Capitalism: A Love Story

Graphing exploitation

I am going to attempt to contextualize the movie from my perspective on the current crisis:

The graph shows the difference between what we make for capital (productivity) and what we get paid (wages) in real terms (adjusted for inflation). The differential between the two is profit, which is income that goes to shareholders, executives. This excess capital is, in large part, reinvested into what Keynes called the 'casino' of finance capitalism. With the progressive deregulation of finance over the past 30 years, culminating in the elimination of Glass-Steagall Act in 1999, the stock market increasingly became the locus of business for global capital. The returns that could be made  by 'beating the average' speculation on the markets was far in excess of what could be made in investing in productive investment. Therefore, the amount of capital invested in 'fixed investment'--investment that creates physical capital, and therefore employment--as a percentage of GDP has progressively gone down since the 1980s. Indeed, since the year 2000, the amount of jobs in the United States has not increased, but the amount of people who went onto the market increased by 12 million, which helped to depress wages further and helps explain why 'real unemployment' in the US is reaching 16 percent! Thus, the gap represents the income that goes to the top 1% of our society, which helps explain why inequality in the US is at the highest level since the 1920s, poverty is at alarmingly high levels, wages as a share of GDP is at near historic lows and where so much money came from to inflate the financial markets. The historic 'social compact' of capitalism, that the rich would be frugal and invest for the employment of the workers has obviously broken down. As Paul Krugman states: "Neither the administration, nor our political system in general, is ready to face up to the fact that we’ve become a society in which the big bucks go to bad actors, a society that lavishly rewards those who make us poorer."

Contrary to the explanations of neoclassical economists and other apologetics for neoliberal capitalism, this situation is a choice, a creation of political struggle between financial capital and labour not a 'natural' outcome of the 'free market'. The attack against the union movement in the 1980s by neoliberal governments like Thatcher (breaking the coal miners strike, 1983) and Reagan (breaking the air traffic controllers strike); and with the opening up of capital markets worldwide through free trade agreements and IMF enforced Structural Adjustment Policies (SAPS) that forced developing countries to adopt neoliberal policies at the pain of insolvency; workers in the West could no longer demand higher wages due to the internationalization of capital and the effective expansion of the labour market. What the graph shows is that the neoclassical defense of capitalism, that workers wages reflect their productivity is patently false. Workers get pay commensurate with their productivity by FIGHTING for it, there is nothing 'natural' about the market system.

The myth that 'increasing your skills' will lead to higher wages is to engage in an endless game of chasing your own tail. The fact is that, thanks to IT, skills are increasingly cheap and easy to acquire. This means that more and more people will acquire the skills internationally, undermining the position of a 'skilled' worker unless he goes onto to an even higher level of skills that eventually will not be sufficient, as persons in the Third-World can undercut his labour costs with the same skill set. The only way for workers to have wages to rise in line with their productivity is to threaten capital with strikes and stoppages, to support pro-labour governments, and to make transnational unions that make it increasingly difficult for capital to play one set of workers against other workers.

However, the top 1% have other ways of getting our money apart from pure exploitation. For instance, they have 401k accounts. The 401k is essentially a big swindle as most investors have the faintest idea of what they are investing in and with all those trillions of retirement funds sloshing around the markets, the losses of the average worker's retirement account is a gain for hedge funds and other 'insiders'. These elite group of investors and banks have the institutional power to determine where the markets go, the 'free market' at work. As Peter Gowan argues:

"the New Wall Street System was dominated by just five investment banks, holding over $4 trillion of assets, and able to call upon or move literally trillions more dollars from the institutions behind them, such as the commercial banks, the money-market funds, pension funds, and so on. The system was a far cry from the decentralized market with thousands of players, all slavish price-takers, depicted by neo-classical economics."

