[A-List] Capitalism's Burning House

[Charles Brown]

Capitalism's Burning House: Interview with John Bellamy Foster
by WIN Magazine 
WIN: According to a quotation by Jim Reid that you and Fred Magdoff
included in your article entitled "Financial Implosion and Stagnation"
(Monthly Review, December 2008), the U.S. financial sector has made
around 1.2 Trillion ($1,200) of "excess" profits in the last decade
relative to nominal GDP.  How has the structure of the capital economy
contributed to the ease with which such excess profits were obtained by
the banks and lending institutions?

JBF: Jim Reid in London is the Deutsche Bank's chief credit strategist.
 He made the observation you refer to in July 2008 when the financial
implosion was already a year old, but a couple of months before the
serious bank crisis that followed the failure of Lehman Brothers in
mid-September, leading to a deepening of the financial crisis.  In the
piece by Reid that Fred Magdoff and I referred to in our article, he
provided a chart showing that financial profits and profits in general
had been skyrocketing on top of a sluggish U.S. economy.  Based on the
notion of a "mean reversion" whereby growth of profits would have to
revert to the average growth rate of GDP, he concluded that there were
$1.2 trillion in excess profits over the last decade, suggesting that a
massive devalorizaton of capital, much more than had occurred by then,
was due.  This was similar to arguments that we had been making for some
time in Monthly Review.

WIN: The quotation from Reid goes on to indicate that despite the $184
billion written down by financials in this crisis there is still another
trillion of value destruction to go in the sector before we're back to
the long-run trend in financial profits.  Does this mean that we are
merely at the beginning of an economic depression?  How much longer do
you foresee the crisis lasting?

JBF: The actual numbers that Reid provided are not that important
because how much in the way of financial losses has to occur before the
economy begins to recover is at this point anyone's guess -- there is no
clear functional relationship and it all depends on innumerable factors
that come into play.  In fact what we have is a very severe crisis now
in what economists call the "real economy," no longer simply in
speculative finance.  There is no way of accurately determining where
the bottom is.  Given the severity of this crisis, which is on a
depression not recession scale, it will most likely continue well into
2010 and quite possibly beyond.  In fact, none other than President
Bush, in prepared remarks for a November 2008 summit of the central bank
governors and finance ministers of the G-20 economies, said if
governments do not act decisively enough we could be facing "a
depression greater than the Great Depression's."  What is absolutely
clear at this point is that we are confronted with the likelihood of a
long period of slow or nil growth, beyond the mere business cycle, since
the main means of combating the deeply-entrenched stagnation tendencies
of monopoly-finance capital, i.e. financialization or the ballooning of
debt, appears to have reached its limits at present.  The crisis of
fiancialization thus spells a weak economy for a long time to come. 
Economists have a euphemism they sometimes use for this situation; they
call it an "L-shaped" recovery.

WIN: Do you think that the emphasis of the U.S. government on
neoliberal economic theory, while ignoring, as you say in your article,
the class basis of the economy that characterized classical political
economy, is a contributor to the failure of the government to address
the problem of financialization sooner?

JBF: Neoliberal economic theory and policy was no accident but was the
way in which the system responded to growing stagnation tendencies that
first began to surface with the economic slowdown of the 1970s, which
were manifested in such factors as rising excess capacity and
unemployment/underemployment and weakening net investment.  With the
economic pie growing more slowly, capital reacted by promoting economic
restructuring with the aim of increasing profit margins at the expense
of workers' wages (average real wages for non-agricultural workers in
the United States peaked in 1972 and today are at the same level as in
1967), cutting back on social welfare spending, squeezing underdeveloped
countries with the help of the IMF, and more.  At the same time,
capital, driven to maintain and enlarge its profits despite weak
investment opportunities, turned to financial speculation, setting off
the long-term financialization process that became the main means of
countering the decline in the secular growth rate in the underlying
economy.  Ever increasing inequality was a necessary part of providing
the cash flow to feed the successive financial bubbles.  Eventually,
however, speculation based on home mortgagees ran afoul of the worsening
income and increased debt load of households.  As defaults spread the
housing bubble popped and the entire financial superstructure began to
deleverage, creating cascading defaults and deflation.  Since the
fundamentals of the economy were extremely weak, once the financial
balloon began to deflate the whole economy started to fall, with the end
not yet in sight. 

