Sam Gindin and ‘the cause of every crisis is different’

What caused the Great Recession? In an article called Clarifying the crisis in Jacobin
(https://www.jacobinmag.com/2014/01/clarifying-the-crisis/),
the Canadian political economist Sam Gindin explained it as ‘primarily financial crisis’.  I commented on this view of Gindin when reviewing his new book co-authored with Leo Panitch in a previous post (https://thenextrecession.wordpress.com/2013/11/12/the-informal-empire-finance-and-the-mono-cause-of-the-anglo-saxons/).

As Panitch and Gindin put it in their award-winning book, The making of global capitalism: the political economy of the American Empire (http://www.versobooks.com/books/1527-the-making-of-global-capitalism): “Going back to the theories of imperialism a century earlier, that overaccumulation is the source of all capitalist crises, the crisis that erupted in 2007 was not caused by a profit squeeze or collapse in investment due to overaccumulation.  In the US in particular, profits and investment has recovered since the early 1980s… Indeed investment was growing significantly in the two years before the onset of the crisis, profits were at a peak and capacity utilisation in industry had just moved above the historic average… it was only after the financial meltdown in 2007-8 that profits and investment declined.”   Instead, the authors prefer to explain the Great Recession as a result of stagnating wages, rising mortgage debt and then collapsing housing prices, causing “a dramatic fall in consumer spending”.

Recently, Andrew Kliman rejected Gindin’s analysis in an article in the New Left Project
(http://www.newleftproject.org/index.php/site/article_comments/clarifying_secular_stagnation_and_the_great_recession),
arguing that, had the crisis really been mainly financial, the economy would have recovered by now.  Now Gindin has responded to Professor Kliman’s critique
(http://www.newleftproject.org/index.php/site/article_comments/underestimating_capital_overestimating_labour_a_response_to_andrew_kliman#_ftn7).

I cannot help making a few comments on my own from this debate.  In my view, Professor Kliman correctly criticises Gindin’s view that the Great Recession was just a financial crisis. But it is interesting that he seems to accept the Krugman-Summers view that the US economy (at least) is in ‘secular stagnation’ as the lynchpin of his argument.  Does this mean he accepts their reasons for the economy stagnating, namely population slowdown, a ‘savings glut’ and Keynesian-style money ‘hoarding’?

Because I don’t, as I explain in a recent post
(https://thenextrecession.wordpress.com/2013/11/20/a-keynesian-or-marxist-depression/).
Surely, secular stagnation is the province of the Monthly Review school of Keynesian-Marxism – who wish to avoid accepting that it’s Marx law of declining profitability that is behind the Great Recession.

Moreover, I am surprised that Professor Kliman, a stalwart defender of Marx’s law against the likes of Gindin and the Monthly Review, in his critique of Gindin, seems to shy away from putting Marx’s law of profitability up as the underlying and crucial cause of crises including the Great Recession.  He says is certainly right to warn against any effort to ‘squeeze… events into the straightjacket of a trans-historical causality (such as the falling rate of profit or production as the sole site of crisis-creation),’ but we should also be wary of efforts to dismiss the importance of factors such as the falling rate of profit and capitalist production in advance of careful consideration of the evidence”This apparently balanced statement seems to me to concede too much to Gindin.

In Sam Gindin’s reply to Professor Kliman’s critique, he aims to refute Kliman’s empirical argument that the US rate of profit has been falling ‘persistently’ since the 1950s and there was no ‘neo-liberal’ recovery in that rate from the 1980s onwards. He uses Kliman’s own data although he cites after-tax profits, a usual ploy by ‘anti-law’ analysts.  But there is a problem here – despite Sam Gindin’s assurance that his measure of the rate profit is the same as Professor Kliman’s, it looks different. Here is Gindin’s.

gindingraph2b

And here is Kliman’s (dotted line is after-tax profitability).

Kliman ROP
I have tried to reconcile them but not managed it.  And Peter Jones (Jones, The Falling Rate of Profit Explains Falling US Growth v2), has shown that it makes a difference what you measure to get the US rate of profit. Some reckon that the rate of profit that matters is the after-tax rate of profit based on current cost measures of fixed assets, as this is (it is argued) is what matters for corporations’ investment decisions.  This is what Jones calls the narrowest measure and the one really favoured by Sam Gindin and the majority of Marxist economists.  It looks like this.

Peter Jones - 1

We can see that, on this measure, there was a significant recovery in the US rate of profit from the mid-1980s (using the dotted HP trend line).  This recovery did not cease in the late 1990s despite two sharp falls in 2001 and in the Great Recession, although the trend rate remains below the peak achieved in the mid-1960s.  However, Jones contrasts that measure of the rate of profit with what he calls the broadest measure of profit – of corporate gross value-added less depreciation and employee compensation and before interest or tax is deducted, against fixed assets measured in historic costs. This measure is pretty similar to that used by Andrew Kliman. This measure looks like this.

Peter Jones - 2

On this measure, the rate of profit makes no recovery on a trend basis (dotted line) in the 1980s, although it appears to flatten out in the last decade and was even rising slightly going into the Great Recession.  So who is right?