Thankfully, Bush's plan to privatize social security--a multi-trillion entitlement--was stopped. Bush's plan amounted to a taxpayer subsidy for the speculative players on the market, essentially the privatization of taxpayers. But, just imagine if it had been privatized; with the implosion of the stock market in the past years, millions of seniors would have been forced to work, or worse.

Another way that workers are being swindled is credit. This crisis is essentially a crisis of underconsumption, meaning that what is being produced is unable to bought by those who produce it. The graph is a visual representation of that crisis; however, this crisis of underconsumption had, until now, been avoided for three decades due to an ever expanding line of credit to consumers to the point where you could buy a house without having to present a name or income: the infamous NINJA loan. However, with the increase in interest rates in 2007, consumers were no longer able to afford the payments and the entire financial system was thrown under the bus. The banks, in order to lend more and reduce individual risk collateralized the debt, throwing good debt with bad into CDOs and other financial 'innovation'--the justification for the 'liberalization' of financial markets was so that 'innovation' would lead to greater access to credit and lower cost to consumers. In so doing, the financial industry essentially reduced individual risk and lower costs for consumers, but massively increased systemic risk, which in the end was the immediate cause of the crisis. The inability to determine the value of the financial asset, due to the mixing of good and bad debt, lead to the de facto insolvency of the banks. Therefore, the real cost to the average consumer is in the trillions,largely in the form of interest bearing debt that will have to be paid by future generations, due to the bank and shareholder bailouts.

Here is the problem that Michael Moore will probably deal with, that the bailouts did not come with any real strings. The result is that the financial industry is making profits again, but in the same way they made them before. As Paul Krugman stated in a recent op-ed;

"The American economy remains in dire straits, with one worker in six unemployed or underemployed. Yet Goldman Sachs just reported record quarterly profits — and it’s preparing to hand out huge bonuses, comparable to what it was paying before the crisis. What does this contrast tell us?...it shows that Wall Street’s bad habits — above all, the system of compensation that helped cause the financial crisis — have not gone away...it shows that by rescuing the financial system without reforming it, Washington has done nothing to protect us from a new crisis, and, in fact, has made another crisis more likely...What’s clear is that Wall Street in general, Goldman very much included, benefited hugely from the government’s provision of a financial backstop — an assurance that it will rescue major financial players whenever things go wrong...You can argue that such rescues are necessary if we’re to avoid a replay of the Great Depression. In fact, I agree. But the result is that the financial system’s liabilities are now backed by an implicit government guarantee.If these lobbying efforts succeed, we’ll have set the stage for an even bigger financial disaster a few years down the road. The next crisis could look something like the savings-and-loan mess of the 1980s, in which deregulated banks gambled with, or in some cases stole, taxpayers’ money — except that it would involve the financial industry as a whole."

Back to consumer credit. Credit amounts to another way that income is filtered back to the top 1%. The logic is simple, you are paid insufficient wages, therefore you require credit to maintain a decent standard of living. The payments you make go to who? The banks and credit card companies and those profits go to the owners of the institutions. But it gets even more perverse, banks and other financial institutions are increasingly making more and more of their profits BECAUSE workers are broke, as Jon Stewart said recently on The Daily Show, "they are making BECAUSE the customers are broke". They are making much of their profits on overdraft fees and other fees based on people's inability to pay!

How does one get trapped into the credit crunch? The credit is given to you at attractive rates, we all get those 'limited time offers' to induce you to get into the trap of debt. This has a historical parallel with the beginnings of capitalism with the 'wage advance'. As Stephen A. Marglin argues, "Wage advances were to the capitalist what free samples of heroin are to the pusher; a means of creating dependence...Wage advances legally bound the worker to his master" (79); and credit legally binds the consumer to finance capital in a embrace that can only be broken through self-imposed poverty--since, as we have seen, wages are insufficient to cover more than the most basic of costs--, bankruptcy or the accumulation of even more debt to pay off the older debt. A friend of mine who works for a credit card company once told me what her boss stated, and I paraphrase "we want them pay until they die". The intention is for an individual to basically only pay the interest and the fees, because if someone actually pays their principle, then they don't make money.

