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Capitalism in Crisis

by Gary Sudborough Sunday, Nov. 23, 2008 at 11:29 PM
IconoclastGS@aol.com

Some thoughts on the current economic crisis and capitalism

If one watches the business channel on cable television, they seem to have a multitude of different explanations for the recent financial crisis from letting Lehman Brothers go under to misspending the government bailout money to not giving the capitalists even more money, etc., etc. They say the consumer has stopped spending, but this seems to mystify most of these commentators, who evidently believe consumers are sitting on a pile of cash and just being stubborn and petulant about spending it. If anyone mentions unions, let alone socialism, and this person suggests a wage considerably above the abysmal bare minimum wage might just enable workers to save enough to say buy a new car, the majority on the business channel seem to go into some sort of apoplectic fit, contending that it is the business men who need the money in the form of capital gains tax reductions. They do this in the face of statistics that show that world wide wealth is rapidly being siphoned from the poor to the rich. In the United States 1% of the population controls 90% of the wealth. The reason the crisis goes on and on is not just because of bad mortgages or a credit crunch, it is because of overproduction. Workers are not being paid nearly enough to buy back all the goods and services they produce. Hence, the inventories of cars and practically everything else are at record levels. Every individual capitalist looks at only his own profit margin, trying to maximize it by breaking unions or holding down labor costs. They never look at the purchasing power of the economy as a whole and hence overproduction of goods and services builds to such an extent that not even the credit card can alleviate it. To compensate for declining sales and profits, the individual capitalist lays off workers, which further exacerbates the problem because of another decline in purchasing power. It is like a snowball rolling down hill. Each round of layoffs decreases purchasing power further, resulting in more layoffs and an ever worsening economy.



In the depression of 1893 there was no such thing as a safety net. Little children and indeed often whole families had to work to make ends meet. Capitalists liked employing children because they had nimble and agile fingers, would work for less, and rarely caused the labor problems that adults did. When the depression came and layoffs occurred, there was no unemployment compensation, Social Security, disability insurance or any other measures like those enacted by Franklin Delano Roosevelt during the Great Depression that might have softened the blow. In 1893, unless one had generous relatives in a better condition, one could starve to death, die of disease or freeze to death in the streets. It was a harsh world for all but the capitalists, who, no matter how many millions they lost in the stock market, had plenty more to live a very lavish life style, while something like Dante's Inferno went on around them. Can one imagine if in the current crisis in capitalism, a safety net did not exist, agencies like the Federal Reserve the IMF and federal governments couldn't pump money into the system, what a catastrophe would already be at hand? There would probably be World-Wide revolution. This is the system conservatives call "free enterprise" and claim works best when left completely alone. Yes, indeed, it works wonderfully for capitalist thieves when left to itself. Franklin Delano Roosevelt saved capitalism and for thanks he got a plot against his life by some of the largest capitalists in the country.



The Savings and Loan heist, the accounting firm crimes of Arthur Andersen and others, the robbery of energy consumers by Enron and the other energy companies, the packaging of mortgages by banks into a kind of stock which they could sell and make considerable profits and the continual taxpayer bailouts of corporations are just the most blatant forms of robbery of working people by the capitalist class. There is a constant and less conspicuous form of robbery. According to the labor theory of value all wealth results from labor exerting its influence over the natural world. Profit is a part of that value which is expropriated by the capitalist and rightly belongs to the worker. The more workers a capitalist employs in good times the more of this profit can be siphoned off from each worker and the richer each capitalist becomes. The more machinery, which increases the output of each worker, the capitalist owns the larger the profit margin. Naturally, the longer this machinery can be kept running in each individual day, the more profit. Hence, there arose in the early days of capitalism, many workers putting in 12, 14 or 16 hour days. The only hindrance for capitalists was that these natural machines called human beings needed rest, food and shelter. Otherwise, they had a tendency to break down. Of course, in countries like China where labor was virtually limitless, workers could be actually worked to death and were, including children.



