Wednesday, September 24, 2008

swindlers' list

"You're asking my opinion as an economist," Bernanke told New York senator Charles Schumer, who has proposed a phased bailout with an initial price tag of $150bn. "Unfortunately, this is a matter for psychologists."

Mr Bernanke's economic science, impartially applied, would of course discredit this "bailout", even as this science is itself discredited by both the crisis former policy has precipitated and the plan to relieve it. Like any squirming Maoist apparachik Mr Bernanke would prefer not to be precisely implicated in the results of this perhaps momentary political conjuncture.

We're interested in the politics of this bailout, to explain it we need to look at the business cycle and its relationship with the political process.

As the US economy is to some extent competitive it tends to have parallels with the Victorian economy as analysed by Marx. Put another way, the best model of the current US economy would be significantly in line with the classic Marxist model. What we're taking from Marx here isn't any kind of nonsense about Five Year Plans, which isn't there anyway, but the notion often observed in reality, that there is effective resistance of workers to real wage cuts (Keynes had a similar idea about workers' resistance to nominal wage cuts, which was uncontroversial for a long time). In Marx this means resistance to wage cuts by the lowest class of unskilled workers. To the extent that this class exist the pattern is nevertheless transferred to the macro level of all workers. This is simply the inverse of the common formula that productivity increaes accrue in total to the owners of capital.

Once we understand the "natural" pattern of redistibution of wealth in a recession we can understand the political changes that come in to prevent it, and so understand the likely eventual redistribution of wealth. Following Marx's idea partially, this way, would suggest that during a cyclical recession, while all members of society will lose out, the owners of the economy will lose out relatively as well as absolutely.

Now, the arrival of recession has effects on the economic and political behaviour of dominant groups. Politically they are likely to close ranks to some extent in order to defend more effectively their privileges as a class. This is discussed in one of the first books to attempt to scientifically analyse the business cycle in its political and economic aspects: Vilfredo Pareto's The Transformation of Democracy. Pareto was an extreme, slightly crazed reactionary, and a precurser to the Italian Fascists (as well as the ideologists of neoliberalism), who unusually had a pronounced hatred of all kind of apologetics.

The likely changes in the behaviour of the institutions of capitalist society in a recession are analyses by Nitzan and Bichler in their book Global Political Economy of Israel, which is built around a liberal theory of capitalism that does not borrow from Karl Marx.

Nitzan and Bichler argue that dominant capital can retain and even strengthen its position through the mechanism of inflation. This can be used as a weapon to devalue workers' remuneration and to pressurise smaller capitalists. Dominant capital can strengthen its hand by cannibalising smaller firms. With government panicked and embattled the cartelisation of dominant capital can be renewed more effectively. The banking industry can be effectively subsidised through various inflationary,and then anti-inflationary swindles.

The current proposal to "bail out" the US finance industry with $700bn of taxpayers money doesn't even aspire to such artfulness. This is straight off primitive accumulation.

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