QE: Furthering the habit of privatizing gains and socializing losses

“Privatizing gains and socializing losses” could be the motto for the neoliberal era. Alongside this and “there is no alternative”, few slogans better capture the ideology that has been so successfully diffused throughout the world over the past several decades.

Five years after latest financial crisis, this motto rings true as ever. To say that the losses stemming from the crisis were large is a heroic understatement; indeed, not only were they humongous, their exact size remains a tad fuzzy. Meanwhile, across the world in the aftermath of the crisis, stock markets have rebounded, wealth and income inequalities have grown and corporations and financial institutions have returned to making healthy profits. At the same time, many countries have seen both employment and median incomes either stagnate or fall.

In short, once again, losses were socialized, while gains privatized. Prominent among the means employed by governments to ensure that this be the case were various kinds of asset purchase programs. First, in the immediate aftermath of the crisis, came actions that transferred toxic financial assets into public hands either through direct buybacks (as in the US TARP program) or temporary nationalization/bailout. Since these short-term, more explicit socializations of private loss came to an end, the policy of quantitative easing (QE), through which central banks purchase vast amounts of long-term debt from financial markets, has been their implicit continuation. Unlike the earlier programs, QE is aimed instead at the other end of the equation, privatized gains. (more…)

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Transformations in profit and possibilities of resistance: A reply to Sam Gindin

Several weeks ago, I published a series of blog posts on profitability and investment in Canada since the financial crisis of 2007-8. These were republished as a single long article on Socialist Project and given the title, “Canada’s Profitability and Stagnation Puzzle”.  Since them, Sam Gindin has published a reply to my piece, “Puzzle or Misreading? Stagnation, Austerity and Left Politics”. Gindin challenges me on a number of fronts, most generally for misreading the current predicament in terms of a static formula that treats all capitalist crises ahistorically. This critique has ramifications for how Gindin sees not only my empirical account of present trends, but also my theoretical background and thoughts on strategies for resistance and alternatives.

Despite what appear to be many points of dispute, I think Gindin and I actually agree on a great many things, both in terms of the diagnosis of the current crisis and strategies for overcoming it. There are quibbles about statistics and wording, and I want to deal with a couple of these here, but I think we share much on broader theoretical and strategic matters. I want to primarily focus on the agreements behind our recent Socialist Project-facilitated interaction. (more…)

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Demand or destruction: Two ways out of the profitability puzzle

In my previous post, I outlined the disconnect between profitability and investment in Canada’s private sector.  While businesses are doing well and profits have rebounded quickly after the global financial crisis of 2007, investment has continued its slow and steady 20-year decline.  This decline is especially visible when investment is related directly to profits. Slightly more than 60% of gross profits are currently being re-invested, down by a third relative to just two decades ago.  Such a gap between strong profitability and dismal investment does not correspond with standard accounts of how the economy functions.  According to standard accounts, strong profitability should encourage investment, not depress it further.  This theoretical relationship is not borne out in recent Canadian experience.

While the last post also examined a few factors that could have been at play in creating this odd state of affairs, here I want to move in the opposite direction and look at two competing pictures of how to revive low private-sector investment.  The first picture comes from Keynes, the second from Marx.  I am particularly indebted to Michael Roberts, who has written extensively on the crisis from a UK perspective and who used a similar framework in a recent article (on the adoption of the idea of a permanent slump by mainstream Keynesians).

The two pictures agree on a diagnosis of on-going stagnation – with low investment being just one feature.  Indeed, the lack of sustained recovery across much of the developed world has led increasing numbers of mainstream economists to declare that the current slowdown is permanent.  Paul Krugman, likely the most prominent Keynesian economist, recently wrote that we may have entered a “permanent slump.”  Even the more hawkish Larry Summers has added his voice to the chorus, referring in a recent speech at the IMF to a period of “secular stagnation”.  Many Marxist and other radical economists have, of course, been making the same point for years, citing a variety of structural changes and imbalances in the economy, particularly those that characterize the neoliberal period that began in the 1970s when the great post-war boom lost steam.

While their diagnosis may be similar, Keynesian and Marxian economists see the way out of the current long-term slump rather differently. (more…)

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Canada’s profitability puzzle

Most developed economies continue to experience fall-out from the financial crisis of 2007-8. The Eurozone has been most ravaged, but the US and UK have not fared much better.  After the initial rebound from the most severe crisis, growth in many economies has been decelerating to the point that some are once again contracting in real terms.  At the same time, unemployment remains high – hitting record levels among youth in Europe for example – real incomes are flat for the vast majority, inequality is on the rise and austerity programs targeted at social services are eating further into living standards.

Canada has partly bucked these trends.  While the overall growth rate has not returned to pre-crisis levels, it has not done nearly as poorly as that in Europe or even the US.  Other measures of economic well-being do not suggest the level of alarm felt in harder-hit economies.  To give two examples, the Canadian unemployment rate has grown relatively modestly and the distribution of gains since the crisis has not been skewed towards the very top to the extreme that it has been in the US and elsewhere.  The financial press is increasingly optimistic – just this past week cheering newly-released above-forecast quarterly growth figures – and the Conservative government remains steadfast in touting our supposed economic prudence and resilience.

Finally, but not least, Canadian corporations also have had it relatively good since the crisis.  Other than a sharp dip around 2008, profits have remained high and growing.

(more…)

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