One might reasonably ask where the capitalists came by all the wealth they used to buy the land, buildings, machinery and labor they employed. The common myth employed by capitalists is that very prudent workers took their meager earnings, saved and gradually step by step became capitalists. The flaw is that workers were paid so little they actually went into debt, rather than being able to save anything. There is a very accurate song sung about coal miners called 16 Tons. It goes something like this: "You load sixteen tons and what do you get- another day older and deeper in debt. St. Peter don't you call me cause I can't go. I owe my soul to the company store." The actual way the early capitalists got their control of wealth was by heredity, thievery and sometimes violence. The nobility in Europe already had vast sums of capital, but the incredible amounts of gold and silver stolen from Mexico and South America increased the capital existent in Europe greatly. Spain and Portugal owed much of the expropriations of this wealth to English and French banks. This and other factors resulted in the industrial revolution occurring in France and England first.



The other ingredient that capitalists needed besides capital was a great deal of labor and the population of most European countries at that time was rural. Not only that, but most peasants would rather farm than be tied to some machine, performing the same repetitive task over and over again all day. The peasants had something to fall back on, even though they gave much of their produce to the nobles. It was called the commons. As the name suggests, it consisted of large tracts of forests, arable land, lakes and streams where peasants could farm for themselves or fish and hunt. To deprive the peasants of this resource for survival, the capitalists bought up this land and fenced it in. This forced many peasants into the cities where they were a ready labor supply for the capitalist's factories. Much of this information is in a book called Das Kapital by Karl Marx and is even more relevant today than it ever was. Due to relentless corporate propaganda over decades and decades the very name Karl Marx scares most people away from reading his work, which is a terrible shame because without an informed working class, fascism can easily result due to a crisis in capitalism. Germany in the 1930s is an example. Das Kapital like The Origin of Species by Charles Darwin will always be relevant because it is scientific and tells the truth.



Whenever, I write an article like this, I am always told that socialism has failed and that there is no alternative to capitalism. Well, I say, a certain kind of socialism has never been tried on a large scale and on a smaller scale was destroyed by force. Noam Chomsky tells about the mill girls in Massachusetts in the 19th century who were adamant in the belief that they ought to own and run the factories themselves. The IWW always taught that the workers should own and run their enterprises. Remember the Hollywood movie called 9 to 5, where three women workers kidnapped their tyrannical boss, imprisoned him and then proceeded to make all sorts of improvements to their company, like day care for employee's children, flexible hours and a multitude of other beneficial things. In the movie the tyrannical boss was eventually freed, the big boss came by and approved of the improvements and the three girls were given promotions. Why not just take the next step and get rid of the big boss and put ownership and operations of the company in the hands of the employees, since they proved they could do the job. I guess Hollywood was afraid of being too radical. Socialism is the answer to the current misery caused by capitalism, but don't expect to hear any discussion of it on television or any media owned by the super rich. They would rather see the world go up in smoke than lose any of their colossal wealth.







--------------------------------------------------------------------------------





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Wage Increases

by mous Monday, Nov. 24, 2008 at 1:04 AM

There are multiple crises happening at once. The key one is the collapse of the real estate bubble, which is pulling down lenders and causing lenders to be too tight with the loans.

Right-wingers are actually supporting New-Deal-like moves to create jobs programs.

Soon, they'll have to succumb to logic as the possiblity of "deflation" rears its ugly head. In a deflationary situation, prices drop, making it very difficult to invest in anything, because you're likely to lose money.

The solution - inflation. A little bit of inflation will make it safe to invest, and take the "fear" out of capitalism.

There are different ways to create inflation, including over-lending or extremely easy credit, but the best way is to raise wages. Rising wages can cause inflation, because it increases demand.

The question is - how to raise wages. Congress usually raises the minimum wage. I recommend against that. Something like EFCA is better. Unions need more leverage. But regular workers also need more leverage to demand a higher wage.

Use government spending to create not only infrastructure jobs, but expand training programs so they will pay students when they complete a course, to pull these workers out of the labor market and give them spending money.

Give them sellable life skills that will reduce their cost of living - gardening, bookkeeping, cooking, construction, etc. These skills not only reduce the cost of living -- in times of economic growth, they create demand for higher quality goods because people earn more money, and can recognize quality in their area of expertise.

Give all workers a website where they can compare their wages, contract conditions, and work conditions. The employers have an idea about these things -- the workers need this information as well.

This is our opportunity to alter the labor conditions of all people, so the economy of the future will not be based primarily on speculation, but production.

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But what type of socialism....

by mous Monday, Nov. 24, 2008 at 12:37 PM

Leftists can sit and wish for the name of "socialism" to pass from the lips of Obama, or even Clinton... but what's the point. A form of socialism is already being implemented with the bank purchases. There's growing political support for socialism, but not support for uttering the name "socialism".

