Important post-earthquake political debate: who pays?

An important political and ideological debate has started in the wake of the Christchurch earthquake. This debate hinges around a neo-liberal response that will devastate the lives of all grassroots New Zealanders (a case of same policies, same failures), or an alternative people-centred response that makes sure that those most able to pay - the wealthy and big corporates - foot the bill for rebuilding Christchurch. Tax continues to be a key political battleground.

Rob George, a Hamilton-based activist, has entered into this debate in response to an article by NZ Herald business columnist Fran O'Sullivan. Rob's article, Seismic events in Christchurch, food & fuel, can be read on The Standard. 

Hey, Labour MPs, why not support GST off food?

by Vaughan Gunson

I was scrolling down Scoop's top 30 stories for the day and got quite excited by this headline: "Labour Wellington MPs want to Axe the Tax". What tax? Must be GST. I'd better read on.

Yes, Wellington Labour MPs do want to "Axe the Tax", but they only mean the portion that National is planning to increase GST by, from 12.5% to 15%. I should have known not to get too excited by a headline. Never-the-less, Labour MPs are getting out there in response to the groundswell of public opinion against any hike in GST.

Judging by the language these Labour MPs are using and the basic food examples in their media release, it would be reasonable to assume these MPs would support removing GST from food. A demand that's proven to be hugely popular with people (see the front page story in the Whangarei Leader for a snap-shot of the mood on the street: Take GST off food, 16 Feb).

Connect with this grassroots mood and you've got a campaign that could undermine the whole neo-liberal tax structure. A mass campaign for GST-off-food would, if successful, be a mortal blow to one of the pillars of neo-liberalism, as GST certainly is.

But Labour has so far been very reluctant to embrace this popular demand. Is it because GST-off-food strikes at the very heart of neo-liberalism? To roll back GST would mean campaigning against the powerful proponents of this regressive tax: the big corporates operating in NZ. Is this a step too far for the Labour Party leadership?

Phil Goff says Labour won't support Maori Party MP Rahui Katene's private members bill to remove GST from healthy foods. And Goff won't even commit to reversing National's GST increase if Labour were the government. What does this mean for the "Axe the Tax" bus? Does it get parked away after the Budget in May?

Prime minister John Key has challenged Labour to campaign on reversing the GST increase at the next election. Key has framed the debate in these terms: you either have an increase in GST or an increase in personal income tax. This has put the Labour leadership in a bind.

But only if Labour wants to accept how the debate is currently framed, because there are circuit-breaking options. Most clearly, a Financial Transaction Tax (FTT), or Robin Hood Tax, as it's been so-named by the campaign originating in Britain.

Instead of the GST-income tax trade off, let's target the mega-wealthy. A small percentage tax on financial transactions (say 0.5% or 1%) would raise billions of tax revenue from the banks and other big corporates, including the global financial speculators who buy and sell the Kiwi dollar, one of the world's most traded currencies. (For more on why a FTT is an idea whose time has come, read these recent articles by John Minto, Finlay MacDonald and Barry Coates.)

So a circuit breaker for Labour MPs exists, but do they have they have the guts to take it? A tax on financial transactions would hit the big banks and other global financial overlords that have run amok with the world economy since the mid-1970s. In campaigning for an FTT you're buying a fight with some powerful global forces. 

But it's a fight that must be fought if any kind of tax justice for grassroots people is to be achieved.

With the banks and other financial "fat cats" on the back foot following the financial implosion and their widely perceived role in causing it, there's an opportunity to go on the offensive. That's not to underestimate the size of the task. To roll back GST and force the introduction of a FTT would require serious and sustained campaigning by broad forces, in order to win the active support of the majority of New Zealanders. So that when the inevitable opposition from powerful political and economic forces comes there's a mass base from which to push the cause of tax justice.

Is Labour going to be part of this struggle, or not? Will the axe stay out, or will it be left in a cupboard in one of the corridors of parliament?

Here's a challenge to Labour: why not keep the axe out and support the campaign to remove GST from food, which would be a decisive first step towards tax justice in New Zealand.

So Labour Party people, what do you say?

Socialist Worker's 2010 National Conference, 6-7 February

Socialist Worker-New Zealand is holding its 2010 National Conference on 6-7 February (Waitangi Weekend) in Auckland. The twin themes of the conference are capitalism's collapse tendencies and building a broad left alternative to neo-liberalism.

The conference is open to all members of Socialist Worker. If you are interested in joining Socialist Worker prior to conference, or would like more information, please contact Vaughan Gunson, email svpl(at)xtra.co.nz or ph/txt 021-0415 082.

You may wish to read Socialist Worker's ten point programme Where We Stand.

A “public option” against the banks

by Daphne Lawless, editor
Editorial from UNITY Journal: Bad Banks: what are the alternatives? 
December 2009

A criticism often made of the radical left in this day and age is: “what is your alternative?” With the ruling class offensive against our living standards and the planet which started in the 1970s still going on, so much of our political practice is necessarily negative – protesting, fighting back, resisting. It is sometimes easy to forget that the struggle for a new world needs a positive – a program of concrete demands, based in the here and now, which point the way to what a better world might look like.

This issue of UNITY is an attempt to start the process of doing this for the Bad Banks campaign. If the banks are greedy, corporate vandals, who distort our society’s economic decision-making for their own profit, promote ecological vandalism and wreck lives and communities in the process... then what else might be done?

As socialists, we believe in the “transitional method”. It’s no good dreaming up a “revolutionary” schema of what we’d like to see, and presenting it to the masses as a way forward. The response will be – and rightly so – “who do you think you are?” Marxism isn’t a series of eternal principles, handed down through the generations like religious commandments. It’s a science of analysing a concrete situation and drawing conclusions for political and social activism.

So – the question of what practically can and should be done, here and now, to fight the Bad Banks starts in a clear analysis of what is actually happening. And, as we explained in the last UNITY journal, one of the things that is actually happening is that the banks are losing credibility.

The banks know this better than anyone. The Australian-owned trading banks are frantically trying to make good PR for themselves – to make themselves look less like the corporate criminals they are.

So, Westpac suggests bringing back small “community branches” in suburbs and small towns – those same branches they closed wholesale in the 1990s. Meanwhile, the ASB (owned by Australia’s Commonwealth Bank since 1989) are trying to convince us all that they’ve been “a Kiwi bank since 1847”. By the time UNITY journal goes to press, Bad Banks protests will have been held outside ASB outlets to show this up for the shameless lie it is.

Interestingly enough, though, that piece of ASB spin shows that the state-owned KiwiBank is ruffling feathers. KiwiBank – which, even though owned by the state, acts more or less just like a private bank – has been conducting its own spin over the last couple of years. Its ad campaign suggests that choosing KiwiBank is like being part of some kind of “resistance movement” against Australian bank domination! The clear success of this pretend “revolutionary” branding suggests that the corporate marketing gurus have caught onto a serious revolt against the Bad Banks brewing at the grassroots. So of course, their goal is to harmlessly divert this resentment into making consumer choices which benefit their clients. And our goal has to be to reverse this process.

Even the mainstream parliamentary parties realise that the four Australian-owned trading banks are out of control – gouging the public with fees and exorbitant interest rates, and the whole nation with their tax-dodging schemes. Hence the recent “parliamentary enquiry” into the banks by the Opposition parties. Of course, all these parties – including, sadly, the Greens – have bought into the neo-liberal myth that There Is No Alternative to free-market capitalism. Given that, their enquiry was good for pointing out a few problems, but could come up with no real alternatives – except a forlorn hope that the slavering dogs of banking profit can be brought under control with a verbal ticking off.

Grant Morgan’s piece in this issue of UNITY on the “four legitimacies” should be read in the light of the corporate shenanigans detailed above. Grant says: "On a global scale both leaders and led are losing faith in capi-talism’s destiny, eroding the broad social consensus that the world system needs for survival beyond the short term."

The essence of the Bad Banks strategy, therefore, has to be to accelerate this disintegration of the legitimacy of capitalism. And the weak point of capitalism’s economic legitimacy in the world today, after the economic shocks and convulsions of the last couple of years, has to be the multinational financial institutions, which we call by the short-hand of Bad Banks. Vaughan Gunson's article in this issue sets out this strategy in further detail.

So this issue of UNITY canvasses the spectrum of alternatives to the current financial system. At the basis of all of these has to be a thorough rejection of the global system of human and ecological exploitation that is capitalism. The late Chris Harman put it very clearly, in his article reproduced in this issue: "[I]t is necessary to take control of those corporations and coordinate their investment decisions, subordinating them to the fulfilment of democratically decided priorities.

