Last week, I presented a paper at the annual meeting of the American Economics Association (ASSA) as part of a joint session between the AEA and the Union for Radical Political Economy (URPE). At this joint session, Marxist and heterodox economists presented papers and mainstream economists commented on them as ‘discussants’.
My paper was entitled ‘Depressions, recessions and recoveries’ (Recessions,depressions and recoveries 071215) and argued that the US and global economies were in a long depression that could be distinguished from a ‘normal’ capitalist economic recession because the economy did not return to the previous economic growth rate in the recovery from a slump. Instead, economic growth, employment and incomes grew sluggishly well below trend and economies slipped back into recession. Such depressions are rare; there have only been three: in the 1880s in Europe and the US; in the 1930s and now since 2008.
I argued in the paper that the main reasons the global economy is in a long depression are because the profitability of capital has not recovered and because corporate and public debt remains historically high, both weighing down on investment in technology to boost productivity and growth. A combination of depressionary factors had come together, not seen since the 1930s. One consequence of this depression is that no amount of mainstream policies like monetary boosts (QE) or fiscal stimulus (government spending) can turn things around. Regular readers of my blog will know that I have been pushing this thesis from several years (actually since 2009) and I have a book, entitled The Long Depression, coming out in the next month or so.
Now I was expecting that my discussant, Professor Brad Delong, a leading Keynesian economist at the University of Berkeley, California and a close associate of other Keynesians like Larry Summers and Paul Krugman, and a well-known economics blogger, would launch into a detailed critique of my paper. But no, Professor Delong made no comment at all on my paper.
But lo and behold just a few days later, Delong had an article in the Huffington post, called “Future Economists Will Probably Call This Decade the ‘Longest Depression’”. In this piece, it seems, that it was Joseph Stiglitz, not me or other Marxist economists like Anwar Shaikh, or even Paul Krugman (see various quotes in my paper) that have characterised the economy is being in a depression.
Delong comments “Unless something big and constructive in the way of global economic policy is done soon, we will have to change Stiglitz’s first name to “Cassandra” — the Trojan prophet-princess who was always wise and always correct, yet cursed by the god Apollo to be always ignored. Future economic historians may not call the period that began in 2007 the “Greatest Depression.” But as of now, it is highly and increasingly probable that they will call it the “Longest Depression.” Now that’s praise indeed for Nobel prize winner, Joseph Stiglitz.
Delong continues in his article “back before 2008, I used to teach my students that during a disturbance in the business cycle, we’d be 40 percent of the way back to normal in a year. The long-run trend of economic growth, I would say, was barely affected by short-run business cycle disturbances. There would always be short-run bubbles and panics and inflations and recessions. They would press production and employment away from its long-run trend — perhaps by as much as 5 percent. But they would be transitory. After the shock hit, the economy would rapidly head back to normal. The equilibrium-restoring logic and magic of supply and demand would push the economy to close two-fifths of the gap to normal each year. After four years, only a seventh of the peak disturbance would remain.”
But this was wrong, thanks to Stiglitz. Says Delong “In the aftermath of 2008, Stiglitz was indeed one of those warning that I and economists like me were wrong. Without extraordinary, sustained and aggressive policies to rebalance the economy, he said, we would never get back to what before 2008 we had thought was normal. I was wrong. He was right.” Okay, so we Marxist economists will get no credit from Delong for picking out the current state of the global economy as a depression. That apparently goes to mainstream economists like Stiglitz or Krugman, or Larry Summers with his ‘secular stagnation’ thesis.
At the joint AEA-URPE session, Brad Delong may not have commented directly on my paper but he did criticise the Marxist analysis based on profitability as being the mirror image of the right-wing, pro-banking sector wing of the mainstream. Delong said that former US treasury secretary Timothy Geithner during the Great Recession held to the view that economic policy must be devoted to restoring the ‘confidence fairy’ for big business and finance, thus opposing bank regulation or government interference in any way. The Marxists were the same because they argued that nothing could be done to turn an economy around unless the profitability of big capital rose. In a way, both were ‘waiting for Godot’ – my phrase not Delong’s.
That’s wrong, said Delong. Something can be done. We can’t wait for the economy to recover under its own steam as the likes of Stanford monetarist John Taylor or Martin Feldstein argued in a mainstream economic debate at ASSA – or apparently Marxist economists. We can solve it with economic policies now.
You see the problem is not profitability. As the great Joe Stiglitz said at the mainstream ASSA debate, the problem is the lack of demand bred by rising inequality of incomes and wealth, and/or secular stagnation caused by excessive savings. Delong again: “The problems we face now, Stiglitz points out, include “a deficiency of aggregate demand, brought on by a combination of growing inequality and a mindless wave of fiscal austerity.” He says the only cure is an increase in aggregate demand, far-reaching redistribution of income and deep reform of our financial system. The obstacles to this cure, he writes, “are not rooted in economics, but in politics and ideology.”
You see, we Marxists are wrong because there are policy actions that can put things right and yet we do not advocate them. Delong’s position sums up the view of the Keynesian ‘left’. The crisis in capitalism can be solved within capitalism in the usual ‘social democratic’ way through increased public spending and progressive taxation on inequality. In his article, Delong calls for “debt relief to unwind the overhang and 2) much tighter financial regulation to prevent the growth of new fragilities. And if those prove inconsistent with full recovery, then we need massive government spending on infrastructure and other investments financed by money printing until full employment is reattained.”
Those who read my blog regularly will know that I have attempted to show that the causes of the Great Recession and the ensuing Long Depression (first noticed by Joe Stiglitz according to Delong) were not a ‘lack of demand’ or rising inequality. (Does inequality causes crises). These are symptoms or descriptions of the crisis not the causes. The causes lie with the profitability of capital remaining so low and debt being so high, even after the Great Recession. Bank regulation, quantitative easing, fiscal stimulus in some countries and other measures have failed to get major economies back to pre-crisis trend growth.
Marxists are not opposed to bank regulation (but public ownership would be better); we are not opposed to progressive taxation and/or closing the tax gap (avoidance and evasion), or government spending on education, infrastructure or health. Such measures can only help labour at capital’s expense. But that is the point. Such measures will severely undermine the profitability of capital. So they are opposed by the ruling strategists of capital. ‘Social democratic’ reforms were conceded (reluctantly) to labour pressure in the ‘Golden Age’ of the 1950s and 1960s when the profitability of capital was high. But after profitability fell to lows by the early 1980s, the ‘neo-liberal’ counter-revolution of lower corporate taxes and taxes on the rich, bank deregulation, trade union restrictions and privatisation became the norm. This was no accident. It was done to drive up profitability with some success.
It is an illusion on the part of Delong and Stiglitz that capitalism is prepared to return to that era to save itself with ‘extra demand’. The ‘second coming’ of social democracy (to use Delong’s phrase) is not on the agenda. And anyway it would not work, in my view. Meanwhile the global economy stumbles on in its Long Depression, as discovered by Joseph Stiglitz and as revealed by the shocking start to the year for stock markets and economies globally.