by Doug Dowd,
October 2010

It’s Wakeup Time

There are thousands of economists in the USA and thousands more in the rest of the world but, as readers of this journal well know, not more than a handful of those thousands can be trusted to blow a warning horn when serious economic trouble is around the corner; or even when it has arrived. With his several books and many articles of recent years, Jack Rasmus has been a member of that tiny club; his Epic Recession makes him one of its leaders./1/ The term “epic recession” is seldom used, so it is appropriate to begin with the clarification given by Rasmus in his book’s “Glossary”:

Its characteristics are similar to both a normal recession and a depression; like a depression it is precipitated by financial instability. Quantitatively it is more severe than a normal recession but less severe than a depression in terms of depth, duration, deflation, and other indicators. But unlike a normal recession, forces of consumption and financial fragility are present…and processes of debt-deflation-default begin to emerge…. When the latter and dual forms of fragility intensify and are allowed by policymakers to deteriorate, the containment of an epic recession by traditional fiscal and monetary measures becomes increasingly difficult, may result in a second financial banking crisis, and its causal interdependencies may push the economy into a classic depression. If the debt-deflation-default processes and fragility are stabilized and prevented from deteriorating further, but not necessarily corrected and reversed, then epic recession may result in an extended period of economic stagnation in lieu of depression or sustained recovery.

This book has arrived none too soon, and it brings back disturbing memories of the 1930s. Then, month by month and year by year, as the financial crackup of 1929 was becoming the worst depression in history, the economics profession was humming “Prosperity is just around the corner” Even Keynes, the economist who finally understood how and why it was disaster– not prosperity, coming around the 1929 corner– did not see that until 1936(in his General Theory of Employment, Interest, and Money). By then horrendous damage had been done, with the official (then and still) understated unemployment rate of 25%. U.S. unemployment never went below 10% until World War II sent 16 million US workers into uniforms. The price was high: tens of millions dead and unknown millions wounded in Europe and countless ruined lives plus millions more in the Asian war. This time we can’t wait that long, if only (but not only) because in the next and all too possible world war (as a popular song of the 1960s put it) “We’ll all go together when we go.”

Economists are –or should be – infamous for making their arguments in the language of mathematics, as though determined that none but their fellow servants of the status quo will understand them. Rasmus is at home with the numbers game, but he also knows that ongoing socio-economic trends carry disaster with them unless the general public is enabled to understand today’s whys and wherefores and set ourselves on a healthy path. His book provides that understanding for all concerned. Not only does he write in readable language, he also provides a substantial set of lessons for understanding the relevant aspects of today’s political economy and proposes steps for achieving a safer and decent society. /2/

What follows attempts to convince its readers of the importance, the validity, and the clarity of this work, with the belief that having done so they will be prompted to increase their political efforts. Rasmus shows that, more than ever we must push politicians’ attention to the needs of the public and away from the wants of the powerful. Our Congress is thoroughly corrupted for a the top one percent; it is taking us always deeper toward a many-faced disaster.

The structure and content of this review is meant to have it read, its importance grasped by all; that we all become more involved politically. Unless we get to work to bring about a world “by and for the people,” the powerful minority now ruling us it will continue to take us – and the world –not only to global depression but into the worst war ever.

The book is divided into three parts: 1) the nature of an “epic recession”; 2) a survey of depressions and epic recessions of the past, and 3) a sustained analysis of today’s “epic recession.” The latter is followed by an “alternative program” for economic recovery; and the need for our substantial political activity if it s to be attained.

It is relevant to compare this book with The General Theory of Keynes (noted above): 1) This book is readable by all; Keynes wrote for economists, but Rasmus writes to the public and economists 2) he is a strong critic of capitalism; Keynes took capitalism for granted. 3) Although the reforms proposed by Keynes were much better than nothing, they were too little and too late; the alternative program for recovery of Rasmus is broad, deep, and comprehensive. 4) The strengths and virtues of his book not only give the reader a firm grasp of the many dangers of our time – economically, politically, militarily, and environmentally -– they also show that it is up to us if the dangers are to be dealt with safely and decently. When Keynes wrote, all hell had already broken loose with worse on its way in its political economy and its wars; in our day, it is all too possible that the future will be worse in both respects if those now in power stay in power. The intent of following discussions is to prompt you to read the book and act upon it. I begin with the book’s first three chapters.

“Part One: Theory.” The theory is complicated; but Rasmus has sensibly taken great pains to make these and his other analyses readable for non-economists, beginning with an explanation of “epic recessions”:

‘Epic recession’s dominating characteristics are: a) quantitative, b) qualitative, and c) in its dynamics. Quantitative characteristics differentiate “epic” from “normal” recessions by the depth and duration of their economic decline, and their debt, deflation, and default. b) The distinguishing qualitative characteristics include financial instability and fragility, a large “shadow banking system,” consumption fragility, a shift to speculative investing compared with traditional forms of investing, and global synchronization of the crisis. c) The dynamics include several sets of particular relationships and inter-dependencies between speculative and non-speculative investing and debt; between debt, deflation, and default; between defaults and financial and consumption fragility; and, between governmental fiscal and monetary policies and the key processes of debt-deflation-default and fragility. The dynamic characteristics focus on the processes by which quantitative and qualitative characteristics are mutually determined.’

“Part Two: History.” This part’s three chapters distinguish between “epic recession” and “depression.” Chapter 4 discusses the several depressions of the 19th century; Chapters 5 and 6 the “epic repressions” of 1907-14 and of 1929-31. The latter, of course, evolved into what came to be called “the Great Depression.” We will confine our attention to how the “epic recession” of 1929 evolved into the Great Depression; how and why will be specified as we proceed. I begin with quotations from Chapter 6, which – in showing the confusion and errors concerning that depression – can be of great value for today’s “epic recession” I quote:

‘The depression was not single monolithic event… but had several phases and phases within phases….. Started in 1929 and declined into 1933, punctuated by a series of four banking crises, each worse than earlier…. culminating in the near collapse of the entire financial system in March, 1933. From 1933 to 1935 the economy was partially stabilized with some recovery in 1934. By early 1935 a third phase of the depression began and continued into 1937 lightened by the New Deal. A fourth phase in 1937, as the New Deal began to be dismantled under pressure from business/ and the economy collapsed…, and substantial unemployment returned and consumption of durable goods declined….. Full recovery did not take place until 1941-42, as the USA went to war.’

As I now turn to the present and its fluttering recession, it is well to have that history in mind, lest we allow ourselves to go from one level of recession after another and then into depression, as Wall Street and its friends in D.C. continue to tell us that “prosperity is just around the corner.” There are, of course, many differences between that past and this present, but one similarity that should be alarming (and will be noted later) is that our ongoing economy remains weak despite trillions of military expenditures; although war billions got the USA out of 1930s depression, today’s war trillions don’t even get us out of a recession. The needed policies were not put in place by Wall Street’s Congress in the 1930s, World War II did that. Before the 2010 elections, Congress failed us; the new GOP Congress will be worse, so it’s up to us to organize and force what’s needed down their throats. Now to a quick look at the sluggish US economy, with the hope that readers will study the analysis in the book: /3/

“Part Three: Epic Recession, 2007-2010.” The analyses of Parts One and Two are concerned principally with the financial sector and the critical roles played by its excesses in ongoing recessions and (in Chapter 6), the 1930s depression. However, a comparison of that financial behavior with what became common from the 1980s to the present is to compare a reckless child with a maniac; a maniac, it needs adding, who bribed the police to look the other way. Because of the 1930s depression, Congress passed laws designed to prevent Wall St. from ever playing its interwar fun and games again. But from the 1980s on, at an always rising pace, not only were preventive laws such as the Glass-Steagall Act revoked, but, as Rasmus notes, “the Gramm-Bliley Act provided incentives to banks to enter speculative markets…..while, at the same time, what remained of controls to capital flows were also eliminated.” The foregoing is but a quick taste of how Wall St., much more powerful since the 1980s than ever before (which is saying a lot) has effectively transformed a political economy always favoring industry and Wall St’s rich and the powerful into one dominated even more narrowly by the always more powerful financial sector. That sector, once dominated by banks and their conservatism, became, as the 20th century ended, a gambling casino open to all comers: dominated and enriched (as Rasmous details) by its financial fragility whose “shadow banking enables wealthy investors – individual, corporate, and institutional – to move into always more speculative and profitable forms of investment…” Wall Street’s slogan has become “Let the Devil take the hindmost”; and he did.

The foregoing discussion, of the “three parts” is a greatly compressed survey of over 200 pages of a detailed historical analysis. All who read the book will be rewarded with an education in political economy which today is as rare as it is essential; essential, that is, if we are ever to lift ourselves up and out of a society dominated by King Greed and his buddies. Now I turn attention to the final chapters: Chapter 8(a critique of the “Bush-Obama” recovery programs) and Chapter 9 (the sustained “Alternative Program for Economic Recovery” of Rasmus). I use the word “sustained” because the “Program” itself fills up more than 30 pages. I begin with his summary statement:

‘Unlike normal recessions Epic Recessions of the current type (2007-2010) are driven in the short run by processes of debt-deflation-default and the interactions of financial and consumption (fragility). But the longer run causes are rooted in the origins of financial and consumption (fragility)—i.e., the rising debt, debt repayment, and declining income. In the long run the major causes of rising debt and declining income derive from the growing relative shift toward speculative forms of investing, their negative consequences for investing in real assets, and the global money parade’s access to ever increasing availability of liquidity and credit…. Successful policies must address the processes of debt-deflation-default in the short run,
financial and consumption fragility in the intermediate term, and the global money parade and speculative investing in the longer run.’

He goes on to show that Obama’s administration has failed to meet those needs, explains how and why, and then shows what must be done to meet and overcome the causes of the ongoing crisis. We now turn to a selective summary of his program in Parts I to V. I and II both have five proposals, III has ten, IV has 5, and V has 4. Only a few of the 30 pages of those substantial proposals will be discussed; enough to give the reader an indication of why many substantial reforms are needed and their nature. You may rightly infer from that our economy is in very deep trouble.

Part I: “Homeowners’ Stabilization and Consumption.” No’s 1 and 2: Reset mortgage rates and principals for loans originated in 2002-07. Part II: “Job Creation and Retention.” No’s 6 and 7: $300 billion each for both infrastructure and public sector jobs. Part III: “Financing the Alternative Program.” No. 11: Offshore tax haven asset repatriation. No. 12: Foreign profits tax recovery. No. 18: Payroll tax on incomes of wealthiest 1 percent of households. Part IV: ”Long-term Income Restructuring.” No. 20: 20-80 percent coverage single-payer health care.
No, 23: Re-unionization of the private sector workforce. No. 24: Low and contingent wage indexation. Part V: “Banking and Financial Restructuring.” No. 25: Nationalizing consumer credit markets. No. 26: Democratizing the Federal Reserve. No. 28: Taming the global money parade.

That should indicate how much needs doing and, as well, the mountain of political organization and work there is to be done: by us, or not at all.

This writer is an old geezer of 91 years who has witnessed and sweated through the worst war and the worst depression ever. As an economic historian I have studied many economic crises. What we face today is more likely than not to match or be worse than both that military and economic past. If that disaster is not to descend upon us, “we the people” must lift and push what is now “their” society to become our society; to make it into a truly democratic society instead of what it is: dangerously phony. We moved a few inches toward that for a decade or two after World War II, but from the 1970s on we allowed ourselves to become creatures of a nation dominated by militarism and war, consumerism and debt. Now, once more, the rich and greedy, the exploiters, the racists, and the war lovers are licking their lips.

