Reform or Revolution: Facing Into the Abyss

The gravity of the current economic situation appears to be sinking in. Day by day, week by week, and month by month, we are waking out of our docile slumber. People are hitting the streets. This is not the handiwork of some dissident group with an ideological agenda. It is the natural outpouring of citizens anger, frustration, and hopelessness. The nature of the problem; capitalism, corporate greed, and careerist politicians has been expressed and expressed very well in many different forums. There seems to be some general consensus that we are in deep trouble.
Solidarity is crucial. We need to stick together and work together. The 1% will aim to fracture this new organic movement. We need to ensure that we don't do their dirty work for them. And no doubt, we will have enormous disagreements. Reformers will argue with revolutionaries, liberals will argue with socialists and so on. We need to use those differences of opinion to strengthen ourselves. The crux of the problem needs to be assessed and thoroughly analysed.
What is crucial is that we don't get mired in 'my opinion' or 'my ideology' and that we listen to each other. Debate is important and it is healthy. That is how we learn and grow. It is vital that you look at what I say and that I look at your analysis. After all, we all want the same things. We want stability, peace, and we want governance 'by, for, and of the people'. We want our kids and our neighbours to be able to eat. We are bound together by common goals. How we get there will need to be worked out.
What is presented here is a view, an opinion. You may not agree with it but please, take a minute to read it. If it is correct, our collective response then must take on a particular shape. If it is wrong, then we will need to point that out. We need to develop an assessment. We need to uncover the crux of the problem. If we can find some agreement on the nature of the problem, and we can, we may then develop a plan of action to correct it.
This then is an assessment of the current problem.
Analysis
The following analysis may describe the nature and scope of the problem. And if this analysis is correct, there is no easy way out. The upshot of this analysis is that capitalism itself has outlived its usefulness. Further to this, it has become financially toxic to all but those on the top of the heap. And the longer we depend on it, the worse the situation will become.
This view suggests that capitalism, due precisely to its efficiency and energy, has become antithetical to human needs. While the profit motive has served the majority in the developed world well, it will no longer do so. It will render the lot of us serfs without lords, slaves with no master. It will impoverish us and it will kill us. It will steal our vital needs or prohibit them from ever being produced.
The efficiency aspect, while impressive, is turning on us all. The wizard technology we've become used to has rendered many occupations obsolete. It can manufacture all we need with very little labour input. And, given time, it may be able to produce all we need with the push of a few buttons. While that may sound good, this condition does not suit capitalism. In fact, capitalism cannot survive this condition. It is impossible.
While capitalism may spit employees out onto the street, it needs consumers. Unfortunately for capitalism, an individual needs to be a worker before he or she is a consumer. The worker and consumer inhabit the same physical body.
The Diminishing Rate of Profit
As capitalism matures, the rate of profit from a given unit of labour diminishes. That is, it becomes more difficult to squeeze a dime of profit from an hour of labour. To make matters worse, global competition has rendered the old formula where firms were subsided by the state to pay decent wages, dead. Workers are now competing with the most oppressive terms of exploitation on the planet. The old (so called) 'American dream' is finished. It's time to wake up.
Individual firms are under constant strain from two sources; competition from other firms and ongoing costs such as maintaining payment of wages to employees.
Firms aim to increase productivity as much as possible. This is accomplished through improving technology and through squeezing as much work from a worker as is manageable. It is in their interests to get workers to work as hard as possible for as little pay as possible. On both counts, they are doing very well.
It is vital to out-compete other firms; to drive costs down. This allows the firm to lower prices. Efficiency and low prices are the objective. Profit is the goal.
Large scale production has become impressive in its efficiency. To lower costs firms utilize lateral acquisition of resources that are required goods and services that go into production or, they contract out to sources that will fetch the product at lower prices than anyone else. Generally speaking, the pressure to cut costs also cuts the rate of profit.
Suppose the rate of profit were to remain constant. In that case profit would expand according to what was invested in stocks. If the rate is falling however, profit is naturally more difficult to achieve. And when this occurs, the incentive to invest in manufacturing diminishes. As investing in stocks grows more risky, the growth of capital in stocks falls. The rot of the integrity of the value of liquid capital spreads. Capital itself loses its integrity and value. And as long as they depend on worker's wages to pay the bills when in reality they can't, the crisis related to the value of money is magnified.
Additionally, the ensuing lack of wages results in not only lack of demand but in an evaporation of the tax base. Workers that depend on the tax base such as civil servants and teachers are thrown out of work as a result, further eroding the diminishing tax base. This exacerbates the problem by driving down demand for goods and services which in turn forces more firms out of business and workers onto the streets. We are entering an economic black hole, a period of crisis.
This crisis is fundamentally different than cyclical fluctuations (recessions) which may be remedied in various ways such as investing in public works with tax dollars and borrowing until the ship is righted again. Similar crisis occurred in the periods 1873 to 1893 and from 1929 to 1941.