G Carchedi and I have gone to some lengths to explain why the law still operates as the underlying cause (see our paper The long roots of the present crisis The long roots of the present crisis) and I went further in this debate on the US rate of profit in a recent post when I updated my calculations on the US rate of profit since 1945 with the latest data on profits and fixed assets provided by the US Bureau of Economic Analysis
(see https://thenextrecession.wordpress.com/2013/12/19/the-us-rate-of-profit-extending-the-debate).
My main conclusions were that there was a secular decline in the US rate of profit from 1946 to 2012; but it was not in a straight line, because from about the early 1980s, the rate of profit recovered up until about 1997. This recovery did not restore the previous high level of the rate of profit seen in the 1960s.  From 1997 to now the rate of profit has been flat or fallen slightly, with a rise from the recession of 2001 to a peak in 2006 and then a fall during the Great Recession of 2008-9 and then a recovery to now, with the 2013 rate of profit broadly in line with the 2006 peak or a little lower. So falling or flat profitability from 1997 was the underlying reason for the eventual mild slump in investment, employment and production in 2001 and that only a credit-fuelled boom in property and stocks revived profitability until 2006 before a new fall drove the US and eventually the world economy into the Great Recession like a road runner over a cliff.

The secular decline in US profitability, mainly achieved between the mid-1960s and the early 1980s, is best explained by Marx’s law, namely by a rising organic composition of capital outstripping the effect of counteracting factors like a rising rate of exploitation of labour. From the 1980s to the late 1990s, the counteracting factors dominated in the so-called neoliberal era.  But after 1997, Marx’s law began to operate again, as a significant rise in the organic composition of capital was not sufficiently counteracted by a large rise in the rate of exploitation (partly revealed in inequality of incomes reaching extremes not seen since the 1920s – see my posts on inequality).

Themis Kalogerakos (EKHR61_Themistoklis_Kalogerakos) has analysed all the various rates of profit from broad to narrow.  He shows that, however you measure the rate of profit, whether by the broadest or the narrowest measure or in between, the US rate of profit exhibits the four phases described above. The average rate of profit for the whole period 1946-2011 was 17.99% for the broadest measure and 6.03% for the narrowest. Between 1946-65, the rate of profit was 11% above this average of the broadest measure and 15% above for the narrowest. In the neoliberal period from 1982 to 1997, the rate was still 9% below the average (broadest) or 18% below (narrowest).  And the average for 1997 to 2011 was still below the overall average by 5% (broadest).  It was 5% higher than the average for narrowest measure from 1997-2011.  But in this latest period, the rate in both cases was still below the 1946-65 golden age period by 10% and 15% respectively.

These measures were based on current cost fixed assets.  If historic costs are used, then the results are no different.  On the broadest measure, the closest to Marx’s, the average rate of profit from 1997 to 2011 was 23% lower, while on the narrowest measure it was 16% lower.  A major counteracting factor in reviving corporate profitability after the 1980s in the US has been the significant reductions in corporate tax and interest costs.  This is expressed in the narrow after-tax profit measure in the 1997-11 period exceeding slightly its overall average since 1946, although it was still below the period of 1946-65.  And this is the figure that Gindin prefers.

Themis looks not just at the level of profitability but also at the annual change in the US profit rate. Across the whole period from 1946, whatever the measure of the rate of profit and whether measured from trough to trough in the cycle or from peak to peak, the US rate of profit has fallen, by about 0.6% a year. And even more useful for deciding whether profitability can be seen as the underlying driving cause of the Great Recession, in the period 1997 to 2011, the rate profit fell annually by 0.6% (broadest) and 0.3% (narrowest).  This comprehensive analysis seems to confirm my own data that 1) there was a secular fall in the US rate of profit in the post war period or from 1965; that there was a recovery from 1982 which peaked in 1997; but the recovery from 2002 was not enough to restore profitability to the previous peak.

But what about that sharp rise in the rate of profit from 2002 to 2006?  Does that not refute the idea that Marx’s law played a role in the Great Recession?  Well, in his paper Jones isolates that part of the official profit figures provided by the BEA National Income and Production Accounts (NIPA) that are really ‘fictitious’ so that we can get to the ‘deeper’ rate of profit that more closely matches Marx’s value measure.  Then we can judge better the validity of Marx’s law of profitability and whether it provides the best indicator of likely economic growth and accumulation in the US economy.  Jones goes through the NIPA accounts to deduct what he reckons are the components of this fictitious profit to come up with a measure of profit that best represents surplus value created in production and realised y the corporate sector.  When he puts this against net fixed assets, the result looks like this.

Peter Jones -3

The US rate of profit based on this non-fictitious profit clearly shows a secular decline over the whole period and the same sharp fall after 1965.  It also shows a stabilisation and slight rise after 1982 before falling sharply after 1997.  So the rise in the rate of profit recorded from 2002 onwards in both his broadest and narrowest NIPA measures (as above) is down to fictitious profits that evaporated in the Great Recession.

Indeed the Gindin/Panitch account quoted above of the years before the credit crunch of 2007 and the Great Recession of 2008-9 just does not correspond with the facts.  Yes, investment did not start to fall until 2008 BUT by then US corporate profits had been falling some two years and investment dropped as a result followed by GDP.  And in the recovery, again it was profits that led investment and GDP up.

