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Putting the U.S. Economic Crisis in Perspective
Leo Panitch

It is time to take stock. The centrality of the American economy to the
capitalist world =96 which now literally does encompass the whole world =96=
 has
spread the financial crisis that began in the U.S. housing market around =
the
globe. And the economic recession which that financial crisis has trigger=
ed in
the U.S. now threatens to spread globally as well.

Capitalism has had an incredible run =96 politically and culturally as we=
ll as
economically =96 since the stagflation crisis of the 1970s. The resolutio=
n of
that crisis required, as economists put it at the time, 'reducing expecta=
tions'
of the kind nurtured by the trade union militancy and welfare state gains=
 of the
1960s. This was accomplished via the defeats suffered by trade unionism a=
nd the
welfare state since the 1980s at the hands of what might properly be call=
ed
capitalist militancy. This was accompanied by dramatic technological chan=
ge,
massive industrial restructuring, labour market flexibility and the over =
=96 all
discipline provided by 'competitiveness.'

It was also accompanied, of course, by massive economic inequality. But t=
his did
not mean capitalism was no longer able to integrate the bulk of the popul=
ation.
On the contrary, this was now achieved through the private pension funds =
that
mobilized workers savings, on the one hand, and through the mortgage and =
credit
markets that loaned them the money to sustain high levels of consumer spe=
nding
on the other. At the centre of this were the private banking institutions
which, after their collapse in the Great Depression, had been nurtured ba=
ck to
health in the postwar decades and then unleashed the explosion of global
financial innovation that has defined our era.

The question begged by the current crisis is whether capitalism's capacit=
y to
integrate the mass of people through their incorporation in financial mar=
kets
has run out of steam. That the fault line should have appeared in 'sub-pr=
ime'
mortgage loans to African-Americans is hardly surprising =96 this has alw=
ays been
the Achilles heel of working class incorporation into the American capita=
list
dream. But an economic earthquake will actually only result if there is a
devaluation of working class assets in general through a collapse of hous=
ing
prices and the stock and bonds in which their retirement savings are inve=
sted.

We are by no means there yet. The role being played to prevent just this =
by the
Federal Reserve, very much acting as the world central bank in light of t=
he
global implications of a U.S. recession, should once and for all dispel t=
he
illusion that capitalist markets thrive without state intervention. It wa=
s
through the types of policies that promoted free capital movements,
international property rights and labour market flexibility that the era =
of
free trade and globalization was unleashed. And this era has been kept go=
ing as
long as it has by the repeated coordinated interventions undertaken by ce=
ntral
banks and finance ministries to contain the periodic crises to which such=
 a
volatile system of global finance inevitably gives rise.

The Fed has repeatedly poured liquidity into its financial system at the =
first
sign of trouble. Yet the capacity of the system to go on integrating ordi=
nary
Americans through the expansion of investor and credit markets in this wa=
y may
have reached its limit. This is indeed suggested by the Bush administrati=
on's
sudden (non-military) Keynesian turn with its recently announced $150 bil=
lion
fiscal stimulus. The announcement at the same time of massive public
expenditure cutbacks by the Schwarzenegger administration in California i=
s a
reminder, however, that fiscal stimulus at the federal level may be undon=
e at
the state level.

This is especially likely to be the case with municipal government cutbac=
ks,
given their massive dependence on property taxes. The recent evidence tha=
t the
financial institutions that specialize in selling risk insurance on munic=
ipal
bonds are enveloped in the credit crisis further compounds the problem. T=
his
indeed brings to mind the extent to which it was municipal governments th=
at
were on the front lines of the Great Depression. The kind of fiscal stimu=
lus
that is needed to boost the economy now probably entails public infrastru=
cture
spending, but the type of state intervention that brought us financial
globalization is not well suited to this, as the collapsed levies of New
Orleans and the collapsed bridges of Minneapolis prove.

To see this go unmentioned in the Democratic primary debate this week may=
 be
hardly surprising given the absence of even a trade union campaign around=
 this,
but it bespeaks an impoverishment of American politics that in fact goes =
all the
way back to the New Deal. The issue of economic democracy that had been p=
laced
on the political agenda alongside the New Deal's public infrastructure pr=
ojects
was set aside for the remainder of the century after the FDR's administra=
tion's
self-described 'grand truce with capital' in the late 1930s.

There should be no illusion that a recession, or even a depression, will
necessarily bring the issue of economic democracy back onto the U.S. poli=
tical
agenda. It would require a transformation of American politics to do so =96=
 and
that too would have global implications.

Leo Panitch is Canada Research Chair in Comparative Political Economy at =
York
University.