But this risks being abstract, divorced from the here-and-now. So, in New Zealand of the early 21st century, what does Socialist Worker suggest for concrete steps that could begin to create an alternative to Bad Banks? Here are just a few:

• A Financial Transactions Tax (also known as a “Tobin Tax”).
A tax on “hot money” zipping across national frontiers, wreaking untold social damage as it goes, would not only put more of the economic levers back in our own hands, but earn revenue that could help replace anti-worker taxes like GST. Vaughan Gunson's article mentions this, and Dean Barker from Britain's Centre for Economic Policy and Research develops the argument.

• Bail out bank workers, not bank bosses. 
As it stands, we have the worst of both worlds – taxpayers pay through the nose to keep the banks afloat, but without any say in what they do next. FinSec, the union for bank workers in New Zealand, thinks this has to change. If we are paying to keep the banks in business, they argue, this means that “loan guarantees” for the corporates need to be matched with “job guarantees” for the workers. This just makes sense – a business which has dug itself such a huge hole should not be in a position to dictate its own terms as to how, or even whether, it gets bailed out.

We reproduce two position papers from FinSec, the main union for bank workers, and an interview with union secretary Andrew Campbell. What is particularly heartening about FinSec’s contribution is that the scope goes beyond the immediate interests of their members, to touch on what is good for NewZealand as a whole. Perhaps this is a sign of the new mood which Grant Brookes speaks of at the Council of Trade Unions conference – a growing willingness for unions to debate radical politcal and economic alternatives.

• Promote alternatives to corporate finance. 
The “green dollar” system – where local communities create their own means of exchange – became very popular in New Zealand during the 1990s as a way to hold local economies together during the darkest times of “Ruthenasia” economic scorched-earth policies. Sue Bradford, in her speech to the Socialist Worker forum, promoted this idea, and we include an article from local currency advocate Deirdre Kent. However, since the Bad Banks are an international phenomenon, a patchwork of local solutions in peripheral areas can't be a total solution. So that's why we must...

• Create a “public option” against the Bad Banks. 
In the US healthcare debate, this means creating state-owned health insurance to keep the private sector honest. Sadly, the Obama administration seems to have compromised away even this extremely minimal reform to predatory capitalism. But the principle of creating a socially-oriented corporation to compete with an unaccountable private sector is a good one.

In Venezuela, where an elected socialist government is entering its second decade in power, President Chávez is not letting the “banksters” rip his nation off. The Venezuelan government has over the last month closed down several banks which have been playing fast-and-loose with public funds. While the New Zealand government continues to bank with the tax dodgers at Westpac, the Bank of Venezuela has been nationalised, and financial power has been devolved to the “Community Financial Administrative Units” which have been set up in the neighbourhoods and villages of this Latin American nation. Venezuela shows that, even short of a complete overthrow of capitalism, a movement based on popular power can create reforms which not only make ordinary people's lives bette, but point the way forward to what a new and better world might look like.

But in all this, socialists must keep our heads, and keep things concrete. We print several arguments in this issue debunking assertions which often charge around as soon as the banks are criticised – ideas that fractional reserve banking or even paper currency itself is some kind of “scam” or “conspiracy”. This enables capitalism as a whole to wriggle off the hook, diverting public anger to some kind of imaginary elite.

This right-wing narrative has become hegemonic in the United States, and in the English-speaking internet, precisely because the USA is so desperately lacking a realistic socialist or even social-democratic voice. Bad Banks must put the concrete alternatives here and now to the pressing issues of “bankster” exploitation. But we must also make it clear that the whole system of corporate capitalism is the problem, not just the money side of things. We need a new economy from top to bottom, without corporate bosses or wage slavery, where wealth comes from the people and is spent by and for the people.

To purchase a copy of the 'Bad Banks: what are the alternatives?' contact Len, email organiser@sworker.pl.net, or phone (09)634 3984. Price is $5 plus postage.

To subscribe to UNITY Journal ($25 for four issues a year) contact Grant, grantmorgan@paradise.net.nz. Send a cheque made out to 'UNITY' to Box 13-685, Auckland, NZ, along with your postal details.

Climate protests, capitalism and the working class movement

by Barry Kade
from Climate and Capitalism
8 December 2009

The working class movement will only be rebuilt as part of a new political response to the failures of neo-liberal capitalism – a response that includes addressing climate change and ecology

Considering normally climate demos only attract a few thousand, last Saturday’s protest in London and elsewhere of 50,000 was massive. This is because:

A) the capitalists and their governments look especially incapable of addressing the issue at the moment, around the Copenhagen summit which seems doomed, even from a ‘bourgeois climate politics’ perspective; and

B) the ideological right are fighting back with a massive campaign of denial and conspiracist wingnuttery thats gaining ground. In this situation people are more motivated to take to the streets, hence we get 50,000 rather than the usual 5,000.

But what next?

So far we have had a strategy of protest … i.e we started with the idea of making climate change an issue, ‘raising awareness’. protesting to ‘make the politicians listen’, to make them ‘do something’. But then the capitalists started to ‘do something’ – carbon trading, biofuels, nuclear power, etc. It’s now clear to many that there is no capitalist solution.

Therefore we also have a strategy of transition – a practical grassroots and locally oriented movement trying to make the ‘transition to a low carbon economy.’ This is inevitably attempted in a petite bourgeois way, through allotments, local trading schemes, etc. There is also the ‘climate justice’ movement with its more systematic anti-capitalist/anti-imperialist critique – although this at the moment remains confined to the ‘activist milieu’.

What about the workers?

And we have only just started to develop a programatic response from the working class movement – so now we have the trades union demand for millions of new green jobs, the TUC’s ‘just transition’ project etc. Of course the problem here is the existing weakness of the working class movement, (especially in the UK) after our decades of defeat and retreat.

The solution? I don’t think the working class movement will be rebuilt on a purely syndicalist or economistic basis. Workers fight when they see their resistance forming part of a wider political picture – when they have some form of coherent political perspective en masse (however flawed and contradictory that perspective may be). The collapse of left reformism/stalinism/social democracy in the face of neo-liberal globalisation has weakened grassroots working class resistance.

Thus the working class movement will only be rebuilt as part of a new political response to the failures of neo-liberal capitalism – a response that includes addressing climate change and ecology. When socialism re-emerges as a mass project it will be shaped by these questions. The emergence of environmental consciousness is one of the distinctive features of our epoch. That’s why the next socialism might be an ecosocialism.

Barry Kade is a former member of the British Socialist Workers Party, who says he is “currently experimenting with being a socialist in the ranks of the Green Party.” This article was published on December 8 in his blog, BarryKade.

More neo-liberalism or an alternative?

The just released Treasury report aimed at influencing the National government advocates a new round of neo-liberalism: cuts to government spending, tax reform (including raising GST and lowering company tax), privatisations of state-owned enterprises, etc. Rather than "closing income gaps" it will of course increase them, and will most likely worsen the economy. A very different prescription from the CTU's Alternative Economic Strategy. Is there potential for two opposing ideological and political responses to the economic crisis to square off against each other, not just on paper, but in the real world?

Tax reform needed to jump-start economy by Brian Fellow from NZ Herald 23 November 2009 Far-reaching reform of the tax system and a much tougher approach to Government spending than the Budget foreshadowed will be necessary if New Zealand is to narrow the income gap with Australia and other developed countries, the Treasury says. The economy is seriously under-performing, it says in a report to ministers titled "Getting Started on Closing the Income Gaps". Both Government and private consumption has run well ahead of income, while business investment has been relatively modest. Debt levels are high, and land and house prices probably unsustainable. The Budget was underpinned by an expectation that the recession would trigger a process of rebalancing which would put the economy on a more sustainable path, but that is not panning out. Instead of the expected 25 per cent fall in real house prices, they are heading back above their 2007 peaks, aided by strong net immigration. The reorientation of the economy away from consumption towards production and exports is likely to be slower and weaker than had been hoped and that would mean overseas debt reaching even higher levels than those the Budget had forecast (over 100 per cent of GDP) and which the Treasury doubts are sustainable. "At best our current medium-term economic prospects appear to be fragile, unbalanced growth. There is little in the current policy mix that would make a material difference in terms of closing the income gap." What would, the Treasury argues, is a combination of ambitious tax reform and "front-loaded fiscal consolidation" - code for belt-tightening in Government spending that goes well beyond the $1.1 billion cap on new spending adopted in this year's Budget. "You have the opportunity for once-in-a-generation reorientation of the tax system," it told ministers. "If the opportunity is embraced, far-reaching tax reform could make a powerful contribution to jump-starting a process that, over a decade or two, could close the income gaps." The less ambitious the approach to other taxes like GST, land tax and capital gains tax, the harder would be the required choices about where to concentrate income tax reductions. Structural reform could not begin and end with tax, however. Also in the Treasury's sights are privatisation of state-owned enterprises, pricing not only carbon emissions but water, and a greater role for external capital in the dairy and meat processing sectors. Since 2002, New Zealand has had the fifth-highest rate of increase in Government spending in the OECD. The report is clearly talking about a significantly more demanding track than the Budget, which envisaged a decade of deficits even with a much lower cap on new spending.Significant and well-foreshadowed cuts in Government expenditure would limit the need for official cash rate increases by the Reserve Bank, it says, which in turn would mean less pressure, all else equal, on the exchange rate. The Budget had relied on fiscal drag - the process whereby inflation pushes people into higher tax brackets - to reduce deficits over time. "Fiscal drag sounds innocuous. In fact it would mean that by 2022/23 the average wage earner would be paying the top marginal tax rate." The Budget's priorities had been supporting the demand side of the economy through a recession, while averting a credit rating downgrade. "Having dealt with that initial situation, some more significant adjustment is now warranted." A combination of spending cuts and tax reform, the report says, could deliver an economic scenario which looked like this: Materially weaker consumption relative to income and lower house prices, materially stronger investment and employment in the export sector, a materially lower exchange rate for several years, interest rates and a cost of capital more in line with international norms and a materially stronger fiscal position with scope for tax cuts in the future.