US profits and investment

Despite the evidence, Gindin joins the Marxist consensus (Husson, Dumenil, Jefferies, Harvey, Wolf etc, but NOT Shaikh) that, as there was a rising rate of profit since the 1980s (at least in the US) right through to 2007, so the Great Recession could not be caused by Marx’s law. Thus Gindin says the cause of every crisis is different; this one was financial.   Gindin: “To repeat a point made in my earlier article, it cannot be assumed that all capitalist crises must inevitably follow the pattern of an accumulation crisis. Structural crises are historical events. Each crisis restructures institutions and rebalances class forces, setting new conditions for future crises. The crisis this time was not caused by a profit squeeze or by a generalized condition of excess capacity. The development of finance—not separate from the non-financial sector but linked, as we’ve emphasized, to developments within capitalism as a whole—created the foundation for a new kind of crisis: an explicitly financial crisis.”
So apparently, each crisis under capitalism has a different cause depending on the development of capitalism into different forms. This analysis turns theory into tautology: crises of capitalism are caused by capitalism.  It has no explanatory power; it cannot by empirically tested and it certainly has no predictive value.  We have no idea why, when or how the next crisis of capitalism will materialise, apart from knowing it is going to happen.  In contrast, I reckon there is plenty of evidence that Marx’s law can explain the Great Recession and other crises of capitalism (see my reply to Giussani, https://thenextrecession.wordpress.com/2014/01/30/reply-to-giussani/)  and offer some predictions about future slumps.

Let me summarise an alternative explanation to Gindin’s. Even though there was a rise in the rate of profit in the US from the early to mid 1980s, this peaked in 1997. The subsequent sharp rise in profitability from 2002 to 2006 was mainly fictitious in character, just delaying the oncoming slump that would be engendered by the squeeze in profitability in the productive sectors of the economy and indeed making the eventual slump, a Great Recession.

I am not arguing that each crisis of capitalism does not have its own characteristics.  See my recent Amsterdam paper Presentation to the Third seminar of the FI on the economic crisis and my post https://thenextrecession.wordpress.com/2014/02/16/tendencies-triggers-and-tulips/.  The trigger in 2008 was the huge expansion of fictitious capital that eventually collapsed when real value expansion could no longer sustain it, as the ratio of house prices to household income reached extremes.  I do not say that such triggers are not ‘causes’, but argue that behind them is a general cause of crisis: the law of the tendency of the rate of profit to fall.

42 Responses to “Sam Gindin and ‘the cause of every crisis is different’”

  1. billjefferies Says:

    It’s broadly a fair summary but the rate of profit did fall from 2006 the point was that the cyclical recession was then markedly accelerated and deepened by the financial collapse after Sept 2008.

  2. Practical Says:

    Demand that recovery from a slump not be done on the workers’ backs. Gindin agrees. And we campaign for jobs for all, relief, etc. But Marxists do not show capitalists that capitalism can work for everyone. Sometimes Gindin drowns statements of his position with qualifying counter-statements, but this paragraph from his first article seems clear enough at its concluding sentence:
    “The present crisis was not caused by a lack of demand; consumption as a share of GDP was in fact at historic highs when the crisis hit and the growth in after-inflation nonresidential investment had averaged over 6 percent annually in the four years before the crash. Nevertheless, with consumer spending uncertain today and business investment hesitant, significant stimulus is in fact a crucial dimension of returning the economy to stable growth.”

  3. John R Bell Says:

    Just once in these discussions I would like to see some evidence that the participants understood Marx’s object and method in Capital v.1-3. I am not saying that no one understands them but I see no evidence of it in the correspondence I have read thus far. If you understood what was his object–not historical capitalism in late liberal Britain but rather the pure capitalism towards which that economy was moving at the time Marx studied and wrote– and you were confident that he employed the correct (Hegelian dialectical) method to attempt to reproduce in theory and in their entirety the logic or laws of motion that liberal capitalism employed in its largely successful attempt to regulate and reproduce material economic life and the prevailing capital-labour economic relation you could continue to follow his method so as to to complete and correct Marx’s unfinished magnum opus. As integral to that project you could then demonstrate definitively that the law of the falling rate of profit prevails to the extent that the economy approaches a pure capitalism in which all light use values are produced as commodities by a great many competing capitalist firms employing commodified labour-power and material inputs purchased in the competitive market. The commodities thus produced are subsequently offered for sale in an impersonal and genuinely competitive capitalist market.
    To the extent that the economy departs from pure capitalism and the liberal capitalism of the 1830-70 period, the laws of capitalism, including the law of the falling rate of profit, and, of course, the law of value operate with less force i.e. as progressively weaker tendencies until they become so weak as to cease to operate altogether. Of course, profits may still fall for any number of contingent reasons but not because capital and its impersonal competitive market still have a firm grasp over material economic life. In other words even if it happens that you can show that the rate of profit has fallen during a particular period in the contemporary economy for whatever reason or reasons you still have not demonstrated conclusively that it is Marx’s or more accurately capitalism’s law of the falling rate of profit which is still somehow operating. To show that you would have to demonstrate how this radically changed and structurally quite dissimilar economy still preserves the same laws of motion (including the law of value) as competitive market capitalism.