In its heyday, the capitalist system saw increased real wages in western economies. From 1947 to 1967 real wages grew in the United States by approximately 50%. Unemployment was not an issue, and deficits were miniscule. The so-called Western world was the base of manufacturing and consumption. But, as Professor Ismael Hossein-Zadeh points out in a recent article: "By the late 1960s and early 1970s ... both US capital and labor were no longer unrivaled in global markets. Furthermore, during the long cycle of the immediate post-war expansion US manufacturers had invested so much in fixed capital, or capacity building, that by the late 1960s their profit rates had begun to decline as the capital-labor ratio of their operations had become too high. In other words, the enormous amounts of the so-called “sunk costs,” mainly in the form of fixed capital, or plant and equipment, had significantly eroded their profit rates."

As the rate of capital accumulation decelerates, and capital, like a shark, needs to continually eat and grow, or die, the shark itself becomes more aggressive and ruthless. It will squeeze an extra dime from any unit of labour it can and, when that dries up, it will look elsewhere.

Since the 1980s capitalists and politicians have been kicking the can down the road. This mess has been coming at us for some time. Avoidance was helped by real growth due to the building of high tech infrastructure, which in turn has helped crucify the employee. The infrastructure, once built, will not need to be built again. And it's maintenance is not going to save us.

Various bubbles (like the dot com bubble) had put the reality of our collective abyss out of view. Some bubbles were based in widespread criminal behaviour on the part of large corporations, bodies like the Federal Reserve in the United States, and scores of politicians. They have propped up the illusion (with the help of mainstream media and whores that have degrees in economics) that all is well - for three decades. In the meantime, the rot of the capitalist system has been eating away at our real security. We have continued to depend on something we can no longer depend on.


John Maynard Keynes is Dead


In the coming months and years there will be sincere and intelligent arguments from the left to return to Keynesian economic policies. After all, this formula has worked, arguably, better than anything else in history to provide a decent standard of living for the most people. The good ship Fabian appears to have sailed however. As Professor Hossein-Zadeh points out:

"The US capitalist class pursued the Keynesian-type policies in the immediate post-war period as long as political forces and economic conditions, both nationally and internationally, rendered those policies effective. Top among those conditions, as mentioned earlier, were nearly unlimited demand for US manufactures, both at home and abroad, and the lack of competition for both US capital and labor, which allowed US workers to demand decent wages and benefits while at the same time enjoying higher rate of employment.

By the late 1960s and early 1970s, however, both US capital and labor were no longer unrivaled in global markets. Furthermore, during the long cycle of the immediate post-war expansion US manufacturers had invested so much in fixed capital, or capacity building, that by the late 1960s their profit rates had begun to decline as the capital-labor ratio of their operations had become too high. In other words, the enormous amounts of the so-called “sunk costs,” mainly in the form of fixed capital, or plant and equipment, had significantly eroded their profit rates.

More than anything else, it was these important changes in the actual conditions of production and the realignment of global markets that precipitated the gradual abandoning of Keynesian economics. Contrary to the repeated claims of the liberal/Keynesian partisans, it was not Ronald Reagan’s ideas or schemes that lay behind the plans of dismantling the New Deal reforms in fact, steps to hammer away at those reforms had been taken long before Reagan arrived in the White House). Rather, it was the globalization, first, of capital and, then, of labor that rendered Keynesian or New Deal-type economic policies no longer attractive to capitalist profitability, and brought forth Ronald Reagan and Neoliberal austerity economics."

