“Is Capitalism Doomed?” was the revealing title of a recent article by influential business economist Nouriel Roubini. In an interview with the Wall Street Journal about the present economic and financial instability, Roubini said: “Karl Marx had it right. At some point, capitalism can destroy itself. You cannot keep on shifting income from labor to capital without having an excess capacity and a lack of aggregate demand. That’s what has happened. We thought that markets worked. They’re not working.”
Nouriel Roubini, who almost alone among mainstream economists had predicted the 2008 financial meltdown, warned that if things stayed in their current course, the perspective is “like in the 1930s – unending stagnation, depression, currency and trade wars, capital controls, financial crisis, sovereign insolvencies, and massive social and political instability.”
These comments were triggered by global stock market plunges in August, which in a few days wiped over $6 trillion from world equity market values worldwide. The forecast for the economy continues to be bleak as the German economy has now stalled. This reflects a significant downturn in the entire Eurozone and the U.S. economy, which grew by under 1% in the first half of 2011.
Frantic U.S. Federal Reserve officials were quoted in the Wall Street Journal as being “very concerned” about the stability of the European banking system, which needless to say is likely to spiral out of control and which will also then spill over into the U.S. banking system and the financial markets.
This panic selling and the wild fluctuations are indications that large sections of the capitalist class and investors recognize that the so-called recovery is not on track and that a new downtown is a real possibility. Even in the best scenario, we will be plagued by continuing economic stagnation and high unemployment. This will necessitate further layoffs by corporations and calls by big business leaders for more cuts in essential state and federal programs that help working people.
The biggest concern in relation to the U.S. economy is that a new downturn, or double dip, will be triggered by the recent austerity measures passed in the U.S. and some Eurozone countries to tackle the high levels of debt. Fears about the instability of the world economy have been reflected in the record price of gold.
Lack of Consumer Spending
As Justice has explained on many occasions, the massive injections of public money into the banking system in late 2008 prevented an outright collapse and depression along the lines of the 1930s. But still the system is overburdened by unprecedented levels of consumer debt and an imploding housing market. This leaves consumers (i.e. workers) unable to increase their spending. Yet consumers make up 70% of the demand for goods and services in the U.S. economy!
A New York Times editorial (8/21/11) spelled this out well: Tens of millions of Americans are being crushed by the overhang of mortgage debt. In all, prices have declined 33 percent since the peak of the market five years ago, for a total loss of home equity of $6.6 trillion. Theres no letup in sight. Currently, 14.6 million homeowners owe more on their mortgages than their homes are worth, and nearly half of them are underwater by more than 30 percent.
At present, 3.5 million homes are in some stage of foreclosure. Nearly six million borrowers have already lost their homes in the bust. The New York Times castigates Obama for failing to seriously address the issue and not pushing the banks to do what is needed. It states: Reducing principal is a better solution than lowering interest rates, because it reduces payments and restores equity.
Three years after the meltdown of 2008, mass unemployment continues to shatter the lives of millions of workers in both the U.S. and European countries. And yet, as this unprecedented social situation continues to worsen, the political establishment led by the Obama Administration is mostly preoccupied with how to cut trillions of dollars from Social Security, healthcare, education, and retirement programs.
But these policies fail to address the central issue – the inability of working people to sufficiently spend the money that can revive a capitalist economy that only functions when the CEOs of big corporations decide that investment will boost their profits.
This is where Karl Marx comes in. In his extensive writing on how capitalism works, he explained that, over a period of time, capitalism makes the overwhelming majority of workers poorer by siphoning wealth into the hands of the owners of big corporations. By doing this, the system creates crises that it cannot solve – thus the periodic deep economic crises where workers cannot afford to buy goods and corporate owners refuse to invest. That is the reality that Nouriel Roubini has now recognized in todays economy.
Mass Program to Create Jobs
A massive government program to create millions of jobs and homes is needed to kick-start this economy. But dont expect this to come voluntarily from these two corporate-dominated political parties. Mass movements are needed to bring the anger of working people to be directed at Washington and the state capitals.
But, as Marx explained, for workers to have any long-term solution to this crisis, the root of the problem, capitalism, will need to be removed and working people will need to take into public hands the mega-banks and big monopolies that dominate the economy. Through democratic control and management by workers and the public, these publicly owned economic resources can then be run in the interests of the majority. This will allow an economy and society to be built by the overwhelming majority of the public that meets their needs, not the profits and wealth of the richest 0.1% as they do now.
More economic analysis:
www.socialistworld.net, website of the Committee for a Workers’ International (CWI)