Notes

/1/ Rasmus is an econ prof at both Santa Clara University and St. Marys College and a lecturer at U.C. Berkeley, all in Northern California He is the author of several books, including War At Home: The Bush-corporate Offensive Against American Workers and (forthcoming) Obama’s Economy: Why Recovery Failed: What’s Next? He has written many articles for, among others,
Z Magazine, In These Times, and the Dispatcher, and is also a political playright. He can be reached at rasmus@Kyklos.com

/2/ He is not alone in that effort, but he makes understandable his many important economic arguments in ways both substantial and readable for all (and which might awaken the minds of socio-economic professors). He is not entirely alone in his efforts, of course: there is Paul Krugman, for example, whose critical arguments in the NY Times are timely and “on our side.” But he does not fill the need for the strong understanding which creates the determination to become political and fight back: Rasmus does.

/3/ This book was published as that recession has continued, deepened, and spread, Rasmus has been busy writing articles bringing his position up to date; in doing so he shows that the ongoing recession is all too likely to be allowed to flop into depression. See: “An Economic Crisis Balance Sheet,” and “Obama’s Failing Recovery,” in Z Magazine, July and November 2010, in that order.

by Suzi Weissman
‘Z’ Magazine, September 2010

I do a weekly drive time radio show in Los Angeles and began concentrating on the economy right after the effective nationalization of Long Term Capital Management in 1998 – the year that the so called ‘Asian flu’ took down economies from Asia to Russia and beyond. Economically we seemed to be in new territory – profound and unresolved problems in the real economy were papered over by debt, speculation drove profit, and it soon became apparent that the US economy was addicted to bubbles as a growth strategy. I began to interview Keynesian, Minskyan and Marxist economists for answers, and my featured guests commented with growing alarm as bubbles inflated, deflated and then burst. As with LTCM in 1998 but on a much larger scale, the 2008 financial meltdown couldn’t be contained to the US and leapt national boundaries with electronic speed.

Not surprisingly, I turned to Jack Rasmus time and again to go ‘beneath the surface’ and help the listeners understand the unfolding economic drama. Armed with facts, Jack Rasmus could expose the rosy recovery myths the mainstream business press celebrated, talk about the real numbers of unemployed, and otherwise analyze, make predictions and theorize the nature of the financial implosion we are living through. Jack’s articles chronicling the crash and critiquing the measures proposed to deal with it appeared in Z Magazine regularly. It’s been an amazing ride, to say the least – and now Jack Rasmus has published his thinking on the biggest economic crisis in the last 80 years.

When the financial institutions began to go bust creating a domino like run on the banks, economists, journalists and pundits debated whether this was a recession, depression, or something else. The mainstream press has settled on the name “Great Recession.” Many on the left classify this as another great depression, the second in 75 years and an indictment of the capitalist system. Jack Rasmus calls it an ‘Epic Recession’ and that is the title of his new book. Epic Recession: Prelude to Global Depression, Pluto Press, London 2010.

Does it make a difference what this global meltdown is called? Yes—and there is substantial disagreement among analysts. But what is crucial is that we get more than either a recitation of events, or a grand theoretical overview that pays scant attention to the story as it unraveled, bringing the global economy to the brink of collapse. We live in an age that has little sense of history: the causes and consequences of the crash of 1929 and the decade which followed were easily forgotten in the hubris and euphoria of what some called bubble-economics.

Jack Rasmus’ book takes us through an historical comparison with epic recessions from the past and shows how government policy can either avert the worst or lead the economy into a great Depression, step by step. Politics matter in how this economic crisis is handled, as the economy is more and more dependent on the government and conscious decision making. Epic Recession: Prelude to Global Depression is not a simple blow by blow catalog of events from the dot.com boom and bust to the stock market and real estate bubbles and busts, followed by weaker attempts to create a commodities and then an oil bubble. Rasmus does examine what set off the cascade but then asks questions and analyzes the structural changes in motion.

Rather than just blame the smart set in the banks who devised complex financial instruments that few could understand, Jack goes back three decades to look at deliberate actions taken during the Reagan administration that deepened the dependence on debt to maintain consumption. Examining the subsequent structural changes in the economy, fiscal and governmental policy, Rasmus attempts to theorize what has happened, to explain why the Bush and Obama bailouts are insufficient to prevent the continued downward slide and hemorrhaging of jobs, and to propose an alternative recovery program that can be used as an organizing tool.

Three articles by Jack Rasmus have been published in Z Magazine that outline the major arguments of his book. Most of what has come to pass was predicted accurately by Jack in these articles. He wasn’t alone. Notwithstanding the Wall Street boosters on much of the cable television business channels, noted economists and financial journalists of the right and left saw this coming – some had a ringside seat – and warned and wrote about what was happening. They weren’t in a position to do anything about it.

Analysts on the left tend to see this crisis as another indictment of a failed capitalist system, no longer able to hide its decline with debt driven bubbles. Some see the crisis in criminal terms: fraud, theft, opacity and corrupt regulators combined to make this meltdown an inevitability, especially once protective walls like Glass-Steagall were removed. Danny Schechter, in Plunder, sees the crisis as a crime scene, asking for “jail-outs not bail-outs.” Max Wolff undercuts conventional wisdom on “Too Big to Fail,” saying the real problem is “Too Big to Bail.” The steps that States take are crucial to fostering a recovery or, alternatively, leading us into depression. Nomi Prins calls this a banking-led depression. Michael Hudson, watching current European proposals to inflict painful, draconian cuts to the public sector to tame deficits (which he says are coming here next) thinks the world is heading back to a system of debt peonage. Others argue that government and business are taking advantage of the crisis to return to a pre-WWI, or even pre-Civil War economy, before the gains of the Progressive, labor, and Civil Rights movements. Most observers agree that the period ahead looks bleak.

Rasmus recognizes the theoretical debt he owes to three economic thinkers: John Maynard Keynes, whose work is more about how to recover than what produced the crisis; Irving Fischer, who identified debt and deflation as the main mechanisms that drive a downturn into a depression, and Hyman Minsky, the theorist who wrote about the role of speculative investment, showing how the accumulation of debt can destabilize the entire financial system and provoke the kind of financial meltdown we have just experienced. Although Minsky died in 1996, his thinking is so pertinent to the crises of 2007-2010 that financial journalists and academics have called it a “Minsky moment.”

Theoretically, Rasmus tries to take the work of these theorists further in order to understand the nature of the current crisis, and Rasmus pledges to do this more fully in subsequent volumes as this crisis unfolds. His analysis is also aided by a thorough grounding in Marxist economic theory. Missing in Keynes, Fischer and Minsky, he writes is “the consideration of the price for labor and its relationship to product and asset pieces: how wage deflation is related to product and asset deflation.”

Chronicle of the implosion

There were warnings all along about the dangers in the highly leveraged subprime mortgages that rapidly spread to credit markets worldwide, creating financial havoc that led to recession in 2007. In March 2008 Bear Stearns collapsed, beginning the global meltdown. The Fed sought to contain the damage through infusions of capital and forced restructuring of failing institutions. Bear Stearns – an investment bank that was one of the shadow institutions heavily involved in the subprime mortgage market – was essentially given to JP Morgan Chase at a fire sale price backed with money from the Fed. The Fed then backed Fannie Mae and Freddie Mac. When Lehman Brothers started to go belly-up the Fed reversed its policy and allowed it to go under (Fed Chief Paulson spoke of ‘moral hazard’). AIG was partially nationalized and the whole house of cards came down in late summer 2008. More than just the puncture of a bubble, this was a catastrophic breakdown and a fully fledged banking panic ensued. The amount owed on leveraged ‘instruments’ was now many times the world’s GDP, though this isn’t a particularly useful measurement. More importantly, was this a crisis of liquidity that infusions of cash could remedy, or was it a crisis of insolvency? There followed an unprecedented financial freeze – credit simply crashed, taking down businesses, contracting the economy and leading to massive layoffs. It started to look a lot like the early years of the great depression of the 1930s.

This much can be ascertained from the many fine financial articles, blogs and books that have appeared chronicling the ‘age of greed’ and the melt-down, often from front row seats. Reviewing these events Jack Rasmus concluded that this was not a typical recession, but something entirely new. Finance capital imploded. The connections between Wall Street and Main Street became all too apparent – with banks unwilling to lend, businesses laid off workers and/or went under. But what were the fundamental forces at work that drove and underlay this economic storm?

Going beneath the surface Rasmus sees the debt, deflation and default cycles as enabling but not fundamental causes, leading to “consumption fragility” and the collapse of finance that produced what he calls the Epic Recession. It is epic, according to Rasmus, because the contraction of the economy is a hybrid with characteristics of both a recession and a depression. What are the forces driving this contraction? Rasmus’ interrogation involves a thorough historical and theoretical investigation to arrive at an understanding. He is not interested in what he calls ‘labeling in lieu of analysis’ or the kind of conceptual models or even superficial historical parallels that may dazzle but fail to explain and fall short of proposing solutions. Rasmus reviews the analyses of economists (academic and non-academic) as well as those of financial journalists, raising essential questions they fail to address. He notes that sophisticated terminology is no substitute for theoretical analysis, but theoretical models abstracted from the facts are equally unhelpful.

The Epic Recession did not begin with the housing bubble. To get at the underlying cause of the present crisis Jack Rasmus goes back to the Reagan era deregulation and tax cuts. The shift to finance capital that began in the 1970s came on the heels of the radicalizing social movements of the 1960s and the rising expectations of the working population for a higher standard of living. The response was an employer offensive to roll back the historic rise in American workers’ real wages through attacking unions and shipping production to low wage economies. It marked the ‘switch’ to finance from industry, the transfer of wealth upwards and the expansion of debt-driven finance for household and state budgets alike.

More than deregulation and tax cuts, Reagan began the frontal assault on unions. When the air traffic controllers went on strike in 1981, Reagan ordered them back to work; they continued the strike and he fired them, destroying their union (PATCO). This was by implication an attack on the organized working class, and Reagan’s success signaled the beginning of the assault on living standards (stagnant wage growth) and the redistribution of wealth upwards from workers to investors and corporations. Not surprisingly, it was also in 1980 that working and middle class households began to resort to debt to maintain living standards. It is this income redistribution that allowed the creation of what Jack Rasmus calls the ‘money parade,’ a global glut of capital sloshing around looking for profitable investment.

The shift from manufacturing to speculative investment brought with it new forms of banking to get around regulators (the shadow banking industry) as well as new financial instruments that serve as conduits for the “money parade,” creating debt-financed consumption in place of the old fashioned generation of income and jobs through physical production of assets. In common parlance the shift was from making goods (manufacture went to countries with cheap labor) to making bets on capital: the term casino capitalism is a fair description.

Epic recessions

Defining the 2007-2010 crisis as an epic recession and not a depression leads Rasmus to trace its origins and discern its dynamic, suggest policy approaches to deal with it and warn about the consequences of policy failure that could well transform this epic recession into a bona fide depression. He looks at two previous epic recessions which because of their similarities to the present become crucially important to understand. 1907-1914 was an epic recession that stagnated, while the 1929-1931 crisis evolved from an epic recession into a bona fide Depression.

The banks were bailed out in the epic recession of 1907-1914, but not the real economy. Sound familiar? The financial sector was stabilized but credit contracted, production declined, businesses shuttered, unemployment soared, asset prices fell (deflation) and an extended period of stagnation ensued. There were brief and shallow recoveries along the way, but the end only came with the onset of World War I in 1914. Again, sound familiar?

The ‘epic recession’ following the financial crash of 1929 until 1931 was worse, and there was no bailout of the banks or of the real economy. The result was an economic collapse that descended into global depression. The effects of government fiscal and monetary policy determined in each case the economic result. The chapters on the 1929-31 epic recession and that of 2007-2010 are gripping, as we see step by step that the cyclical downturns can be made much worse by bad fiscal public policy, something we are about to see globally now. When Rasmus catalogs the 1980s Savings & Loan crisis and Reagan’s push for deregulation, it is a stomach wrenching read, but that crisis did not go global nor beyond the S&L industry.

Policy muddle?

