posted November 15, 2010
Review of ‘Epic Recession: Prelude to Global Depression’, by Zoltan Zigedy

by Zoltan Zigedy, August 2010

Epic events require epic explanations. If Dr. Jack Rasmus is to be believed, we are in the midst of an Epic Recession that began in 2007. Rasmus’ new book, Epic Recession: Prelude to Global Depression (Pluto Press, 2010) argues convincingly that the global economy is now traveling a precarious course through rough shoals, far different from the many business cycle recessions that have occurred since World War II. Even more ominously, Rasmus shows that without fresh, bold initiatives, the Epic Recession of 2007-2010 could quickly descend into a global depression unlike anything seen since the 1930’s Great Depression.

Despite a host of Nobel laureates in the economics field, epic explanations for the persisting economic crisis have not been forthcoming. Steeped in economic convention and dogmatic theory, nearly all academic and private economists were caught with their pants down, neither expecting a major upheaval nor equipped with the economic tools to explain it. Certainly there were Schillers and Roubinis who sensed that matters had gone awry based upon the decidedly impressionistic and loose economic concept of “bubbles?. But “bubble? metaphors do not make for deep theory. Rasmus makes short work in his book of the feeble, often silly, efforts at understanding a profoundly important historic event – an epic event.

Sad to say, my Marxist colleagues do not fare much better. Those who see the collapse of capitalism in every burp or hiccup of the system can certainly claim no special insight into the current economic crisis. Far too many have bought in on the comforting idea of Marx as Keynes’ precursor, focusing solely on imbalances between effective demand and production. For them, Keynes seems to have overshadowed even Lenin, who wrote over ninety years ago in Imperialism that “under the general conditions of commodity production and private property, the ‘domination’ of capitalist monopolies inevitably becomes the domination of a financial oligarchy.” He elaborated that “The supremacy of finance capital over all other forms of capital means the predominance of the rentier and of the financial oligarchy.” It is this supremacy of finance capital and the financial oligarchy that holds the key to understanding how the current catastrophe came to be.

Rasmus fully grasps this point, placing the financial system, its evolution, and its relationship with other sectors of the economy, at the center of his analysis. But others have also pronounced this downturn a financial crisis, locating the source of the global downturn in financial shenanigans. The difference is that Rasmus uncovers structural features of the financial sector – specifically the speculative financial sector - that invariably generate and amplify economic malfunction. At the heart of these structures and institutions – the blood that circulates and gives life to the speculative financial system – is an enormous accumulation of capital in the hands of a few. Rasmus puts it this way:

… there exists today a massive global pool and near-liquid money capital that must find an investment… it is thus so excessively large that it cannot find real, fixed investment opportunities to absorb all of it… Meanwhile, that liquidity pool cannot and will not remain idle. It is therefore prone to seek out new price-driven speculative opportunities, which are more easily and quickly exploited, with faster turnover and often with greater returns, than physical asset investment in structures, equipment, inventories and such (p. 93)

In Marxist terms, one might say that an unprecedented (since the Great Depression) concentration of wealth has collided with a tendency for profit to decline in the real, productive economy. With finance capital playing a larger, more dominant role in capitalism’s evolution, capital poured into this sector, generating greater returns and encouraging more exotic and riskier investment institutions and vehicles to counter this tendency.

Rasmus also shares with the Marxist tradition the notion that capitalism generates its contradictions from its internal logic and not from extraordinary, external disruptions. He states it thusly: “Epic Recessions and depressions are not simply normal recessions writ large. They are fundamentally different economic animals, driven principally by internal, not external, forces.?

The combination of a vast accumulation of capital and its absorption by a financial sector extending further and further from real asset investment generate a deepening maelstrom of credit-debt, deflation, and default that draws in all other sectors of the economy nationally and globally. It is this replicable process that produces epic recessions, not as a unique, historically accidental event, but as the logical development of financial ascendancy.

Epic Recession is far more than theoretical speculation or ideological polemic. Standing behind Rasmus’ account is a fount of empirical data, both current and historical. In fact, the book would stand as an essential source book for pertinent factual information even without its deep analysis and policy projections. His explanation of “The Speculative Investment Shift? and the exotica of speculative capitalism are lucid and thorough – the best that I have seen with one reservation: the elaboration of “naked short selling? is a bit confusing.

Of particular relevance, Epic Recession guides us through a history of prior economic disruptions from the nineteenth century through The Great Depression. Rasmus’ account of the oft-neglected 1907-1914 “epic recession? is most illuminating, adding great weight to his claim of common features, especially speculative surges, in the precipitation of severe crises. Popular lore views The Great Depression as a severe downward spiral halted and reversed only by New Deal programs (Current conservative revisionists argue that the New Deal programs were irrelevant or harmful to recovery; the Depression merely ran its course). By contrast – and correctly –Rasmus reveals the Great Depression as a series of slumps and faux-recoveries through the 1930’s that, at best, attained a measure of stability until recovery came with the sprouting of military spending at the end of the decade and its full blooming accompanying the massive spending associated with US entry into World War II. Rasmus’ detailed, coolly detached, historical examination of instability thus separates him from the pack of conventional economists who have made a career of studying “routine? economic behavior and bear an unjustified faith in the rationality of markets. I am reminded of the quote from John Strachey’s 1934 book, The Nature of Capitalist Crisis: “Capitalist crises are in truth to the… modern Europeans and Americans, what the tempest and earthquake are to the savage… The savage… has his experts, his medicine men who by chant or howl, by sacrifice or incantation attempt to cajole the destroying force. The capitalist world also has its experts, its economists. The phenomena of crisis lie, however, outside the scope of their science.?