  4. jlowrie Says:

    While Bell may be right in asserting that Marxists have been somewhat remiss in ”completing” various lines of investigation that Marx had only adumbrated in ‘Capital’, for example how the World Market modifies the law of value, there are assumptions implicit in his arguments that are by no means self- evident : Bell seems to suggest that the economy today is structurally quite dissimilar from competitive market capitalism. Marx argued that that as a result of the tendency of the rate of profit to decline capital would become more centralised and concentrated, such that he was able to predict that huge firms would come to dominate the economy, ”as startling a prediction in 1867 as would be a statement today that fifty years hence America will be a land in which small-scale proprietorships will have displaced giant corporations( Heilbroner, The Worldly Philosophers p165). It by no means follows from such concentration and centralisation, however, that on the World Market competition has somehow been eliminated; quite the contrary seems rather to be the case, and competition among capitals to be fiercer than ever!( cf. Harvey, the Enigma of Capital,pp 162 ff.)

  5. originalsandwichman Says:

    Competition between capitals may be “fiercer than ever” but it is not thereby “market competition.” It is political competition for subsidies, bailouts, tax concessions and procurements. Crony capitalism (or neofeudalism or whatever you want to call it) may be subject to some laws but not necessarily the same laws as competitive market capitalism. John Bell has a valid point.

    • jlowrie Says:

      Bell had asserted that the law of value and the TRPTF cease to operate in the modern economy, which being so radically dissimilar from liberal capitalism does not preserve the same laws of motion. Bell issues a call to Marxists to “demonstrate conclusively” that this is not the case. Frankly, it is beholden on Bell first to demonstrate conclusively that it is! An assertion is not a demonstration.
      Originalsandwichman further asserts Bell has a point since what we observe in contemporary capitalism is not market competition, but political competition for subsidies, bailouts etc. But where do such subsidies etc. come from if not from the surplus value produced by the working class? However, if there is no law of value, neither can there be any surplus value nor for that matter any capitalism either!

  6. jlowrie Says:

    I must confess I find it bizarre that while the accumulation of capital is nowhere denied, one at the same time finds the TRPTF dismissed, as if the TRPTF were not the starting point for Marx’s exposition of the reasons for such accumulation. Unless I have completely misread Capital, I cannot see that the resolution of the question whether the rate of profit in this or that economy has for several years been rising or falling either refutes or confirms the scientific validity of the theory. Let us reconsider the analogy with gravity: whether a plane is flying, crashing or grounded, the point of departure for a scientific explanation of such lies with the concept of gravity. Thus the absurd banality of that hired intellectual prizefighter, Samuelson’s, assertion that the TRPTF was false because the rate of profit had not been falling. It is if a silly schoolboy were to claim that gravity did not exist because he had constructed a heavier than air flying machine. If, to take a example previously adduced by Boffy on this site, an airplane collides with a flight of birds, which causes it to crash to the ground, then of course the immediate cause of its crashing is the birds,for then the law of gravity asserts itself directly, but without responding to the pressure of gravity it would never have got off the ground in the first place. Gravity posits a barrier to flying that aircraft designers must overcome by upward lift. The manner in which they are able to produce heavier and heavier aircraft does not progressively annul the law of gravity, but in fact ultimately expresses it.
    Therefore, the questions to ask in order to test the validity of the TRPTF is not to try to establish whether in fact the rate of profit has been falling, but whether accumulation, centralisation and concentration of capital, the increasing productivity and immiseration of labour have continued apace.
    “A fall in the profit rate, and accelerated accumulation, are simply different expressions of the same process, in so far as both express the development of productivity. Accumulation in turn accelerates the fall in the profit rate……on the other hand the fall in the profit rate rate again accelerates the concentration of capital and its centralisation” (Capital Vol. 3 p349-350).
    ”..the development of labour productivity involves a law, in the form of the falling rate of profit, that at a certain point confronts this development itself in a most hostile way and has to be overcome by way of crises” (Ibid. p367).
    As the above processes have manifested themselves only too unambiguously,all being moments in the same dialectical development, then the TRFTF is no less unambiguously true. To refute the law, one would need to be able to point to a progressive decline in productivity,and to an overall decentralisation and ‘decumulation’ of capital!

  7. jlowrie Says:

    Bell’s reference to the ”correct Hegelian dialectical” method is opaque. J.D. White, who has been working on Marx’s manuscripts in the Marx/Engels Archive in Amsterdam, tells me that Marx progressively tended to eliminate Hegelian categories in his exposition of Capital (cf. his ”Karl Marx and the Intellectual Origins of Dialectical Materialism”,1996). However that may be, a dialectical approach certainly aids an understanding of Marx’s analysis. Thus when ex-Marxists such as Meek, “Economics and Ideology” p112 talk of Marx’s ”doctrine of the increasing misery” of the working class under capitalism (cf also another ex-marxist, D R Greene, ”From Marx to Mises”, 1992), whereby they profess to understand Marx as having argued that capitalism would lead to the impoverishment of the working class in the sense that it would dispose of fewer use values, they fall into a grotesque blunder from which an elementary grasp of dialectics might have saved them.
    By the increasing pauperisation of the working class ( i.e. its paupertas, not its egestas), Marx was referring not to the standard of living or real wages, but to labour’s progressive separation from the means of production. “…separation of property from labour appears as the necessary law of this exchange between labour and capital. Labour posited as non-capital a such…separated from all means and objects of labour…. this complete denudation…Labour as absolute poverty: poverty not as shortage,but as total exclusion of objective wealth ( Grundrisse pp295-296). Further, ”..since the conditions of labour confront the individual worker in an ever more gigantic form and increasingly as social forces, the chance of his taking possession of them himself as in the case of small scale industry, disappears” ( Theories of Surplus Value, Vol. 3 p353). Accumulation and pauperisation are positive and the negative sides in the contradictory development of capital, and each side determines the other. The expropriation of the Chinese peasantry is a current illustration.