Target Bad Banks and you target neo-liberalism starting to crack

by Vaughan Gunson

The Big Four Australian owned banks (ANZ National, BNZ, Westpac and ASB) are hated for their tax dodging, interest gouging, fee charging and profit taking. The Bad Banks campaign initiated by Socialist Worker-New Zealand aims to connect with this popular “bank hatred” and begin to expose one of the main drivers of late capitalism.

The leaflets that we’ve put out so far have mixed exposure of the banks, analysis of the global economic crisis, and pointed towards possible campaign demands. The reception to these leaflets by a cross-section of people has been largely positive. The following comments are representative of the feedback we’ve heard on the streets:

• “Yes, I know the banks are bad.”
• “The banks are ripping us off big time.”
• “The banks don’t care about people like us.”
• “The banks want to turn us all into debt slaves.”
• “The politicians should be on our side, but they’re not.”

We've been stressing that the Bad Banks campaign is not just about reforming the banks through regulations that curb their power (though we’ll certainly be agitating for this), it’s also about raising political ideas for a mass audience at a time when capitalism’s unsolvable contradictions are becoming increasingly apparent.

In connecting with people’s anger towards the banks we can begin to raise political solutions to the various crises that are impacting on people’s lives, from their own personal financial worries to the pressures coming on the NZ capitalist state following the Great Implosion of 2008.

One of the big issues facing the NZ government, which has right-wing Treasury officials all heat up, is the rapid decrease in government revenue from taxation as a result of economic recession. This is forcing the government to borrow huge amounts from overseas banks to maintain current levels of government spending. According to a recent statement by Finance Minister Bill English the government is borrowing $250 million a week.

This ballooning debt is placing increasing pressure on the government to cut spending, while at the same time increase taxes. A tax working group (which includes Treasury officials and corporate bosses) is recommending increasing GST, which is a flat tax on the price of all goods and services. Increasing GST would shift the tax burden further on to low and middle income earners.

The Bad Banks campaign can intervene in this site of political struggle. So we’re promoting a Financial Transaction Tax (FTT) that targets the big banks and other “fat cat” financial speculators. And instead of raising GST, we support removing GST from food, a demand which has already proved very popular with people.

Because the banks are a dynamic and powerful force within late capitalism their hand is in everything. Banking interests are at the heart of neo-liberalism, the free market ideology that has driven government policy in NZ and around the world for three decades. For instance, their “invisible hand” is at work in the design of emissions trading schemes, or “pollution markets” as they should be called. The Bad Banks campaign has put out a leaflet that links the banking class with this neo-liberal “non-solution” to climate change.

So a campaign against the banks has the seeds within it of other struggles, which are about resisting the attempts of the ruling elite to force the cost of the economic meltdown onto the rest of us.

If we can lift the Bad Banks campaign to the level of mass consciousness in NZ, which will require sustained on-the-ground campaigning by broad forces and a media profile, then the more political influence the promoters of the campaign can have around a range of issues.

Given the seriousness of the crises besetting global capitalism, which Grant Morgan has referred to as capitalism’s quartet of contradictions (the profitability crisis, the resource crisis, the ecological crisis, and legitimacy crisis), the rulers of the world economy will be unable to stabilise the system for any length of time. The systemic contradictions of capitalism will continue to burst through.

It’s clear, however, that a powerful section of the ruling elite in NZ will continue with the neo-liberal agenda, which will be given weight by the global banking and financier class. Hence NZ governments will face immense pressure to slash public spending; shift the tax burden further off big business and onto low and middle income people; privatise public services; maintain deregulated financial markets; and so on. (See NZ Herald article on Treasury's proposed new round of neo-liberalism, Tax reform needed to jump-start economy.)

The National government has not yet moved decisively to launch a renewed neo-liberal offensive, which would be politically polarising. They’ve sustained their “honeymoon period” not because of John Key’s likeability but because of their willingness to dramatically increase government borrowing.

But the pressure is building and a number of neo-liberal policy settings around tax, ACC, government spending, public service cuts, wage levels, privatisation, trade and investment, are on the agenda. The logic for business, as it always is, will be to extract more wealth and toil from working class New Zealanders and other people of modest means. The National Party, being a party that represents corporate interests, will have to facilitate this, at the risk of their current popularity levels.

The contradiction inherent to neo-liberalism, is that it’s precisely the constant drive towards more wealth extraction from the grassroots (to make up for the general decline in capitalism’s profitability since the 1970s) that has produced a global economic meltdown of such magnitude in the first place. A renewed neo-liberal offensive, including attempts to pump up the economy through the further expansion of credit, will only lead to the intensification of the global crisis in the near future. Unable to restore capitalist profitability the last gasps of neo-liberalism will continue to polarise and impoverish, eroding further capitalism's legitimacy.

The certain scenario of unpopular government attacks on grassroots people combined with a floundering economy, of which one important measure will be high unemployment, will create political instability in NZ, as it will in other countries. A popular Bad Banks campaign, if we can achieve it, would enable leftists with a public voice and profile to give leadership that can move people towards an alternative political vision.

This can be done by advocating “common sense” demands like a Financial Transaction Tax, or other policy solutions which eco-leftists in NZ have collectively generated over many years, and will continue to do so. An exciting initiative in this regard, and one which has the potential to be popularised, is the New Zealand Council of Trade Union’s Alternative Economic Strategy. The CTU’s Alternative Economic Strategy has lots in common with The RAM Plan written in 2008. A broad political challenge to neo-liberalism, which these documents represent, is both desperately needed and possible.

The challenge is to achieve the campaigning profile that enables a community of eco-leftists to connect with masses of people. In recognising the public mood and targeting the Bad Banks we may be able to reach a position where we can seriously target neo-liberalism starting to crack. By waging a successful war on one front, against the banks, we can open up other fronts in the mass struggle for a humane, equitable and ecologically sustainable future. We start that collective political journey that we all know is so necessary.

The Bad Banks campaign was initiated by Socialist Worker-New Zealand. We invite contributions to campaign material produced by us, and we encourage others to generate their own material and strategies to target the banks. We’d love to hear people’s ideas about how the campaign can broaden its appeal and participation by individuals and organisations in NZ. Contact Vaughan Gunson svpl@xtra.co.nz or 021-0415 082.

Patrick Bond on South African protests

Rhodes University workers protest on August 7

More on the Service delivery protests in South Africa, this time from Patrick Bond, from the Centre for Civil Society at the University of Kwazulu-Natal in Durban. When and why did these protests start? My starting point is 1997 for ‘service delivery protests’ in their contemporary form... as neoliberalism [free market policies] descended. Who is protesting and what are they protesting for? Varied! See some coverage at Centre for Civil Society. What has been the government’s reaction? Mainly repression and half-hearted cooptation. What is the next step for the protest movement? To form a ‘movement’ out of a large number of discrete disconnected revolts. Some in the media are saying the protesters are “xenophobic”. Is this true? There is an element there, yes; but mainly it's a critique of retail capital which is often dominated by foreign nationals in buying syndicates. Very complicated. This may help: Xenophobia tears apart SA’s working class (May, 27 2008). What has changed, and what has not changed since the end of Apartheid? Phew, big question... see my latest summary, from the current New Left Review. [Re-published on UNIYTblog here]

The Standard supports raising GST

by Auckland unionist The blogsite The Standard operates as an open apologist for the Labour Party. So it is informative, what they have to say, on National's mooted idea of raising GST (Tax reform mustn’t be a gift for the rich). After a long winded argument, they end by support for raising GST, as long as it is offset with an income tax cut of $1000 which they claim would counterbalance the increase in GST. According to The Standard: "There ought to be no reason why the Left couldn’t support that." Concluding: "It is the nature of the complete package that is important." The Labour Party's continuing solid backing for Roger Douglas's flat tax is due for a good shaking up. If the Maori Party's proposed bill is pulled from the ballot, it may be the political earthquake that starts the plates shaking on the shelves. Hopefully a good number will fall off.