I think it is best to see this as a whole phase of capitalist
development, which we could call monopoly-finance capital, with
neoliberalism as its main legitimating ideology.  Of course this period
generated extraordinarily bad economics: monetarism, supply-side
economics, rational expectations theory, new classical economics, etc. 
Even the name of the system was changed from capitalism to a vague and
essentially meaningless ideological designation of the "free market." 
John Kenneth Galbraith in the title of his last book called all of this
The Economics of Innocent Fraud.  Like orthodox economics in general
(not excluding the bastard Keynesianism of the Cold War era) it was a
means of control and a way of justifying what capital found necessary. 

Orthodox economics is not innocent of class analysis; rather the class
position that it represents requires the ideological concealment of
class relations (class does not exist as a category in neoclassical
economics).  This, however, does not prevent them from constructing
concepts (for example the "natural rate of unemployment") which are
means of maintaining class power.  In contrast, nineteeenth-century
classical political economy was explicit about not only class but also
the political nature of economics.  As Marx explained in Capital, only
when the bourgeoisie had conquered the state in the 1830s and '40s did
scientific political economy turn into vulgar political economy.  The
new orthodoxy of marginalist or neoclassical economics (Marx's "vulgar
political economy") was based on a class-analytic perspective that could
no longer be openly confessed.  Its interests were no longer
revolutionary, as in the early stages of bourgeois economics, but had
given way to the "bad conscience and evil intent of apologetics."   It
is no coincidence that this happened as soon as the working class began
to become a conscious force and thus a threat to the status quo. 
Eventually, political economy was renamed economics.  The latter was
seen as "scientific" because of its non-normative and non-political
character (that is, it succeeded ideologically in concealing its class
character within its analytical frame).  In order to struggle
effectively today, we need, for starters, to change economics back into
political economy, making the economy a political/public issue once
again.  Capitalism works by way of an "invisible hand": it needs to be
made visible.

WIN: You talk about the costs of the economic crisis being borne
disproportionately by those at the bottom of the class system.  As a way
to end the current crisis, you seem to call for an economic revolution
of sorts.  How would this come about?  How would you restructure the
current economy to function in an equitable way?

JBF: In the United States at the beginning of this decade the top 1
percent of wealth holders combined owned twice the wealth of the bottom
80 percent of the population.  If this is viewed in terms of financial
wealth (which excludes owner-occupied houses), the top 1 percent taken
together had four times the wealth of the bottom 80 percent of the
population.  Income inequality is at extreme levels.  When productivity
and economic growth goes up we are told in economics textbooks that this
pulls up real wages.  Yet, real wages in the United States are the same
as they were when Lyndon Johnson was president.  This situation of
stagnant or declining real wages is actually a product of a long class
struggle waged by those at the top against the rest of the society.  And
it is this growth of inequality -- the highest since the Stock Market
Crash of 1929 just before the Great Depression -- that is at the root of
the present economic problem.  Needless to say, inequality is far
greater still if we look at matters from a global standpoint.  In 2006
Bill Gates's wealth was equal to that of the combined GDP of Ethiopia,
Niger, the Congo, Burundi, Sierra Leone, Liberia, the Central African
Republic, Namibia, Lesotho, Malawi, and Tanzania in Africa -- 226
million people.

The immediate issue right now in the United States is the question of a
new New (New2) Deal.  Will there be a launching of work relief programs
and other measures that substantially improve the conditions of the
majority of the population on a level with the later 1930s?  Will there
be a resurrection of the Works Progress Administration (the WPA), the
most radical employment program the United States ever witnessed?  The
answer to these questions is that a genuine New2 Deal will not come
about, despite the election of a Democratic administration under Obama,
unless there is a revolt from below on the scale of the 1930s.  Here I
recommend David Milton's book The Politics of U.S. Labor on the New Deal
era.  One of the things that Milton demonstrated was that the revolt
from below in the 1930s was led by radical syndicalists and communists,
who were often ahead of the mass of the workers in terms of making
radical demands, but whose militant and far-seeing leadership was
crucial to the threat that labor then represented.  It was this mass
rise of working people inspired by socialist and syndicalist leaders
that made some of the more radical reforms of the New Deal era possible.
 There is no lack of changes to be made in the United States if a
class/social movement revolt from below is set in motion.  Civilian
government spending (government consumption and investment) in the
United States is a much smaller share of GDP than in the other advanced
capitalist states.  This mainly has to do with what Marx called "the
respective power of the combatants" in U.S. society.  So the only answer
is a class-based revolt.  Fred Magdoff and I have coauthored a book The
Great Financial Crisis, just now published, that addresses the economic
crisis and the question of a New2 Deal.  The latter issue is also taken
up in an article that Robert McChesney and I have written on a possible
New2 Deal under Obama for the February Monthly Review -- where we
provide a long list of the things that could be fought for in the
present-day U.S. political economy with a sufficient groundswell from
below.

