Roger Baker : It’s Official: Karl Marx Was Right!

Karl Marx’s grave in Highgate Cemetery, London.

Wait… so, Karl Marx was right?
Terminal capitalism / Part 1

The doubts about the viability of capitalism as a system now extend far beyond its traditional critics.

By Roger Baker | The Rag Blog | March 28, 2013

“Karl Marx was supposed to be dead and buried… Or so we thought. With the global economy in a protracted crisis, and workers around the world burdened by joblessness, debt and stagnant incomes, Marx’s biting critique of capitalism — that the system is inherently unjust and self-destructive — cannot be so easily dismissed…” — Time Magazine, March 25, 2013

Part one of two.

Does American capitalism have a future?

We might easily anticipate that the usual critics, including perpetually grouchy observers of the status quo like Noam Chomsky, would have doubts about the future of capitalism. Here, he asks, “Will Capitalism Destroy Civilization?”

The current political-economic system is a form of plutocracy, diverging sharply from democracy, if by that concept we mean political arrangements in which policy is significantly influenced by the public will. There have been serious debates over the years about whether capitalism is compatible with democracy. If we keep to really existing capitalist democracy — RECD for short — the question is effectively answered: They are radically incompatible.

But the doubts about the viability of capitalism as a system now extend far beyond its traditional critics. The U.S. economy has been in bad shape since about 2007 and the signs of recovery have not improved much since then. To give one example, Richard Heinberg of the Post Carbon Institute notes that the total economic growth in the United States is approximately equal to the annual government deficit.

In other words, if the U.S. Treasury were not issuing bond debt, printing fiat currency in cooperation with the private Federal Reserve, which is in de facto control of the U.S. economy through creating new money and setting the prime interest rate, there would actually be negative U.S. economic growth and a severe recession:

The math is not difficult. The U.S. has an annual GDP of $14 trillion, and the nation’s current $1 trillion in annual deficit spending is seven percent of its GDP. Growth in GDP has recently been running at about two percent annually (though in the last quarter of 2012 the economy actually contracted slightly). The relationship between deficit spending and GDP growth may not be exactly 1:1 but it’s probably quite close.

The conclusion is therefore inescapable: doing away with a substantial portion of deficit spending would reduce GDP by a roughly corresponding amount, almost certainly causing the economy to tip over into recession… The political situation in Washington is such that — whether it’s the “sequester” or a compromise work-around — substantial near-term deficit reduction is more or less inevitable. As a result, America will be thrust back into an economic situation reminiscent of early 2009.

If we were to calculate the unemployment rate in the United States as we did during the Great Depression, the current rate would be about 23%, This figure nearly matches the high unemployment rate seen during the Great Depression.

Meanwhile, prominent Keynesians like New York Times columnist Paul Krugman advocate a lot more deficit spending to revive the economy. The current amount of deficit spending is largely benefiting the private banks by allowing them to pay interest on their vast portfolios of bad loans. This is keeping the economy afloat, but is not enough to much affect average consumers and restore their old carefree spending habits.

Keynesian economics is largely based on managing consumer spending psychology by means of a contra-cyclical federal economic policy. In theory, federal stimulus is meant to restore demand in a weak economy until average consumers feel confident enough to resume their pre-recession level of spending. This stimulus is supposed to be balanced by raising taxes enough to prevent a spending surge during the boom phase of the capitalist business cycle. In effect the government adds and subtracts money to smooth out the cycle.

One reason that things are not working out the way that Keynes anticipated is that too much of the money has been going to the rich who tend to save it, rather than to the poor who need it most and will spend it. Another problem is that while it is not hard to hand out stimulus money during a recession, the politics of raising taxes during an economic boom, or “taking away the punchbowl,” is not nearly so politically popular, especially among Republicans who have great political influence.

The Tea Party conservatives, who are typically not part of the 1%, face their own financial stresses, and tend to oppose all increases in social spending that they see as mostly benefiting the poor. They see their own class interests as being distinct from, and often opposed to, the have-nots at the bottom, who are highly reliant on social safety net programs.

Meanwhile the rich have every interest in encouraging conflict between mainstream Republicans and Democrats — to draw attention away from the extremely generous portion of the total government benefits they receive. The sense of unfairness and injustice in such a system leads to dysfunctional and unpopular government, incapable of easily implementing rational policy decisions.

Growing pessimism about the U.S. economy abounds

There is now a kind of convergence of economic pessimism regarding the U.S political economy. This pretty much extends across the political spectrum, including some top bankers and the scientific community.

A January 26, 2012, article in the science journal Nature, by James Murray and David King, declares that “Oil’s Tipping Point Has Passed” and shows that certain scientists understand that high oil prices, due to a limited global oil supply, can prevent an economic recovery and explain the need for action among those prepared to listen.

Only by moving away from fossil fuels can we both ensure a more robust economic outlook and address the challenges of climate change. This will be a decades-long transformation that needs to start immediately.

Some bankers and economists view the current situation from the point of view of a spiraling unpayable burden of federal government debt.

