I read a well-written article from the Radical Perspectives On The Crisis blog titled “Staring Into Black Water“. Basically it talks about how determining what will happen in the economy, even in the near future, is virtually impossible. We can see the general problems afflicting the health of the worldwide economy, but only time will tell how deep the problems are rooted. The article argues that eventually the economy will have to fix itself, or cease to exist and start from the beginning.
“But nobody knows how much fictitious capital is out there and how much of it must disappear before the rest of the economy is sufficiently unburdened to catch its breath.”
The article starts off by pointing out one of the central problems of the economy: fictitious capital. This emphasizes the overarching point that knowing how deep the problem goes and in which direction it will go in is impossible, because we don’t know how much fictitious capital is out there. Fictitious capital will have to decrease by the forces of deflation, but that as time goes by the problem grows exponentially worse.
“One option for the ruling class is to do more or less nothing. Let the avalanche rush on until it has hit the bottom. After all a crisis is a moment of correction and, if the correction is not allowed to proceed, the underlying problem will not go away.”
It goes on to say that the most obvious thing we can do is let the “avalanche” of the worsening economy play itself out. While this might be the most obvious choice, it will not be the choice willingly chosen by the ruling class because of the social implications, such as uprisings by the middle and lower classes.
“The limited reach of monetary tools is already painfully clear. Even a zero interest rate is not low enough to get credit flowing again if there is no confidence in tomorrow.”
The article also points out how relatively ineffective our “monetary tools” are when it comes to solving such a global problem. Lowering the interest rates is supposed to be one way the government can intervene, but it does not solve the underlying problems that plague the system as a whole.
“It may be that the loss of purchasing power as a result of the deflation of real estate and other assets is just too great to be compensated for, and that the deflationary wave, after slowing for a while, will accelerate again. Keeping alive weak companies will only postpone their demise and in the meantime lower the profit rate of their stronger competitors”
The article goes on to criticize how “bailing out” companies is only worsening the problem. it may temporarily alleviate some of the symptoms of the worsening economy, but in the long run will actually make things worse.
“So the great stimulus plans may all be in vain, but there is no other option … The crisis of confidence will move from confidence in the banks to confidence in the state. The crisis of confidence will move from confidence in the banks to confidence in the state. “
In the end, I think although people feel that the “laissez faire” approach to solving the world’s economic woes is a poor way to deal with the current crisis, that is what might ultimately happen. Because of globalization, there is not much any single entity can do to sway the global economy in any particular direction. Governments may try to help alleviate the social impacts of a poor economy to make sure that there are still people around to participate in an economy, but the markets will either have to fix themselves or – in the worst case scenario – cease to exist and would have to “start from scratch.” At best, what we can do is try to alleviate the social implications on the crisis, but at some point (and some may argue we may have already reached that point) the only way to restore people’s confidence may be to radicially change or replace the capitalist system altogether.
-Adrian Manea
