2007 ‘08 ‘09 ‘10 ‘11 ‘12 financial crisis panicpanic great recession “the new normal”...
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2007 ‘08 ‘09 ‘10 ‘11 ‘12
FINANCIAL CRISIS
panic
GREAT RECESSION
“THE NEW NORMAL”
N
United States, since 2007
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Paul Krugman & Robin Wells, Sept. 2010:
“If the fundamental problem lay with a crisis of confidence in the banking system, why hasn’t a restoration of banking confidence brought a return to strong economic growth? The likely answer is that banks were only part of the problem.”
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In U.S., since start of Great Recession:
Employment 5 million
Working part-time but want full-time work 3 million
Missing job growth (to keep up with 6 8 milliongrowing population)
Total full-time job loss 15 16 million
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Conventional Left Account
• turning-point of recent U.S. economic history: rise of neoliberalism in early 1980s
• workers’ share of income, and real pay, declined
• causing the rate of profit to rebound
• so the economy could have grown rapidly, if the extra profit had been invested in production
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• But financialization occurred: profit diverted from productive investment toward financial speculation
so
• slow economic growth
• rising debt burdens
setting stage for financial crisis and Great Recession
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Yet I found:
• the turning-point was the 1970s – before the rise of neoliberalism
• the rate of profit never recovered from the fall of the late 1970s and early 1980s
• the rate of accumulation fell because the rate of profit fell, not because profit was diverted from investment in production
• workers’ share of income has been stable, and their real compensation has risen, during the last 40 years
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The 1970s as Turning-Point: Relative Stagnation Since Then
1969: rise in income inequality starts1969: fall in growth rate of public infrastructure spending startsc. 1970: rise in Treasury and household borrowing (as % of GDP) starts1971: collapse of Bretton Woods system: leads to rise in price of oil (1973- ) and 3d World sovereign-debt crisis & defaults/restructurings
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c. 1974: start of worldwide fall in GDP growth & fall in growth of US GDP & industrial productionc. 1974: start of fall in growth rate of workers’ payc. 1974: rise in labor-force dropout rate starts1975: rise in average duration of unemployment starts
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rate of rate accum- econ- of ulation omic profit (productive growth investment)
gov’t & Fed policies to counteract
debt burden
s
debt crises,burst
bubbles
generation of profit productive investment of profit
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U.S. Treasury Debt (% of GDP) .
actual
w/out fall in corp. inc. tax rates & ratio of profit to GDP
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Rates of Profit, U.S. Corporations, 1929-2009(profits as % of historical cost of fixed assets)
net value added – compen-sationbefore-tax profit
1947
1948
1949
1950
1951
1952
1953
1954
1955
1956
1957
1958
1959
1960
1961
1962
1963
1964
1965
1966
1967
1968
1969
1970
1971
1972
1973
1974
1975
1976
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
10%
20%
30%
40%
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70%
76%
82%
88%
94%
100%
106%
112%
unadjusted (nominal) inflation-adjusted
Profit: net value added - compensation
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U.S. Multinationals’ Rate of Profit on Foreign Direct Investment, 1983-2010 (after-tax profit as % of FDI)
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
8%
10%
12%
14%
16%
18%
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The Rate of Profit & the Rate of Accumulation, 1970-2009
ROP
ROA
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% of After-Tax Profit Re-invested in Production, U.S. Corporations
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% of Profit Re-invested in Production, U.S. Corporations
net value
added – comp.
net oper- ating
surplus
before-tax
profits
after-tax
profits
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1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
13%
15%
17%
19%
Current-cost “Rate of Profit,” U.S. Corporationsnet value added –
compensation
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Profit Share of U.S. Corporations’ Output, 1947-2009
[(net value added – comp.) as % of net value added]
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Workers’ Share of U.S. National Income, 1960-2009
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95%
105%
115%
125%
135%
mgmt, bus, & fin
Real Compensation, U.S. Private-Industry Workers, % of
1985 level (compensation deflated by PCE price
index; figures for Dec. of indicated year)
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Growth Rates, Avg. Annual, U.S. Corporations
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•“share the wealth” struggles face strict limits
•the wealth has not been there to share
•the latest crisis has exacerbated this problem
•struggles to protect & enhance standard of living CAN succeed
•but they will lower profitability further, making the system even less stable & prone to severe crises and recessions
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Prospects
• full-scale destruction of capital value• new boom, or collapse, or
revolution
• more “kicking can down road” —papering over bad debt with more debt • continued sluggishness, recurrent
crises • as debt mounts, U.S. & other
gov’ts’ ability to restore confidence declines
• socialism