Peter Gowan puts it best:

"The stock-market bubble of the 1990s raised the paper value of the private pensions of the mass of Americans, thus giving them a sense that they were becoming richer and could spend (and indebt themselves) more. The housing bubble had a double effect: it not only made American consumers feel confident that the value of their house was rising, enabling them to spend more; it was reinforced by a strong campaign from the banks, as we have seen, urging them to take out second mortgages and use the new money for consumption spending...This Anglo-Saxon model was based upon the accumulation of consumer debt: it was growth today, paid for by hoped-for growth tomorrow. It was not based upon strengthening the means of value-generation in the economies concerned. In short, it was a bluff, buttressed by some creative national accounting practices which exaggerated the extent of the American boom and productivity gains in the us economy.36"

Trickle-up economics continues...

The Subversion of Democracy: Uruguay, 1971

http://www.teledoce.com/home/?v=http://multimedia.teledoce.com/videoflash/2009/08/25/libro.flv

Very interesting interview about the plans of the Brazilian military, with American support, to invade Uruguay if the left-wing Frente Amplio or if Blanco candidate, Wilson Ferreira were to win the 1971 election. The invasion was to supposed to occur only if the electoral fraud against Ferreira failed, as the FA was not a serious contender for the presidency at that point in time. In line with the reactionary movement of the dominant classes at the time. The once hegemonic liberal-Battlismo that structured the popular interpellations of 'the people' and democracy was undermined by the more populist Ferreira and of the FA into a more socialist, or nationalist interpellation that directly threatened American interests and the efficacy of the anti-communist/populist crusade of the reactionary powers internal to Latin American and external to it. As the author notes:

"Leicht explicó que, entre 1964 y 1971, el Ejército de Brasil apostó tropas en la frontera con Uruguay, y que, además, con la iniciativa del embajador argentino en Brasil, Osiris Villegas, se elaboró el "Plan 30 horas", para invadir el territorio uruguayo en caso de que ganaran las elecciones o el Frente Amplio o el Partido Nacional, de la mano de Wilson Ferreira Aldunate. "Brasil y los Estados Unidos no iban a permitir un nuevo gobierno de izquierda. Estaba la experiencia de Chile y Perú, y no podían dejar que en otro país más triunfara la izquierda. Y no se trataba sólo del Frente Amplio: Wilson era muy resistido en su discurso, no era agradable para los intereses de los Estados Unidos".

Source:http://www.montevideo.com.uy/nottiempolibre_70914_1.html

Fact is that the electoral fraud was successful, as the final results of the 1971 election show:

Partido Colorado: 40.96
Partido Nacional: 40.19
Frente Amplio: 18.28

The election results show that at least 59 percent of the Uruguayan population wanted greater government control over the economy, tending towards socialization. This is, arguably, the end result of democraticization and popular incorporation. The only way to stop this was to literally coerce society to accept capitalist dominance. As Laclau argues about Latin America at the critical juncture of the 1970s, "the Latin American masses have developed the antagonism inherent in democratic interpellations to a point where it is very difficult for any faction of the bourgeoisie to absorb and neutralise them. This has led, in turn, to a consolidation of the power blocs and an accentuation of their repressive policies towards the dominated classes' (Laclau 194). Brazil was the nexus of the reactionary movement in the continent as its 1964 coup d'etat against populist Goulart started a twenty-year program of dominance and repression by increasingly alienated dominant classes from the democratic system, unencumbered with the pretense of hegemony and whose primary goal was depoliticalization and establishing a Hayekian, 'technical democracy' where substantive issues of capitalist hegemony would be forever be closed.

Obama is pissing me off, so I need to rant!