  8. Student Says:

    I am basically sympathetic to Kliman’s interpretation here so can somebody with access to the data (or at least better knowledge of the techniques being used) explain whether Gindin’s contention that Kliman deflates investment by the wrong price index – thus, capital investment was not falling, it was just becoming cheaper – is correct? And whether it poses a serious problem to Kliman’s theory? As far as I can see AK hasn’t responded to the latest piece yet.

  9. Marko Says:

    The reason that “financial crisis” is the accepted wisdom is because of overwhelming cross-country evidence in support of that conclusion. There are probably 30 or so countries you can look at that suffered the same fate as the U.S. , to a greater or lesser degree , naturally , but with the common characteristic in virtually all cases that the crisis was preceded by a period of well-above-trend credit growth , high debt/gdp levels in the private sector , and asset price bubbles – typically housing.

    If you want to contend that low rates of profit somehow caused or preceded the financial effects , you need to do so with a similar cross-country analysis. Show what profit-rate characteristics crisis countries had in common , and how that differed from countries that avoided the crisis.

    The data and theory on credit and leverage are simply too compelling. It seems to me you’ve got a long way to go to provide something even remotely comparable for your theories.

    • billjefferies Says:

      Well said. The reason people think there was a financial criss is because there was one. Straightforward really.

      • sartesian Says:

        Sure thing– that overproduction of containers, container ships; of bulk carriers; all that was simply a financial crisis, a mere blip.

        That redistribution of profit to the oil majors to offset what had been years of below average rates of return– that was just a blip; all that overproduction of steel; that 20-25% decline in industrial production, with the EU industrial output still 10% below– merely a financial crisis. Sure thing– just like 1997 was just a currency crisis for the “Asian tigers.” Just like 2000 was the bursting of an internet bubble– that’s all.

        There’s no disease here, no chronic condition that ebbs and flows, waxes and wanes within a general deterioration; symptoms– we only have symptoms.

        Take a little quantitative easing and call me in the morning.

      • billjefferies Says:

        Over production of ships? Ship building is booming, so is steel, get a grip.

      • sartesian Says:

        “Over production of ships? Ship building is booming, so is steel, get a grip.”

        Ship building is booming? Maybe on whatever planet you’re on, probably planet Boffy. I invite readers on this planet however to access any one of the UN’s annual reviews of maritime trade since 2007 to get a grip, I mean insight on the the overproduction and the impact of the overproduction on freight rates, etc:

        From the 2013 annual review:

        “Since the historical peaks of 2008 and 2009, the
        tonnage on order for all major vessel types has
        decreased drastically. As shipyards continued to
        deliver pre-ordered tonnage, the order books went
        down by 50 per cent for container ships, 58 per cent
        for dry-bulk carriers, 65 per cent for tankers and
        by 67 per cent for general-cargo ships. At the end
        of 2008, the dry-bulk order book was equivalent to
        almost 80 per cent of the fleet at that time, while the
        tonnage on order as of January 2013 is the equivalent
        of just 20 per cent of the fleet in service”

        As for steel, apparently on Bill’s planet they don’t get the wireless copies of the Financial Times or the WSJ which have been following the collapse in iron ore prices due to overproduction of steel.

        Keep repeating to yourself, Bill, “It’s only a blip. It’s only a blip.”

      • bill j Says:

        Those are orders not deliveries.

        http://unctadstat.unctad.org/TableViewer/tableView.aspx?ReportId=93

        World maritime fleet

        2013 1,628,783 2012;1,536,867 2011; 1,415,110 2010; 1,276,137 2009; 1,192,317

        Steel production is plumetting too

        https://www.worldsteel.org/dms/internetDocumentList/statistics-archive/production-archive/steel-archive/steel-annually/steel_yearly_1980-2012/document/Steel%20annual%201980-2012.pdf

        2013 total; 1582493, 2012 total; 1545011 2011 total; 1536988 2010; 1432750 2009; 1237044

        The downward trend is relentless.

      • sartesian Says:

        Bill, I said overproduction; therefore we would expect to see DWT of the world maritime fleet increase due to orders made in 2006, 2007, 2008– which have been coming online since 2008. The resulting overall trend has produced declines in freight rates which declines have forced some or all shippers to a) consolidate b) adopt slow steaming measures c) enter bankruptcy d) cancel or refuse delivery of some ships e) find economies by ordering even larger ships, all resulting in (F) resulting declines in orders to the shipbuilding industry.

        Overproduction is exactly that– increases in capacity, in supply with resulting declines in profitability cause a contraction in production– HENCE THE DECLINES IN ORDERS TO SHIPYARDS.

