For the past few months, with the help of this list and other reading, I've been trying to build an framework for understanding economics, now that I have finally thrown off the shackles of "conventional" (i.e. Krugman and co.) economic thought. Specifically, a way of understanding the crisis that seems to be engulfing everything a we speak. I thought I'd throw out a scenario to all the list, and let all the smarter people on the list tell where I'm wrong.
1.) The Capitalist world was able to grow after WWII primarily because it's productive capacity had been utterly destroyed by Depression and War. It was able to rebuild using newer, more efficient technologies, creating enough profits that Capitalists (in the West, at least) could afford to share the benefits with workers, through social democracy, wage increases, etc.
2.) Somewhere around the early 70s, the golden age was over. Europe and Japan had recovered fully from the War, they started challanging the US for supremacy, and (more importantly) increasing industrial capacity caused the rate of profit to begin a long, slow decent. Capitalists responded by a.) furiously seeking new markets and resources in the third world, and b.) pushing austerity policies at home.
3.) Through the eighties and nineties, even as growth continued to slow, corporate profits took a larger and larger share of GDP. Stock prices continued to rise, as the profits were recycled back into the markets, causing speculative bubbles, first in Japan, then in East Asia, finally in the U.S.
4.) With external markets collapsing, and workers already pushed to wall, the only alternative for capitalism now is another round of destruction of productive capacity - somehow, some way, some percentage of those useless (form a profit-making veiwpoint, anyway) factories have to be eliminated. Thus, deflation, depression, and possibly war - except WWIII (thanks to the Bomb) is not an option anymore.
Is this a fair assessment, or am I going majorly wrong somewhere?
Jim Baird
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