The world economy is ever more dependent on governments and conscious decision making, so policy is all important. Jack Rasmus correctly concentrates on the insufficiencies of both the Bush and Obama injections of capital to deal with the crisis. While Bush is a firm believer in market, not government solutions, his economic team pressed him to bail out the financial institutions with an initial $700 billion injection of funds and to set up the TARP (Troubled Assets Relief Program). More than four trillion has been thrown at the problem with another eight trillion dollars (or so) committed for future bailouts. As Rasmus notes, this was the monetarist solution – “a liquidity solution to an insolvency crisis.” The Obama/Geithner team steadfastly refused to nationalize the banks, while it could be said that the Bush/Paulson bailouts amount to a nationalization of banking bankruptcy.

Obama’s program, as Rasmus notes, is a short term holding operation for normal recessions, not epic ones. It relies on market solutions, doesn’t address the collapse of consumption, and favors global markets over domestic ones. The amount of stimulus injected was inadequate to fight deflationary pressures and hemorrhaging jobs, but at the same time talk emerged about rising deficits and fighting inflation down the road. The discourse changed when China balked at buying more US securities to finance US deficits. The irony of relying on semi-Stalinist China (led by the Chinese Communist Party) to save capitalism is a rather rich one to contemplate.

Now that the financial sector has been bailed out, it is back to business as usual. Companies are sitting on mountains of cash, yet they continue to slash payrolls and cut expenditures. Main Street just gets worse and worse with chronic high unemployment and underemployment, dire cuts to education and health (in California one in four is without health insurance) and more foreclosures and bankruptcies to come. State and local governments are in desperate need of bailouts, and their balanced budget requirements undercut or cancel out Obama’s economic stimulus. Everywhere individuals, states and nations are drowning in unsustainable debt. The crisis is global and the picture is grim from Iceland to Ireland, the Baltics to the Balkans, Chile to California.
Wall Street has poured hundreds of millions on Congress to try to prevent any real regulation that would curb their profitable practices. Regulation is being restored, but with plenty of loopholes. Congress can’t legislate what needs to be done – it is constrained by party polarization, ideological intransigence and buckets of money from financial lobbyists. The somewhat veiled relationship between capital and power has lost its cover. Congress is openly seen as a wholly owned subsidiary of the titans of finance, industry, real estate (FIRE) and pharma. Capitalism may be losing its luster (confirmed by a recent Rasmussen poll) but the deficit hawks are gaining ground, blaming workers and crying for pain.

Western Europe has taken the decision to cut living standards drastically (Britain’s Cameron has warned of pain for decades to come) and the UK and Germany are in the lead in attacking living standards. Indeed, European policymakers make President Obama’s stimulus policy look reasonable by comparison. Since the deficit hawks in the US are not in control the US stands out as the only developed country with any sense, even if the Obama program is insufficient for recovery. Nonetheless, the calls for deficit reduction are gaining in the US, and the states are already forced into draconian measures.

Keynesian economists like Paul Krugman warn that economic policy is now set on a disaster course of crippling cuts that will kill any possibility of recovery. But why are governments choosing policies that will, as Rasmus warns, take this ‘epic recession’ into a full blown global depression? Why don’t governments simply reflate to spur growth rather than cutting back? Put another way – what would it take to force governments to adopt the policies that would benefit the majority of the population?

Simply put, there would have to be a vibrant labor movement that could effectively challenge the cuts to come. It would require the kind of popular mobilization and sustained fight-back that Greek workers began to mount to resist austerity. Unfortunately that doesn’t exist today. Greek workers called for a default and no cuts to their living standards. They have been temporarily bailed out, but draconian cuts are part of the package.
Economic policy has veered from supports that are too little and not given a chance to work, to deficit reduction guaranteed to undermine recovery. There appears to be no satisfactory ‘exit solution’ from this crisis that preserves present power relationships. To reflate the economy and raise living standards depends on the confidence that the population represents no threat. Technically it doesn’t but capital is still smarting from the revolts after 1968. The switch to finance after the 1970s appeared to be the solution to the impasse, shifting manufacture to low wage economies, including those in former Stalinist states where workers would be reliably docile. Now there seem to be no strategy, and Greece notwithstanding, no real left either. Increasingly the policy appears to be one of rollback, to strip away the gains workers have won over the last 60-70 years that cut into profits. The logic that governments are following is to go back to some form of an imagined pristine capitalism before there was any challenge to the system. Even so, the current offensive proposed in Europe seems suicidal.
Alternative solution for recovery

Epic Recession is written in the language of political economy and economic history; it is technical, analytical, political and practical. The material is well organized with clear explanations and Rasmus provides a very useful glossary at the end that succinctly describes his key concepts. After a review and critique of the Bush and Obama recovery efforts through the policies enacted by Greenspan and Bernanke, Paulson and Geithner, Jack draws up his own practical solutions to the crisis in a twenty-eight point recovery program that is being taken up by labor councils around the country.

The alternative recovery program is one that involves a radical restructuring of the economy in the interests of the vast majority: massive job creation programs, nationalization of the mortgage and consumer credit markets, new banking and tax structures tax and a long-term redistribution of general income with quality and equitable healthcare delivery and retirement systems.

The beauty of the alternative program for recovery that Rasmus proposes is that it provides a concrete basis to fight the offensive on living standards underway. He insists it represents the only way to prevent the onset of a classical depression. The program addresses both the root causes of the crisis but also contains solutions that are reasonable and realizable. His solutions threaten the position of capital and would be fought tooth and nail.

This radical restructuring of the economy challenges capitalism without overthrowing it, yet cannot be undertaken without a militant labor movement that demands and wins jobs, healthcare, homes, education, and decent retirement pensions. Had his program been in place right away, the foreclosures would have been staunched, and the credit market stabilized.

Among the proposals in the alternative recovery program are: Mortgage rates would be reset (all loans, not just those in trouble) to the Fed’s 30 year bond rate plus .5%, so an effective rate of 3.5%. Mortgage principle would also be reset to the levels before the artificially inflated prices of 2003-2006. There would be a moratorium on all foreclosures both residential and commercial.

The second set of proposals would provide for real job retention and creation, pumping adequate and targeted stimulus (infrastructure jobs, manufacturing and public sector job retention and creation, plus adequate safety net funding.) The program also includes measures to insure it is adequately financed through restructuring the tax system. Proposed measures would assure the finance sector as well as begin to redistribute income; restructure retirement tax so that a surplus is restored to the social security system after 2017; provide funding for a single payer healthcare delivery system. His tax measures would reverse regressive taxes and recover capital from offshore havens, create a financial transactions tax and many other progressive measures. These measures would gradually reverse the income inequalities of the last three decades.

To implement the Rasmus alternate recovery program would require confidence, mobilization and organization from the very sectors that have been adversely affected for decades. It is precisely that kind of mobilization that government policy seeks to avoid and seems prepared to risk a depression to effectively discipline labor (even super-exploited low wage immigrant workers). That is class warfare on steroids, coming from the wrong class!

Nowhere does Jack Rasmus call for an end to capitalism or sound the call to mount the barricades. His alternative recovery program does address the real problems in the economy and does so through concrete proposals. It has the added value of being an organizing tool that lifts the population – and as such challenges the status quo with its property and wealth arrangements. Chuck Mack, the International Vice-President of the Teamsters writes (on the back cover) that Epic Recession provides a rallying point for trade unionists and concerned citizens who want to ensure that any recovery is felt further than Wall Street. Rasmus calls for bailouts for workers not bankers.

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.

Review by Jon Amsden
Against the Current magazine, September-October 2010

The present economic crisis which began in the United States late in 2007 and picked up speed early in 2008 may have caused production in the American economy to fall precipitously, but it has had the opposite effect on the production of books seeking to analyze the world economic crisis that has followed. This will be clear if you look for the book to be reviewed here, namely, Jack Rasmus’ Epic Recession: Prelude to Global Depression, by typing the words “economic crisis” in the “Books” category on the Amazon search bar. You will find the Rasmus book among no less than thirty-six other titles on the same topic, all appearing before the collection of Thorsten Veblen’s essays entitled Economics for an Age of Crisis.

The list of living authors preceeding Veblen’s name is impressive. It begins with the titanic nay-sayer Nouriel Roubini who sounds his warnings in Crisis Economics: A Crash Course in the Future of Finance. Roubini’s prelude to future disaster is followed by the irrepressible yea-sayer Paul Krugman’s The Return of Depression Economics and the Crisis of 2008. Next is the first Marxist contribution to the list entitled The Great Financial Crisis: Causes and Consequences and written by John Bellamy Foster and Freddy Magdoff.

Amazon Books’ distinguished list of authors confronting economic crisis then continues to include, Joseph Stiglitz, Lord Keynes biographer Robert Skidelsky, and Robert Brenner on the liberal left, while Robert Solow, Ludwig von Mises, and Martin Feldstein defend from the other side of the barricades. The Left side of the discussion blames the fundamental instability of capitalist free market production (in one way or another). “Lefties” dream wistfully of Keynesian solutions that might actually work. Meanwhile the stern mandarinate on the Right sagely point out that a resolute moment or two of austerity may now be required to keep the whole system up and running again. Somewhere in the middle is Justin Fox, the economics editor of Business Week, who in his The Myth of the Rational Market: A History of Risk, Reward, and Delusion on Wall Street, tells us, most atypically, that “the myth of rational markets” is just that, a myth.

Given the list of notables who have already pronounced on the theoretical and practical problems presented by the current crisis, the author of Epic Recession, Jack Rasmus, sails into a powerful headwind here. Nevertheless, what Rasmus has to say is well worth the read. The book contains, moreover, an extensive review of recent economic data along with detailed histories of two of the most serious economic crises in the 20th Century American economy. Rasmus’ text is no literary quickie. On the contrary, it contains 311 densely packed pages of text, with, additionally, a useful “Glossary of Key Terms” for those unfamiliar with financial jargon, a generous collection of “Endnotes” guiding readers to a useful list of sources, and a nicely detailed “Index". It should also be noted that Pluto Press have done a very respectable job of producing a paperback combining an attractive appearance, high quality stock, with a good binding in both paperback ($25.20), and hardback ($125).

The argument on crisis presented by Rasmus may be broken down into three major parts. These three parts are theoretical, historical, and prescriptive in nature. In the first of three sections of the work, Rasmus is concerned to define what he refers to as an “epic recession", distinguishing it from what he styles: “…normal recessions or a depression” (22). Most readers on the Left, and especially those with some interest in Marxist economics, will probably be looking for a theoretical statement as to why economic slowdowns have occurred regularly throughout the history of industrial capitalism. For anyone who hasn’t been counting, US economic history records serious economic crises beginning in: 1837; 1857; 1873; 1893; 1907; 1929; 1952; 1958; 1963; 1975; 1981; 1987; 1991; 1998; 2000; and, most recently, 2007-8. In addition to these major meltdowns, there were a number of minor economic slumps as well, so, where the historical section of his work is concerned, Rasmus has his work cut out for him.

Generalizing over this large number of crises and covering such a great span of history is a risky proposition. Over the years, and especially since the views of J.M. Keynes began to dominate the discussion, liberals have tended to explain economic shut downs by pointing to the “decline of aggregate demand” as the guilty party. Conservatives, on the other hand, have tended to treat economic crises as little more than a necessary period of economic adjustment during which the working class is to grin and bear it. On the other side of the argument, some Marxists have followed Karl Marx’s analysis of economic crisis faithfully while some have deviated from the master.

Marx says in Volume 2 of Capital that lack of balance between the sectors producing consumption and production goods gives rise to economic crises. In Volume. 3 of Capital Marx adds that there will be a tendency for the rate of capitalist profit to fall as “dead labor” (i.e., machines) replaces “living labor” (human labor power) in the production process. This decline in capitalist profits, according to Marx, leads crisis and possibly to a moment when capitalists choose to “hoard gold", basically sitting back and waiting for better times. When this happens, what Marx calls “the circulation of commodities” is temporarily interrupted and this is what, in our own day, we call “economic crisis.”