Richard Duncan, formerly of the World Bank and chief economist at Blackhorse Asset Mgmt., says America’s $16 trillion federal debt has escalated into a “death spiral,” as he told CNBC. And it could result in a depression so severe that he doesn’t “think our civilization could survive it.” And Duncan is not alone in warning that the U.S. economy may go into a “death spiral.” Since the recession, noted economists including Laurence Kotlikoff, a former member of President Reagan’s Council of Economic Advisers, have come to similar conclusions.”

The reason that some others, including top money managers like Warren Buffett, are dumping stocks is that they have little faith that the consumer spending sector of the economy can recover.

Despite the 6.5% stock market rally over the last three months, a handful of billionaires are quietly dumping their American stocks… and fast.

Warren Buffett, who has been a cheerleader for U.S. stocks for quite some time, is dumping shares at an alarming rate. He recently complained of  “disappointing performance” in dyed-in-the-wool American companies like Johnson & Johnson, Procter & Gamble, and Kraft Foods… With 70% of the U.S. economy dependent on consumer spending, Buffett’s apparent lack of faith in these companies’ future prospects is worrisome. Unfortunately Buffett isn’t alone. Fellow billionaire John Paulson, who made a fortune betting on the subprime mortgage meltdown, is clearing out of U.S. stocks too.

Top investment advisor Jim Rogers warns that despite the illusion of a market recovery, that government cannot be trusted and that, with the current levels of deficit spending, a big crash lies ahead.

Despite the current stock market rally, legendary investor Rogers say the U.S economy is poised for a major crash and he is warning investors to protect themselves immediately. In a riveting interview on Fox Business, Rogers warned Americans not to trust any of the positive economic news coming from world governments. “I don’t trust the data from any government, including the U.S., Rogers said. “We know that governments lie to us. Everybody’s printing money, but it cannot go on. This is all artificial.”

Money power is blocking reform

We live in a time when hugely concentrated wealth is attempting to cling to power and perpetuate the status quo by means of well-funded right wing media groups like the MRC Network. Such special interests block policy reforms by sponsoring global warming denial politcs, etc. Groups of right wing think tanks abound in Washington, DC, perpetuating corporate domination by means of their unregulated money power.

Think tanks are funded primarily by large businesses and major foundations. They devise and promote policies that shape the lives of everyday Americans: Social Security privatization, tax and investment laws, regulation of everything from oil to the Internet. They supply experts to testify on Capitol Hill, write articles for the op-ed pages of newspapers, and appear as TV commentators. They advise presidential aspirants and lead orientation seminars to train incoming members of Congress.

Think tanks may have a decided political leaning. There are twice as many conservative think tanks as liberal ones, and the conservative ones generally have more money. One of the important functions of think tanks is to provide a way for business interests to promote their ideas or to support economic and sociological research not taking place elsewhere that they feel may turn out in their favor. Conservative think tanks also offer donors an opportunity to support conservative policies outside academia, which during the 1960s and 1970s was accused of having a strong “collectivist” bias.

Everywhere we look we can see confidence in the U.S. political system breaking down. It is not just the poor, but we see rising anger across the political spectrum from those who are not the beneficiaries of concentrated private wealth. The polls make it clear U.S. citizens are losing faith in their failing economy, in their leaders in Congress.

In fact, they are rapidly losing faith in capitalism itself. The public feels trapped, angry, sensing that they are the victims of an unfair, unjust, and exploitative system. Videos like this one, which document the huge disparities in wealth, are going viral.

To those who lived through the fifties and sixties, such as the author, it comes as a shock to see Time Magazine, once the confident voice of middle class American optimism, now admit that Marx was essentially right about class struggle.

We are now operating under a political system of institutionalized corruption; of top-down corporate and special interest control that Sheldon Wolin terms “inverted totalitarianism.”

Whereas in Nazi Germany the state dominated economic actors, in inverted totalitarianism, corporations through political contributions and lobbying, dominate the United States, with the government acting as the servant of large corporations. This is considered “normal” rather than corruption.

This opposition at the top to sensible reform is like disabling the safety valves on a steam boiler as the pressure builds up. Blocking reform can work over the short run, but it really means that the internal unrelieved social pressures will build until a social explosion is inevitable at some point that is not predictable in advance.

The sudden level of national support for the Occupy movements in late 2011 should serve as a warning that in the absence of external repression, the political system could see mass protests develop quite unexpectedly.

In his classic work, “Anatomy of Revolution,” historian Crane Brinton describes the classic stages and patterns of social rebellion and ultimately revolution that result when populist reforms are blocked and repressed. An economic crisis can only accentuate this process.

[Roger Baker is a long time transportation-oriented environmental activist, an amateur energy-oriented economist, an amateur scientist and science writer, and a founding member of and an advisor to the Association for the Study of Peak Oil-USA. He is active in the Green Party and the ACLU, and is a director of the Save Our Springs Association and the Save Barton Creek Association in Austin. Mostly he enjoys being an irreverent policy wonk and writing irreverent wonkish articles for The Rag Blog. Read more articles by Roger Baker on The Rag Blog.]

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