Draft for discussion and comments please.
Blame deregulation?
Most of the left commentary on the current credit crunch blames the US government for deregulating the finance sector. They point to the freedom that banks and mortgage firms had to lend money to people with no assets and insufficient income on the strength of rising property values (should be prices - see later). The result was overinflated prices that had to come down when the economy slowed and peoples' incomes fell so they could'nt service their debt. Not only that, but these banks bundled these mortgages into packages which they onsold so that the debt bubble spread right across the finance sector to some of the biggest investment banks like Lehman and Wachovia. Result, deregulation leads to speculation across the whole finance sector, and then ultimately to bad debts. Crash.
As proof commentators point to countries where stronger regulations prevented a housing bubble. Like France. Interesting case, since France has for over a hundred years been considered a rentier state. That is, it speculates OUTSIDE France. The point of this should be come clear below. Another instance is Sweden where a similar debt write down resulted from deregulation but was solved by nationalisation.
What's wrong with this scenario? Speculation doesnt result from deregulation. Speculation causes deregulation. In fact what happens is that an overproduction of capital in industry creates a surplus fund of capital that has to look elsewhere for a profit. If it is not invested to make a profit is looses its value. Since it cannot do this in production it has to do it unproductively in speculating in assets so it ensures that the government (which after all is the 'committee of the ruling class') allows it to do so. The result is overproduction of capital that engages in unproductive speculation in the value of already produced commodities. It is easy then to see that this does not create new value but instead speculates in the rise and fall of existing values (eg houses).
But why this overproduction in the first place?
Overproduction of capital results from a falling profit rate such that capitalists cannot be sure of getting a reasonable return on their investment. This happens in capitalist economies in a cyclical fashion. Big investments of new technology makes labor more productive by increasing the rate of exploitation {s/v - the amount of surplus value over the value of the wage roughly speaking). Workers can produce more commodities in a given time, so the labor time required to produce each commodity is less, and its value and usually its price is less. Capitalists make these investments then so they can produce more efficiently and cheaply and take a larger share of the market from their competitors. Capitalist growth is getting a larger share of the market, usually by these means, but not always (eg Iraq).
However, while this succeeds up to the point when the competitors make the same investment to catch up, it also carries a down-side. This is the fact that the more capital spent on what Marx calls constant capital which does not add value - plant, machinery, raw materials to make labor more competitive - relative to variable capital -wages of workers who do produce new value - then the organic composition - the proportion of constant capital to variable - rises, so that the rate of surplus value must rise faster to realise an adequate profit p = r/c+v (where p is profit, r is rate of exploitation (s/v) and where c is constant and v variable capital).
Marx calls this tendency for the rate of profit to fall (TRPF) the most important law of political economy. It is a general tendency and can be partially offset by counter-tendencies that reduce the price of c and v by various means among which are investing surplus capital abroad in colonies and other countries. Lenin later called this export of surplus capital imperialism.
Jumping to the present situation
It's clear that the US economy experienced a TRPF in the 1970s from which it has only partially recovered. This explains the export of capital in the last 30 years to many other countries to find the cheapest raw materials and labor as well as new markets and make bigger profits than was possible at home. Despite breaking down resistance to US FDI by the IMF, World Bank etc, capital export did not provide an outlet for all the surplus capital. It had to find new outlets by speculating in unproductive areas such as housing (not construction which is productive, but finished houses), commodities, and all sorts of other fictitious 'instruments' such as the futures market. None of these markets created any new value, all they did was to speculate in the movement of the prices of these already created values, so that their prices went up and down according to supply and demand. This is what many have referred to a the casino economy.