There is still little agreement on Marx’s views of economic crisis, especially among Marxists. Rasmus may have been wise, therefore, to avoid the inevitable controversies that arise in such discussions by abstaining from pronouncing his judgment on why economic crises take place. Instead, in the first part of his work, Rasmus concentrates on the problem of defining what he calls an “epic recession” and of distinguishing it from what he calls “normal recessions.” To simplify somewhat, the “epic recession", for Rasmus, is one that strongly resembles long term economic breakdowns such as those that occurred in the United States between 1907 and 1914 and again between 1929 and 1942. Rasmus analyzes the “epic recession’ in terms of the following variables: “…depth of the economic decline, its’ duration, and levels or degrees of debt, deflation, and default” (23). The alert reader will notice here that in both cases of “epic recession” cited by Rasmus, the slowdowns in economic activity that took place were each brought to an end by international wars of unprecedented violence and destructive power. Rasmus observes the same but does not dwell on the point.

The essence of the argument presented by Rasmus in the first section of his book is that the current financial crisis was caused by an deadly triad of debt, deflation, and default. It was this unholy trinity of economic phenomena, Rasmus argues, that led to excessive speculation in the (unregulated) banking sector as well as in the stock market, and the (new ) “shadow banking” sector all of which contributed to economic disaster. Under conditions of runaway debt creation and excessive speculation, Rasmus argues, the liquidity bubble that was created as the Greenspan Fed repeatedly poured money on economic problems eventually lead to the bursting of the bubble, a crash, and an economic crisis that we continue to endure.

Before following the author on a well researched and highly detailed journey through the history of economic crisis in the United States, however, the reader may wish to evaluate the basic economic analysis that Rasmus intends to support in the second major part of his work. Rasmus argues that it was the recent financial crisis that led to the present slowdown in the productive sector of the economy. It is more likely, however, that the causality moved in the other direction.

The question presents itself, is whether it was the so-called “sub-prime crisis” that almost destroyed the financial sector of American capitalism that led to the massive slowdown in the productive economy, or was it, perhaps, the other way around? While it certainly appears to most of the massed punditry and to the tribe known as “market economists” that the former is the case, the contrary possibility must also be considered. Clearly, if the US economy went into a slump after the bursting of the “dot.com bubble” of 2000 and the brief recovery that followed, then the many hundreds of thousands of Americans who bought houses in the period of mass financial hysteria that occurred between 2002 and 2007 would have eventually become unemployed and would, therefore, have been unable to make their mortgage payments. They would then, after a brief period of happy home ownership, have been the primary victims of what is now known as the “sub-prime mortgage crisis.” Note at this point that the very term “sub-prime crisis” tends to place the blame for the crisis on greedy mortgage salesmen and the working poor who dreamed of home ownership rather, than upon the irreproachable capitalist free market system itself.

If one chooses to follow the basic Marxist analysis of economic crisis, therefore, a different view of what took place in the housing bubble and the following crash of the real estate market will emerge. The Marxist view, after all, holds that the cycle of capital accumulation includes necessary periods of crisis. During these necessary moments of discomfort what happens are the following things: over-inflated values are destroyed; the smaller and more inefficient producers are eliminated; and the working class receives a useful drubbing that encourages their willing subordination to the next upswing of the cycle of capital accumulation that follows. In the Marxist view, the necessary downturns in the cycle ( i.e. “panics", “depressions", “recessions", etc.) are caused by a tendency of the rate of capitalist profit to fall towards the end of a period of vigorous economic activity. This leads the owners of capital to withdraw the same from the “circulation of commodities", causing a temporary economic collapse, featuring unemployment, bank failures, loss of property, and so on. If this schema describes history better than the alternative schemas offered by orthodox “economists” and others, then it will appear that the current crisis began as American workers (and would be home owners) first lost their jobs and only then defaulted on their mortgages either formally or by simply walking away.

In the second part of his work, Rasmus supports this analysis by taking a careful look at the history of economic crisis in the United States. It is in this part of the book that the interested reader will find careful and interesting analyses of the two past periods of major economic crisis in this century. One of these (1907-14) has been, until now, more or less ignored and forgotten, except of course, for the fact that it was the final stimulus for the creation of the Federal Reserve after more than a century of sharp political battles in the US Congress over the question of central banking.

What is very interesting about the historical analysis that Rasmus presents here is that the author provides support for both hypotheses outlined above. While it is clear that Rasmus holds that the financial crisis caused a crisis in the basic economy, it is also possible to find support in his treatment of US economic crises from 1837 to the present for the alternative view. In his analysis of the several economic crises of the 19th Century, and of the two “epic recessions” of the twentieth century, Jack Rasmus points out that, in those cases where sufficient data exist to decide, (for e.g., in the financial crisis of 1907 ) the financial episode in the crisis usually came some time after slowdown in the basic productive economy had already begun, and that the economic crisis in the productive economy also continued until well after the financial crisis had been resolved. Two of the historical crises examined by Rasmus (1893 and 1907) were resolved by spectacular coups de theatre provided by J.P. Morgan, after which, in each case, the crisis in the productive economy dragged on. After J. P. Morgan was no longer available to save American capitalism from itself, and after the creation of the Federal Reserve in 1913, versions of the same drama of saving capitalism from the excess of speculators were staged by the Fed Governors and the US Treasury. Rasmus also points out towards the end of the historical section of his book that the “epic crises” of 1907-14 and 1929-42 both came to an end as the United States geared up for war. Rasmus does not, however, believe that war is the inevitable outcome of the “epic crises” that he has described.

This is why the third section of his Epic Recession Prelude to Global Depression is devoted to describing the current (2007-2010) crisis and to offering a list of policies that could be undertaken to bring the present economic crisis to an end. Rasmus precedes his prescription for economic change and renewal with an astute and very readable critique of the failed Bush/Obama recovery policies. The Fed gets rather poor marks in this section of the book. Rasmus introduces a note of reality into the contemporary fantasies about how the Fed shall once again ride to the rescue as follows: “True to his philosophical ‘monetarist’ roots, Bernanke’s solution to a deep financial crisis was simply to throw money at it- i.e., a liquidity solution to an insolvency crisis” (264). What follows this remark is a detailed quantitative analysis which shows that throwing money at problems fixes nothing, and merely shifts the burden of maintaining the present system from those who benefit richly from it to those who can least afford to pay. Its a clear and insightful analysis, rich in interesting details. Those who look for sterner stuff, however, should move quickly on to Rasmus’ many prescriptions for preventing a “descent into depression.” This prescriptive list of policies makes extremely interesting reading, not in the least because some of the structural changes that Rasmus calls for would probably require social revolution in the United States today.

Rasmus presents twenty-eight proposals for restructuring the American economy many of which are specifically aimed at the housing problem. These include: resetting both mortgage rates and principal for all loans originated in the 2002-2008 period, introducing a 15% homeowners investment tax credit; and declaring a moratorium on foreclosures. To restart employment in the United States (Proposals 6-10) Rasmus recommends expenditures totaling $1Trillion for specific job creation projects as well as the creation of a viable “social safety net.” To finance the suggested outlay of cash Rasmus recommends a series of taxes and controls on the super wealthy (Proposals 11-19) any one of which could inspire apoplexy in the talking heads on Fox News or MSNBC. The list of punishments for the rich includes: the repatriation of assets held in offshore tax havens, a serious program foreign profits tax recovery, a roll back of the Bush tax cuts on capital income, an excess speculative profits surtax; and, a “payroll tax” on incomes of the wealthiest 1% inter alia.

Not all of Rasmus’ proposals are this Draconian. Many are specific and quite feasible. One that will get the attention of anyone with children in college is the deprivatization of the student loan market. This is a specific demand, entirely doable, and, almost all would agree, a reform measure highly to be recommended. Other structural changes listed by Rasmus are more general and also more problematic. An example of this would be a structural change that would provide “80% coverage single payer health care” (Proposal 20).

Many people, including some on the Left, will regard Rasmus’ list of proposed policies as “utopian", “unrealistic", and even “impossible” given the economic and political system that oppresses most Americans today. This, however, is the point that Rasmus is really making on the final pages of his book. To implement even a few of Rasmus’ proposals for ending the current crisis would require not much less than a thorough-going social revolution in the United States. Since most of the people reading this review are socialists, it seems not inappropriate to point this out. What Jack Rasmus has reminded us in this exhaustively researched and highly provocative book on the current crisis is that it is once again time to start talking seriously about radical economic, social, and political change in the United States.

How Did it Happen, How Bad will it Get?
By Carl Finamore, Trade Winds magazine, July 2010

In the not too distant past, bankers, financiers and investors could do no wrong. They were the wizards of Wall Street, ushering a new era of economic expansion. But around 2006, it became very clear their magic was just an illusion. The only thing real was millions of homeowners defaulting, millions of pensioners watching their 401Ks evaporate and millions of workers losing their jobs.

Investors and bankers didn’t end up nearly as bad. They seemed to just shut down their old game, move on down the road and reopenfor business as usual as if nothing had happened.
Billionaire Warren Buffet’s two rules to investors were in full force and effect and backed up by the U.S. Treasury: “Number one rule is to never lose money and number two rule is to never forget rule number one.”

In fact, big business pretty much has made up its own rules during the last three decades. Taxes for corporations and the wealthiest were continually lowered` and regulatory obstacles to domestic and offshore investments were eliminated. At the same time, conversely, wages for the majority remained stagnant since 1973.

Not surprisingly, a dramatic shift in wealth occurred during this time. The top one percent today controls 40% of our wealth in the United States if housing alone is excluded. On the other hand, the majority is being squeezed more and more and purse strings tightened.

Simply put, the average consumer has been losing ground in the last thirty years. Extensions of credit to family households concealed this decline and kept the economy going until debt burdens finally led to the current wave of defaults, especially in the housing market where speculators drove housing prices to unprecedented levels.

Too much money in the hands of too few fundamentally led to the crisis according to Jack Rasmus, a former elected union official turned college professor and writer, whose latest book, Epic Recession, Prelude to Global Depression, has just been released by Pluto Press.
“A massive amount of liquidity in the hands” of “wealthy individuals, their various investing institutions like hedge funds, private equity firms, private banks” and corporations have created over the last three decades a “global money parade…that sloshes around the global economy in pursuit of the greatest short-term returns, which in recent years have become increasingly speculative in nature.”

Rasmus cites 2006 statistics that reveal both the relative value of global financial assets and their infinite variety such as cash, stocks, bonds, options, certificates of deposit, commercial paper, money funds, foreign currency, precious metals, commodity futures, derivatives, redeemable insurance contracts, accounting receivables and more.

The endless brew of financial cocktails outstripped the world’s total production of commodities by a factor of three. In the US, it was worse, the enormously lucrative financial sector accounted for four times the Gross Domestic Product (GDP), a measure of all the goods and services produced in this country.

Numerous investment schemes were concocted to attract this excess glut of global capital that saw more profit in paper transactions than in production of real goods and services. As demand for speculative ventures multiplied, so did the stock market.

The Dow Jones jumped an incredible 8000 points from 1994-2000, the largest leap in its history. All seemed to be going good, too good as it turned out. Little of real, hard physical value was being produced as the global economy was awash with trillions of dollars in the pockets of the wealthiest among us, all swimming toward the next big speculative venture.

Cracks began to appear during the Asian currency crisis and the Dot.com bust of the last decade, creating what billionaire financier George Soros described as a “longer-term super bubble.” But, deciding not to fold, the Federal Reserve Bank threw more chips into the pot by dramatically lowering interest rates.

The Fed often worked this way by making sure the money faucet flowed anytime Wall Street got a little thirsty.

With more money on the table, banks in the first years of this decade actually aggressively pursued home buyers just to keep the casino doors open. More home buyers meant higher home prices meaning even more eager purchasers of mortgage-bundled investments. With new blood in the water, the feeding frenzy by speculators continued.

Thus, warning tremors were ignored as profits continued to flow. Few recognized or wanted to admit that the economy was built on shallow landfill unprepared for the next “Big One” to hit.
However, when consumers could no longer afford the skyrocketing price of a home, the hot item topping the menu of speculators the last few years, the housing market finally collapsed. The resulting sag in home purchases in 2006 was compounded by the growing number of defaults, thus triggering an enormous free fall of the fragile financial structures that depended so heavily on the fantasy that home prices would steadily and endlessly increase.

