On Sun, 6 Feb 2011, SA wrote:
> The new LRB has a good (and beautifully written) essay by Benjamin
> Kunkel giving a detailed precis of Harvey's argument. The linchpin of
> the chain of argument (as concerns current economic conditions) is this
> thesis. Unfortunately, the thesis doesn't make any sense - not only
> empirically but theoretically.
>
> If there are fewer real investment opportunities, the result will be less
> real investment. It won't be more financial speculation.
Yanis Varafoukis has a different but similar argument you might find interesting -- a similar attribution of the expanded financial sector to a gusher of money, but attributing it not to lack of investment but rather to the central international imbalances of trade:
The second initiative is a short book that I have just today began
writing and which I plan to finish by the end of January. Its full
title: The Global Minotaur: The True Origins of the Financial Crisis
and the Future of the World Economy (to be published by Z Books). Here
is an abstract of what I intend the book to be:
In 2008 the world astonished itself. Apprehension replaced
intellectual complacency and an anxious public began to demand
explanations of what had happened. So, what happened? And what was the
significance of the Crash of 2008 for the generations to come?
The Global Minotaur suggests that the events of 2008 mark a turning
point in world history which cannot be understood properly in the
conventional way of blaming financialisation, greedy bankers, remiss
regulators, profligate borrowers etc. etc. The book's main argument
will be that the crisis which erupted in 2008 is invested with the
significance both of 1929 (the first major global financial calamity
that turned into a global depression) and of 1971 (the collapse of
Bretton Woods). Financialisation was not the cause of 2008. Nor was
ineffectual regulation of banks. Greed was not the culprit. Nor was
globalisation the perpetrator. The Fed's policies did not initiate the
crisis. Europe's monetary union was flawed. But it was not responsible
for the catastrophe that now afflicts Europe. All these were but
co-determined symptoms of a general dynamic to which they contributed.
What was that dynamic? The proposed book's title offers a hint.
1929 brought us (once the war was over) a Global Plan (1947-1971). In
its context, world capitalism was managed centrally (e.g. fixed
exchange rates and controlled capital movements). An interventionist
USA exported capital and goods to its two main overseas protégés
(Europe and Japan) and, thus, acted as the main creditor economy.
Hegemony provided stability and set the parameters of global growth on
the basis of a twin surplus of capital and trade (in relation to the
rest of the capitalist world).
During the 1960s US hegemony was challenged when the twin surplus
turned into a twin deficit, threatening the dollar and the capacity of
the US to project its economic power globally. The Global Plan, thus,
came to an end. 1971 saw the deliberate dismantling of the Global Plan
and its substitution with a calculated disintegration of global
capitalism. The purpose of this `controlled destabilisation' was to
allow for ever increasing US trade deficits financed by a steady flow
of capital from the rest of the world. Hegemony was therefore
maintained on a very different basis: massive and ever increasing
deficits financed consistently by the rest of the world. Just like the
Athenians maintained, in the name of peace and `prosperity', a steady
flow of tributes to the Cretan beast, so did the `rest of the world'
(this time voluntarily) sent a tsunami of capital to Wall Street
(between $3 and $5 billion net daily for more than 25 years).
This Global Minotaur became the `engine' that pulled the world economy
from the early 1980s to 2008. It was highly unbalanced, relied on ever
increasing deficits to keep itself going, caused much devastation in
the third world, boosted poverty within the US itself (as it imposed
unprecedented austerity on the US working class in order to maintain
the low inflation necessary to remain attractive to world capital), and
created the circumstances for a slow burning recession in the US'
former protégés (Europe and Japan). Nonetheless, it also financed
remarkable technological innovations, created (at least of paper)
tremendous wealth, enriched beyond their wildest dreams those in the
centre and the periphery of financialised capitalism and, more
importantly, created a level of global aggregate demand that gave the
impetus for the growth of China (and to a lesser extent India).
The Crash of 2008 is associated with the financial sector where it
materialised. Thus it appeared as a crisis of financialisation.
However, the book will argue, financialisation was a mere byproduct of
the Minotaur, as opposed to a process with its own independent causes.
If you give Wall Street bankers $3 to $5 billion new money daily to
play with, they will devise ways of making that money work for them. It
is in their nature to do precisely that. The question is not what the
bankers did with the incessant capital flows that came their way. The
question is: Why did so much capital flow toward them for so long (thus
enabling them to set the financialisation process into motion)? What
were the causes behind the stupendous capital inflow into Wall Street;
which I call the Global Minotaur? How did this extraordinary creature
survive for so long? Did it rise spontaneously or was its `birth' aided
and abetted by the US government?
Once we comprehend the dynamics of these capital inflows into Wall
Street, it is straightforward to come to terms with its repercussions;
i.e. with Wall Street's financial instruments (which were devised on
the back of the Minotaur) and the manner in which, soon after their
inception, they developed a logic and a life of their own. The book
will explain how, from the mid 1990s onwards, these financial
instruments began to play the role of private money. Thus, a huge boost
in the quantity of `money' doing the rounds in global markets
(particularly between 2000 and 2008) gave rise to inexorable
profiteering, a gargantuan increase in real estate and financial
assets, an unstoppable surge of privatisations etc. World capitalism,
in short, got hooked on the private money produced almost at will by
banks and financial institutions, forcing the hands of government to
join in.
Alas, the mountains of private money gave rise to mountainous bubbles.
When these bubbles burst in 2008, the private money turned into ashes
and the world entered a new phase. Governments rushed in to replace the
lost private money with freshly minted public money. The intervention
worked for a while but soon after the financial sector began creating
fresh private money in the form of bets; bets that the states would
buckle under the debt they procured to save... the financial sector
(from itself). Thus the crisis continues in different guises
(oscillating between the private and the public sectors).
The book will account for our current conundrum as follows: While the
Minotaur remains alive, albeit injured and timid compared to the
pre-2008 era, it no longer has the capacity it once did (during
1980-2008) globally to create sufficient aggregate demand to avert
crises. Today's crisis in Europe, the heated debates about austerity
versus further fiscal stimuli in the US, the clash between China's
authorities and the Obama administration on exchange rates, the role of
Germany on the world economic stage etc. are best seen as inevitable
symptoms of the weakening Minotaur; of a global `system' which is now
as unsustainable as it is imbalanced. The book will finish with an
assessment of the near future and the options available to us for
reintroducing a modicum of reason into a highly irrational world order.
<end excerpt>
Michael