Yesterday, I read Ben Stein's hilarious editorial advocating massive deficit spending. I guess he's lost a lot of money, and the stress has totally fucked with his ideological direction. Enjoy the crash Ben Stein with your Money. Welcome to the Keynsian camp. LOLs all around.

Socialism for the top tier of the capitalists -- the banks -- is already in effect. The auto industry, despite their gaffe of arriving in DC on private jets, is likely to pass. (If it doesn't, after the massive layoffs, there will probably be riots to get DC to think a little harder about the middle class folks. White folks will be thinking like Rev. Jeremiah Wright before long!)

What we need to push for is for REAL SOCIALISM that helps THE PEOPLE FIRST.

Japan rode out a decade of recession, and didn't go into a depression, because of massive government spending. So there's a precedent that capitalists will use to justify their shift away from their "free market" hoo-haw toward a "Third New Deal" approach.

Yes, we can lend the auto companies money... but how about we do a little debt spending to purchase the remaining stock of large van/suvs/cars, at a discount, and use them as public transit? The people benefit.

We can help the banks with those bad mortgages... even if the banks screw it up... but we need to help the residents who will be evicted first. Let them rent the homes, if they want. Keep them out of the open rental market, so prices won't keep rising.

Commercial paper is at risk of being stunted again. Businesses are afraid of not being able to get cash to pay suppliers and make payroll. The issuance of credit is rapidly devolving to businesses issuing each other credit, individually. How about getting some of those laid-off computer programmers who had their jobs outsourced to other countries some jobs. Establish business-to-business credit systems that will work for businesses and their vendors, so a business can extend credit to another one at a very low cost, for periods as short as a few hours. Hire Pierre Omidyar, the guy who invented Ebay (not Meg Whitman, the CEO who got rich off Ebay hype).

Apply more transparency and rapid valuation to these broken-down financial products that are collapsing. Then, at least, the bottom feeders can get a fair deal, and inject their cash back into the market.

BTW, commercial paper can't be rescued with government bailouts. The CP money was invested in these mortgages that collapsed. All that bubble money has been blown on Escalades, the VIP rooms at the club, granite counter tops, and cosmetic surgery for real estate agents.

Green jobs are good - we'll eventually need them. Too bad we won't need them for 2009. As unemployment rises, the demand for fuel will drop, and prices may collapse. Out of work people do not run the air conditioner and heater as much. Still, any kind of progressive jobs program that can be put into effect quickly is good.

A better program would be to pay young people to stay in school. Get rid of school fees - use debt spending to do this. Offer money upon competion of a course, and force the courses to be more demanding. Not only will this make people more skilled -- it'll put money into the economy. When the classes fill up, open school in storefronts. Don't fix them up. Study in a mess.

Millions of older folks are seeing their retirement plans vaporize. Anyone over 60 who didn't reallocate properly might be watching a decade of savings go into the shitter. We need to protect these unfortunates with strengthened Medicare, public housing, food programs, and house repair programs. And keep track of the money being spent, because when they die off, their estates should be taxed accordingly to fund their generation's bailout. Bring back the huge estate tax. Living folks are desperate.

Pay people to have babies. This will force families into greater spending, creating some level of liquidity. Besides, the old folks will need these people to be working hard to pay off Medicare.

While we're at it, cut some waste. Cut some porkbarrel spending, and end the War on Drugs and the War on Terrorism. We can't afford that shit anymore. It helps nobody, and costs everybody.

All these populist demands must be intimately linked with equal rights for gay people, women, immigrants, and people of color. We must not tolerate a "class only" approach to the popular bailout, or, we may find this new "socialism" drifting toward corporatist fascism and scapegoating gay people, women, immigrants, and people of color.

Bank bailouts will soften the landing, but won't address the real solution we need: real socialism that helps society.

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!?!

by why? Monday, Nov. 24, 2008 at 6:24 PM

Why is mous trying to make the finicial debacle one of real estate and not the fictive capital bubble that was created by the banks after burning the Glass Steagall act which would have prevented this entire crash?

As for socialism, what we have now is akin to National Socialism except that the state in now the servant of capital instead of the other way around.

We need democratic socialism. Governence by the people. What a quaint idea.