Financial implosion and stagnation: Back to the real economy

by John Bellamy Foster and Fred Magdoff from UNITY Journal May 2009 [originally published in Monthly Review] But, you may ask, won't the powers that be step into the breach again and abort the crisis before it gets a chance to run its course? Yes, certainly. That, by now, is standard operating procedure, and it cannot be excluded that it will succeed in the same ambiguous sense that it did after the 1987 stock market crash. If so, we will have the whole process to go through again on a more elevated and more precarious level. But sooner or later, next time or further down the road, it will not succeed... We will then be in a new situation as unprecedented as the conditions from which it will have emerged.

- Harry Magdoff and Paul Sweezy (1988)

“The first rule of central banking,” economist James K. Galbraith wrote recently, is that “when the ship starts to sink, central bankers must bail like hell.” In response to a financial crisis of a magnitude not seen since the Great Depression, the Federal Reserve and other central banks, backed by their treasury departments, have been “bailing like hell” for more than a year. Beginning in July 2007 when the collapse of two Bear Stearns hedge funds that had speculated heavily in mortgage-backed securities signaled the onset of a major credit crunch, the Federal Reserve Board and the U.S. Treasury Department have pulled out all the stops as finance has imploded. They have flooded the financial sector with hundreds of billions of dollars and have promised to pour in trillions more if necessary – operating on a scale and with an array of tools that is unprecedented.

Continue

World Farmers’ Alliance Challenges Food Profiteers

31 May 2009

Review by John Riddell (Socialist Voice - Canada) of La Vía Campesina: Globalization and the Power of Peasants by Annette Aurélie.

Historical background to the international of peasant farmers.

Go to http://www.socialistvoice.ca/?p=395  

See also Food Crisis: World Hunger, Agribusiness, and the Food Sovereignty Alternative by Ian Angus

Zimbabwe Leads the World!

by Auckland union activist 2 May 2009 Zimbabwe is truly a world leader. Mugabe's government, which followed the IMF and World Bank's neo liberal plans for their economy to the letter, showed us all where these policies will get you. The austerity medicine prescribed for Zimbabwe by the World Bank, included oppressive and harsh debt repayment, funded by massive privatisation of virtually every public service and national asset. The mantra was "free enterprise knows best". Now the whole world is learning the harsh lesson that the people of Zimbabwe know only too well. As one commentator once said: "free enterprise means free foxes in a free chicken run". It seems that most government's, including president Obama's and our own, instead of getting their shotgun like any sensible farmer would do, is instead feeding the fox more chickens in the hope that this will make him satisfied. See What comes after a trillion? [23 April 2009] a NZ Sunday Star article on the failed Zimbabwe economy.

Britain: New left alliance for EU elections

Bob Crow, general secretary of the RMT (Transport Workers' Union) and leader of "No2EU - Yes to Democracy".

by Bob Crow from Spectrezine 24 March 2009 Last week saw the launch of the “No2EU - Yes to Democracy” electoral front, which is critical of the European Union and opposed to the Lisbon Treaty. The alliance is an initiative of Bob Crow, head of Britains’s biggest transport union, the RMT. Below, Crow explains why activists have taken the decision to challenge British Labour Party complaceny on this viciously anti-working class treaty. It's not every day I agree to head up a new left-wing EU-critical electoral alliance to stand in the European elections, but it wasn't a decision taken lightly. My union has been following developments in the European Union for many years and has debated the impact of EU treaties and various directives each year at its annual general meetings. Many RMT members have suffered as the result of EU diktats such as the one which led to the privatisation of our rail network. The EU drive to push market mechanisms into our public services has now appeared with the part-privatisation of postal services. The EU mania for imposing increasingly discredited neoliberal economics on more than 500 million Europeans is also enshrined in the Lisbon Treaty, the renamed EU constitution rejected by French and Dutch voters in 2005. The treaty forces governments to hand public services over to private corporations. That means handing fat cats control of railways, schools, postal services, energy and even social services across Europe. According to the EU constitution, "A European framework law shall establish measures to achieve the liberalisation of a specific service." That provision remains in the Lisbon Treaty. The current economic crisis was created by this right-wing economic dogma, yet, under the Lisbon Treaty, these policies become constitutional goals. EU rules demanding the "free movement of capital, goods, services and labour" within the EU have also encouraged widespread social dumping where vulnerable exploited workers from across the EU are being used to drive down wages in member states. Successive EU directives and European Court of Justice decisions have similarly been used to attack trade union collective bargaining, the right to strike and workers' pay and conditions. As a result, working people are feeling increasingly betrayed by a political elite that seems more interested in implementing neoliberal EU rules than representing those who elected them. This crisis of working-class representation, along with the growing economic crisis, has led to a deep disillusionment, cynicism and general mistrust of politicians. That is one of the reasons why Irish voters rejected the Lisbon Treaty in June last year - because they too did not want an EU constitution that took away their hard-won democracy and effectively turned the EU into an undemocratic superstate. Yet the resounding "No'' by Irish voters was ignored by politicians across Europe who are clearly more wedded to EU institutions than their own electorates. That is why Gordon Brown's government reneged on Labour's 2005 manifesto promise to hold a referendum and instead forced the treaty through parliament with Liberal Democrats' and Tories' help. The Irish electorate has been told that it must vote for a second time on the Lisbon Treaty by October 2009, having voted to reject it in 2008. Why? Because EU and Irish politicians have decided that voters in Ireland must be overruled. To counter this assault on democracy, No2EU - Yes to Democracy is fielding candidates on June 4, 2009, to give a voice to voters who feel betrayed by the main parties. This crisis of democracy and the very serious economic situation is leading to a rise in support for far-right, fascist parties such as the British National Party. Yet the BNP has no answers. It peddles hate and seeks to undermine organisations that working people rely on to protect them such as trade unions. No2EU - Yes to Democracy is an electoral platform and not a party. Our candidates will not sit in the European Parliament in the event of winning any seats. Our candidates would nominally hold the title MEP but would not board the notorious EU gravy train. This is because the European Parliament is, in fact, not a parliament but a very expensive talking shop with no law-making powers. Those powers lie with the unelected European Commission. A recent report showed that MEPs can make over 1 million from a single five-year term by claiming various allowances and even for assistants for whom no record exists. British MEPs' pay will even rise by almost 50 per cent after June's election to over 120,000. While in the real world banks go under and hundreds of thousands of workers are losing their jobs, EU elites continue to enrich themselves at the taxpayers' expense. Lend us your vote on June 4 and we will continue to campaign against the EU privatisation drive and the widespread corruption that goes with it. It's clear that millions of people would reject the Lisbon Treaty if they were given the chance to and demand the repatriation of democratic powers to the member states.

Visit www.no2eu.com for more information about the platform.

David Harvey: Their crisis, our challenge

In a far reaching interview with Red Pepper, David Harvey argues that the current financial crisis and bank bail-outs could lead to a massive consolidation of the banking system and a return to capitalist ‘business as usual’ – unless there is sustained revolt and pressure for a dramatic redistribution and socialisation of wealth. Does this crisis signal the end of neoliberalism? My answer is that it depends what you mean by neoliberalism. My interpretation is that it’s a class project, now masked by a lot of rhetoric about individual freedom, liberty, personal responsibility, privatisation and the free market. That rhetoric was a means towards the restoration and consolidation of class power, and that neoliberal project has been fairly successful. Continue at http://www.redpepper.org.uk/Their-crisis-our-challenge

Finance Capitalism Hits a Wall: The Oligarchs' Escape Plan ­ at the Treasury's Expense

by Professor Michael Hudson from Global Research 18 February 2009 The financial “wealth creation” game is over. Economies emerged from World War II relatively free of debt, but the 60-year global run-up has run its course. Finance capitalism is in a state of collapse, and marginal palliatives cannot revive it. The U.S. economy cannot “inflate its way out of debt,” because this would collapse the dollar and end its dreams of global empire by forcing foreign countries to go their own way. There is too little manufacturing to make the economy more “competitive,” given its high housing costs, transportation, debt and tax overhead. A quarter to a third of U.S. real estate has fallen into Negative Equity, so no banks will lend to them. The economy has hit a debt wall and is falling into Negative Equity, where it may remain for as far as the eye can see until there is a debt write-down.

