by
Geoff Mann
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[...] Even in the "golden age" [...] the rate of profit was actually declining in the US. But "business sentiment" remained high until the late 1960s, as did the rate of investment, which suppressed the effect of falling profits.
[...] in the late 1960s, the rather slow fall in the profit rate accelerated markedly, and continued steadily until the Volcker coup of 1979-82. If you have to pick a birthday for neoliberalism, this is it. It had been gestating for a number of years, but more than any other single event, the Fed's interest rate shock (helpfully coupled with Reagan's assault on social services and unions) reasserted the doinance of capital in US political economic relations, and by extension throughout much of the developed north. It did so by restarting the profitability of very large corporations, the financial sector in particular. [...]
[...] with Volcker's interest rate hikes, which made investment too expensive for many businesses, everything slowed to a crawl. In combination with the political economic forces that caused problems for the welfare state (like increasing international competition and giving more power and voice to workers), these trends led firms to look for ways of making profit other than through Long Boom-style brick-and-mortar investment.
[...] Offshore capital flight continued throughout the late 1960s, 1970s, and early 1980s. Eurodollar markets exploded, abetted in particular by the diligent cultivation of the UK's Thatcher government, elected in 1979. The plan was to remake the UK as a centre of global finance capital, thereby re-establishing Britain's international political economic standing, which had waned considerably since World War II. Thatcher's government was explicitly interested in enabling "the City" (London's equivalent of Wall Street, which had thrown its considerable financial and organizational resources behind her election campaign) to steal some of New York's high-powered thunder.
To make this happen, the UK government's main effort, and its main achievement, was the radical deregulation of finance in the UK. [...]
[...] despite very low wages for the vast majority of its labour-force, Chinese savings rates are very high. This is probably a function of both cultural norms [...] and the low wages and export-orientation of Chinese industry. High saving propensities and low incomes mean that until very recently, China's domestic consumer markets were relatively underdeveloped. These conditions produced a glut of savings in China. Much of it, at the firm level, is in US dollars (because they sell to Americans). These savings purchase US debt, making China the largest holder of that debt (Japan is second).
This political economic strategy has drawbacks that render it potentially unstable. While it ideally has the capacity to prop up international consumer spending, China's own pretensions to geopolitical leadership are hindered by playing a supporting role in global political economy. If Chinese capitalists and the Chinese state want to assume a leadership role, China must divest itself, at least to some degree, of its dependence on the US in particular. But this would entail putting its own economic engine at risk.
Speculative currency shorting (usually) targes a weaker nation in the global political economy, because stronger nations can fight back by using reserves to purchase their currency on those same markes, thereby maintaining demand and protecting the currency's exchange rate. [...] Thailand had little capacity to defend the baht, and its value plummeted. The ensuing panic engendered similar attacks on other "Asian tiger" currencies, and the frantic flight of hot capital from the whole region. This only drove currency values down further, because as money leaves a country, unless it is the US dollar, it almost always changes form--the money-owner exchanges it into US dollars or some other "trustworthy" currency. This floods the market with (for example) baht, which accordingly falls in price.
as a result of this, states learned to maintain a huge pile of foreign reserves (primarily US--if the USD appreciates too much, they can sell some of it to try to correct it and thus maintain rate of return on sales to the US; only China and Japan have enough reserves to move the market much, though)
[...] The biggest problem for finance capital, and almost anybody else who wanted to borrow to invest, was not where to get the money but where to put it all [...]. Idle money is not capital; it is not accumulating [...]. [...]
extra liquidity due to low interest rates set by the Fed after the dotcom crisis (to try and stimulate recovery)
[...] (Investment bankers like to say "distribute" the risk, since they see their primary social function, the "good" they do in the world, as that of "distributing" risk to those who can bear it. We can see now how well this works, and how valuable this "social function" is. In practice, it is merely a variation on "privatize the gains, socialize the losses.")
[...] the main ideologues and beneficiaries of neoliberalization managed, amazingly, to spin the collapse they precipitated into a story about the profligate irresponsibility and unrealistic expectations of workers, students, and the unemployed. The massive holes in every capitalist nations public and private finances were perfuntorily redefined as the result of popular desire to "live beyond our means," from which the masses must be weaned once and for all. The answer elites proposed, and proceeded to impose, looked a lot like an IMF structural adjustment plan--austerity, privatization, liberalization--with an emphasis on austerity, a program of vicious cuts in public subsidies and state retrenchment designed and managed by exactly the same individuals and institutions who created the crises in the first place.
[...] to listen to Euro-American austeritites talk, you would think austerity is how capitalists say the rosary, a market-imposed penance for "our" sins.
the "living beyond our means" argument would have a lot more stock if there weren't such massive inequality
[...] remember that southern Europeans are often "racially" subordinated in Europe, similar to the way in which African Americans are positioned in the US: they are coded as lazy, dishonest, and biologically inferior even and sometimes most in their own countries [...]
footnote 75
On the contrary, the explanation is far more straightforward: capital won. Sometimes with armies, sometimes with persuasion, sometimes with money, and sometimes by accident, but it won. For at least the last thirty or forty years, and this is increasingly true in nominally "noncapitalist" nation-states like China also, capital has proven richer, more powerful, more expansive, more convincing, and more real than any other political economic force on the planet. It is not a myth, it is not an elaborate hoax, and its wealth and dominance are not fictitious or illusory. Unsurprisingly, therefore, it has written the political economic rule book by which the world plays, and defined the terms and means by which one might "legitimately" break those rules. Socialists may have lost their ideological fire, or they may have read the writing on the wall and decided that given the options available to them, and the ultimate political and economic objectives to which socialism aims, i.e., the long-term betterment of citizens' everyday lives, their constituencies had to play by the rules, and the rules rule against being socialists.
on socialist parties in Spain endorsing austerity
"capital has proven richer, more powerful, more expansive, more convincing, and more real than any other political economic force on the planet. It is not a myth, it is not an elaborate hoax, and its wealth and dominance are not fictitious or illusory. Unsurprisingly, therefore, it has written the political economic rule book by which the world plays, and defined the terms and means by which one might "legitimately" break those rules" -> think about this