Pluto is fortunate enough to have amongst its authors Andrew Kliman and Jack Rasmus; both economists who have demonstrated their prescience and keenness of analysis in their written work. As great contemporary thinkers on the Left they have each published differing critiques of capitalism. This debate aims to highlight the areas in which they disagree, as well as agree. Over three stages of contributions, Kliman and Rasmus consider the causes and consequences of the economic crisis, and make suggestions for the Left’s strategy.
Andrew Kliman and Jack Rasmus’s opening articles can be found here and here. Jack Rasmus kicked off the second round of contributions at the end of April, outlining 20 propositions summarising his position on “the causes and consequences of the crisis in general, and specifically how financial cycles and real cycles interact to create a crisis that is not a normal recession and not yet a bona fide depression—or what I have called an ‘Epic Recession’.”
The following is Kliman’s second contribution to the debate on the causes and consequences of the economic crisis, and strategies for the Left.
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It is difficult to respond to Jack Rasmus’s first contribution to this debate, since it neither sets out his perspective on the causes and consequences of the economic crisis—he intends to do that in his second contribution–nor criticizes mine at any length. None of his remarks refer explicitly to what I’ve written in The Failure of Capitalist Production or elsewhere. I don’t know which of them, if any, are intended to apply to my work. Very few of them do.
I don’t think his complaints about “[l]inear correlations passed off as causation, high level generalizations without explanation of ‘transmission mechanisms’ and feedback effects, [and] vague definitions of key terms” apply to my work. His complaint about “reference to insufficient data” is technically correct, since everyone – including Rasmus – has to rely on “insufficient” data, but I don’t think I have drawn overly general conclusions (e.g., conclusions about the global economy from U.S. data). And when I challenge the conventional left account of the underlying causes of the Great Recession, I do so primarily by using the same data as the authors I criticize and arguing that they misinterpret or misrepresent the data.
My evidence that the rate of profit of U.S. corporations fell and failed to recover in a sustained manner is not based on a “convenient redefinition of what constitutes profits,” and I do not ignore under-reporting of profits. I use official national-income account data that correct for misreporting of profit on income-tax returns. Nor is my evidence of a fall in profitability based on “a very narrow definition of wages.” On the contrary, a very narrow definition of wages – one that ignores large and increasing components of employee compensation and the rise in companies’ total labor costs – is the “trick” that produces the stagnation of real “wages” (see chapter 8 of my book and my recent article “More Misused Wage Data from Monthly Review”). The irrelevant stagnation of narrowly-defined “wages” is then wrongly taken to imply that profitability must have risen, and evidence to the contrary is improperly dismissed out of hand.
Rasmus’s contribution does not challenge the evidence that profitability fell and never recovered in a sustained manner. Nor does it engage with my argument that this persistent fall was an underlying cause of the Great Recession. He writes that “to argue that a falling rate of profit is responsible for the crisis of 2007–08 is … simplistically incorrect.” Was this meant to be a comment on my work? I have stressed that the fall in the rate of profit was not an immediate cause of the financial crisis or Great Recession. I argue that it was a key indirect and underlying cause, and that financial instability also played a major (and more immediate) role:
Several facts about the current crisis may at first glance seem to suggest that it did not result from the fall in the rate of profit. The crisis erupted well after much or all of the fall had occurred. Its main immediate cause was the bursting of an asset-price bubble. And it was immediately preceded by speculative frenzy and a huge rise in asset prices that led to a sharp (but temporary) increase in the rate of profit.
As we have seen, however, Marx’s theory holds precisely that a fall in the rate of profit leads to crises only indirectly and in a delayed manner. The fall leads first to increased speculation and the build-up of debt that cannot be repaid, and these are the immediate causes of crises. Thus, the timing of the current crisis and the sequence of events leading to it do not contradict the theory, but are fully consonant with it and lend support to it. Nothing anomalous has occurred that requires us to look elsewhere for explanations. [The Failure of Capitalist Production, pp 21–2]
I don’t think this account at all resembles ones in which financial instability is a “merely derivative” phenomenon.
Rasmus does make one comment that touches upon my work: “Profits are not the sole, or even primary, determinant of investment.” However, he offers no evidence in support of this claim, and evidence that Shannon Williams and I have put forward suggests that the opposite was true. All of the fall in U.S. corporations’ rate of accumulation (the growth rate of their investment in production) between 1948 and 2007 is attributable to the fall in their after-tax rate of profit. Movements in the rate of profit repeatedly preceded movements in the rate of accumulation, which suggest that a causal relationship was at work. Thus, the evidence indicates that the fall in the rate of accumulation served as a key “transmission mechanism” between the fall in the rate of profit and the sluggish economic growth that contributed to rising debt burdens. (See chapter 7 of my book, and Andrew Kliman and Shannon D. Williams, “Why ‘Financialization Hasn’t Depresssed U.S. Productive Investment,” available at akliman.squarespace.com/writings.)
Underlying Causes of the Great Recession
Distinctive and detailed account of the current economic crisis, identifying it as a crisis of capitalism caused by long-term falling profit rates
“One of the very best of the rapidly growing series of works seeking to explain our economic crisis. … The scholarship is exemplary and the writing is crystal clear. Highly recommended! “ – Professor Bertell Ollman, New York University, author of Dance of the Dialectic
“Clear, rigorous and combative. Kliman demonstrates that the current economic crisis is a consequence of the fundamental dynamic of capitalism, unlike the vast bulk of superficial contemporary commentary that passes for economic analysis.” – Rick Kuhn, Deutscher Prize winner, Reader in Politics at the Australian National University