StickWithANose

I implore one and all to click through to read this article by R. Taggart Murphy in the Asia-Pacific Journal. It is one of the most clear-headed essays that I’ve seen published in recent memory that addresses the sociology of financial bubbles from a critical perspective and situates our current economic malaise as a crisis in modern capitalist society.

Marx could … take a holistic view of capitalism, something almost impossible for his successors in all but the most abstract ways. He could see it as a system among systems – one that had replaced earlier modes of production and would, in turn, be replaced because of contradictions inherent in the way it operated.

Of course this observation is so banal as to be almost a truism – everyone “knows” that Marxist thinking is obsessed with spotting contradictions that will ratchet up history through that old Hegelian formula: thesis, antithesis, synthesis. But for most of us, these are just words that carry no real force; they amount to the well-known, ritual chants of a dead religion that everyone mouths and no one lives by. For even the most ardent critics of today’s distributions of power and wealth tend to accept reflexively the pervasive reality of prices, markets, and money. We cannot really see these institutions that govern our lives as anything other than givens, and thus our grasp of the role of place, of history, of culture and power in shaping these institutions has indeed almost entirely loosened.

In this sense, despite the ease with which one can poke fun now at theorems such as Modigliani-Miller and Black-Scholes that underpin orthodox modern finance theory, the hegemony of capitalism is complete, to paraphrase Gramsci. We can no longer conceive in any visceral concrete manner of different arrangements ordering our lives. We may be aware that our financial system has failed us; that our ways of doing things threaten to despoil irrevocably the water we drink and the air we breathe; that hundreds of millions of people live in unnecessary misery – unnecessary because we have the technologies at our disposal to feed, clothe, and shelter everyone alive in reasonable comfort and dignity. And yet our proposed “solutions” amount to tinkering – a little more regulation here, a bit more welfare spending there, turning over governments and supra-national organizations to the high-minded who will see to good educations for all, strict environmental standards, and a gradual reduction in armaments. Meanwhile, whether on the “right” or on the “left” we just assume as a matter of course that people will keep on earning salaries or wages with which to purchase necessities and comforts. That capital markets – regulated or otherwise – will continue to fund infrastructure spending and government deficits. That industries and companies will come into being because prescient entrepreneurs figure out better ways of satisfying market needs. That they will raise money to finance their operations from banks or investors. That money will go on forever being created by central banks while technocrats concern themselves with its velocity…

[Robert] Brenner is skeptical. What sets him apart from both conventional liberal and conservative analysis that seeks to explain the [current economic] crisis in terms of financial shenanigans is his view of the “decreasing vitality of the advanced capitalist economies rooted in a major decline, and stubborn failure to revive, of the rate of profit, finding its fundamental… source in a persistent tendency towards over-capacity in the global manufacturing sector, which originated in the intensification of international competition between the mid-1960s and mid-1970s.” (emphasis added). It is here that Brenner becomes so interesting to those of us who study East Asia. Because unlike any other Western economic historian of whom I am aware, Brenner fully grasps the significance to global capitalism of what has happened in East Asia since the appearance of the export-led, state-directed Japanese growth model in the 1960s and its spread throughout Asia since the 1970s. “Manufacturing over-capacity emerged, was reproduced, and has been further deepened by way of an extended process of uneven development in which a succession of newly-emerging manufacturing powers has been able, thanks to systematic state intervention and highly organized forms of capitalism, to realize the potential advantages of coming late, especially by combining ever increasing technological sophistication with relatively cheap labor and orienting for the world market.”

The blowing of asset bubbles is not an unfortunate side effect of regulatory capture or Wall Street’s greed. It was the only way governments could keep economic growth from falling below politically dangerous levels once traditional Keynesian methods of fiscal stimulus through deficit spending were no longer adequate to compensate for the sclerosis at the heart of the advanced capitalist economies: “worsening difficulties with profitability and capital accumulation.” Brenner labels this bubble-blowing “stock market Keynesianism” referring to deliberate measures by governments to steer credit into equity markets…

So where does this leave us? Pretty much where Robert Brenner does – a global capitalist system ever more dependent on “titanic” waves of credit creation and repeated jolts of Keynesian stimulus that grow less effective and more costly with each round. Japan long led the world in that credit creation. But it has now been surpassed by a China that finds itself today where Japan has been for decades: locked into an entangling embrace with the system’s hegemon – ironic, in that it is occurring at just the time when new leaders in Japan are contemplating ways of running their economy that may involve extrication from their own reflexive support for American hegemony. The new U.S.-China embrace is held together by the same dynamic that re-enforced the long-standing U.S. - Japan financial relationship: the mutually assured destruction that would ensue should either set of arms loosen. That one party to today’s embrace is the world’s leading avatar of capitalism while the other was born out of implacable opposition thereto is another irony – dare I say “contradiction?” – that perhaps only a Karl Marx – or a Robert Brenner – could fully savor.