[R-G] Panitch: Putting the U.S. Economic Crisis in Perspective

[Anthony Fenton]

T h e B u l l e t
A Socialist Project e-bulletin .... No. 80 .... January 31, 2008

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 – which now literally does encompass the whole  
world – 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 triggered in the U.S. now threatens to  
spread globally as well.

Capitalism has had an incredible run – politically and culturally as  
well as economically – since the stagflation crisis of the 1970s. The  
resolution of that crisis required, as economists put it at the time,  
'reducing expectations' 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 and the welfare state  
since the 1980s at the hands of what might properly be called  
capitalist militancy. This was accompanied by dramatic technological  
change, massive industrial restructuring, labour market flexibility  
and the over – all discipline provided by 'competitiveness.'

It was also accompanied, of course, by massive economic inequality.  
But this did not mean capitalism was no longer able to integrate the  
bulk of the population. 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 spending on the  
other. At the centre of this were the private banking institutions  
which, after their collapse in the Great Depression, had been  
nurtured back 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  
capacity to integrate the mass of people through their incorporation  
in financial markets has run out of steam. That the fault line should  
have appeared in 'sub-prime' mortgage loans to African-Americans is  
hardly surprising – this has always been the Achilles heel of working  
class incorporation into the American capitalist dream. But an  
economic earthquake will actually only result if there is a  
devaluation of working class assets in general through a collapse of  
housing prices and the stock and bonds in which their retirement  
savings are invested.

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 the global implications of a U.S. recession, should  
once and for all dispel the illusion that capitalist markets thrive  
without state intervention. It was 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 going as long  
as it has by the repeated coordinated interventions undertaken by  
central 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 ordinary Americans though the expansion of investor and  
credit markets in this way may have reached its limit. This is indeed  
suggested by the Bush administration's sudden (non-military)  
Keynesian turn with its recently announced $150 billion fiscal  
stimulus. The announcement at the same time of massive public  
expenditure cutbacks by the Schwarzenegger administration in  
California is a reminder, however, that fiscal stimulus at the  
federal level may be undone at the state level.

This is especially likely to be the case with municipal government  
cutbacks, given their massive dependence on property taxes. The  
recent evidence that the financial institutions that specialize in  
selling risk insurance on municipal bonds are enveloped in the credit  
crisis further compounds the problem. This indeed brings to mind the  
extent to which it was municipal governments that were on the front  
lines of the Great Depression. The kind of fiscal stimulus that is  
needed to boost the economy now probably entails public  
infrastructure 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 placed on the political  
agenda alongside the New Deal's public infrastructure projects was  
set aside for the remainder of the century after the FDR's  
administration'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. political agenda. It would require a transformation of American  
politics to do so – and that too would have global implications.

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

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