Continue

Financial implosion and stagnation: Back to the real economy

by John Bellamy Foster and Fred Magdoff from UNITY Journal May 2009 [originally published in Monthly Review] But, you may ask, won't the powers that be step into the breach again and abort the crisis before it gets a chance to run its course? Yes, certainly. That, by now, is standard operating procedure, and it cannot be excluded that it will succeed in the same ambiguous sense that it did after the 1987 stock market crash. If so, we will have the whole process to go through again on a more elevated and more precarious level. But sooner or later, next time or further down the road, it will not succeed... We will then be in a new situation as unprecedented as the conditions from which it will have emerged.

- Harry Magdoff and Paul Sweezy (1988)

“The first rule of central banking,” economist James K. Galbraith wrote recently, is that “when the ship starts to sink, central bankers must bail like hell.” In response to a financial crisis of a magnitude not seen since the Great Depression, the Federal Reserve and other central banks, backed by their treasury departments, have been “bailing like hell” for more than a year. Beginning in July 2007 when the collapse of two Bear Stearns hedge funds that had speculated heavily in mortgage-backed securities signaled the onset of a major credit crunch, the Federal Reserve Board and the U.S. Treasury Department have pulled out all the stops as finance has imploded. They have flooded the financial sector with hundreds of billions of dollars and have promised to pour in trillions more if necessary – operating on a scale and with an array of tools that is unprecedented. In an act of high drama, Federal Reserve Board Chairman Ben Bernanke and Secretary of the Treasury Henry Paulson appeared before Congress on the evening of September 18, 2008, during which the stunned lawmakers were told, in the words of Senator Christopher Dodd, “that we're literally days away from a complete meltdown of our financial system, with all the implications here at home and glob­ally.” This was immediately followed by Paulson's presentation of an emergency plan for a $700 billion bailout of the financial structure, in which government funds would be used to buy up virtually worth­less mortgage-backed securities (referred to as “toxic waste”) held by financial institutions. The outburst of grassroots anger and dissent, following the Trea­sury secretary's proposal, led to an unexpected revolt in the U.S. House of Representatives, which voted down the bailout plan. Neverthe­less, within a few days Paulson's original plan (with some additions intended to provide political cover for representatives changing their votes) made its way through Congress. However, once the bailout plan passed financial panic spread globally with stocks plummeting in every part of the world – as traders grasped the seriousness of the crisis. The Federal Reserve responded by literally deluging the economy with money, issuing a statement that it was ready to be the buyer of last resort for the entire commercial paper market (short-term debt issued by corporations), potentially to the tune of $1.3 trillion. Yet, despite the attempt to pour money into the system to effect the resumption of the most basic operations of credit, the economy found itself in liquidity trap territory, resulting in a hoarding of cash and a cessation of inter-bank loans as too risky for the banks com­pared to just holding money. A liquidity trap threatens when nominal interest rates fall close to zero. The usual monetary tool of lowering interest rates loses its effectiveness because of the inability to push interest rates below zero. In this situation the economy is beset by a sharp increase in what Keynes called the “propensity to hoard” cash or cash-like assets such as Treasury securities. Fear for the future given what was happening in the deepening crisis meant that banks and other market participants sought the safety of cash, so whatever the Fed pumped in failed to stimulate lending. The drive to liquidity, partly reflected in purchases of Treasuries, pushed the interest rate on Treasuries down to a fraction of 1 percent, i.e., deeper into liquidity trap territory. Facing what Business Week called a “financial ice age,” as lend­ing ceased, the financial authorities in the United States and Britain, followed by the G-7 powers as a whole, announced that they would buy ownership shares in the major banks, in order to inject capital directly, recapitalizing the banks – a kind of partial nationalization. Meanwhile, they expanded deposit insurance. In the United States the government offered to guarantee $1.5 trillion in new senior debt issued by banks. “All told,” as the New York Times stated on October 15, 2008, only a month after the Lehman Brothers collapse that set off the banking crisis, “the potential cost to the government of the latest bailout package comes to $2.25 trillion, triple the size of the original $700 billion rescue package, which centered on buying distressed assets from banks.” But only a few days later the same paper ratcheted up its estimates of the potential costs of the bailouts overall, declar­ing: “In theory, the funds committed for everything from the bailouts of Fannie Mae and Freddie Mac and those of Wall Street firm Bear Stearns and the insurer American International Group, to the finan­cial rescue package approved by Congress, to providing guarantees to backstop selected financial markets [such as commercial paper] is a very big number indeed: an estimated $5.1 trillion.” Despite all of this, the financial implosion has continued to widen and deepen, while sharp contractions in the “real economy” are everywhere to be seen. The major U.S. automakers are experiencing serious economic shortfalls, even after Washington agreed in Sep­tember 2008 to provide the industry with $25 billion in low interest loans. Single-family home construction has fallen to a twenty-six-year low. Consumption is expected to experience record declines. Jobs are rapidly vanishing. Given the severity of the financial and economic shock, there are now widespread fears among those at the center of corporate power that the financial implosion, even if stabilized enough to permit the orderly unwinding and settlement of the multiple insol­vencies, will lead to a deep and lasting stagnation, such as hit Japan in the 1990s, or even a new Great Depression. The financial crisis, as the above suggests, was initially understood as a lack of money or liquidity (the degree to which assets can be traded quickly and readily converted into cash with relatively stable prices). The idea was that this liquidity problem could be solved by pouring more money into financial markets and by lowering interest rates. However, there are a lot of dollars out in the financial world – more now than before – the problem is that those who own the dollars are not willing to lend them to those who may not be able to pay them back, and that's just about everyone who needs the dollars these days. This then is better seen as a solvency crisis in which the balance sheet capital of the U.S. and UK financial institutions – and many others in their sphere of influence – has been wiped out by the declining value of the loans (and securitized loans) they own, their assets. As an accounting matter, most major U.S. banks by mid-October were insolvent, resulting in a rash of fire-sale mergers, including JPMorgan Chase's purchase of Washington Mutual and Bear Stearns, Bank of America's absorption of Countrywide and Merrill Lynch, and Wells Fargo's acquiring of Wachovia. All of this is creating a more monopolistic banking sector with government support. The direct injection of government capital into the banks in the form of the purchase of shares, together with bank consolidations, will at most buy the necessary time in which the vast mass of questionable loans can be liquidated in orderly fashion, restoring solvency but at a far lower rate of economic activity – that of a serious recession or depression. In this worsening crisis, no sooner is one hole patched than a num­ber of others appear. The full extent of the loss in value of securitized mortgage, consumer and corporate debts, and the various instruments that attempted to combine such debts with forms of insurance against their default (such as the “synthetic collateralized debt obligations,” which have credit-debt swaps “packaged in” with the CDOs), is still unknown. Key categories of such financial instruments have been revalued recently down to 10 to 20 percent in the course of the Lehman Brothers bankruptcy and the take-over of Merrill Lynch. As sharp cuts in the value of such assets are applied across the board, the equity base of financial institutions vanishes along with trust in their solvency. Hence, banks are now doing what John Maynard Keynes said they would in such circumstances: hoarding cash. Underlying all of this is the deteriorating economic condition of households at the base of the economy, impaired by decades of frozen real wages and growing consumer debt. 'It' and the Lender of Last Resort To understand the full historical significance of these developments it is necessary to look at what is known as the “lender of last resort” function of the U.S. and other capitalist governments. This has now taken the form of offering liquidity to the financial system in a crisis, followed by directly injecting capital into such institutions and finally, if needed, outright nationalizations. It is this commitment by the state to be the lender of last resort that over the years has ultimately imparted confidence in the system – despite the fact that the financial superstructure of the capitalist economy has far outgrown its base in what economists call the “real” economy of goods and services. Nothing therefore is more frightening to capital than the appearance of the Federal Reserve and other central banks doing everything they can to bail out the system and failing to prevent it from sinking further – something previously viewed as unthinkable. Although the Federal Reserve and the U.S. Treasury have been intervening massively, the full dimensions of the crisis still seem to elude them. Some have called this a “Minsky moment.” In 1982, economist Hyman Minsky, famous for his financial instability hypothesis, asked the critical question: “Can 'It' – a Great Depression – happen again?” There were, as he pointed out, no easy answers to this question. For Minsky the key issue was whether a financial meltdown could over­whelm a real economy already in trouble – as in the Great Depression. The inherently unstable financial system had grown in scale over the decades, but so had government and its capacity to serve as a lender of last resort. “The processes which make for financial instability,” Minsky observed, “are an inescapable part of any decentralized capi­talist economy – i.e., capitalism is inherently flawed – but financial instability need not lead to a great depression; “It need not happen” (italics added). Implicit, in