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?!

by mous Tuesday, Nov. 25, 2008 at 1:53 AM

I agree with the commenter.

Glass Stegall may have prevented this situation. It's also accurate to say this current crisis was a result of the real estate bubble bursting.

Prior to the real estate bubble, there were a series of bubbles in oil, commodities, tech stocks, and stocks in general. As capital fled one faltering sector, it was moved into another sector, creating a bubble.

Glass Stegall prevented a combination of investment banks and commercial banks. It was intended to make it more difficult for capital to move from market to market, so that you wouldn't get money for one type of investment, and then plow it into another. So cash raised by selling short-term commercial paper wouldn't readily be invested in 30 year mortgages. But, to know if Glass-Stegall's repeal had an effect, we'd have to see how much damage was done by these combined banks versus the damage done by banks that weren't combined.

For example, there were these securitized mortgages. Should that even have been allowed? It allows investment banks to make investments in mortgages. But was it covered under Glass-Stegall? (I don't know.)

There were other shorter-term causes besides Glass Stegall being repealed. The cuts in the cap gains taxes tended to encourage trading. Cuts in the estate tax tend to increase capital accumulation for the already-wealthy. Merger-mania helped create huge companies -- what ever happened to Sherman Anti-Trust? The general policy of the 80s and 90s was to help the richer get richer.

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answer

by Sure is! Tuesday, Nov. 25, 2008 at 2:19 AM

The Glass Steagal act was a fire wall preventing banks from speculating with derivatives, therefore creating a cosmic universe of fictive capital.

Alan Greenspan also requested that these insturments be unregulated and non-reportable.

That's why and how a thousand Trillion dollars of fictive capital is now collasping.

And we as a nation are left, without a manufacturing base, to strangle in our own debt.

Thank NAFTA and the whores in congress who passed it and babble about a free market.

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ok ok

by mous Tuesday, Nov. 25, 2008 at 6:00 AM

OK I'll go research this further.

It seems to me that banks were engaging in diverse kinds of investments before the repeal of G-S in 1999. I get the impression that it's the development of unregulated investments, and complex derivatives that were hard to valuate that caused these problems. The repeal of G-S was part of a larger trend to "trust the market".

Generally, I think we're all idiots when it comes to trusting the market. We experience bubbles all the time, and watch then burst, and see people suffer, but we never seem to learn. Everyone remembers the Beanie Baby bubble, or the Internet Bubble, or the current Pinkberry Mania. It's in the nature of the "free market" to create bubbles that feed on faith and foolishness, and then to pop the bubble, leaving a small number of people rich, and a whole bunch of people having a little personal "recession" as try to work to make up for the lost money.

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still studying

by mous Thursday, Nov. 27, 2008 at 4:23 AM

The GS law is kind of hard to grasp - the gist is simple, but, what I'm wondering about is restrictions on the type of investments that different institutions were allowed to make.

This is relevant because, as noted above, many innovations in securities were created, and they were hard to valuate. That led to people thinking that high-risk securities had less risk.

The latest thing I'm reading about are structured insurance products. The ones that have crapped out are the mortgage insurance products. The defaults are causing insurance companies to start paying out on these, and killing the insurance companies earnings.

Structured payment schemes seem to reduce risk. Cash flow in or out is smoothed out over time. Money not paid out can be invested, or left invested until it is needed. So, in theory, you can get by holding less of your assets in cash. Of course, it didn't work out this way -- so they didn't know what this insurance was worth.

What a freakin mess.

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GS Repeal

by mous Tuesday, Dec. 02, 2008 at 10:16 AM

I've done some research, and the 1999 repeal of most of G-S definitely accelerated the consolidation of banks and the development of big banks like Citi.

However, it would be incorrect to say that G-S was really in full force until then. Parts of it were repealed in the 1980s, and precipitated the S&L failures. New fiscal products were developed in the 80s and 90s that went unregulated, thanks to Greenspan. Hedge funds grew, and were/are unregulated. Asset management is extremely complex, and the fiscal arrangements seem to defy understanding even by those versed in economics and finance.

The current collapse has its roots in the entire monetarist era -- starting in the 70s and ending sometime in the near future, when this house of cards collapses. The ideology still persists, but things will change. The new ideologies will be developed.

PS - For one, insurance companies could become exposed as doing a lot more than insurance. Public support for insurance will decline, as they get lumped in with banks. This has many political implications.

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