How did this Happen?

New financial packages were developed in the US housing sector that profited enormously as each mortgage of the original physical asset, a home in this example, was bundled together with assorted other stock portfolios, hedge funds and securities that was passed along a chain of sellers and buyers. Each investor profited from every subsequent exchange even as the paper trail extended far, far beyond the initial real, material asset of the home.

Speculators of home mortgages both produced and greatly benefited from the surge in housing prices. In fact, higher home prices were essential to maintaining the profitable sale and resale of these bundled mortgage investments.

As is the nature of Wall Street thrill seekers, no one believed the ride would end.
In fact, to keep the wheel of fortune turning, lenders began desperately and aggressively offering no interest home loans to credit-deficient working people who subsequently defaulted when the Federal Reserve Bank began raising their credit line from a floor of one percent to over six percent after 2003. Hundreds of thousands of defaulting families, often portrayed by Wall Street apologists as causing the deep recession, are really the victims and pawns of these shady pyramid schemes.

Eventually, the numerous and extended links in the investment chain began to ultimately unravel as the original home borrower defaulted because of growing debt obligations. The whole scheme depended on housing prices rising and this worked for awhile as speculative demand for housing derivatives increased. But, at some point, the material asset of a home, for example, must actually correspond to a more real set of values.

Rasmus makes the point that supply and demand restraints do not equally apply to speculative ventures. In fact, it is demand that is the driving force there and as demand grew for the sale and resale multiple times of home mortgages to investment firms, for example, so did the price of each subsequent transaction escalate. Profits and fees were added along each step, thus, also driving higher the price of homes.

As bets continued to be placed on the same original home investment, it was essential home prices continue to rise, thus ensuring profits for new players climbing on board vying for mortgage-based derivatives.

The price of the real, physical entity of a home, unlike its various speculative paper derivative counterparts, however, is affected by market supply and demand as Rasmus explains. So, when home prices outdistanced the ability of cash-strapped and debt-ridden consumers, a cascade of defaults resulted, adding to the housing glut and leading to dramatic declines in home prices.
The boom finally went bust. But Buffet and the other billionaires are still smiling. They either profited enormously in those years or were bailed out by the Bush and Obama administrations that subsidized several trillion dollars of losses of the 19 largest banks and investment firms in the United States.

But not one dollar was extended by the government to homeowners directly. In effect, nothing has been done to solve the underlying problem which is that working families have become chronic under consumers. The problem is acerbated since being deprived of credit which was the one life line to compensate for lower wages and higher health care costs.

The author does not, therefore, exclude the economy descending even further. The current situation is nothing more than a holding pattern, a stalemate that only temporarily avoided descent into depression. The fragile banking system was beefed up but little has been done to rebuild the deteriorating condition of worker consumers in this country and no recovery is possible without this being addressed.

Turning the economy around means turning around the increasingly wide gap in wealth between the top and the bottom and it calls for real investment in products and services.
Not surprisingly, the former labor organizer offers a political theme in his final chapter recommending solutions. In it, he expresses more confidence in a rejuvenated union movement that champions working class economic and social reforms than he does in the politicians in Washington who have amply demonstrated their class bias favoring banks and investors.
His solutions include nationalization of key banking transactions to provide no-interest home loans, the same benefit provided to bailed-out banks and investment firms.

Depression or Recovery?

The fraudulent nature of the economic boom of the last decade has been exposed.
The book explains how it happened, how previous recessions and depressions arose and abated, how dramatic structural changes of the economy are required that go well beyond reinstituting needed banking regulations, how direct government control must be instituted and how trillions must be spent directly on a social programs and jobs to upright a thoroughly imbalanced economy tilted toward the super rich.

The reader is conveniently provided three distinct book sections which can each be read independently: a discussion of broad economic theory, a description of US economic history and an analysis of the causes and solutions to the current epic recession. The introduction gives an excellent overview of all three of these chapters.

Thus, the author is the exception to George Bernard Shaw’s observation that “if all economists were laid end to end, they would not reach a conclusion.” On the contrary, Professor Rasmus has plenty of opinions, all fact-based, and plenty of conclusions, all well-documented.

But the author does face the obstacle wittily noted by another famous authority, the late liberal American economist John Kenneth Galbraith who noted that “economics is a subject…resonant with boredom. On few topics is an American audience so practiced in turning off its ears and minds. And none can say the response is ill advised.”

Students, workers, social activists, and those who simply want to examine more closely the collapsing world economy dramatically affecting us all, would be well advised to plunge ahead. To be sure, this is not a happy face book that can be read leisurely with your IPOD blasting away. This is a scholarly work on a serious subject that deserves to be studied thoughtfully. This does not mean it is too difficult to understand.

On the contrary, the book shatters the mystique of economics. Human decisions, not Adam Smith’s legendary “invisible hand,” have brought us to the brink of disaster. If you want to understand better the world around us, better understand the current turmoil engulfing us and better understand and even anticipate future events that lie ahead for us, Epic Recession belongs on your bookshelf.

by ALAN BENJAMIN, Unity & Independence Labor Newsletter, July 2010

Jack Rasmus is an economist, university professor, author, and activist who has worked closely with the San Francisco Labor Council and the Workers Emergency Recovery Campaign (WERC) to organize a workers’ fightback against the assault on workers’ rights, jobs and gains that is taking place in the name of the so-called “economic recovery.” In May 2010, his new book “Epic Recession: Prelude to Global Depression” hit the bookstores across the United States and Great Britain.

“Epic Recession” is a powerful book that is sure to provoke a widespread discussion in the U.S. labor movement about the need for independent political action by labor to defend jobs and prevent the onset of a Global Depression.

The jacket cover includes a statement praising the book by Chuck Mack, a longtime International Vice President of the Teamsters’ Union. Mack writes: “Extensive research, thoughtful analysis and articulate writing have created a great book. Jack Rasmus doesn’t just talk about the economic catastrophe of the last two years, he identifies the problems, the root causes of the problems and offers sound and insightful solutions.”

In an article published in Z Magazine (April 2010), Rasmus summarizes some of the main points covered in his new book. He writes:

“A year ago the Obama administration assured the nation that its $787 billion economic stimulus bill and three-part bank bailout plan would generate an economic recovery from the current economic crisis. A year later it is now abundantly clear that the Obama administration’s programs never intended to generate an economic recovery.

“These programs all were designed to simply put a floor under the escalating economic collapse at the time. The Obama strategy was designed simply to buy time to allow a market-driven recovery to take hold, led by the banks renewing lending once again. But the banks didn’t lend, market forces have been unable to generate a sustained recovery, and except for the big banks, big multinational companies, and the stock markets, the U.S. economy has been simply ‘moving sideways’ – neither collapsing further nor able to enter a sustained recovery. … Why is this?

“The current crisis is an Epic Recession, and thus quite unlike other ‘normal’ recessions in the post-1945 period in the United States. Epic Recessions are the consequence of major financial system implosions resulting from prior speculative investing excesses, which drive debt and asset-price inflation to dangerous levels. When the bust occurs, it produces greater than normal debt unwinding that leads to deflation and defaults.

“These forces are the consequence of escalating global income inequality, exploding global liquidity and the expanding ‘global money parade’ of speculators, their new shadow financial institutions, and new markets and financial instruments created for those markets (most notably derivatives). The global money parade, with more than $20 trillion on hand, drives the speculative boom, in the process creating a mountain of debt in the system.

“So what is to be done?

“Short of another financial-banking system implosion, which may originate anywhere globally given the now global nature of the capitalist financial system, the current economic crisis can go on for years, with short, unsustained recoveries and brief, equally unsustained economic relapses. This can go on for years until massive fiscal spending in the form of major government public investment and jobs creation occurs and appropriate structural reforms take place. These structural reforms will almost certainly have to address the banking-financial system, the tax system, and the serious income mal-distribution problem today in the U.S. economy.”

Rasmus goes on to explain that his new book contains 28 proposals for an alternative program needed to turn things around in the interests of the working-class majority. Among his proposals one can find the following:

” - Job Creation and Housing Stabilization: There can be no sustained recovery so long as jobless numbers remain in excess of 20 million (today roughly at 22-23 million when properly calculated) and so long as housing foreclosures, defaults and delinquencies continue to rise and prices and equity net worth continue to fall.

“A new federal housing agency, a ‘Home Owners-Small Business Loan Corp.’, or HSBLC, is needed to provide direct lending to homeowners and small businesses. … The initial task of the HSBLC is to purchase existing mortgages in foreclosure and resetting rates and principal. Thereafter, it would extend mortgage financing to all potential home financing in the future. The HSBLC is the primary agency administering a nationalized residential mortgage and small business property markets. …

“A one-year moratorium on residential and small business property foreclosures is needed to prevent further consumption collapse estimated from 4-5 million new foreclosures projected to occur. The moratorium will allow necessary time for the organization of the HSBLC. …

“- $800 Billion for Job Creation and Retention: An effective alternative jobs program must carefully consider the composition of employment generation. The quickest way to retain and grow jobs is within existing industries and businesses, not primarily by creating new industries from scratch. A quick path to jobs creation is direct hiring by government, in particular state and local government and school districts. A third fast path is promoting hiring in those industries having shown in the past high job growth rates, and thus potential for high job growth, such as health care. With these caveats in mind, job creation and retention program must target $300 billion for infrastructure jobs, $300 billion for public sector jobs, $100 billion for growth sector jobs like health care, and $100 billion for relocating manufacturing jobs back to the United States.

“- Tax Restructuring and Programs Financing: Capital Incomes Tax Cuts Rollbacks: There are approximately 114 million taxpaying households in the U.S., and the wealthiest 1%, or 1.1 million, have increased their share of IRS reported income from 8% in 1978 to more than 24% in 2007. This 24% share is equivalent to that which existed for the wealthiest 1% in 1928. No long-term recovery is therefore possible without a basic re-restructuring of the tax system in the U.S., starting with capital incomes taxation. It is necessary to roll back tax cuts on capital incomes – i.e. capital gains, dividends, interest and rental incomes for business – to 1981 levels, not 1993 levels, that is, back to that point at which the major tax restructuring began in the United States on behalf of earners of capital incomes at the expense of earners of wage incomes.

“80% Coverage Single Payer Health Care: There can be no long-term solution to the health care crisis in America (measured as deteriorating coverage, rising costs, and declining quality of care for the majority) so long as the Insurance companies remain a primary player in the system. Therefore, as an interim step toward a Universal Single Payer system, it is necessary to set up an Interim Single Payer system initially for the 91 million households earning less than $160,000 per year. Households earning above $160,000 (households within the top 20% income distribution) would be exempt, but could participate for a fee that would scale up with their income level.

“Re-Unionization of the Private Sector Workforce: A long-term program for restoring income to the bottom 80% households includes policies and measures to restore the unionization rate to at least the 22% level of 1980. The first step toward re-unionization must include reforms to level the playing field between workers, their unions, and management at the level of legal rights. This begins with implementation of the Employee Free Choice Act, or EFCA, which permits a more fair process for union organizing.”

Rasmus summarizes his solutions as follows: “The only way to prevent the onset of Depression is to radically restructure the economy through a massive jobs-creation program, nationalizations, a fundamentally new kind of banking structure and a long-term redistribution of income through better healthcare and benefit systems.”

Rasmus provides ample facts and figures to back up his 28 proposals. But he does not explain what it will take to ensure that these policies can become the law of the land – no doubt, he might say, because such an undertaking is beyond the purview of this book.

Possibly. But the question is posed from the beginning pages of his book. Millions of people voted for Barack Obama because they wanted “change they can believe in.” They wanted jobs, peace and justice – all of which are impossible to obtain so long as the Obama administration continues to bail out Wall Street at the expense of Main Street.

Promoting an independent Workers Emergency Recovery Campaign – including a massive jobs-creation program – will require that the U.S. labor movement act independently of the Democratic Party and fight in the streets and in the halls of Congress for its own agenda, through its own Labor Party.