this, however, was the view that “It”could still hap­pen again – if only because the possibility of financial explosion and growing instability could conceivably outgrow the government's capacity to respond – or to respond quickly and decisively enough. Theoretically, the capitalist state, particularly that of the United States, which controls what amounts to a surrogate world currency, has the capacity to avert such a dangerous crisis. The chief worry is a massive “debt-deflation” (a phenomenon explained by economist Irving Fisher during the Great Depression) as exhibited not only by the experience of the 1930s but also Japan in the 1990s. In this situ­ation, as Fisher wrote in 1933, “deflation caused by the debt reacts on the debt. Each dollar of debt still unpaid becomes a bigger dollar, and if the over-indebtedness with which we started was great enough, the liquidation of debt cannot keep up with the fall of prices which it causes.” Put differently, prices fall as debtors sell assets to pay their debts, and as prices fall the remaining debts must be repaid in dollars more valuable than the ones borrowed, causing more defaults, leading to yet lower prices, and thus a deflationary spiral. The economy is still not in this dire situation, but the specter looms. As Paul Asworth, chief U.S. economist at Capital Economics, stated in mid-October 2008, “With the unemployment rate rising rapidly and capital markets in turmoil, pretty much everything points toward deflation. The only thing you can hope is that the prompt action from policy makers can maybe head this off first.” “The rich world's econo­mies,” theEconomistmagazine warned in early October, “are already suffering from a mild case of this 'debt-deflation.' The combination of falling house prices and credit contraction is forcing debtors to cut spending and sell assets, which in turn pushes house prices and other asset markets down further... A general fall in consumer prices would make matters even worse. The very thought of such events recurring in the U.S. economy today was supposed to be blocked by the lender of last resort func­tion, based on the view that the problem was primarily monetary and could always be solved by monetary means by flooding the economy with liquidity at the least hint of danger. Thus Federal Reserve Board Chairman Ben Bernanke gave a talk in 2002 (as a Federal Reserve governor) significantly entitled “Deflation: Making Sure 'It' Doesn't Happen Here.” In it he contended that there were ample ways of ensuring that “It” would not happen today, despite increasing finan­cial instability: The U.S. government has a technology, called a printing press (or, today, its electronic equivalent) that allows it to produce as many U.S. dollars as it wishes at essentially no cost. By increasing the number of U.S. dollars in circu­lation, or even by credibly threatening to do so, the U.S. government can also reduce the value of a dollar in terms of goods and services, which is equivalent to raising the prices in dollars of those goods and services. We conclude that, under a paper-money system, a determined govern­ment can always generate higher spending and hence positive inflation. Of course, the U.S. government is not going to print money and distribute it willy-nilly (although as we will see later, there are practical policies that approximate this behavior). Normally, money is injected into the economy through asset purchases by the Federal Reserve. To stimulate aggregate spending when short-term interest rates have reached zero, the Fed must expand the scale of its asset purchases or, possibly, expand the menu of assets that it buys. Alternatively, the Fed, could find other ways of injecting money into the system – for example, by making low-interest-rate loans to banks or cooperating with fiscal authorities. In the same talk, Bernanke suggested that “a money-financed tax cut,” aimed at avoiding deflation in such circumstances, was “essentially equivalent to Milton Friedman's famous 'helicopter drop' of money” – a stance that earned him the nickname “Helicopter Ben.” An academic economist, who made his reputation through studies of the Great Depression, Bernanke was a product of the view pro­pounded most influentially by Milton Friedman and Anna Schwartz in their famous work,A Monetary History of the United States, 1867-1960, that the source of the Great Depression was monetary and could have been combated almost exclusively in monetary terms. The failure to open the monetary floodgates at the outset, according to Friedman and Schwartz, was the principal reason that the economic downturn was so severe. Bernanke strongly opposed earlier conceptions of the Depression that saw it as based in the structural weaknesses of the “real” economy and the underlying accumulation process. Speaking on the seventy-fifth anniversary of the 1929 stock market crash, he stated: During the Depression itself, and in several decades follow­ing, most economists argued that monetary factors were not an important cause of the Depression. For example, many observers pointed to the fact that nominal interest rates were close to zero during much of the Depression, concluding that monetary policy had been about as easy as possible yet had produced no tangible benefit to the economy. The attempt to use monetary policy to extricate an economy from a deep depression was often compared to “pushing on a string.” During the first decades after the Depression, most economists looked to developments on the real side of the economy for explanations, rather than to monetary fac­tors. Some argued, for example, that overinvestment and overbuilding had taken place during the ebullient 1920s, leading to a crash when the returns on those investments proved to be less than expected. Another once-popular theory was that a chronic problem of “under-consumption” – the inability of households to purchase enough goods and services to utilize the economy's productive capacity – had precipitated the slump. Bernanke's answer to all of this was strongly to reassert that monetary factors virtually alone precipitated (and explained) the Great Depression, and were the key, indeed almost the sole, means of fighting debt-deflation. The trends in the real economy, such as the emergence of excess capacity in industry, need hardly be addressed at all. At most it was a deflationary threat to be countered by reflation. Nor, as he argued elsewhere, was it necessary to explore Minsky's contention that the financial system of the capitalist economy was inherently unstable, since this analysis depended on the economic irrationality associated with speculative manias, and thus departed from the formal “rational economic behavior” model of neoclassical economics. Bernanke concluded a talk commemorating Friedman's ninetieth birthday in 2002 with the words: “I would like to say to Milton and Anna: Regarding the Great Depression. You're right, we did it. We're very sorry. But thanks to you, we won't do it again.” “It” of course was the Great Depression. Following the 2000 stock market crash a debate arose in central bank circles about whether “preemptive attacks” should be made against future asset bubbles to prevent such economic catastrophes. Bernanke, representing the reigning economic orthodoxy, led the way in arguing that this should not be attempted, since it was difficult to know whether a bubble was actually a bubble (that is, whether financial expansion was justified by economic fundamentals or new business models or not). In addition, to prick a bubble was to invite disaster, as in the attempts by the Federal Reserve Board to do this in the late 1920s, leading (according to the monetarist interpretation) to the bank failures and the Great Depression. He concluded: “mon­etary policy cannot be directed finely enough to guide asset prices without risking severe collateral damage to the economy... Although eliminating volatility from the economy and the financial markets will never be possible, we should be able to moderate it without sac­rificing the enormous strengths of our free-market system.” In short, Bernanke argued, no doubt with some justification given the nature of the system, that the best the Federal Reserve Board could do in face of a major bubble was to restrict itself primarily to its lender of last resort function. At the very peak of the housing bubble, Bernanke, then chair­man of Bush's Council of Economic Advisors, declared with eyes wide shut: “House prices have risen by nearly 25 percent over the past two years. Although speculative activity has increased in some areas, at a national level these price increases largely reflect strong economic fundamentals, including robust growth in jobs and incomes, low mortgage rates, steady rates of household formation, and factors that limit the expansion of housing supply in some areas.” Ironically, it was these views that led to the appointment of Bernanke as Federal Reserve Board chairman (replacing Alan Greenspan) in early 2006. The housing bubble began to deflate in early 2006 at the same time that the Fed was raising interest rates in an attempt to contain inflation. The result was a collapse of the housing sector and mortgage-backed securities. Confronted with a major financial crisis beginning in 2007, Bernanke as Fed chairman put the printing press into full operation, flooding the nation and the world with dollars, and soon found to his dismay that he had been “pushing on a string.” No amount of liquidity infusions were able to overcome the insolvency in which financial in­stitutions were mired. Unable to make good on their current financial claims – were they compelled to do so – banks refused to renew loans as they came due and hoarded available cash rather than lending and leveraging the system back up. The financial crisis soon became so universal that the risks of lending money skyrocketed, given that many previously creditworthy borrowers were now quite possibly on the verge of insolvency. In a liquidity trap, as Keynes taught, running the printing presses simply adds to the hoarding of money but not to new loans and spending. However, the real root of the financial bust, we shall see, went much deeper: the stagnation of production and investment. From Financial Explosion to Financial Implosion Our argument in a nutshell is that both the financial explosion in recent decades and the financial implosion now taking place are to be explained mainly in reference to stagnation tendencies within the underlying economy. A number of other explanations for the current crisis (most of them focusing on the proximate causes) have been given by economists and media pundits. These include the lessening of regulations on the financial system; the very low interest rates introduced by the Fed to counter the effects of the 2000 crash of the “New Economy” stock bubble, leading to the housing bubble; and the selling of large amounts of “sub-prime” mortgages to many people that could not afford to purchase a house and/or did not fully understand the terms of the mortgages. Much attention has rightly been paid to the techniques