The recent cover of Newsweek magazine shows a blue ballon with a title saying that the recession is over, not so fast. The "green-shoots" in the economy, like those that Obama is talking about, higher stock market valuations, higher house prices, etc., suggest, at least superficially that the recssion is over; however, it is not. The recession is not solved because the fundamental problem underlying the recession has not been solved, primarily that workers are not making enough to consume what they consume. The problem is summed up by liberal economist Nouriel Roubini:

"Monetary and fiscal stimulus in most countries has done little to slow down the rate of job losses. As a result, total labor income – the product of jobs times hours worked times average hourly wages – has fallen dramatically...falling labor income implies falling consumption for households, which have already been hard hit by a massive loss of wealth (as the value of equities and homes has fallen) and a sharp rise in their debt ratios. With consumption accounting for 70% of US GDP in the US, and a similarly high percent in other advanced economies, this implies that the recession will last longer, and that economic recovery next year will be anemic (less than 1% growth in the US and even lower growth rates in Europe and Japan)."

The problem then, as Roubini sees it will be how the government will manage to contain the crisis of underconsumption, with rapidly deteriorating fiscal accounts and high debt loads the government will be under pressure from capital for higher interest rates that will choke off any recovery. As Roubini states:

"the higher the unemployment rate goes, the wider budget deficits will become, as automatic stabilizers reduce revenue and increase spending (for example, on unemployment benefits). Thus, an already unsustainable US fiscal path, with budget deficits above 10% of GDP and public debt expected to double as a share of GDP by 2014, becomes even worse."

However, Roubini sees the problem yet ignores it at the same time. As Louis Althusser states about any "theory", particularly in reference to economics:

"They [e.g. exploitation, surplus, class, etc] are invisible because they are rejected in principle, repressed from the field of the visible: and that is why their fleeting presence in the field when it does occur (in very peculiar and symptomatic circumstances) goes unperceived, and becomes literally an undivulgeable absence -- since the whole function of the field is not to see them, to forbid any sighting of them"

The crux of the problem--something that Roubini refuses to see or is unable to see because his theoretical lens denies that visibility of the problem--is that workers are not being compensated in accordance with their productivity and the implications that holds. Therefore, we have an imbalance in the economy, where the surplus is going disproportionately to the rich and finance; this led to the speculation that lead us to this crisis in first place. This is known as "financialization" of the economy and this has been happening since the 1980s when the collapse of the labour movement and globalization led to a structural readjustment of incomes to the rich. Globalization did not just emerge, it is a consequence of the strengthening of the labour movement in teh West during the Keynesian era. As Giovanni Arrighi notes,

"For what could more effectively restore company profit margins, lowered by the unruliness of the labour force, than the decentralization of production?...a company can only re-establish the internal hierarchial order so necessary for its functioning by organizing its productive and distributive operations at a work level...in order to escape the decline of the rate of profit in teh 'mother-country' " (Geometry of Imeperialism, 144).

The objective, therefore, was to undermine high-income labour that was undermining accumulation in the West. This was not hidden by politicians or economists, it was proclaimed with pride as "supply-side economics"--neoliberalism. The new saviours of the economy were the rich. The logic went, give the money to those who invest, cut their taxes and let the free market flourish. We now are living with the consequences of that logic, the 'rich' have not invested more than before Reagan in fixed investment (productive investment); indeed, they have invested less, ergo less employment and lower incomes. The money that they have retained through the tax cuts have increasingly gone to the stock market, bond markets, etc., where speculation and higher profits reign. Employment has, in turn, become increasingly service based with low wages and precariousness as the rule.