Rasmus has made this task a bit easier by publishing a book that provides us with an analysis that is sound and a set of proposals that are reasonable and winnable – provided, of course, there is the political will in the house of labor to act independently of the twin parties of capitalism.

(For bulk order information, contact or

“When Are We in a Real Depression?”
by Suzi Weissman, ‘Z’ Magazine, September 2010

I do a weekly drive time radio show in Los Angeles and began concentrating on the economy right after the effective nationalization of Long Term Capital Management in 1998 – the year that the so called ‘Asian flu’ took down economies from Asia to Russia and beyond. Economically we seemed to be in new territory – profound and unresolved problems in the real economy were papered over by debt, speculation drove profit, and it soon became apparent that the US economy was addicted to bubbles as a growth strategy. I began to interview Keynesian, Minskyan and Marxist economists for answers, and my featured guests commented with growing alarm as bubbles inflated, deflated and then burst. As with LTCM in 1998 but on a much larger scale, the 2008 financial meltdown couldn’t be contained to the US and leapt national boundaries with electronic speed.

Not surprisingly, I turned to Jack Rasmus time and again to go ‘beneath the surface’ and help the listeners understand the unfolding economic drama. Armed with facts, Jack Rasmus could expose the rosy recovery myths the mainstream business press celebrated, talk about the real numbers of unemployed, and otherwise analyze, make predictions and theorize the nature of the financial implosion we are living through. Jack’s articles chronicling the crash and critiquing the measures proposed to deal with it appeared in Z Magazine regularly. It’s been an amazing ride, to say the least – and now Jack Rasmus has published his thinking on the biggest economic crisis in the last 80 years.

When the financial institutions began to go bust creating a domino like run on the banks, economists, journalists and pundits debated whether this was a recession, depression, or something else. The mainstream press has settled on the name “Great Recession.” Many on the left classify this as another great depression, the second in 75 years and an indictment of the capitalist system. Jack Rasmus calls it an ‘Epic Recession’ and that is the title of his new book. Epic Recession: Prelude to Global Depression, Pluto Press, London 2010.

Does it make a difference what this global meltdown is called? Yes—and there is substantial disagreement among analysts. But what is crucial is that we get more than either a recitation of events, or a grand theoretical overview that pays scant attention to the story as it unraveled, bringing the global economy to the brink of collapse. We live in an age that has little sense of history: the causes and consequences of the crash of 1929 and the decade which followed were easily forgotten in the hubris and euphoria of what some called bubble-economics.

Jack Rasmus’ book takes us through an historical comparison with epic recessions from the past and shows how government policy can either avert the worst or lead the economy into a great Depression, step by step. Politics matter in how this economic crisis is handled, as the economy is more and more dependent on the government and conscious decision making. Epic Recession: Prelude to Global Depression is not a simple blow by blow catalog of events from the dot.com boom and bust to the stock market and real estate bubbles and busts, followed by weaker attempts to create a commodities and then an oil bubble. Rasmus does examine what set off the cascade but then asks questions and analyzes the structural changes in motion.

Rather than just blame the smart set in the banks who devised complex financial instruments that few could understand, Jack goes back three decades to look at deliberate actions taken during the Reagan administration that deepened the dependence on debt to maintain consumption. Examining the subsequent structural changes in the economy, fiscal and governmental policy, Rasmus attempts to theorize what has happened, to explain why the Bush and Obama bailouts are insufficient to prevent the continued downward slide and hemorrhaging of jobs, and to propose an alternative recovery program that can be used as an organizing tool.

Three articles by Jack Rasmus have been published in Z Magazine that outline the major arguments of his book. Most of what has come to pass was predicted accurately by Jack in these articles. He wasn’t alone. Notwithstanding the Wall Street boosters on much of the cable television business channels, noted economists and financial journalists of the right and left saw this coming – some had a ringside seat – and warned and wrote about what was happening. They weren’t in a position to do anything about it.

Analysts on the left tend to see this crisis as another indictment of a failed capitalist system, no longer able to hide its decline with debt driven bubbles. Some see the crisis in criminal terms: fraud, theft, opacity and corrupt regulators combined to make this meltdown an inevitability, especially once protective walls like Glass-Steagall were removed. Danny Schechter, in Plunder, sees the crisis as a crime scene, asking for “jail-outs not bail-outs.” Max Wolff undercuts conventional wisdom on “Too Big to Fail,” saying the real problem is “Too Big to Bail.” The steps that States take are crucial to fostering a recovery or, alternatively, leading us into depression. Nomi Prins calls this a banking-led depression. Michael Hudson, watching current European proposals to inflict painful, draconian cuts to the public sector to tame deficits (which he says are coming here next) thinks the world is heading back to a system of debt peonage. Others argue that government and business are taking advantage of the crisis to return to a pre-WWI, or even pre-Civil War economy, before the gains of the Progressive, labor, and Civil Rights movements. Most observers agree that the period ahead looks bleak.

Rasmus recognizes the theoretical debt he owes to three economic thinkers: John Maynard Keynes, whose work is more about how to recover than what produced the crisis; Irving Fischer, who identified debt and deflation as the main mechanisms that drive a downturn into a depression, and Hyman Minsky, the theorist who wrote about the role of speculative investment, showing how the accumulation of debt can destabilize the entire financial system and provoke the kind of financial meltdown we have just experienced. Although Minsky died in 1996, his thinking is so pertinent to the crises of 2007-2010 that financial journalists and academics have called it a “Minsky moment.”

Theoretically, Rasmus tries to take the work of these theorists further in order to understand the nature of the current crisis, and Rasmus pledges to do this more fully in subsequent volumes as this crisis unfolds. His analysis is also aided by a thorough grounding in Marxist economic theory. Missing in Keynes, Fischer and Minsky, he writes is “the consideration of the price for labor and its relationship to product and asset pieces: how wage deflation is related to product and asset deflation.”

Chronicle of the implosion

There were warnings all along about the dangers in the highly leveraged subprime mortgages that rapidly spread to credit markets worldwide, creating financial havoc that led to recession in 2007. In March 2008 Bear Stearns collapsed, beginning the global meltdown. The Fed sought to contain the damage through infusions of capital and forced restructuring of failing institutions. Bear Stearns – an investment bank that was one of the shadow institutions heavily involved in the subprime mortgage market – was essentially given to JP Morgan Chase at a fire sale price backed with money from the Fed. The Fed then backed Fannie Mae and Freddie Mac. When Lehman Brothers started to go belly-up the Fed reversed its policy and allowed it to go under (Fed Chief Paulson spoke of ‘moral hazard’). AIG was partially nationalized and the whole house of cards came down in late summer 2008. More than just the puncture of a bubble, this was a catastrophic breakdown and a fully fledged banking panic ensued. The amount owed on leveraged ‘instruments’ was now many times the world’s GDP, though this isn’t a particularly useful measurement. More importantly, was this a crisis of liquidity that infusions of cash could remedy, or was it a crisis of insolvency? There followed an unprecedented financial freeze – credit simply crashed, taking down businesses, contracting the economy and leading to massive layoffs. It started to look a lot like the early years of the great depression of the 1930s.

This much can be ascertained from the many fine financial articles, blogs and books that have appeared chronicling the ‘age of greed’ and the melt-down, often from front row seats. Reviewing these events Jack Rasmus concluded that this was not a typical recession, but something entirely new. Finance capital imploded. The connections between Wall Street and Main Street became all too apparent – with banks unwilling to lend, businesses laid off workers and/or went under. But what were the fundamental forces at work that drove and underlay this economic storm?

Going beneath the surface Rasmus sees the debt, deflation and default cycles as enabling but not fundamental causes, leading to “consumption fragility” and the collapse of finance that produced what he calls the Epic Recession. It is epic, according to Rasmus, because the contraction of the economy is a hybrid with characteristics of both a recession and a depression. What are the forces driving this contraction? Rasmus’ interrogation involves a thorough historical and theoretical investigation to arrive at an understanding. He is not interested in what he calls ‘labeling in lieu of analysis’ or the kind of conceptual models or even superficial historical parallels that may dazzle but fail to explain and fall short of proposing solutions. Rasmus reviews the analyses of economists (academic and non-academic) as well as those of financial journalists, raising essential questions they fail to address. He notes that sophisticated terminology is no substitute for theoretical analysis, but theoretical models abstracted from the facts are equally unhelpful.

The Epic Recession did not begin with the housing bubble. To get at the underlying cause of the present crisis Jack Rasmus goes back to the Reagan era deregulation and tax cuts. The shift to finance capital that began in the 1970s came on the heels of the radicalizing social movements of the 1960s and the rising expectations of the working population for a higher standard of living. The response was an employer offensive to roll back the historic rise in American workers’ real wages through attacking unions and shipping production to low wage economies. It marked the ‘switch’ to finance from industry, the transfer of wealth upwards and the expansion of debt-driven finance for household and state budgets alike.

More than deregulation and tax cuts, Reagan began the frontal assault on unions. When the air traffic controllers went on strike in 1981, Reagan ordered them back to work; they continued the strike and he fired them, destroying their union (PATCO). This was by implication an attack on the organized working class, and Reagan’s success signaled the beginning of the assault on living standards (stagnant wage growth) and the redistribution of wealth upwards from workers to investors and corporations. Not surprisingly, it was also in 1980 that working and middle class households began to resort to debt to maintain living standards. It is this income redistribution that allowed the creation of what Jack Rasmus calls the ‘money parade,’ a global glut of capital sloshing around looking for profitable investment.

The shift from manufacturing to speculative investment brought with it new forms of banking to get around regulators (the shadow banking industry) as well as new financial instruments that serve as conduits for the “money parade,” creating debt-financed consumption in place of the old fashioned generation of income and jobs through physical production of assets. In common parlance the shift was from making goods (manufacture went to countries with cheap labor) to making bets on capital: the term casino capitalism is a fair description.

Epic recessions

Defining the 2007-2010 crisis as an epic recession and not a depression leads Rasmus to trace its origins and discern its dynamic, suggest policy approaches to deal with it and warn about the consequences of policy failure that could well transform this epic recession into a bona fide depression. He looks at two previous epic recessions which because of their similarities to the present become crucially important to understand. 1907-1914 was an epic recession that stagnated, while the 1929-1931 crisis evolved from an epic recession into a bona fide Depression.

The banks were bailed out in the epic recession of 1907-1914, but not the real economy. Sound familiar? The financial sector was stabilized but credit contracted, production declined, businesses shuttered, unemployment soared, asset prices fell (deflation) and an extended period of stagnation ensued. There were brief and shallow recoveries along the way, but the end only came with the onset of World War I in 1914. Again, sound familiar?

The ‘epic recession’ following the financial crash of 1929 until 1931 was worse, and there was no bailout of the banks or of the real economy. The result was an economic collapse that descended into global depression. The effects of government fiscal and monetary policy determined in each case the economic result. The chapters on the 1929-31 epic recession and that of 2007-2010 are gripping, as we see step by step that the cyclical downturns can be made much worse by bad fiscal public policy, something we are about to see globally now. When Rasmus catalogs the 1980s Savings & Loan crisis and Reagan’s push for deregulation, it is a stomach wrenching read, but that crisis did not go global nor beyond the S&L industry.

Policy muddle?

The world economy is ever more dependent on governments and conscious decision making, so policy is all important. Jack Rasmus correctly concentrates on the insufficiencies of both the Bush and Obama injections of capital to deal with the crisis. While Bush is a firm believer in market, not government solutions, his economic team pressed him to bail out the financial institutions with an initial $700 billion injection of funds and to set up the TARP (Troubled Assets Relief Program). More than four trillion has been thrown at the problem with another eight trillion dollars (or so) committed for future bailouts. As Rasmus notes, this was the monetarist solution – “a liquidity solution to an insolvency crisis.” The Obama/Geithner team steadfastly refused to nationalize the banks, while it could be said that the Bush/Paulson bailouts amount to a nationalization of banking bankruptcy.