        Production in shipbuilding yards is declining– deadweight tons may increase still, depending on the scrap rate, but nobody on this planet at least denies the overcapacity in the shipping industry brought about by the ordering frenzy prior to the great recession.

      • bill j Says:

        OK – so the crisis of capitalist production – the over production of capacity – is expressed in the massive expansion of production of those very same productive resources. Clear at last.

      • sartesian Says:

        First, you said “ship building was booming.” When I point the decline in orders (and if you research it, you’ll see there’s also an overall decline on dwt due for delivery over the next 3 years) you say “that’s orders, not delivery.” You’ve been hanging out with Boffy too much. Production, ship-building is base on orders– that’s why analysts, lenders, hedge-fund managers– those with an interest in making, not ships, but MONEY pay close attention to order books

        I would add “duh” here, but I think that might be overdoing it, although overdoing it and overproduction seem well suited.

        As for this: “OK – so the crisis of capitalist production – the over production of capacity – is expressed in the massive expansion of production of those very same productive resources.”

        All I can say is EXACTLY! Welcome to Marx’s IMMANENT CRITIQUE of CAPITAL– the massive expansion of the production of those very same productive forces– which as Marx demonstrates are produced beyond the ability of the system of value to return a profit adequate to that expansion, to that very accumulation.

        Congratulations.

      • billjefferies Says:

        Yes it is all clear the tendency of the rate of profit to fall is demonstrated by rising profit rates. The over accumulation of capital is demonstrated by the rapid growth of the productive resources no doubt the freshness of an egg is proven by its rotten sink.

      • sartesian Says:

        No Bill, it is clear the tendency for the rate of profit to fall is preceded by moments of cyclically rising profit rates even within periods of overall decline; and by the rapid growth of the productive forces and production leading to the contraction; and its clear that the egg can’t stay once its out of the refrigerator and its shell is broken.

        You claim one thing, and when data is produced showing you what you claim to be the case is not the case– i.e “shipbuilding is booming,” you claim production is deliveries and not orders; you claim that increased dwt is indication that overproduction does not occur, although profits for maritime shipping have been depressed for several years– you equivocate, obfuscate, and play stupid word games.

        You claim that wages as a percent of gross domestic income increased during the recession and decreased in the recovery, when the data shows a consistent decline, and then you dispute that by saying… but “oh profit rates haven’t fallen.”

        WTF? How many of there are you on planet Boffy?

      • billjefferies Says:

        Yes the collapse in shipbuilding is demonstrated by the 50 percent increase in the size of the world merchant fleet over the past four years of…. Low profits and slump.

      • sartesian Says:

        On planet earth the numbers for new orders for shipbuilding are available in the UN’s annual review of maritime trade. The report for 2013 on its pages 63 and 64 has the figures.

        The conclusion we draw, here on planet earth, is that shipbuilding orders for new production peaked in October 2008, and have steadily declined to a point in January 2013 that new dwt on order for production is 40% below that peak. The number of ships on order has fallen by about 70%. Thee average size of the ships on order for production continuing to increase as realizing the economies of larger size ships not only in capacity but in fuel consumption are critical.

        On planet earth this does not amount to a “boom” for the shipbuilding industry, with production orders back to where they were in 2006– when the big flood of orders for new production began.

        The impact on the industry itself has been well documented in the bourgeois press here on planet earth– with publications from the Journal of Commerce to the Financial Times reporting the impact of overcapacity on rates, and profits… but only on planet earth where profits actually matter for the earthbound bourgeoisie.

        We can expect to see, and have already seen, smaller builders seek bankruptcy protection, or merger, or state financing– we’ve already seen part of it in China– with its largest private shipbuilding corporation effectively bankrupt. But that’s the condition here on earth. I don’t know how that applies to the maritime trade on other planets or other galaxies where capital is always expanding, and never beset by anything more troubling than a financial crisis, or a credit crunch, or terrible “mistakes” by politicians who don’t understand the progressive nature of capitalist growth and accumulation and impose totally unwarranted austerity policies. .

      • billjefferies Says:

        It is a good report. It points out that this is the greatest cycle of ship building in history.

      • sartesian Says:

        Oh..so now it’s a “cycle” whereas before it was a “boom.” So tell us, what part of the cycle are we in, ascending– the boom part, or the contraction, the bust part. And if we’re in the boom part of the cycle, what part of the cycle was 2006 to 2008?

        You might want to look at profits since, salient fact, ship builders have only one interest, and it isn’t building ships, it’s making money. So is it a boom period for profits?

      • sartesian Says:

        More measures of the boom in shipbuilding:
        http://english.cntv.cn/program/bizasia/20130125/102748.shtml

        http://www.4-traders.com/CHINA-OCEAN-SHIPBUILDING-6170579/news/China-Ocean-Shipbuilding-Industry-Group–PROFIT-WARNING-in-PDF-17185739/

        http://www.seatrade-global.com/news/asia/yangzijiang-remains-profitable-amid-tough-shipbuilding-business.html

        http://www.marinelink.com/news/shipbuilders-profit-korea363993.aspx

        This one reports how profit at the world’s largest shipbuilder has declined 86% year over year. Wait there’s more:

        http://chinascope.org/main/content/view/5738/107/

        http://theloadstar.co.uk/wp-content/uploads/China-responds1.pdf

        http://articles.chicagotribune.com/2013-12-04/news/sns-rt-rongsheng-profit-urgent-20131204_1_net-loss-china-rongsheng-heavy-shipbuilding

        http://www.brs-paris.com/annual/annual-2013/pdf/02-newbuilding-a.pdf

        http://business.asiaone.com/news/yangzijiang-q4-profit-down-8-cent

        Now if only real shipbuilding on the real planet was ‘booming’ like if must be on Bill’s planet where all the oceans are filled with Kool-Aid and profits are so immaterial.