Let's not get caught up in the notion that the capitalist class and their paws (politicians) had decided to be kind to working classes or middle classes. Each and every benefit, including decent wages, social security, free medical care (except the USA), in developed countries were won through hard and sometimes deadly struggle. It was the threat of revolution and the preservation of the privileged class that compelled Keynes himself to distribute wealth.

We are about to witness a period unlike anything we have seen before. The tension on global capital, the increasing and continuing falling rate of profit, and the ensuing hunger of capital itself will reduce or eliminate your wages, your pension, social security, and it will find the change under the cushions of your sofa.

As we become increasingly dissatisfied with the status quo, as our kids lose hope for a decent future, as homeless people stand alongside burning barrels next to empty and foreclosed homes, we will hit the streets. Predictably, we will aim, at first, to resurrect John Maynard Keynes. We will discover, eventually, that Mr. Keynes is as dead as a doornail. Perhaps it is best to let him rest in peace.

Don't Do That Voo Doo that You Do Do

World financial systems were devastated in 2008 and 2009. Now, in 2010, nobody is sure where we're headed. There seems to be general agreement that we will not get back to where we were. Wall Street is doing okay apparently. Profits are soaring. Main Street continues to suffer and ominous clouds remain on the horizon. They seem to have dumped their financial fiasco on the lot of us. We can look forward to gutted social programs and decaying public infrastructure throughout the once thriving capitalist world. Main Street appears to be in a long term downward spiral. An economic nightmare.

As ordinary citizens we appear to be at the mercy of politicians and capitalists. Economists and mainstream media appear devoid of courage and savvy. We cannot continue to rely on them as if they can provide sound and critical analysis about what is happening with the economy. They are like schooling fish following bait. Stunned to a fault.

We need to examine the totality of the system we are at the mercy of without prejudice or emotion. We need to look at the good and the bad. We can no longer rely on paid whores and their glib superficial analysis. They are wrong over and over and over again. The people that go to work day in and day out are getting screwed, directly or indirectly, by capitalists and their paid shills.

The absurdity of closed and rusting manufacturing plants rotting as millions look for work; of millions homeless while homes are empty and boarded up is a sign. These are signs that speak far louder and with much more authority than the politicians, the shysters, and their pitiful talking heads. These signs are telling us that something is seriously wrong.

We need to revolutionize our thinking and our sense of responsibility. The days of being responsible for only ourselves and our families are over. We can no longer afford to let the self professed financial wizards hold the reigns. They turned out to be self serving criminals and they got all of us where it hurts. The time to fight back is here.

The Bottom Line

Capitalism tends to certain outcomes and contradictions. This doesn't mean that capitalism has or will necessarily get to its preferred outcomes, but it does mean there will be constant pressure to fulfill these tendencies. For example, steam tends to rise but many factors may retard that tendency. Given the pervasiveness and power of capitalism in the modern world, it is important to understand and debate the tendencies of this force that impacts upon all our lives.

Without abandoning Marx entirely, we will consider a less scholarly and more user friendly look at the tendencies of capitalism.

The most obvious starting point is to name the bottom line. The goal and reason for its existence is profit; benefits to human beings are beside the point - it doesn’t care. It tends to benefit humans in meeting wants more-so than needs. It has no inherent compulsion or mandate to meet them. It is nothing like a personal or human force. Playstations, colourful wrappers and advertizing are important; curing leprosy and aids and providing medicine to the sick are also important, but only if there is profit in it. Capitalism has no responsibility whatsoever to cure the sick or feed the hungry. To make this assumption, as both apologists and detractors sometimes do, isn't constructive or fair. It simply isn't the case. The extent to which the capitalist system has been beneficial to human beings is a matter of auspicious coincidence on the part of both capitalists and consumers.

Tendencies of Capitalism

- The tendency to sell cheap: Otherwise, somebody else will sell cheaper; this is the fundamental tendency to competition.

- The tendency to buy low and sell high: This tendency includes wages; that is, to pay as little in wages as possible and to sell the produced item for as high a price as possible. The potential for competition from other capitalists tends to keep the margin between the output for wages and the price of the commodity at a small and ever decreasing margin.

- The tendency to reduce or eliminate overhead costs: This tendency requires capitalists to use the most efficient and cost effective technology possible resulting in the technological revolution that has occurred over the past century. Ironically, if the process is devoid of labour input, the value of the product decreases. The general labour theory of value (Adam Smith, Ricardo, and Marx) addresses this tendency. That is, the general value of a commodity depends, in part, on the labour that has gone into it.