What has been occurring in the US is that workers are making less in real terms than they were 30 years ago and the share of national income going to wages is at near, if not, historic lows. Workers are being "exploited" more than they were since at least the 1920s. Ergo, we have a crisis of under-consumption, although this crisis took a while to materialize and as a result the crisis is embedded very deep into the heart of the economy. The consumption of workers has been propped up through the credit mechanism and for 30 years it has worked at preventing the crisis from occurring, as long as the credit loop remained stable, but it was not going to and it set up, from the very beginning its own demise. This is how:

Workers are paid less, more money goes into profits and therefore investment in financial instruments. Finance capital gives back to the workers incomes through the debt mechanism, with interest, sucking more income out of the working classes. Finance gave consumers increasing larger and larger amounts of credit with lower and lower standards as the limits of the system began to show, e.g. NINJA loans. Then finance bundled these debts as securities selling them off for profit. This reduced individual risk for the firm, leading to riskier and riskier loans, but this increased systemic risk. Since the credit agencies were paid by the banks, they made these inherently unstable securities Triple-A, the highest rating you can get. The assumption was that workers would do everything in their power not to default on their homes and other assets. Eventually, workers could no longer sustain the debt payments as interest rates went up in 2007, the bet of the financial industry failed. Defaults occurred, especially with 'sub-prime' mortgages leading to the foreclosure crisis and erasing hundreds of billions worth of wealth and due to the downward pressure on house prices, home owners could no longer depend on their houses to pay for their consumption. Eventually, those Tripe-A securities became junk and the system almost collapsed; because no one knew the actual value of those securities, the assets of firms were under scrutiny and therefore the firms became insolvent. The government stepped in to re-capitalize the firms and take the "bad assets" off the books to make the firms solvent again.

Therefore, what Obama sees as green shoots signaling a revival of the economy is really just the rehashing of the old economy. As Paul Krugman states about the recent mega-profits of Goldman Sachs:

"The American economy remains in dire straits, with one worker in six unemployed or underemployed. Yet Goldman Sachs just reported record quarterly profits — and it’s preparing to hand out huge bonuses, comparable to what it was paying before the crisis. What does this contrast tell us?...it shows that Wall Street’s bad habits — above all, the system of compensation that helped cause the financial crisis — have not gone away...it shows that by rescuing the financial system without reforming it, Washington has done nothing to protect us from a new crisis, and, in fact, has made another crisis more likely...What’s clear is that Wall Street in general, Goldman very much included, benefited hugely from the government’s provision of a financial backstop — an assurance that it will rescue major financial players whenever things go wrong...You can argue that such rescues are necessary if we’re to avoid a replay of the Great Depression. In fact, I agree. But the result is that the financial system’s liabilities are now backed by an implicit government guarantee.If these lobbying efforts succeed, we’ll have set the stage for an even bigger financial disaster a few years down the road. The next crisis could look something like the savings-and-loan mess of the 1980s, in which deregulated banks gambled with, or in some cases stole, taxpayers’ money — except that it would involve the financial industry as a whole."

Firstly, what this crisis amounts to then is the effective privatization of state coffers by finance capital. The thing is now that the banks are now, as Krugman states, are implicitly covered by the tax payer. This is akin to what happened in Argentina when the state was captured by finance capital and socialized private debt--otherwise known as 'right-wing populism'.

So what Obama is bleating on about is not a recovery, but the stage for a even greater crisis in the future. Obama has NOT fundamentally changed the structural problem at the heart of the American economy, instead he has PRESERVED the same system that got us into the crisis in the first place. Ultimately, workers are not being paid enough. The solution is to emphasize consumption, to redistribute wealth to workers, to increase government spending on social programs and to tax the rich to pay for it; otherwise that excess income will go into speculation and we have this problem all over again. Indeed, the crisis that Roubini talks about, that the country is on the precipice of a financial collapse is true if you assume that tax rates are immutable. Its time to come to grip with reality, the rich have not lived up to their share of the social contract and have caused immense damage to the general economy for their own parochial interests. There has to be a strengthened union movement to reverse the 'taproot' of the problem, which is underconsumption. Otherwise, we will be in the same boat again very soon. As Roubini warns:

"The irrational exuberance that drove a three-month bear-market rally in the spring is now giving way to a sober realization among investors that the global recession will not be over until year end, that the recovery will be weak and well below trend, and that the risks of a double-dip W-shaped recession are rising."