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The Periodic Crises of Market Economies

category north america / mexico | economy | opinion / analysis author Sunday October 12, 2008 05:13author by Randy (personal capacity) - supporter of the Captal Terminus Collective, NEFAC Report this post to the editors

The US economy is in crisis. Construction has halted and credit is scarce. Companies remaining in business slash their workforces. The stock market is turbulent, even as Congress bails out the bankers. (Meanwhile, working homeowners and renters are left to fend for ourselves, indeed to finance the bailout of the banks.)

How serious is the damage? Will this turmoil prove temporary, or do hard times stretch before us to the horizon? Opinions vary, but the careful reader more attuned to human psychology than economics* might get a clue from the pages of mainstream news reports...
Depression era billboard
Depression era billboard

Corporate news outlets are careful to avoid alarmist tones when reporting on economics, lest they cause panic in the marketplace. Yet, for the first time in memory, parallels are being drawn between current events and those that preceded the Great Depression of the 1930's.

What caused this most recent crisis? At the risk of oversimplification, we may say there are three broad schools of thought. The most common view, what we will call the liberal view, is that the "free market" is mostly a good thing, but government intervention is necessary to dampen the extremes of the inevitable ups and downs of the business cycle, to offset the more brutal consequences thereof, and pacify the necessary layer of the unemployed.

Conversely, laissez-faire economists claim that markets are infallible, and government intervention the enemy. This view is most common among the wealthy, who employ the ideology to justify such policies as cutting social services. (However, such types are quick to jettison "free market" ideology when convenient. See the previously mentioned bailout of the banks, which, after some posturing, is being supported by the very politicians who delight in bashing Big Government.)

And finally, there is the view that while the worst extremes of the business cycle may in fact be damped out or even delayed by various policies, the nature of the market is such that periodic collapses will occur, regardless.

Which of these views does history lend credence to? Laissez-faire theory is easiest to debunk. Again, its own proponents don't consistently accept its tenets! Witness President Bush, who preaches free market religion to China and the world, even as he scrambles to secure government assistance for his cronies in the banking and energy businesses. Aside from such blatant hypocrisy, US history prior to the regulated market is a tale of boom and bust, of one period of unbridled expansion followed by yet another recession or depression, ad infinitum.

Until recently, the liberal position appeared more tenable. A reasonable person might be forgiven for believing that society had indeed arrived at the end of history, that practitioners of the dismal science, economics, had succeeded in taming the business cycle. After all, there had been no calamity to rival the Great Depression since the 1930's. The late 70's saw a severe recession, and many folks lost their savings when the tech bubble of the 90's burst, but these circumstances paled against the soup lines of yesteryear. Extremists of both left and right were thought discredited, irrelevant within the new social order, throwbacks to an era dead and gone.

But as the mortgage crisis becomes the market crash, and as the current recession threatens to deepen into a depression, one can only conclude that the savage nature of market economics has not changed significantly. Market economies, local and global, with or without government intervention, have proven as great a failure as the so-called Communism of the former Soviet Union. So long as we live in a society that worships at the altar of exchange, that allows one class to purchase the hours of the lives of another, that values profit above the well-being of humans and humanity, for just so long will these crises periodically recur. In the best of times, the rule of the wealthy is cruel and degrading. In times such as these, it is intolerable.

In the coming months and years, we may expect an increase in the scapegoating of immigrants, religious fundamentalism, perhaps even a resurgent fascist movement in new clothing, financed by the right wing of our rulers. Meanwhile, people of conscience will turn to the left, in search of a sane, humane structure for a new society. Which side will you take?

For several years now, the Capital Terminus Collective has argued for an end to government and market economies, and in their place a global federation of self-managed communities, with fields and industries belonging to all. We are not pleased to see the current chaos and impending misery. But we think it inevitable under capitalism. The need for a new social order has never been greater.

*- An excellent economic analysis examining derivatives in the post-Keynesian world is Paul Bowman's *Financial Weapons of Mass Destruction* on at

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author by Ilan S - AAtW ainfospublication date Sun Oct 12, 2008 20:44author address Tel Avivauthor phone Report this post to the editors

Long long years ago capitalists owned the capital they apply for their businesses. As results of the concentration of capital, and change in the structure of the capitalist class, more and more capital is managed by smaller and smaller number of businesses. As result - the financial system mediate between the owners of savings and small capitalists and the big firms.

As the power of the two sides is not equal, we see smaller percent of profits to the smaller holder of capital.

The huge increase of profits resulting from the neo-capitalism and globalization, increase immensely the load and role of the international financial system.

We also see long term investments of capital based on shorter term credit (which is cheaper).

In addition, special to the present crisis, we see the haphazard credit for homes in US mainly in procedures that were sure to make a short live bobble with imminent disaster under the nous of the central authorities.

As result of the exploding of the "subframe mortgages" bobble, on the back ground of US chronic budget deficits and speculative mounting of prices of oil, and other commodities, the flow of capital through the financial system was abruptly slowed down.

It will take lot of efforts to make the flow of capital (and credit) to return to normal. It will involve lot of adjustments as well as significant increase in the concentration of capital, and change in balance of power among holders of big capital inside and outside US.

author by Anarchopublication date Thu Oct 16, 2008 17:40author address author phone Report this post to the editors

I've been writing articles on the crisis which people may find of interest. They can be found here:

Latest post is on Paul Krugman getting the so-called Nobel prize for economics, but there are plenty of others of the credit crunch and related developments (plus lots of other things).

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