        If only those actually involved in the industry knew what a boom they were experiencing, why, they would let their smiles be their umbrellas and never get wet in the rain.

      • billjefferies Says:

        “The year 2012 saw the turn of the largest shipbuilding
        cycle in recorded history. Between 2001 and 2011,
        year after year, newbuilding deliveries reached new
        historical highs. Only in 2012, for the first time since
        2001, was the fleet that entered into service during the
        year less than that delivered during the previous 12
        months. In spite of this slowing down of new deliveries,
        the world tonnage continued to grow in 2012, albeit
        at a slower pace than in 2011. The world fleet has
        more than doubled since 2001, reaching 1.63 billion
        deadweight tons in January 2013.”

        UNCTAD Review of Maritime Transport 2013.

      • sartesian Says:

        Yes, Bill, thank you for acknowledging that the cycle has TURNED. I’ve been reading the UN RMT every year since 2003, and I’ve been following the cycle on the maritime fleet and the fishing fleet since about that year. Yes, the cycle has turned– and shipbuilding is on the downward side of the cycle, which by definition is different from the upward side of the cycle. Now maybe to you, downward=boom, but if that’s the case Lehman Bros. ought to be positively celestial. So what do you think was Lehman Bros. experiencing a boom in 2008?

        Like I said, the shipbuilding industry is plagued by past overproduction and current over capacity.

      • billjefferies Says:

        So you’ve been *reading* the world maritime report for the last ten years and you’ve only just noticed that this has been “the greatest cycle of shipbuilding in history”?
        When you say *reading* what does that entail exactly?

      • billjefferies Says:

        I don’t mind if you want to qualify my original statement to something like,

        “Ship building may be at the tail end of the greatest boom in its history, during the last ten years the size of the world merchant fleet has doubled”,

        Not sure how that helps your argument about the stagnation of the world economy over the last twenty years though?.

        And you still haven’t dealt with the enormous increase in steel production? Never mind everything else.

      • sartesian Says:

        This: “So you’ve been *reading* the world maritime report for the last ten years and you’ve only just noticed that this has been “the greatest cycle of shipbuilding in history”?
        When you say *reading* what does that entail exactly?”

        is just too precious. I indeed noticed the cycle in the industry; ;you Mr. Bill are the one who has not referring not to any cycle but to the “boom” in the shipbuilding industry, the continuing boom in the shipbuilding industry which you then tried to defend by citing the increasing DWT in the maritime transport industry, while ignoring the declining orders, declining profits, excess capacity that exists in the shipping industry, and hence in the shipbuilding industry– such transmission of excess capacity is generally called overproduction.

        When confronted with the facts of your current “boom” you then fall back on the “greatest cycle” as if you discovered that there was a cycle; as if no one ever realized that there was a veritable frenzy of orders placed at one part of the cycle, that the delivery of those orders is another part of the cycle and the part that changes boom to bust. You’re a regular Greenspan, you are Mr. Bill.

        Reading means exactly that– recognizing a boom for a boom, a cycle for a cycle, and the conditions whereby the very forces that generate the boom lead to that other part of the cycle called a bust. That too is overproduction, which you cannot and will not address.

        “Things have never looked better,” said Dick Fuld of Lehman Bros. on Sept 1, 2008– “there’s plenty of upside left in the market.” You were a Med ID bracelet with that inscription, Bill? If you do, check the other side, the side where it says “do not revive.”

        So Mr. Bill, is the shipbuilding industry currently experiencing a boom or not. Has the cycle turned, or not? Is there excess capacity or not as a result of the boom? Has the profit picture been one of continuous “boom” or has it been a “troubled” picture since 2009.

        Reading entails being able to answer real questions about the material world, not flying phony flags of prosperity on your good ship Lollipop sailing on the marmalade seas in your bathtub, while you pretend you’re Captain Credit Crunch.

        Once you answer those concrete questions, I’ll be glad to direct you to further readings about what’s going on in the steel industry.

        And where have I argued that the world economy has “stagnated” for the last 20 years or so? I’ve spoken about the rate of profit in the US and other advanced countries not exceeding levels established 40 or so years ago. I’ve spoken about the rates of overall growth slowing for the advanced countries in the long term, and particularly in periods of recovery from recessions; and I’ve spoken about the collapse of world trade in 2009, and the lower rates of growth achieved in the “recovery.” If you can provide the reference to where I’ve stated the world economy has stagnated, and what markers I use, and YOU would use to confirm or refute such stagnation, somebody might regard you as a serious person regarding these, and other issues. I probably won’t, but that’s because I’m the cynical type, having experienced the your confusion, deliberate or otherwise, of boom and cycle.