Obama’s program, as Rasmus notes, is a short term holding operation for normal recessions, not epic ones. It relies on market solutions, doesn’t address the collapse of consumption, and favors global markets over domestic ones. The amount of stimulus injected was inadequate to fight deflationary pressures and hemorrhaging jobs, but at the same time talk emerged about rising deficits and fighting inflation down the road. The discourse changed when China balked at buying more US securities to finance US deficits. The irony of relying on semi-Stalinist China (led by the Chinese Communist Party) to save capitalism is a rather rich one to contemplate.

Now that the financial sector has been bailed out, it is back to business as usual. Companies are sitting on mountains of cash, yet they continue to slash payrolls and cut expenditures. Main Street just gets worse and worse with chronic high unemployment and underemployment, dire cuts to education and health (in California one in four is without health insurance) and more foreclosures and bankruptcies to come. State and local governments are in desperate need of bailouts, and their balanced budget requirements undercut or cancel out Obama’s economic stimulus. Everywhere individuals, states and nations are drowning in unsustainable debt. The crisis is global and the picture is grim from Iceland to Ireland, the Baltics to the Balkans, Chile to California.
Wall Street has poured hundreds of millions on Congress to try to prevent any real regulation that would curb their profitable practices. Regulation is being restored, but with plenty of loopholes. Congress can’t legislate what needs to be done – it is constrained by party polarization, ideological intransigence and buckets of money from financial lobbyists. The somewhat veiled relationship between capital and power has lost its cover. Congress is openly seen as a wholly owned subsidiary of the titans of finance, industry, real estate (FIRE) and pharma. Capitalism may be losing its luster (confirmed by a recent Rasmussen poll) but the deficit hawks are gaining ground, blaming workers and crying for pain.

Western Europe has taken the decision to cut living standards drastically (Britain’s Cameron has warned of pain for decades to come) and the UK and Germany are in the lead in attacking living standards. Indeed, European policymakers make President Obama’s stimulus policy look reasonable by comparison. Since the deficit hawks in the US are not in control the US stands out as the only developed country with any sense, even if the Obama program is insufficient for recovery. Nonetheless, the calls for deficit reduction are gaining in the US, and the states are already forced into draconian measures.

Keynesian economists like Paul Krugman warn that economic policy is now set on a disaster course of crippling cuts that will kill any possibility of recovery. But why are governments choosing policies that will, as Rasmus warns, take this ‘epic recession’ into a full blown global depression? Why don’t governments simply reflate to spur growth rather than cutting back? Put another way – what would it take to force governments to adopt the policies that would benefit the majority of the population?

Simply put, there would have to be a vibrant labor movement that could effectively challenge the cuts to come. It would require the kind of popular mobilization and sustained fight-back that Greek workers began to mount to resist austerity. Unfortunately that doesn’t exist today. Greek workers called for a default and no cuts to their living standards. They have been temporarily bailed out, but draconian cuts are part of the package.
Economic policy has veered from supports that are too little and not given a chance to work, to deficit reduction guaranteed to undermine recovery. There appears to be no satisfactory ‘exit solution’ from this crisis that preserves present power relationships. To reflate the economy and raise living standards depends on the confidence that the population represents no threat. Technically it doesn’t but capital is still smarting from the revolts after 1968. The switch to finance after the 1970s appeared to be the solution to the impasse, shifting manufacture to low wage economies, including those in former Stalinist states where workers would be reliably docile. Now there seem to be no strategy, and Greece notwithstanding, no real left either. Increasingly the policy appears to be one of rollback, to strip away the gains workers have won over the last 60-70 years that cut into profits. The logic that governments are following is to go back to some form of an imagined pristine capitalism before there was any challenge to the system. Even so, the current offensive proposed in Europe seems suicidal.
Alternative solution for recovery

Epic Recession is written in the language of political economy and economic history; it is technical, analytical, political and practical. The material is well organized with clear explanations and Rasmus provides a very useful glossary at the end that succinctly describes his key concepts. After a review and critique of the Bush and Obama recovery efforts through the policies enacted by Greenspan and Bernanke, Paulson and Geithner, Jack draws up his own practical solutions to the crisis in a twenty-eight point recovery program that is being taken up by labor councils around the country.

The alternative recovery program is one that involves a radical restructuring of the economy in the interests of the vast majority: massive job creation programs, nationalization of the mortgage and consumer credit markets, new banking and tax structures tax and a long-term redistribution of general income with quality and equitable healthcare delivery and retirement systems.

The beauty of the alternative program for recovery that Rasmus proposes is that it provides a concrete basis to fight the offensive on living standards underway. He insists it represents the only way to prevent the onset of a classical depression. The program addresses both the root causes of the crisis but also contains solutions that are reasonable and realizable. His solutions threaten the position of capital and would be fought tooth and nail.

This radical restructuring of the economy challenges capitalism without overthrowing it, yet cannot be undertaken without a militant labor movement that demands and wins jobs, healthcare, homes, education, and decent retirement pensions. Had his program been in place right away, the foreclosures would have been staunched, and the credit market stabilized.

Among the proposals in the alternative recovery program are: Mortgage rates would be reset (all loans, not just those in trouble) to the Fed’s 30 year bond rate plus .5%, so an effective rate of 3.5%. Mortgage principle would also be reset to the levels before the artificially inflated prices of 2003-2006. There would be a moratorium on all foreclosures both residential and commercial.

The second set of proposals would provide for real job retention and creation, pumping adequate and targeted stimulus (infrastructure jobs, manufacturing and public sector job retention and creation, plus adequate safety net funding.) The program also includes measures to insure it is adequately financed through restructuring the tax system. Proposed measures would assure the finance sector as well as begin to redistribute income; restructure retirement tax so that a surplus is restored to the social security system after 2017; provide funding for a single payer healthcare delivery system. His tax measures would reverse regressive taxes and recover capital from offshore havens, create a financial transactions tax and many other progressive measures. These measures would gradually reverse the income inequalities of the last three decades.

To implement the Rasmus alternate recovery program would require confidence, mobilization and organization from the very sectors that have been adversely affected for decades. It is precisely that kind of mobilization that government policy seeks to avoid and seems prepared to risk a depression to effectively discipline labor (even super-exploited low wage immigrant workers). That is class warfare on steroids, coming from the wrong class!

Nowhere does Jack Rasmus call for an end to capitalism or sound the call to mount the barricades. His alternative recovery program does address the real problems in the economy and does so through concrete proposals. It has the added value of being an organizing tool that lifts the population – and as such challenges the status quo with its property and wealth arrangements. Chuck Mack, the International Vice-President of the Teamsters writes (on the back cover) that Epic Recession provides a rallying point for trade unionists and concerned citizens who want to ensure that any recovery is felt further than Wall Street. Rasmus calls for bailouts for workers not bankers.

The War At Home: The Corporate Offensive From Ronald Reagan to George W. Bush
by Jack Rasmus
Kyklos Productions, San Ramon, California, 2005, 534 pp.

REVIEWED by Harvey Schwartz
Curator, ILWU Oral History Collection and Sam Kagel Historian
Labor Archives and Research Center, San Francisco State University

Did you like Howard Zinns, A PEOPLE’S HISTORY OF THE UNITED STATES? If so, you are going to love the new book by Jack Rasmus, THE WAR AT HOME: THE CORPORATE OFFENSIVE FROM RONALD REAGAN TO GEORGE W. BUSH. Rasmus is a former local union president and a seasoned organizer who once directed a community college labor studies program. He also holds a Ph.D. in political economy. Here he employs the tools of that exacting science with rigor and insight to analyze the victorious thrust in recent decades of corporate power into every phase of American social, political, and economic life.

Like Zinn, Rasmus sees American history as a continuous struggle between the “haves” and the “have nots.” Zinn traces the rise of elite power and the organized response of various groups of exploited people from Columbus to, in the most recent edition of his best seller, Bush II. Rasmus would not dispute that approach to the past. On the contrary, by going into serious depth in several key areas of American life since Reagan, Rasmus effectively picks up the story where Zinn leaves off.

Rasmus differs from Zinn in looking at the political and economic policies of corporate America and the resulting deleterious impact on workers and unions rather than at any specific people’s opposition movements. Consequently, his book is an excellent complement and companion to Zinn’s popular work. Rasmus seeks to pull together the various phrases of what he calls “the corporate offensive” in a readable and comprehensive account that workers, progressive activists, and other non-specialists will find useful and informative. In this I think he succeeds admirably.

THE WAR AT HOME is not driven by any conspiracy theory of history. Instead, after briefly carrying the story back to 1929, Rasmus traces ebbs and flows in a quite public corporate push that more or less parallels the ascendancy of Republican presidents since Richard Nixon.

Early on, Rasmus also points out that acknowledging any such thing as “class war” is anathema to mainstream American politicians and media opinion-makers. He then convincingly demonstrates exactly how the elites have profited since 1980 at the expense of working class families in income and wage distribution, job loss, debasement and outsourcing, federal tax, trade, labor policies, and health care and pension benefits.

The final chapter of THE WAR AT HOME focuses on the evaporation of the once vast Social Security surplus over the last twenty-five years. This inquiry is especially riveting given President George W. Bush’s crusade to privatize and essentially hamstring the Social Security program, that best known remaining legacy of Franklin D. Roosevelt’s New Deal.

Rasmus has a lot to complain about, but he does not let matters drop there. He has suggestions for dealing with the corporate offensive at the end of several of his chapters, and a real battle plan for organized labor in his lengthy conclusion. There he challenges the AFL-CIO to improve the coordination of its member unions in several key areas.

Intending to stimulate fruitful discussion within the ranks of labor itself, Rasmus holds that American unions must henceforth work together and perhaps restructure their movement at the grass roots level. Only then, he argues, can they hope to expand significantly and to recapture the kinds of industry-wide or regional-wide collective bargaining agreements that re-enforced union power in much of the United States before 1980.

All this should give you a sense of the inclusive sweep of THE WAR AT HOME. The final verdict, it seems to me, is that if you want to get beyond the “big G” hot button issues successfully exploited by various reactionary politicians in recent campaigns—God, gays, guns and the like—and find out what has really been going on, give THE WAR AT HOME a look. It has some great labor cartoons by Jim Swanson and a few simple graphs even I was able to follow. Most important, it is a sobering and path-breaking effort to “put it all in one place.” As such, it is clearly a valuable service to “the people” in what is most assuredly their time of need.

THE DISPATCHER, June 2005

The War At Home: The Corporate Offensive From Ronald Reagan to George W. Bush
by Jack Rasmus
Kyklos Productions, San Ramon, California, 2005, 534 pp.

REVIEWED BY Laurence H. Shoup, “Z” Magazine, October 2005

The dominant institution in American society is the corporation, an instrument of aggrandizement for the few that enriches its already wealthy owners through a never ending process of commodification and privatization. The corporation’s goal is to make everything, even life itself, into a salable commodity, and it tries to turn every type of public property into private property, owned by and for the few. As a result, the earth and all of its life giving resources, from land and water to ores and oil, is being privatized into fewer and fewer hands, with dire consequences for numerous life forms worldwide, including billions of poverty stricken human beings. Current statistics illustrate how successful the corporation has been in helping the several hundred thousand families that make up the core of the corporate rich to reach a level of wealth and power beyond what any ruling class has ever known. The U.S. corporate rich, the top 1% of the population, holds nearly 40% of the country’s wealth, the top 10% over 70%, while the bottom 80%, making up the core of the working population, controls only 16%.

Not only is inequality in America grotesque, it is increasing due to an ongoing economic class war on poor and working people launched about twenty-five years ago by our nation’s dominant corporations. This class war has been very successful for the rich. As billionaire Warren Buffet recent exclaimed: “my class is clearly winning”. Working people, on the other hand, are clear losing. The corporate class war has been a disaster for the vast majority of our people.