- The tendency of the rate of profit to fall: As production becomes more efficient and more is produced with less effort, the rate of profit falls. The result is the need for capitalists to find new ways of making a profit and to squeeze a dime out of a worker. There is also an increased need to acquire public services and infrastructure, to plunder, and to expand markets where no market existed before and to profit from public utilities and human needs.

- The tendency to reduce real wages: And to reduce the workforce. As the rate of profit diminishes, the most obvious place to gain extra profit is exactly where the wealth was created in the first place, from the producer (the worker) by paying him or her less in real terms.

- The tendency for big firms to consume smaller firms: This process not only builds the assets of the capitalist, it reduces competition.

- The tendency to pit the consumer against the worker: It is the dual life of the average citizen; we are both. We want service to be efficient and products to be of high quality but we resent bosses cracking the whip.

- Tendency to co-opt and control the state: This is not a conspiracy theory; it is the grandest conspiracy of all. The marriage of modern capitalist states and capital is almost complete. Real decisions are made behind closed doors with lobbyists, lawyers and politicians.

- The tendency to reduce regulations and safety standards: These are costly and inefficient.

- The tendency to aim for short term profit: Investing, especially with the advent of computer technology is as easy as pushing a button or implementing a program. However, this does not erase the tendency for large capitalists to work and invest in fertilizing the overall context for investing in the long term.

- The tendency to privatize everything: Including natural resources such as water, land, and the air we breathe; the latter is difficult to control.

- The tendency to value human beings in terms of exchange value: Correspondingly, there is a tendency to de-value or ignore human beings that do not play a part and a true tendency to de-value human beings that are an obstacle to profit. These tendencies have many psychological and other ramifications depending on the extent to which capitalist ideology has been introjected by the local population or the particular individual.

- The tendency to invest in and develop profitable commodities: While human needs may demand medicine, housing, and food, the concentration of capitalism will be medicine, housing and food only if these items can fetch profit. If not, more tasty hamburgers or better game boy graphics will be the areas of research and development.

- The tendency to laterally acquire all aspects of production: Large firms aim to control all aspects that go into production from owning and controlling primary industries to shipping and advertizing.

- The tendency to contract out: Rather than pay union wages or maintain a workforce, it may be more cost efficient to buy services or goods.

- The tendency to force the state (taxpayer) to absorb costs: Paying for necessary roads, railways, general infrastructure tend to be offloaded to taxpayers as much as possible.

- The tendency to shape shift: Capitalism's tendencies and appearance changes through time. For example, the logic of Fordism has been lost to the tendency to expand markets to poor countries. The domestic market, once vital, is now forgotten. There is more profit to be made elsewhere. The logic of Keynesianism has also been lost to globalization. The general political wisdom had stated, however reluctantly, that the more wages/money locals have, the more they demand goods and services, requiring more employees to provide commodities to demand of consumers. This domestic economic stimulation tends toward inflation, an accepted necessary evil.

Another change has been the increased focus on capitalists to invest in capital as opposed to produced commodities. Although capital is devoid of value without labour and manufactured commodities to back them up, modern capitalists have been living off and getting wealthy from false financial bubbles; they have been living off a credit card without a real job. This has resulted in enormous pain for many millions over the past several years.

Voodoo

The logical extensions of capitalist ideology appear to be most closely articulated by the ideological formulations of the Austrian and Chicago Schools of Economics and by such individuals as Milton Freidman, Ludwig von Mises, and right wing politicians like Margaret Thatcher, Ronald Reagan and fascists like Augusto Pinochet. The ideas have gained tremendous currency and even current liberals have come to accept neo-liberal perspectives. Liberals like Obama pay lip service to leftist policies but concede important economic matters to voodoo. This strain is more consistent with advanced capitalism in the sense that it articulates and aims to satisfy its global needs. One such need is to usurp what they see as interference from the state which tends to put limits on the need for excess and unbridled theft. In the USA, Tea Party protesters are demanding the reduction/end of government. They advocate for pure capitalism and challenge and attack government based redistribution mechanisms. The end result for most of the tea-partiers would be utter devastation.

