[lbo-talk] Austerity In The Face Of Weakness

Julio Huato juliohuato at gmail.com
Tue Aug 31 09:24:13 PDT 2010


A side comment on Doug's excellent interview published on Z. Maybe this is an obvious point to everyone, but one hears often that corporations have lots of cash and their recent return rates on equity have been high. Doug alluded to this. It is a fact. But we should understand this in context.

The Great Recession meant an incredible shrinkage of the entire income or value added pie, including the overall level of profits. Until very recently, the income pie recovered the levels of 2006! Aggregate corporate profits shrunk tremendously. The 2007-2009 period was particularly dreadful. The BEA figures are revised all the time (and I'm not the most disciplined follower of their stats), but my understanding (and Doug could correct me if I'm wrong) is that the corporate profit share declined until the last quarter or second half of 2009, and from then on it's been going up.

If you survey the S&P500, you'll get the picture that businesses are sitting on a pile of cash and that their returns are healthy. But that financial health is in a sense illusory, because it's at the individual level. An individual business can be financially healthy for a little while because it can suck the blood off its dying competitors and workers. But that financial health is not lasting.

To put it in more Marxist terms, the crisis bankrupted a large number of businesses, melted away the value of the entire capital stock, reduced the wage share. So, no wonder the profit rate of the individual businesses that survived appears robust. For how long depends on whether the whole economy recovers.

If the entire pie (aggregate surplus value) doesn't expand again or if there's another big slump in the economy, then they should brace for themselves. Competition will become nastier, etc. And perhaps more consequential, there's a good chance of an intensification of the class struggle. (The current ideological class struggle is heating up, and the midterm elections are going to prompt another turn of this wheel.) Lucky individual capitals, with their apparently huge reserves of cash, are not in a safe financial position. I guess that's my point.



More information about the lbo-talk mailing list