whereby mortgages were packaged together and then “sliced and diced” and sold to institutional investors around the world. Outright fraud may also have been involved in some of the financial shenanigans. The falling home values following the bursting of the housing bubble and the inability of many sub-prime mortgage holders to continue to make their monthly payments, together with the resulting foreclosures, was certainly the straw that broke the camel's back, leading to this catastrophic system failure. And few would doubt today that it was all made worse by the deregulation fervor avidly promoted by the financial firms, which left them with fewer defenses when things went wrong. Nevertheless, the root problem went much deeper, and was to be found in a real economy experiencing slower growth, giving rise to financial explosion as capital sought to “leverage” its way out of the problem by expanding debt and gaining speculative profits. The extent to which debt has shot up in relation to GDP over the last four decades can be seen in table 1. As these figures suggest, the most remarkable feature in the development of capitalism during this period has been the ballooning of debt. This phenomenon is further illustrated in chart 1 showing the skyrocketing of private debt relative to national income from the 1960s to the present. Financial sector debt as a percentage of GDP first lifted off the ground in the 1960s and 1970s, accelerated beginning in the 1980s, and rocketed up after the mid 1990s. Household debt as a percentage of GDP rose strongly beginning in the 1980s and then increased even faster in the late 1990s. Nonfinancial business debt in relation to national income also climbed over the period, if less spectacularly. The overall effect has been a massive increase in private debt relative to national income. The problem is further compounded if government debt (local, state, and federal) is added in. When all sectors are included, the total debt as a percentage of GDP rose from 151 percent in 1959 to an astronomical 373 percent in 2007! This rise in the cumulative debt load as a percentage of GDP greatly stimulated the economy, particularly in the financial sector, feeding enormous financial profits and marking the growing financial­ization of capitalism (the shift in gravity from production to finance within the economy as a whole). The profit picture, associated with this accelerating financialization, is shown in chart 2, which provides a time series index (1970 = 100) of U.S. financial versus nonfinancial profits and the GDP. Beginning in 1970, financial and nonfinancial profits tended to increase at the same rate as the GDP. However, in the late 1990s, finance seemed to take on a life of its own with the profits debt relative to national income. The problem is further compounded if government debt (local, state, and federal) is added in. When all sectors are included, the total debt as a percentage of GDP rose from 151 percent in 1959 to an astronomical 373 percent in 2007! This rise in the cumulative debt load as a percentage of GDP greatly stimulated the economy, particularly in the financial sector, feeding enormous financial profits and marking the growing financial­ization of capitalism (the shift in gravity from production to finance within the economy as a whole). The profit picture, associated with this accelerating financialization, is shown in chart 2, which provides a time series index (1970 = 100) of U.S. financial versus nonfinancial profits and the GDP. Beginning in 1970, financial and nonfinancial profits tended to increase at the same rate as the GDP. However, in the late 1990s, finance seemed to take on a life of its own with the profits of U.S. financial corporations (and to a lesser extent nonfinancial corporate profits too) heading off into the stratosphere, seemingly unrelated to growth of national income, which was relatively stagnant. Corporations playing in what had become a giant casino took on more and more leveraging – that is, they often bet thirty or more borrowed dollars for every dollar of their own that was used. This helps to ex­plain the extraordinarily high profits they were able to earn as long as their bets were successful. The growth of finance was of course not restricted simply to the United States but was a global phenomenon with speculative claims to wealth far overshadowing global produc­tion, and the same essential contradiction cutting across the entire advanced capitalist world and “emerging” economies. Already by the late 1980s the seriousness of the situation was becoming clear to those not wedded to established ways of think­ing. Looking at this condition in 1988 on the anniversary of the 1987 stock market crash, Monthly Review editors Harry Magdoff and Paul Sweezy, contended that sooner or later – no one could predict when or exactly how – a major crisis of the financial system that overpow­ered the lender of last resort function was likely to occur. This was simply because the whole precarious financial superstructure would have by then grown to such a scale that the means of governmental authorities, though massive, would no longer be sufficient to keep back the avalanche, especially if they failed to act quickly and decisively enough. As they put it, the next time around it was quite possible that the rescue effort would “succeed in the same ambiguous sense that it did after the 1987 stock market crash. If so, we will have the whole process to go through again on a more elevated and precarious level. But sooner or later, next time or further down the road, it will not succeed,” generating a severe crisis of the economy. As an example of a financial avalanche waiting to happen, they pointed to the “high flying Tokyo stock market,” as a possible prelude to a major financial implosion and a deep stagnation to follow – a reality that was to materialize soon after, resulting in Japan's financial crisis and “Great Stagnation” of the 1990s. Asset values (both in the stock market and real estate) fell by an amount equivalent to more than two years of GDP. As interest rates zeroed-out and debt-deflation took over, Japan was stuck in a classic liquidity trap with no ready way of restarting an economy already deeply mired in overcapacity in the productive economy. “In today's world ruled by finance,” Magdoff and Sweezy had written in 1987 in the immediate aftermath of the U.S. stock market crash: the underlying growth of surplus value falls increasingly short of the rate of accumulation of money capital. In the absence of a base in surplus value, the money capital amassed becomes more and more nominal, indeed ficti­tious. It comes from the sale and purchase of paper assets, and is based on the assumption that asset values will be continuously inflated. What we have, in other words, is ongoing speculation grounded in the belief that, despite fluctuations in price, asset values will forever go only one way – upward! Against this background, the October [1987] stock market crash assumes a far-reaching significance. By demonstrating the fallacy of an unending upward movement in asset values, it exposes the irrational kernel of today's economy. These contradictions, associated with speculative bubbles, have of course to some extent been endemic to capitalism throughout its history. However, in the post-Second World War era, as Magdoff and Sweezy, in line with Minsky, argued, the debt overhang became larger and larger, pointing to the growth of a problem that was cumulative and increasingly dangerous. In The End of Prosperity Magdoff and Sweezy wrote: “In the absence of a severe depression during which debts are forcefully wiped out or drastically reduced, government rescue measures to prevent collapse of the financial system merely lay the groundwork for still more layers of debt and additional strains during the next economic advance.” As Minsky put it, “Without a crisis and a debt-deflation process to offset beliefs in the success of speculative ventures, both an upward bias to prices and ever-higher financial layering are induced.” To the extent that mainstream economists and business analysts themselves were momentarily drawn to such inconvenient ques­tions, they were quickly cast aside. Although the spectacular growth of finance could not help but create jitters from time to time – for example, Alan Greenspan's famous reference to “irrational exuber­ance” – the prevailing assumption, promoted by Greenspan himself, was that the growth of debt and speculation represented a new era of financial market innovation, i.e., a sustainable structural change in the business model associated with revolutionary new risk management techniques. Greenspan was so enamored of the “New Economy” made possible by financialization that he noted in 2004: “Not only have individual financial institutions become less vulnerable to shocks from underlying risk factors, but also the financial system as a whole has become more resilient.” It was only with the onset of the financial crisis in 2007 and its persistence into 2008, that we find financial analysts in surprising places openly taking on the contrary view. Thus as Manas Chakravarty, an economic columnist for India's investor Web site, Livemint.com (partnered with the Wall Street Journal), observed on September 17, 2008, in the context of the Wall Street meltdown, American economist Paul Sweezy pointed out long ago that stagnation and enormous financial speculation emerged as symbiotic aspects of the same deep-seated, irreversible economic impasse. He said the stagnation of the underlying economy meant that business was increasingly dependent on the growth of finance to pre­serve and enlarge its money capital and that the financial superstructure of the economy could not expand entirely independently of its base in the underlying productive economy. With remarkable prescience, Sweezy said the bursting of speculative bubbles would, therefore, be a recurring and growing problem. Of course, Paul Baran and Sweezy in Monopoly Capital, and later on Magdoff and Sweezy in Monthly Review, had pointed to other forms of absorption of surplus such as government spending (particularly military spending), the sales effort, the stimulus provided by new innovations, etc. But all of these, although important, had proven insufficient to maintain the economy at anything like full employment, and by the 1970s the system was mired in deepening stagnation (or stagflation). It was financialization – and the growth of debt that it actively promoted – which was to emerge as the quantitatively most important stimulus to demand. But it pointed unavoidably to a day of financial reckoning and cascading defaults. Indeed, some mainstream analysts, under the pressure of events, were forced to acknowledge by summer 2008 that a massive devalu­ation of the system might prove inevitable. Jim Reid, the Deutsche Bank's head of credit research, examining the kind of relationship between financial profits and GDP exhibited in chart 2, issued an analysis called “A Trillion-Dollar Mean Reversion?”, in which he argued that: U.S. financial