A guide to the shallow ups and deeper downs

October 20, 2016

Neil Loehlein looks at how economist Michael Roberts' book explains the causes of the Great Recession and answers debates among Marxists on this and other questions.

AN OPINION poll released last month found that 56 percent of Americans think that the condition of the U.S. economy has stayed the same or gotten worse since the 2007-09 Great Recession.

The Politico-Harvard University poll also reported that when asked about future prospects for growth, 72 percent of people thought the U.S. economy would continue to hold at its current low growth rate or get worse over the next 10 years.

There is a reason why U.S. workers have such a dismal outlook about the present and the future of the economy. Even though the "recovery" from the recession started, according to official measures, in June 2009, many workers are dealing with lower wages, underemployment and job insecurity--all at a time when rents are increasing and many young workers graduating from college have been saddled with stultifying levels of student debt.

Meanwhile, a report from the International Monetary Fund (IMF) released this month predicts another year of low growth for the world economy. So the difficulties that U.S. workers are experiencing are likely being felt by working people across the world--and there are no signs of this changing anytime soon.

Good jobs are still scarce after the Great Recession
Good jobs are still scarce after the Great Recession

The economic crisis and the failure of governments to alleviate the vicious effects on the majority of workers and the poor are driving people to question the workings of the capitalist system--and opening up many people to the possibilities of socialism as a solution to the failures of capitalism.

Michael Roberts's The Long Depression: Marxism and the Global Crisis in Capitalism is a timely publication for those interested in grasping the dynamics leading to the Great Recession and capitalist slumps in general. It also brilliantly makes the case for a socialist world as a way out of the crisis that has continued to destroy lives everywhere.

ROBERTS, AN economist and author of The Great Recession: A Marxist View and a long-running blog on Marxist economic analysis acknowledges that his latest book is not intended as a descriptive account of the 2007-09 crisis. Instead, he aims to provide an explanation of economic crises under capitalism.

Throughout the book, Roberts insists that a Marxist analysis is essential to understanding such crises, and he uses statistical datasets displayed as charts to support his arguments. He points out the weaknesses of other economic schools of thought, such as Keynesianism and monetarism, in both understanding and addressing economic crises.

Countering the belief in other theories that economic crisis is the result of a "technical malfunction" in an otherwise stable capitalist system, Roberts makes the case that crises are endemic to capitalism and its never-ending drive for profits and accumulation. "What flows from this [understanding]," he writes, "is that the capitalist system cannot be 'repaired' to achieve sustained economic growth without booms or slumps--it must be replaced."

A second argument is woven through Roberts' book--that what Karl Marx identified as the law of the tendency of the rate of profit to fall is the single, underlying cause of depressions.

What is the gist of this law? Marx asserted that competition for profit between capitalists forces them to invest in labor-saving technology. These non-labor inputs reduce the costs of production and give the capitalists who invest in them an advantage over their competitors in the short term.

But over the long term, this leads to a rise in the percentage of labor-saving technology compared to living labor in the form of workers. Because the exploitation of living labor is the source of the capitalists' profits, the overall rate of profit has ratio of non-labor inputs in the production process rises.

This contradiction built into the capitalist system drives the boom-and-slump cycle, according to Roberts, but it also contributes to the dynamic of booms becoming shallower and slumps becoming deeper.

In the last few years, a debate has been rekindled among Marxists around whether all capitalist economic crises can be attributed solely to the law of the rate of profit to fall, or if different triggers can be associated with each crisis, with Marxists David Harvey, Andrew Kliman and Roberts himself weighing in on the issue. Within this debate is a related discussion as to whether Marx himself abandoned or de-emphasized the law of the rate of profit to fall in his later writings.

In the book, Roberts makes his own case, and the discussion will certainly continue after its publication as Marxists clarify the causes of recessions, slumps and depressions.

AFTER HIS explanation of economic crisis, Roberts guides the reader through the two major depressions of the past, showing in the process how a Marxist analysis is most capable of explaining their causes.

Central to book's main arguments, he contends that a falling rate of profit was the cause for both the original Long Depression of 1873-1896 and the Great Depression of the mid-20th century. In so doing, Roberts challenges accounts of the depressions that blame financial panics or a lack of consumer demand as central causes.

Roberts includes a useful section on the 1930s Great Depression that raises the question of whether Roosevelt's New Deal policies or other government stimulus programs could have pulled the U.S. out of the depression before the economy ramped up war production prior to entering the Second World War.

Roberts claims there is no evidence of an economic recovery before the war and suggests that is wasn't increased consumption during the war that stimulated the private sector and restored growth, but the government stepping in and effectively replacing the free market with the massive investment in weapons.

The end of the war ushered in years of expansion and growth, along with the U.S.'s ascent to the position of global superpower. Roberts continues along this historical continuum by explaining the rise of the era of neoliberalism, lasting from the mid-1970s through to the Great Recession.

