On 2/6/2011 6:56 PM, Mike Beggs wrote:
> This is elementary stuff and it's a little embarrassing to put it
> forward while arguing
> that Marxist economics explains something about the crisis which
> nobody else can see, without engaging or even showing awareness of
> more sophisticated Keynesian/Kaleckian treatments of effective demand.
> And while complaining that left accounts of the crisis do not go
> beyond a Keynesian horizon - well this will convince no-one that there
> is something beyond that horizon! Krugman or even De Long would make
> short work of it.
Exactly. Such elementary mistakes would be less excruciating if they weren't accompanied by triumphal claims that Marxism Sees Farther!
> It's quite possible to make a case that from the late 1990s
> money-capital (ie accumulated savings seeking a return) grew faster
> than the opportunities to make the returns available (adjusted for
> risk) at the beginning of the period. There was therefore a tendency
> towards higher risk, higher return investments, bubbles, and new forms
> of intermediation that promised a higher rate of return for a given
> apparent risk and liquidity profile, while shifting risk to the
> intermediator (and ultimately its creditors should it collapse).
> Overaccumulation is this kind of tendency, rather than an absolute
> thing.
Okay, but it doesn't follow automatically that disappointing rates of return to money-capital will result in a greater (system-wide) appetite for risk. I mean, if you think of a classic case of a deeply depressed economy, the rates of return are disappointing but people *flee* from risk.
My interpretation of the bubble process you describe (at least for the US) is a bit different. I think the "first cause" of the 2000's bubble was simply the formation of expectations among home-buyers that house prices would rise at fantastic rates. (Perhaps generalizing from localized examples of this from the boom years of the 1990's, when certain localities received sudden influxes of very wealthy people, resulting in massive - but stable - increases in home values.) Once those expectations became generalized, it turns out that the complex financial stuff that claimed to disperse risk - MBS, CDOs, etc. - was more or less rational. I think the data show that most of those financial products actually would have paid off if home prices had met the forecasts embedded in the Wall Street models. It was the hysterical forecast of price appreciation, not the "hiding" of risk (it was never really hidden), that constituted the bubble. In other words, this was about a classic national mania - a la Charles Mackay - rather than the necessary outgrowth of evolutions in rates of return to money-capital.
Fundamentally, I'm not denying that subjectively investors despaired of low returns in the era of low interest rates and sought ways to "safely" climb the risk spectrum. But that wish would have simply remained a wish and they would have simply swallowed their despair had there not been (a) a pre-existing appetite for risk and (b) an ongoing housing bubble "from below" to invest in. It's the latter two factors that really explain the bubble.
SA