations between persistent stagnation in the real economy and the growth of the financial economy. They argue that we have entered a new phase, monopoly-finance capitalism, in which financialization provides a set of tools to help monopoly capitalism--prone to stagnation due to chronic overcapacity and lack of effective demand--reproduce itself. The financial economy has provided an outlet for the concentrated surplus of corporate and individual wealth, but the financial system has become increasingly complex and leveraged. The growth of new and increasingly esoteric financial instruments provided a way to expand money capital. But no matter how much the financial sector expanded, it could not overcome the stagnation of the production sector.

Foster & Magdoff provide a detailed, insightful analysis of the financial crisis. Their book has many benefits, chief among them a real-time analysis of the unfolding of this world-historical event using a clear and systematic theoretical framework. In addition, Foster & Magdoff provide extensive data to back up their arguments about financialization, and an excellent survey of the mainstream discourse surrounding the build-up and outbreak of the crisis.