Nevertheless, a New2 Deal, even if it were to materialize, would not
eliminate the deep contradictions of capitalist society or create an
egalitarian order.  For that a more revolutionary change in society,
transcending capitalism, will be necessary.  If this seems extreme,
think of the extreme conditions we are living in, both in the United
States and the world at large.  World capitalism is in its worst crisis
in eighty years.  Billions of people in the world are suffering from
hunger in the world food crisis that has emerged over the last couple of
years (prior to the present Great Financial Crisis).  Science tells us
that if we continue with "business as usual" for a decade or two we will
be facing irrevocable climate change.   This could lead eventually to
the elimination of most higher species and the destruction of
civilization -- even endangering the survival of humanity itself. 
Meanwhile war preparation  is expanding in an age of nuclear
proliferation and preemptive warfare, associated with declining U.S.
hegemony.  In these circumstances, revolutionary change simply means
struggling for the sustainable development of humanity and the earth. 
My own view is that the only way that humanity can save itself and move
forward is a socialism for the twenty-first century.  A lot has been
written recently on this new idea of socialism.  I would strongly
recommend in this respect Harry and Fred Magdoff's article "Approaching
Socialism" in the July-August 2005 issue of Monthly Review and István
Mészaros's new book, The Challenge and Burden of Historical Time. 
Would it work?  We don't know, because it is something that we would
have to create through our collective struggles.  But as Brecht
explained in his "Buddha's Example of a Burning House," it is irrational
to cling hopelessly to a burning house, as the flames lick its walls and
singe our brows, in sheer terror of stepping into the world beyond. 
Capitalism is such a burning house.

WIN: You have talked about how war spending contributes to an upturn in
the economy.  How are the two related?  What are the benefits to the
economy when the government spends on the military?  How does this
relate to U.S. imperialism?

JBF: Officially (using the figures of the Office of Management and the
Budget) the United States spent about $550 billion on the military in
2007, about equal to the whole rest of the world put together.  Actual
U.S. military spending, however, as Hannah Holleman, Robert McChesney,
and I showed in the October 2008 issue of Monthly Review, was $1
trillion in 2007.  Historically, one of the ways in which the United
States and other capitalist states have gotten out of the economic
doldrums is by government spending on the military, which serves the
imperial purposes of capital, and does not meet the same resistance from
the ruling-class forces as does civilian government spending (which is
seen as interfering with the private domain).  However, military
spending has become increasingly capital-intensive and
technology-intensive, employing relatively little labor for the sums
expended.  In addition much of the spending is spent abroad.  So it is
less effective dollar for dollar as a stimulus compared to many other
forms of spending.  Moreover, if the United States were greatly to
increase its military spending, which already equals the rest of the
world (even by acknowledged OMB figures), it could well set off a world
arms race, and point to unlimited destruction.  It is worth recalling
that the Second World War was how the U.S. economy escaped the Great
Depression.  Today the magnitude of the risk of heading in this
direction is beyond all measurement.  What is needed in the United
States is not more but less military spending, to be replaced by greatly
expanded civilian government spending, directed at people's most
pressing needs.  None of this is to suggest of course that military
spending is primarily about economics pure and simple.  The main reason
for U.S. military spending is to keep revolutions from occurring (and to
defeat them when they do) throughout the world.  It is a means of
limiting human freedom globally.  All real solutions to the world's
problems therefore require the dismantling of Washington's military
machine.  If today there seems to be an increasing trend toward war it
is only because capitalism as a whole has lost its former creative role
and is tending toward exterminism in every sense: economic, ecological,
and military/imperial.  Our slogan today should no longer be simply Rosa
Luxemburg's "Socialism or Barbarism" but "Socialism or Exterminism." 
Resistance to war is resistance to an entire system of destruction.


--------------------------------------------------------------------------------
John Bellamy Foster is editor of Monthly Review, and professor of
sociology at the University of Oregon, and author of Critique of
Intelligent Design (with Brett Clark and Richard York), Naked
Imperialism, Ecology Against Capitalism, Marx’s Ecology, The
Vulnerable Planet, and The Theory of Monopoly Capitalism.  This
interview with Foster appears in the Winter 2009 issue of WIN Magazine
(special issue on "It's the Economy: War and Collapse--the Activist's
Agenda"), the journal of the War Resisters League. 


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