The logical conclusion to such an environment would be that wealthy classes would own and control not only market based commodities but public utilities as well. It is a system of capitalist anarchy.

So far their performance has been dismal. Their free trade and globalization initiatives from the 80s have devastated manufacturing; the heart of the economy. Their unfettered and unregulated voodoo have magically blown financial bubbles resulting in financial disasters as these bubbles (false economies) collapsed.

As painful as these voodooistic machinations have been on the middle and lower strata of society, they have created delirious glee on Wall Street. They are diametrically and unapologetically opposed to social responsibility.

From a rational point of view, wealth begins with production. From the marginalist point of view the genesis of wealth is a fuzzy concept but generally, they believe that wealth emanates from the wealthy and down to the middle classes (the workers that produce). This view would suggest that the best way to stimulate the economy would be to give wealth to the wealthy and they will be in a position to "trickle" money all the way down to the rest of us. With the billions granted to the ultra wealthy these past few years, Bush and Obama could have paid off mortgages and put money in people's pockets to buy cars and other goods and services. They are children of the high priests of magical thinking.

The logical extension of the mess we find ourselves in today is similar to the social and economic configuration of feudal Europe several hundred years ago. Kings and Lords are replaced by the most powerful of the capitalist class. Ironically, our social and economic configuration could conceivably return to something reminiscent of the social configuration that capitalism pulled us out of.

We have been subdued through Keynsian policies and Keynes was explicit in his intend to curb working class revolutionary sentiments. The deal worked quite well. Those days are over. Massive unemployment and massive cuts to social programs are here to stay.

As a result we are in for a period of social upheaval. The ugly past has returned and we are in it.

The Nature of Capitalism

We may ask ourselves how capitalism, the -ism we associate with democracy and freedom, with social and technological progress and with justice, could be turning on us. This is why we need to examine the true nature of the beast. The nature of capitalism is multifaceted. While it has potent liberating potential it also has the potential to turn on us with a vengeance.

When we examine it we find that capital does not provide anything but compulsion. It is completely ethereal. Illusory. Unlike commodities, it doesn’t exist in the tangible world. Money has little or no use value, it is all exchange value. Capital exists as an abstract compulsion. What is not so abstract is the real impact it has on each and every one of us. It has radically changed the way we behave and the way we live. It has changed the way we value and see ourselves.

Ultimately capitalism isn't an ideology. It isn't right wing or left wing. It is a sleight of hand, a trick to gain profit from any given unit of exchange. It is a sleight of hand that comes dangerously close to theft. But that is a human judgment. Capitalism on its own is amoral, apolitical, it is devoid of substance or ethics. Paradoxically, it is also the most potent political, immoral, and ruthless force the world has known. It is fully intent on taking over the world and its mission is almost accomplished. We are slaves to it and there is no good reason to believe that we will not continue to be slaves to it. As a tool it has been enormously useful and inadvertently, it has propelled us well into the future of human development. But the time has come that it is no longer a tool. It appears to have become a malevolent spirit that has turned the tables and has taken control of humanity.

Magical Thinking to Critical Thinking

As a subject and an area of study we may find the whole thing too unwieldy and difficult to understand. As a subject it is loaded. We either love it or we loathe it. To criticize it is to be risk being labeled a communist and a Marxist. To point out its strength, its ability to improve the lives of individuals and nations, and its power to develop and enrich us all, we run the risk of being criticized as a tool of the rich and powerful. As a subject it appears to be off the radar for most; it has traditionally been a subject area only intellectuals and economists dared to probe.

The time has come to examine the true nature of this phenomena and what it is. We need to examine the very basics from the ground up; literally. It is the single most relevant context of our lives. Everything we see are commodities or potential commodities. Cars, computers, cups, and tables are modified rock. Everything around us is all extracted from rock or water. This are base of all things, even our bodies. Workers and nature modify rock and water and turn them into commodities. We need to start from there and to not be afraid to look at the whole process. It is all our own inheritance. We are part of it. It is our world.

Capitalism has been and is the most powerful social force in history and it directly impacts you. It will impact you until the day you die. It will impact your grandchildren and great-grandchildren. It is nothing to shy away from.

As long as it is only the intellectuals, the economists, and the capitalists that examine and understand it, we will remain utterly at its mercy. The problem with that is, it has none.