As David Harvey reminds us, capital never solves its crisis tendencies, it merely moves them around. Since the turn to neoliberalism in the 1980s there has certainly been a lot of movement.
Throughout the 1980s there were big recessions in all of the rich countries. Across Africa, Latin America and Western Asia at that time there was a depression, although it was not called this because of a self-imposed taboo on the word by mainstream economic commentators since 1929.
The US stock market crash of 1987 was followed by a “saving and loans” crisis. Japan’s economy has been stagnant from the 1990s, and towards the end of that decade there was an Asian financial crisis. The new millennium arrived with the dotcom crash. Recovery was followed by the global financial crisis.
The global financial system has been “stabilised” by moving the crisis away from the banks and on to state debt. The response to burgeoning state debt in the US and Europe has been the slashing of state services and the imposition of austerity measures which, in turn, leads to a crisis of consumption.
Household consumption, which typically makes up at least 60% of GDP in rich countries, is stabilised by increased levels of borrowing from banks. The banks that got “too big to fail” before the financial crisis are now even bigger.
The effect of all this in Britain can be seen in the findings of the country’s Institute for Fiscal Studies. At the end of 2011, before many government austerity measures had been enacted, the Institute forecast that the average British household will have no more disposable income in 2016 than in 2002.
In the US in mid-2012 a Federal Reserve report calculated that the median US family lost a generation of wealth between 2007 and 2010.
Both the British and the US economies are stagnant, unable to achieve even the minimum 3% compound growth necessary for the satisfactory functioning of capitalism on its own terms. Official unemployment levels in both countries remains stubbornly high and the norm for many is low-paid underemployment and poverty.
Yet as the Guardian reported on February 25, both the US and Britain are in the throes of a historic boom according to the stock exchanges of both countries.
In March last year, with the US economy in the doldrums for five years, the Standard & Poor’s 500 stock market index reached its highest level ever. In the 12 months since, it has gone up a further 20% while per capita income didn’t manage to increase by even 2%.
British and US stock markets are the two most important in the world. Many other stock exchanges follow their lead. In February last year, the Australian All Ordinaries Index reached 5000 for the first time since 2008, from a low of 3111 points in March 2009. It remains appreciably above 5000.
So do the stock markets know something we don’t? Insider trading on individual stocks to one side, the answer appears to be in the negative. It’s not what they know; it’s what they wish for.
Seen through the special rose-tinted glasses that speculators wear, every “green shoot” in the economy appears as an endless, fecund field already in full flower. More sober senses detect a bubble. If they are correct, the more it is inflated the bigger the bang will be when it bursts.
We could, of course, seek advice on this matter from the many erudite economists at, say, the London School of Economics. This has been done before, by no less a person than the reigning monarch.
When the Queen visited that establishment in November 2008 she asked why no economist had seen the financial crisis coming. It took them six months to provide an answer: “In summary, Your Majesty, the failure … was principally a failure of the collective imagination of many bright people, both in this country and internationally, to understand the risks to the system as a whole.”
Financiers and economists alike had been caught up in a “psychology of denial.” Let’s hope they are being treated for it.
If there is one certainty about the global economy — it is everlasting uncertainty.
[David Harvey’s The Enigma of Capital is available at all Resistance bookshops. Order online at Resistance Books.]