In any other country than the USA, the casino economy would not have grown to the extent that is has. This is because the value of the dollar would have collapsed and the US economy stagnated. Normally the value (price) of a currency such as the US dollar results from demand for actual real commodities produced in the USA. Those commodities have to be paid for in dollars so there is a demand for them. However, with the real productive economy stagnating, and surplus capital going offshore and into speculation, the declining dollar was artificially maintained by pegging it to the price of oil. Most of this oil is produced outside the US. Normally it would have to be paid for in the currency of the producer country. But the US was able to get agreement from most of the oil producers that dollars should be the currency for oil sold on the world market. In this way the downward pressure on the US dollar caused by its stagnating domestic economy was artificially boosted by the rising demand for oil internationally. In this way the US turned the world economy into the equivalent of the US domestic economy.
How is this connected to the property boom?
Well, with billions of petrodollars held by the oil producers and in demand by the oil consumers, the US could run a balance of payments deficit where it imported much more than it exported, and borrowed much more than it lent. In fact it became the No 1 world debtor nation to creditors like Japan, China and the EU. It could maintain huge military expenditures, subsidise its agriculture, and allow its industry to go into decline with no incentive to make it more competitive. The housing boom was an extension of the US as a debtor nation. Since the US could import much more than it could export, and workers could get access to this credit, this carried over to the consumption of housing as well. US banks as well as EU and Asian banks all loaned money in the construction and housing sector on the basis of a growing demand for housing which caused a boom in house prices. All was well until the protection of US industry itself was blown by the FDI of Asian and EU firms in production within the USA.
The introduction of more competitive plants inside the US - notably Japanese automakers - which were highly automated and undercut the cost of production of US commodities, brought about the collapse of US industry including the laying off of multitudes of workers who also lost pensions and health benefits. This is what brought an end to the speculative bubble in housing. Workers could no longer afford to pay their inflated mortgages and so the property market began to collapse and with it the huge edifice of debt now spread right through the international banking system. The sub-prime crisis spread to the credit crunch to the crisis of "the system" as George Bush calls it. So the bailout, by whatever name, is to get those bad debts off the balance sheet to allow the banking system to restore its confidence (to make profits) and start loaning capital again.
So it is a crisis of the whole "system" not just the banks. In fact the US has been able to postpone its "system crisis" by living off the rest of the world. That world is capitalist and is continuing to produce value and profits. In fact the US capitalists are benefiting from massive profits overseas (around half of its total profits). But more important, the health of the capitalist system outside the US, and the growing share of US profits in that, has finally disciplined the US ruling class and forced it to revalue its overvalued domestic economy. Thus as the world grows tired of propping up the US dollar and begins to sell oil for Euros etc., the US will have to restore the competitiveness of its exports to maintain the value of the dollar. The foreign plants inside the US have forced a reinvestment of productive capital into new high tech sectors so that US exports are now increasing. The auto industry has just got $60 billion from Congress to re-tool so it can compete with the Asian and EU automakers. Excess capital that is being destroyed by the collapse of the housing bubble will be taken off the books of the surviving banks and they will now begin to invest their capital in a revived and renewed US domestic industry.
Solving the crisis on the backs of workers - or not
So far from this crisis being caused by speculators freed from state regulation, it is caused by the lack of competitiveness of US domestic industry pushing surplus capital into speculative assets that have now proven to be valueless. This bubble maintained the fiction of value because of the role of the US dollar as world money enabling the US to live as the No 1 debtor nation. What brought this bubble to an end was not the deregulation of the banking sector, but deregulation of FDI flowing into the US economy. With the entry of FDI from Asian and the EU, US plants were uncompetitive and have been forced to restructure and retool. Along with this we see the restructuring of the labor market to re-assign labor to the competitive industries or into the reserve army of labor. Part of the historical re-adjustment of workers' living standards has been the collapse of inflated housing prices. The tent cities springing up everywhere prove that this new phase of US capitalist development has broken down the artificial barrier between the protected US economy and the rest of the world. US workers living standards are now sinking to the world level. The capitalists in the rest of the world will no longer allow the US ruling class to live at their expense. The inter-imperialist rivalry between imperialist blocs is hotting up. It's now up to US workers to join forces with workers everywhere to refuse to let the ruling classes in every country live at their expense. [See next post on 5 point draft plan for socialism]
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