"The Heart of the Crisis"

UPDATE: Try this link to the Brenner interview.

Blended Purple links to an interview with Robert P. Brenner. From that interview:

The basic source of today’s crisis is the declining vitality of the advanced economies since 1973, and, especially, since 2000. Economic performance in the U.S., Western Europe, and Japan has steadily deteriorated, business cycle by business cycle, in terms of every standard macroeconomic indicator -- GDP, investment, real wages, and so forth. Most telling, the business cycle that just ended, from 2001 through 2007, was -- by far -- the weakest of the postwar period, and this despite the greatest government-sponsored economic stimulus in U.S. peacetime history.

Brenner and I agree on the 1973 date. We agree there has been a long decline.

Since the start of the long downturn, state economic authorities have tried to cope with the problem of insufficient demand by encouraging the increase of borrowing, both public and private. At first, they turned to state budget deficits, and in this way they did avoid really deep recessions. But, as time went on, governments could get ever less growth from the same amount of borrowing. In effect, in order to stave off the sort of profound crises that historically have plagued the capitalist system, they had to accept a slide toward stagnation.

Brenner and I agree that credit-use has grown, that increasing credit-use is a policy choice, and that credit efficiency has fallen. He and I seem to agree that the powers-that-be do not really know how to solve the economic problem.

In the U.S., during the recent business cycle of the years 2001-2007, GDP growth was by far the slowest of the postwar epoch. There was no increase in private sector employment. The increase in plants and equipment was about a third of the previous, a postwar low. Real wages were basically flat. There was no increase in median family income for the first time since World War II.

In 2001, the rate of profit for U.S. non-financial corporations was the lowest of the postwar period, except for 1980. Corporations, therefore, had no choice but to hold back on investment and employment, but this made the problem of aggregate demand worse, further darkening the business climate. This is what accounts for the ultra-slow growth during the business cycle that just ended.

Brenner and I agree that business performance follows business profit. If profits are good, business is good; if profits are not good, business is not good. Profit, as Keynes observed, is "the engine which drives enterprise."

The interviewer asks:

Even if one grants that postwar capitalism entered a period of a long downturn in the 1970s, it seems undeniable that the neoliberal capitalist offensive has prevented the worsening of the downswing since the 1980s.

Robert Brenner responds:

If you mean by neoliberalism the turn to finance and deregulation, I do not see that it helped the economy. But, if you mean by it, the stepped-up assault by employers and governments on workers’ wages, working conditions, and the welfare state, there can be little doubt that it prevented the fall in the rate of profit from getting worse.

The problem Brenner identifies is the falling rate of profit. The "solutions" he reviews here include the increased reliance on credit, deregulation, declining wages, and cuts to social programs. So his concerns include falling profit, falling wages, and falling social spending.

Oddly absent from Brenner's list is any concern regarding the cost that is the focus of Arthurian economics -- the cost of "encouraging the increase of borrowing, both public and private":

Since the start of the long downturn, state economic authorities have tried to cope with the problem of insufficient demand by encouraging the increase of borrowing, both public and private.

How does Brenner miss the increasing cost of finance? He knows that our reliance on credit increased since the long downturn began. He knows that increasing the reliance on credit was a conscious policy choice. And he must know that the increased reliance on credit increased both the cost of doing business and the cost of living. Yet he fails to notice that this cost, the factor cost of money, competes with wages and profits.

He knows that wages and profits are down. And he knows interest costs are up. But he does not put one and one together. He does not acknowledge that interest costs are consuming income that would otherwise go into wages and profits.

Brenner also fails to observe that even the onset of the long decline was a result of our excessive reliance on credit. Long before the start of the long downturn, economic authorities had for years encouraged the increase of public and private borrowing. By 1973, the cost of credit-use was already hindering economic performance.

The policy decision to "cope with the problem of insufficient demand by encouraging the increase of borrowing" was the wrong choice. The more we "encourage the increase of borrowing," the higher the factor cost of money. The higher the factor cost of money, the more it must draw from profit, and the more it must draw from wages.