      • billjefferies Says:

        Get a grip.

      • sartesian Says:

        Have a grip. Can you answer the questions: What part of the cycle are we in? Has there been overproduction in the shipbuilding industry? Is there excess capacity in the shipping industry to such a degree that it depresses profits?

        Simple questions, Mr. Bill, no?

      • sartesian Says:

        Speaking of grips, from the Wall Street Journal of 3/22:

        “The container shipping industry has been plagued by overcapacity after record order in 2007….”

        Since the start of this year freight rates for container traffic on the Asia-Europe corridor have declined……..50%.

        As a result of this overproduction of ships, orders for dwt have declined precipitously. The bourgeoisie of course recognize that “the cycle has turned”– that there is no boom and have taken what they consider necessary countermeasures– including the formation of the P3 Alliance of Maersk, CMA-CGM, and Mediterranean Shipping companys, giving the alliance of 40% of container shipping cargo, the use of each others ships and port facilities, and control of 255 ships. with a capacity of 2.6 million containers.

    • Mediated causation Says:

      Actually, a test here is: were the speculative bubbles caused by government policy? If market actors created the bubble with neither encouragement nor restraint by government:
      Why did they create it when they did?
      As I understand Roberts’ argument, the swelling of financial paper based on housing and whatever happened when profits could no longer be plowed back profitably into expanded production.

      • Henry Says:

        “Actually, a test here is: were the speculative bubbles caused by government policy?”

        This begs the question, why this or that government policy. So not really a test at all.

        “If market actors created the bubble with neither encouragement nor restraint by government:
        Why did they create it when they did?”

        Governments are market actors, private armies are market actors. Cartels are market actors. Private property relations and the laws that enforce them are market actors. Power is a market actor.

        My point is, you seem to want to simplify the argument to bad government decisions?

    • michael roberts Says:

      Marko Sounds like a good paper to do. I’ll may well try to do it. We have plenty of evidence for the US and to some extent for the UK. So I’d be encouraged to do a cross-country analysis.

      • Marko Says:

        I’d be interested to see it. The crisis , and its differential impact by country , would seem to provide an especially good setting for such a study.

        BTW , I’m fully in agreement with the “overcapacity thesis” in general. The reason I place great weight on the credit boom and collapse is because I think it signals the underlying , and long-term , problem – a distorted distribution of incomes which leads to ever-increasing demand shortfalls , lack of pricing power , etc. Credit had a masking effect for a time , but has now reached its limit absent debt jubilees or other extraordinary measures. Raising labor share , as one of many means of counteracting this trend , would have the counterintuitive effect of increasing profit rates – firms get a somewhat smaller slice out of a considerably larger pie.

      • Student Says:

        Michael

        Do you usually deflate by GDP or by a specific investment deflator? Gindin’s insistence on the latter seems to be key to his argument – there is no fall in investment caused by low profit rates or anything else – the equipment has just got cheaper!

        Would be interested to hear your or Kliman’s thoughts. Thanks!

  10. vallebaeza Says:

    Reblogged this on Econo Marx 21.

  11. nadim Says:

    Dear Michael

    Could you please have a brief reply (bullet points will do) of this analysis by the Egyptian economist Samir Amin? Thank you!
    http://www.codesria.org/spip.php?article1424

    • michael roberts Says:

      Amin’s paper looks interesting, arguing that as it does that oligopolistic capitalism cannot last, given the state of the planet and the growing inequality and violence of the rule of the oligopolies globally – as i understand Amin. There does not seem to be a very clear analysis of the economic contradictions that will bring capitalism down but I have not read the whole thing yet. Will try and more considered opinion when I have.

      I would add that Amin seems to see the economic contradictions as rising inequality and underconsumption, not anything to do with the lack of profit as capital accumulates.

  12. Steve Says:

    I’m not an economist — a total layman in fact, but:

    would it be fair to say that a good bit of the argumentation above is in the nature of a chicken versus egg, cause versus cure, dynamic versus static views of an unfolding situation ?

    So the debates are unproductive, because they are really arguing past one another.

    Taking a snapshot, or even a series of snapshots, and analyzing on that basis can render a false, trivial, or counterproductive picture of what is actually going on. Such snapshots, in other words, might not capture the entire movie nor illuminate its direction.

    What actually caused the onset of a crisis might not actually be that germane to debating what steps can effectively revive an economy once it gets in a slump — however you define those terms.

    Debating what has happened, or still can happen, either pre- or post- the onset of a particular economic crisis also might or might not give you a clue as to what could forever banish ‘crisis’ — assuming that is a feasible goal, and not a utopian one.

    Hence, “austerity” and “stimulus” might be best seen as two sides of a monetarist/Keynesian coin. The former gets best applied in the upswing to try to forestall the onset of a crisis, while the latter is applied to get you out of a downturn.

    Neither one addresses the underlying permanent causes of crisis so as to banish the phenomenon from the operations of an economic system, i.e., capitalism as we know it.

    However, management to constrain the amplitude and violence of the shifts is the whole game for the economic managers, an acceptable adequate goal for a technician.

    So, a series of short-term adjustments that more or less succeed in keeping an economy growing amounts to effective “long-range planning” for the capitalist monetary managers. “In the long run, we are all dead.” said JM Keynes.

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