In turn, the detailed historical analysis allows Rasmus to develop a taxonomy of extraordinary economic events defined by both qualitative and quantitative features. Further, the interrelationships of these features are revealed by historical comparison and form the basis for his theory of Epic Recession which he duly applies to the current economic calamity.
One will find in Epic Recession an insightful and detailed account of the 2007-2010 downturn which correctly locates its roots far earlier than the housing boom and earlier “bubbles?. The story of our economic “troubles? reads jarringly like that of earlier severe epic recessions, especially The Great Depression. Rasmus is unsparing in his disappointment with both Bush and Obama policies. If nothing else is learned from this account, it is that far more intensive and radical intervention is necessary to pull us out of this deepening vortex. He puts it especially well with this well-chosen metaphor:

… with each outbreak the disease was only temporarily forced into remission with ever more massive injections of monetary antibiotics; but each time the disease returned more serious than before. The same antibiotics were therefore injected once again, in increasingly larger doses. Larger injections of liquidity, bailouts, and fiscal stimulus were fed into the successive crises in order to contain them. But in so doing, only the symptoms were treated, not the more basic physiological illness. What is required is basic economic surgery – i.e., a more fundamental restructuring of the body economic itself. (p. 286)

Rasmus’ prescriptions for this surgery are contained in 28 proposals – theses nailed on the door of the policy-makers’ church. He gathers his proposals around four main policy goals - first, tame and reverse the destructive economic decline with a powerful program to restore employment and empower working people; second, strengthen the role of the public sector in providing the basics of social life – infrastructure, education, health care, etc. – through redistributive tax policies; third, quarantine the speculative financial circus by nationalizing all banking that serves a socially useful, real economic purpose; and lastly, channel society’s wealth so that it flows more justly into the pockets of the people and socially useful investments. Epic Recession addresses all four of these goals in ways that are generally realistic, innovative and persuasive.

Rasmus’ remedies for mending the consumer sector focus on resetting mortgages, offering small business and homeowners tax credits, and, most importantly and boldly, excising the homeowner mortgage business from the private sector – in fact, nationalizing financing for consumer mortgages. As bold as it may seem, this would only fulfill the early promise of the 1938 FNMA (Fannie Mae) before its semi-privatization in 1968. Yet Rasmus goes further and shelters all consumer-oriented banking functions into what is, in effect, a public utility.

The job-creating program in Epic Recession is epic in scope – earmarking $1 trillion – but less than epic in reach. Much of the funds would be channeled through private contractors or subsidize private sector jobs. Public revenues should flow primarily to public sector initiatives. The experience of the Obama stimulus demonstrates that the leakage to profits, consultants, crony sub-contractors, etc. leaves far too little for actual new employment; this approach motivates profit-taking and not job creation. Conversely, the experience of the WPA proves that direct public employment is a far quicker and more efficient way to create jobs. The construction and operation of a fast, efficient, low cost public transportation system retracing the routes of the era of train travel alone would grow employment immensely and leave our country a far better place. In fairness, Rasmus proposes a generous investment in the public sector, with expansion mainly in the needy arena of public health.

In addition, readers should welcome Rasmus’ innovative proposals for single-payer health insurance, a national retirement plan on top of Social Security, a union-friendly environment, and sturdy floors for low-wage and contingent employees.

Cognizant of the difficulty of the task, Rasmus leaves “taming the global money parade? as an open ended goal with no easy answer. But these proposals would take us much closer to that goal.

In my view, a program worthy of this epic moment must not only stem and reverse the course of economic devastation, but must also shift the balance of power decidedly in favor of the majority of people who have been most victimized by speculative excesses and the “financial oligarchy?. The proposals in Epic Recession pass this test. For all its merits, the New Deal never advanced beyond humane, but patronizing, policies crafted by elites operating less from conviction than practicality. Moreover, New Deal policies were adopted in response to massive, militant, progressive - often radical - movements that emerged in the thirties in response to the devastation of The Great Depression. These empowering movements were subsequently demonized and suppressed in the Cold War McCarthy period. Today, we are living with the consequences of that loss.

Nonetheless, honest liberals, progressives, socialists, and communists can embrace the Alternate Program outlined in Epic Recession with some hope that we can again rebuild these movements and move beyond a society more and more divided by the privileges of class and race.

Today, we are faced with a wide-spread, nearly hysterical call for fiscal austerity in response to growing government debt: precisely the course that will lead to disaster, according to Epic Recession. The argument in this fine book demonstrates that the ubiquitous debt scolds are much like the bankrupt, compulsive gambler who blames his problem on his kids’ college tuition.

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