The Twilight of Capitalism by Michael Harrington (Part II: The Future of Karl Marx or The Secret History of the Contemporary Crisis, Chapter 13)

In this chapter, I will follow the order Harrington used, but did not detail his arguments. Instead, I described the topics used in terms of present conditions and possible remedies.

Harrington believed that the Seventies were a time of economic depression. That is before they coined the term recession and abandoned the term depression. The Great Recession, however, really was a depression due to the number of people who owed more than their property was worth and the loss of asset values. All Depressions seem to be a failure of Austrian economics, although I suspect that they view them as a feature, not a flaw.

Real growth occurs with GDP growth, which Austrian economics does not provide. Indeed, the Reagan growth period was due to Keynesian deficit spending, not asset value growth.  Over production also fails as a measure, except of course, for the overproduction of financial instruments.

The welfare state crops up when the government props up banks and companies, like the car makers and banks, because they are too big to fail. It also provides some counter-cycle spending, but in the age of entitlement reform, it is not enough to bring the economy back. Indeed, when entitlements for the poor are cut, asset speculation returns with a vengeance, making up for lost stock value because investors are more credit worthy than consumers.

Fighting inflation also impact asset inflation for some, but not for people who receive interest payments, who make out well off the debt of others, even when some default. Dividends also increase, regardless of how firms are doing, in order to be competitive with bond returns, both government and private. Investors can also deduct interest costs from buying stocks and bonds on credit from their taxes, which also encourages asset speculation.

While this analysis is superior to the Marxian theory, it is still Marxian itself because it highlights class division in a new way. Finally, tax cuts for the rich, which the capitalists and CEO class argue are necessary for recovery give an incentive to companies to cut labor costs while CEOs enrich themselves with bonuses for such cuts. 

The new racism has less to do with people being forced off the land, which occurred not only from subsidies to farmers but also automation, which ended the back breaking work of cotton picking and other harvesting operations. It seems that only fruit harvests use humans, usually undocumented aliens or blacks held in peonage, often with the cooperation of the local sheriff, who brings back workers who have debts. Slavery is alive and well in American agriculture.

Meat producers are also victimized by food companies who insist on ever increasing debt to expand operations which are marketed as a way to get out of debt. Only cooperative effort can end this debt slavery.

Pollution’s externalities were actually addressed by, of all people, Richard Nixon. The air in the U.S. is cleaner as pollution controls are added to cars and factories, although some of the reduction is the result of shipping jobs overseas and marketing inferior cars without these controls. Emerging Chinese capitalism is by far the worst offender. At its Olympic games the reality of a populace who cannot breathe without masks was evident as the sky was full of soot.

A socialist pioneer in this area is the late Joel Kovel, who created eco-socialism, which also responded to global warming, although former Vice President Gore took his thunder. Joel will be missed. He also criticized Zionism and proposed, like many of us, a civil society in Israel and incorporation of Palestine into it.

The myth of economic growth is about more rather than better. Full cooperativism would take much of consumption off-line as workers control the means of consumption and chose to do more in-house, including finance in terms of standard labor hours, which decreases the use of money and monetized measures, especially if cooperatives replace government services and the welfare state.  As standard labor hours are made equivalent regardless of position while hierarchy is smashed due to open auction for management jobs, inequality decreases.

As companies and finance are shifted from the market to the cooperative, non-cooperative assets can be converted to labor hours, devaluing money for nothing. If a former CEO wants to buy from cooperatives, a standard labor dollar would be his last salary (unmanipulated). This turns their money into green toilet paper. Without paper investments, the boom-bust cycle, whether it be overproduction or financial asset inflation, will end. 

In the late1970s, inflation reduction was fought with interest rate hikes, as well as a hike in the minimum wage, as welfare was better than work and people left low wage jobs for higher salaries to afford more expensive goods, although credit also became more expensive.

This crisis helped bring about the Reagan Administration. The Federal Reserve suddenly reduced monetary tightening, although the biggest factor was tax cuts that rewarded CEOs and managers who were rewarded for cutting labor costs. In the past, such costs were not pursued because the higher tax rates essentially transferred any bonuses into government revenue.

The goal of full employment was abandoned and the concept of structural unemployment was created to justify a permanent cadre of workers to keep wages low. From the capitalist perspective, this has succeeded beyond their wildest dreams, as management salaries have skyrocketed with higher productivity while the working class has had to settle with salary increases which only cover inflation, not increases in productivity.

Management salary increases also cut jobs (and productivity improvement also include outsourcing to foreign factories), it is not all about automation, which does not produce the workers’ paradise because there is no mechanism, outside of cooperativism, to share productivity with the working class.

The latest tax cuts for the rich and corporations (who get an incentive to bring profits home, which lead to higher dividends, not relief for workers) is so unbalanced that Republican candidates don’t even stress it, which is why I call it the Tax and Job Cuts Act. 

Only a huge spending bill to make up for austerity insisted on by both Obama and the Congress has kept asset inflation to a minimum, although the Trump Trade War is cutting both jobs and stock values.

It is getting so bad that the GOP may eventually get him to resign or cooperative with impeachment, which the people want but Minority Leader, soon Speaker, Pelosi is reluctant to pursue as an issue, which does not stop candidates from doing so.

Would Marx and Engels approve of this analysis? Given the post-Reagan experience, I believe he would. Indeed, Harrington, in the 25th Anniversary of Socialism, his last gift to us, admitted that we were facing a crisis in the 1990s. It was delayed a decade to 2008, largely due to Bill Clinton increasing taxes on the wealthy, although cutting capital gains taxes and the later Bush cuts lead to the Great Recession, also aided by asset inflation and cheap money from the Fed which goosed the economy so that people could buy homes they could not afford.

President Obama eventually raised taxes further (he was argued out of doing it sooner because of the continued Great Recession), partly to pay for health care reform (as created and later renounced by the Republicans, who did so for entirely racist reasons), giving us growth that Trump takes credit for, and is ruining due to his polices, although Keynesian spending may save his hide, at least until Robert Mueller’s report is published and impeachment proceeds.

There is a new tool to predict this, which I entitled the financial margin. It is Deficit/Surplus offset by Net Interest, as expressed as a fraction of GDP and regressed on growth for the following year. In Democratic administrations, the slope is positive or flat at 3%. When Republican pass tax cuts, the slope is negative, meaning higher deficits are required to produce growth.

Of late, congressional financial agencies are looking into and seemingly using this technique, so that tax cuts cannot be justified by dynamic scoring. Indeed, only pressure from the majority republicans on the CBO mutes the use of this tool. If it were used, tax cuts could not be justified, which is why they are rushed through prior to analysis.

Marx also admitted that mature capitalist economies prevent revolution. The reason for this is that such economies adopt consumerism, which is a better cage to keep workers in line.  The other way is off-shoring jobs, but eventually they will run out of people to exploit, at which point real social welfare will distribute money to keep business profitable, or some kind of cooperativism will end capitalism altogether. I am betting on the latter.