He argues that the boom years after the Second World War eventually gave way to a crisis in profitability by the mid-1960s--in the form of the stagflation recession of the 1970s and the double-dip recession of the early 1980s.

Countering the argument of some Marxists, Roberts asserts that the neoliberal era ushered in a period of renewed growth and profits during the 1980s and '90s, while emphasizing that profitability never reached the heights it had in the post-Second World War era. His case is that the two recessions at the beginning of the neoliberal era set the stage for an upswing in profitability--with mass unemployment following the recessions weakening labor's ability to fight wage reductions and working conditions.

Roberts points to other factors involved in the restoration of profitability, such as devaluation of old technology and manufacturing plants, as well as neoliberal political "reforms," such anti-union legislation, lower corporate taxes, privatization and financial deregulation.

By the late 1990s, however, profitability again declined, Roberts explains, following a peak in 1997 before a crisis emerged in the East Asian "tiger economies." Roberts explains that major governments tried to avert a full-blown crisis with what he calls a "credit-fueled binge" centered in the now-deregulated banking systems. This postponed the crisis to come--and likely worsened it--by creating a credit bubble through the mid-2000s that set the stage for the Great Recesssion.

FOLLOWING HIS historical overview, Roberts opens up the discussion on the Great Recession with a series of chapters that provide a general analysis of the crisis and a survey of countries and their particular economic situations, as well as their attempts to overcome the slump.

Roberts makes scathing critiques of other analyses that limit the cause of this latest crisis to financial panic, too much credit or excessive inequality, to name a few factors proposed by other economists. Roberts' takedowns of these positions provide those on the left with valuable arguments about why the Great Recession can't be fully understood on the basis of these limited viewpoints.

An entire chapter is dedicated to explaining the importance of debt to economic crisis. Following Marx, Roberts supports the idea that credit is a major component of a capitalist economy, lending flexibility in the short term, but becoming an obstacle to capital's functioning over time.

He also makes the case that a drop in the rate of profit promotes financial speculation, which often leads to asset bubbles where prices wildly outstrip underlying values. This concept of debt is crucial to understanding the development and subsequent bursting of the real estate bubble in the U.S. as the catalyst of the Great Recession.

Roberts also makes the case that the current period of low growth following the Great Recession should be seen as part of a longer depression era starting in 2007, since current profit rates haven't recovered to reach their peaks in 1997 and 2007, and massive private and corporate debt has yet to be fully dealt with.

This analysis is helpful in grasping why the recovery period since the official end of the Great Recession has been so weak, with low growth rates and continued insecurity for workers everywhere. Understanding the current period as a long depression also raises the specter of a second recession that may hit the ailing world economy in the coming years, even as the underlying conditions that gave rise to the crisis have yet to be resolved.

BEFORE WRAPPING up the book, Roberts opens a discussion on the relevance of economic cycles to the Marxist analysis.

Proponents of economic cycles assert that various aspects of a capitalist economy have a certain wave-like pattern where periods of upturn (growth and expansion) give way to relatively equal length periods of downturn (decline and stagnation).

Roberts admits the controversial nature of cycles and presents the main arguments against their explanatory power, while proceeding to explain why they are useful in understanding economic trends. He describes Marx's own attempts to chart the periodicity of cycles--the business cycle in particular--which Marx saw as driven by the need of capitalists to periodically replace "fixed capital," meaning land, buildings, machinery, etc.

The chapter concludes with a discussion of integrating the various cycles into a single model that illustrates the global trend in profitability. The model, frighteningly enough, shows a trough in profitability worldwide around the year 2018, eerily hinting at a double-dip recession toward the end of the decade.

If another recession does occur, those who suffered the most in the 2007-09 crash will have their livelihoods shaken once again, and this time from a place of increased misery and insecurity. This is just another reason why working class people the world over have a vested interest in struggling for a world free from a system that is prone to crisis.

The Long Depression is a welcome publication in a period of prolonged economic instability. There is a crying need to understand the underlying dynamics that give rise to booms and busts under capitalism, and Roberts's latest book presents a series of exceptionally clear arguments supporting the idea that only a Marxist analysis is capable of understanding them and pointing a way forward to workers whose lives are devastated by each slump.

Roberts' book also contributes to an important debate among Marxists about the cause of capitalist crises. Is the tendency for the rate of profit to fall the prime mover in capitalist downturns, or do various factors give rise to crises?

This question is something Marxists will have to sort out in the years to come. We will also need to continue discussions with those who want to fight for a better world, making the case that capitalist crises cannot be fixed or managed, and so the system must be replaced.

The Long Depression can help us make these arguments--and in the process help a new generation of socialists understand the way forward in achieving a world that operates not according to profits and greed of the few, but the needs and aspirations of the many.

Further Reading

From the archives