In an important new book, THE WAR AT HOME: THE CORPORATE OFFENSIVE FROM RONALD REAGAN TO GEORGE W. BUSH, Jack Rasmus explores these key themes. Filled with facts and analysis, including 45 tables and 540 endnotes, and coming at a key historical moment, THE WAR AT HOME comprehensively illustrates the all-sided corporate attack on working people and their leading organizations conducted both historically and since 1980. In so doing, he makes a major contribution to our understanding of what has been going on, illustrating in depth how every societal institution which supposedly promotes the general welfare, from government at all levels, down through the Democratic Party and its trade union allies, has failed to protect the American working class from the disastrous consequences of unbridled corporate rule.

Rasmus uses the theme of periodic corporate offensives to good effect in reviewing the history of the last century to illustrate how we got to our present predicament. He sees four different corporate offensives since the 1890s, the latest and ongoing one dating from about 1980. In chapters which form the core of the book, Rasmus focuses on how the corporate power structure, using both top down legislation and bottom up actions at the point of production, has, over the past thirty years, been able to transfer about $9 trillion from over 100 million working class Americans to the wealthiest 5% of households. This has been done through tax cuts for the corporations and the rich (for example, the corporate tax rate was 23% in 1969 but is now only 7%), along with tax increases for workers; through ‘free trade’ and runaway shops, which has cost our country ten million jobs, seriously undermining our unions; through further reducing wages by contingent employment, reducing overtime pay and not raising the pathetically low minimum wage; through forcing workers to pay for health care or do without; and through reducing or eliminating pension benefits and stealing the Social Security surplus. Now they are even boldly attempting to privatize this program. Rasmus also suggests how to turn around the ongoing rout and disorganization of the U.S. working class, offering ‘suggested solutions’ at the end of most chapters, along with useful theoretical discussions of some key issues such as the ideology of ‘free trade’.

Rasmus also points out how American democracy itself is now threatened by the so-called ‘Patriot Act’ and the ‘War on Terror’ resulting, together with the impacts of the corporate offensive, in our nation’s most serious economic cultural and political crisis since the 1850s. Rasmus argues that part of this crisis involves the Democratic Party, which is increasingly influenced by corporate donations and lobbyists, is adrift with no clear ideology, or mobilizing approach to politics, and represents a weak ‘Republican lite’ approach overall. Largely taken over by the pro-corporate Democratic Leadership Conference (DLC) in the late 1980s, Rasmus correctly calls the Democrats an ‘organizational ally’, a ‘junior partner’, and frequent supporter of important aspects of the current Corporate Offensive. The War At Home documents key examples of this support, such as NAFTA, the 2000 trade deal with China, the sellout of health care for all in 1992-94, the theft of the Social Security surplus, corporate tax cuts, and two trillion dollars in tax cuts for the rich during George W. Bush’s first term alone. By 2004 the Democratic retreat from pro-working class economic positions had created such a vacuum that its former base had become confused and vulnerable to right wing appeals on cultural/social/religious issues. This is illustrated by 2004 poll numbers showing that core working class voters, those with a high school or less education, supported Bush over Kerry 57% to 38%.

Rasmus concludes THE WAR AT HOME by focusing on a reorganization of the AFL-CIO as the hope for a renewal of progressive class politics in America, proposing his own plan for restructuring the labor movement and its main federation. He points out that for at least thirty years the AFL-CIO’s political strategy has been characterized by “…an almost blind reliance on the electoral fortunes of the Democratic Party, to the exclusion of other forms of political and community organizing or inter-union coalition building” (p. 459).

During this same period probably several billion dollars in resources have been given by the union movement to Democratic candidates instead of organizing and educating working people for an independent fight back based on the needs of the majority. As a result, there has been no coordinated response to the Corporate Offensive, with the dire results that Rasmus documents so thoroughly. To remedy this, Rasmus proposes that to rebuild union and worker power requires a rank and file grass roots democratic movement with an effective membership base working on solidarity activities at the community and point of production level, and implementing a new, “radical transformation of the organizing process” itself (p. 470).

To successfully achieve this requires a fundamental restructuring of the AFL-CIO. At the core of the Rasmus proposal is the creation of an ‘American Workers Congress’, a new legislative body gathered from the state and local levels to set overall policy quarterly, plus two new union structures replacing the AFL-CIO. These are the ‘American Federation of Unions’ with the primary task of political action, including elections, as its main focus, and the ‘American Council of Unions’ with organizing and other activities at the point of production as its main focus.

To implement this at the grass roots level, what Rasmus calls ‘Local Mobilization Committees’, composed equally of union and community forces, would drive local solidarity activities like strike and boycott coordination, major cross-union organizing drives against companies like Wal-Mart, anti-corporate campaigns, demonstrations and actions in defense of community interests, and similar point of production focused activities. Union and community groups would have equal weight in both the membership and leadership of these committees. A new kind of cross-union and even union-community membership would evolve, producing a new layer of ’shock troops’ for labor. And whereas current Central Labor Councils would carry out the political organizing tasks of the American Federation of Unions, the Local Mobilization Committees would carry out the point of production solidarity actions and report to the American Council of Unions in the new reorganized structure. Both parallel structures would cooperate closely but essentially remain independent in carrying out their primary focus and missions, whether political or point of production.

Rasmus also weighs in on the ‘union density’ debate, suggesting that to increase density and potential power, sectoral unions would need to begin to develop. At first voluntary and in a loose federated structure, such unions would operate within the American Council of Unions to enforce coordinated bargaining, develop organizing strategy and direction, resolve union jurisdiction issues, etc.. He sees the eventual necessity, however, of one union in all of transport (trucking, longshore, railroad, airlines, etc.), one union in all of health care, in hospitality, manufacturing, and so on. Neither craft or even industrial unions are adequate to deal with global corporate forms of organization. But the process of developing sectoral unions must be evolutional and voluntary, in his view, not forced from the top down.

One limitation of THE WAR AT HOME is the failure to discuss and suggest possible solutions to one of the central dilemmas facing the left in America: how to escape the clutches of the DLC/Corporate-controlled Democratic Party. There are alternative parties (the Green Party and the Labor Party come to mind) with solid programs now struggling to be recognized as the party of, by and for the working class. An infusion of major labor support would instantly make one, or a merger of these two major players, a viable alternative. There are also those who argue that the political system, with its corrupt financing, winner take all structure, non-transparent voting machines, and partisan political supervision is fraudulent at its core and should be boycotted as not democratic enough even to participate in. A creative discussion of the entire political situation to stimulate a larger debate about what to do in this key area is lacking in the book.

Despite a few shortcomings, THE WAR AT HOME is a path breaking work which will stand as a milestone on the road to a fight back by and for working people, the vast majority of the American population. Jack Rasmus has performed a major service to the movement by starting what needs to be a great debate about our collective future. Those who do not want us to connect the dots about the profound transformation now occurring due to the economic warfare of the corporate rich hope that the majority now being marginalized into oblivion never find out about and read this book. Of course, this is the very reason that it is so important that we all should read it and spread the word about The War At Home.

Laurence H. Shoup is an Historian and author of the book, Imperial Brain Trust: The Council on Foreign Relations and U.S. Foreign Policy.

reviewed by Larry Shoup in the ILWU DISPATCHER, March 2004

The many-faceted play "Fire on Pier 32" takes its title from a dramatic historical event. Worker demands for an organized voice on the waterfront during the crisis of the Great Depression led longshoremen to burn their company union contract books, the infamous "blue books," on San Francisco’s Pier 32 in 1933.

This collective act of defiance was pivotal in the history of both the International Longshore and Warehouse Union (ILWU) and the larger American labor movement. The blue books were concrete representations of the slave-like conditions imposed on working people. Their burning was a mass act of rebellion that posed larger questions of the union shop, of how jobs were to be allocated, (the workers’ demand for a union-controlled hiring hall),of pay and pensions, as well as bigger social and political questions.

Longshore Workers March Down Market St.

There was no turning back for the courageous workers who organized this waterfront bonfire. Their lives were now committed to the concept of democratic industrial unionism by and for the workers, and they now survived only through solidarity and struggle, through building their union. Their direct action and the actions of others around the country during the 1930s breathed life into a near moribund labor movement, showing that the way forward was militant democratic industrial unionism, organizing all workers irrespective of skill, race, gender or status.

The history of the ILWU represents one of the purest expressions of class consciousness and class militancy in the U.S., making its past, present and future of immense interest to us all. Perhaps no union in the U.S. has a more inspirational history for advocates as working people, real democracy and social justice. "Fire on Pier 32" reviews this dramatic history in three acts, with a cast of twelve, over two-and-a-half hours, covering the ILWU story from 1933 to 2003. It is about repeated employer offensives against labor and organized, militant solidarity as the only effective union response.

The play begins with the 1934 maritime and San Francisco general strike, then covers the epic "march inland" to organize warehouse workers, the successful organizing in Hawaii, and the great strikes of 1948 and 1971, using solidarity to turn back successive employer offensives. Final scenes of Act 3 include the lockout of 2002, when the union’s solidarity and strength was tested as the ILWU had to face down both the corporate bosses and the Bush faction of the national power structure.

In "Fire" National Writers Union playwright Jack Rasmus uses the Epic and American Musical theater traditions, as well as historic photo montage, to capture the conflict, spontaneity and passion of varied situations as the ILWU leadership and the rank and file collectively made history together. By establishing context using a narrator and ILWU archive photographs projected on an overhead screen, along with longshore workers and their key leaders as central characters, Rasmus is able to educate by provoking critical thinking and raising consciousness about social, economic and political relationships. His portrayals of boss and politician scheming at secret meetings expose the totalitarian impulses and venality of those who rule the corporate capitalist system. In another scene he shows how solidarity and the union’s collective democratic power enforce safety standards and make a real difference in people’s daily lives on the job.

At the same time, "Fire" entertains, with six new songs in contemporary musical styles, performed by a chorus of three singers-dancers and the cast of actors. The lyrics and music of the play’s two theme songs, "The Song of Solidarity and "Song of the New Unionism," are particularly memorable, representing in musical form the main premise of the play. Other key songs include "The Song of Desperation," "Government Man," "The Web," and "Moving the Money Around." These songs focus on secondary themes: government always siding with the bosses, the infamous Taft-Hartley law and how the corporations play games during negotiations.

The acting is also outstanding. "Fire’s" central protagonists, Frank and Joe, are two young workers who grow and develop as they build a union that resists corporate attacks through solidarity. Their passionate portrayals of the rank and file helps us feel in our guts what it must have been like to be a worker with only his fists, courageously facing police and National Guard machine guns and tanks during the decisive battles of July 1934.

This play is a powerfully important contribution to the entire American labor movement. In "Fire" historical events and the union movement live again through art, allowing our collective history to emerge clear and true. We see the personal and social transformations that take place as workers and their leaders debate the strategy and tactics of resistance while facing the manoeuvres of the bosses and the betrayals of some corrupted leaders.

The play succeeds in giving a human face and emotion to the meaning of solidarity—born of struggle, nurtured by sacrifice and cherished forever in the hearts of those who come to know it as more than just a concept. The universality of Rasmus’ art helps us see deeper truths about ourselves and our current predicament. The result is a useable past, helping us see that our ultimate goal must be democratizing the world, confronting the corporate capitalist usurpation of our inalienable rights and emancipating all working people everywhere.

It has been said that the theater houses a nation’s soul. If this is true, it can be said that "Fire on Pier 32" is one place where the soul of American labor resides. "Fire" is now on video and DVD, get a copy and see it with your union brothers and sisters. It is wonderfully entertaining and instructive at a time when we face the Bush-Leaguing and Wal-Marting of America.

About the Reviewer
Larry Shoup grew up in a union household, his father was a member of the Machinists Union. He has had a varied work career and has been a member of both the old Retail Clerks Union (today’s UFCW) and American Federation of Teachers. He now makes his living writing and is a member of the National Writers Union, serving on its steering committee and as its delegate to the Alameda County Central Labor Council. Shoup has written three books and numerous magazine articles. He is currently working on his fourth book: "Rulers and Resisters: A People’s History of California."