profits have deviated from the mean over the past decade on a cumulative basis... The U.S. Financial sector has made around 1.2 Trillion ($1,200bn) of 'excess' profits in the last decade relative to nominal GDP... So mean reversion [the theory that returns in financial mar­kets over time “revert” to a long-term mean projection, or trend-line] would suggest that $1.2 trillion of profits need to be wiped out before the U.S. financial sector can be cleansed of the excesses of the last decade... Given that...Bloomberg reports that $184bn has been written down by U.S. financials so far in this crisis, if one believes that the size of the financial sector should shrink to levels seen a decade ago then one could come to the conclusion that there is another trillion dollars of value destruction to go in the sector before we're back to the long-run trend in financial profits. A scary thought and one that if correct will lead to a long period of constant intervention by the authorities in an attempt to arrest this potential destruction. Finding the appropriate size of the financial sector in the “new world” will be key to how much profit destruction there needs to be in the sector going forward. The idea of a mean reversion of financial profits to their long-term trend-line in the economy as a whole was merely meant to be suggestive of the extent of the impending change, since Reid accepted the possibility that structural “real world” reasons exist to explain the relative weight of finance – though none he was yet ready to accept. As he acknowledged, “calculating the 'natural' appropriate size for the financial sector relative to the rest of the economy is a phenomenally difficult conundrum.” Indeed, it was to be doubted that a “natural” level actually existed. But the point that a massive “profit destruction” was likely to occur before the system could get going again and that this explained the “long period of constant intervention by the authorities in an attempt to arrest this potential destruction,” highlighted the fact that the crisis was far more severe than then widely supposed – something that became apparent soon after. What such thinking suggested, in line with what Magdoff and Sweezy had argued in the closing decades of the twentieth century, was that the autonomy of finance from the underlying economy, associated with the financialization process, was more relative than absolute, and that ultimately a major economic downturn – more than the mere bursting of one bubble and the inflating of another – was necessary. This was likely to be more devastating the longer the system put it off. In the meantime, as Magdoff and Sweezy had pointed out, financialization might go on for quite a while. And indeed there was no other answer for the system. Back to the Real Economy: The stagnation Problem Paul Baran, Paul Sweezy, and Harry Magdoff argued indefatigably from the 1960s to the 1990s (most notably inMonopoly Capital) that stagnation was the normal state of the monopoly-capitalist economy, barring special historical factors. The prosperity that characterized the economy in the 1950s and '60s, they insisted, was attributable to such temporary historical factors as: (1) the buildup of consumer savings during the war; (2) a second great wave of automobilization in the United States (including the expansion of the glass, steel, and rubber industries, the construction of the interstate highway system, and the development of suburbia); (3) the rebuilding of the European and the Japanese economies devastated by the war; (4) the Cold War arms race (and two regional wars in Asia); (5) the growth of the sales effort marked by the rise of Madison Avenue; (6) the expansion of FIRE (finance, insurance, and real estate); and (7) the preeminence of the dollar as the hegemonic currency. Once the extraordinary stimulus from these factors waned, the economy began to subside back into stagnation: slow growth and rising excess capacity and unemployment/underemployment. In the end, it was military spending and the explosion of debt and speculation that constituted the main stimuli keeping the economy out of the doldrums. These were not sufficient, however, to prevent the reappearance of stagnation tendencies altogether, and the problem got worse with time. The reality of creeping stagnation can be seen in table 2, which shows the real growth rates of the economy decade by decade over the last eight decades. The low growth rate in the 1930s reflected the deep stagnation of the Great Depression. This was followed by the extraordinary rise of the U.S. economy in the 1940s under the impact of the Second World War. During the years 1950-69, now often referred to as an economic “Golden Age,” the economy, propelled by the set of special historical factors referred to above, was able to achieve strong economic growth in a “peacetime” economy. This, however, proved to be all too temporary. The sharp drop off in growth rates in the 1970s and thereafter points to a persistent tendency toward slower expan­sion in the economy, as the main forces pushing up growth rates in the 1950s and '60s waned, preventing the economy from returning to its former prosperity. In subsequent decades, rather than recovering its former trend-rate of growth, the economy slowly subsided. It was the reality of economic stagnation beginning in the 1970s, as heterodox economists Riccardo Bellofiore and Joseph Halevi have recently emphasized, that led to the emergence of “the new financial­ized capitalist regime,” a kind of “paradoxical financial Keynesianism” whereby demand in the economy was stimulated primarily “thanks to asset-bubbles.” Moreover, it was the leading role of the United States in generating such bubbles – despite (and also because of) the weakening of capital accumulation proper – together with the dollar's reserve currency status, that made U.S. monopoly-finance capital the “catalyst of world effective demand,” beginning in the 1980s. But such a financialized growth pattern was unable to produce rapid economic advance for any length of time, and was unsustainable, leading to bigger bubbles that periodically burst, bringing stagnation more and more to the surface. A key element in explaining this whole dynamic is to be found in the falling ratio of wages and salaries as a percentage of national income in the United States. Stagnation in the 1970s led capital to launch an accelerated class war against workers to raise profits by pushing labor costs down. The result was decades of increasing inequality. Chart 3 shows a sharp decline in the share of wages and salaries in GDP between the late 1960s and the present. This reflected the fact that real wages of private nonagricultural workers in the United States (in 1982 dollars) peaked in 1972 at $8.99 per hour, and by 2006 had fallen to $8.24 (equivalent to the real hourly wage rate in 1967), despite the enormous growth in productivity and profits over the past few decades. This was part of a massive redistribution of income and wealth to the top. Over the years 1950 to 1970, for each additional dollar made by those in the bottom 90 percent of income earners, those in the top 0.01 percent received an additional $162. In contrast, from 1990 to 2002, for each added dollar made by those in the bottom 90 percent, those in the uppermost 0.01 percent (today around 14,000 households) made an additional $18,000. In the United States the top 1 percent of wealth holders in 2001 together owned more than twice as much as the bottom 80 percent of the population. If this were measured simply in terms of financial wealth, i.e., excluding equity in owner-occupied housing, the top 1 percent owned more than four times the bottom 80 percent. Between 1983 and 2001, the top 1 percent grabbed 28 percent of the rise in national income, 33 percent of the total gain in net worth, and 52 percent of the overall growth in financial worth. The truly remarkable fact under these circumstances was that household consumption continued to rise from a little over 60 percent of GDP in the early 1960s to around 70 percent in 2007. This was only possible because of more two-earner households (as women entered the labor force in greater numbers), people working longer hours and filling multiple jobs, and a constant ratcheting up of consumer debt. Household debt was spurred, particularly in the later stages of the housing bubble, by a dramatic rise in housing prices, allowing consumers to borrow more against their increased equity (the so-called housing “wealth effect”) – a process that came to a sudden end when the bubble popped, and housing prices started to fall. As chart 1 shows, household debt increased from about 40 percent of GDP in 1960 to 100 percent of GDP in 2007, with an especially sharp increase starting in the late 1990s. This growth of consumption, based in the expansion of household debt, was to prove to be the Achilles heel of the economy. The housing bubble was based on a sharp increase in household mortgage-based debt, while real wages had been essentially frozen for decades. The resulting defaults among marginal new owners led to a fall in house prices. This led to an ever increasing number of owners owing more on their houses than they were worth, creating more defaults and a further fall in house prices. Banks seeking to bolster their balance sheets began to hold back on new extensions of credit card debt. Consumption fell, jobs were lost, capital spending was put off, and a downward spiral of unknown duration began. During the last thirty or so years the economic surplus controlled by corporations, and in the hands of institutional investors, such as insurance companies and pension funds, has poured in an ever increas­ing flow into an exotic array of financial instruments. Little of the vast economic surplus was used to expand investment, which remained in a state of simple reproduction, geared to mere replacement (albeit with new, enhanced technology), as opposed to expanded reproduc­tion. With corporations unable to find the demand for their output – a reality reflected in the long-run decline of capacity utilization in industry (see chart 4) – and therefore confronted with a dearth of profitable investment opportunities, the process of net capital forma­tion became more and more problematic. Hence, profits were increasingly directed away from investment in the expansion of productive capacity and toward financial specula­tion, while the financial sector seemed to generate unlimited types of financial products designed to make use of this money capital. (The same phenomenon existed globally, causing Bernanke to refer in 2005 to a “global savings glut,” with enormous amounts of invest­ment-seeking capital circling the world and increasingly drawn to the United States because of its leading role in financialization.) The consequences of this can be seen in chart 5, showing the dramatic decoupling of profits from net investment as percentages of GDP in recent years, with net private nonresidential fixed investment as a share of national income falling significantly over the period, even while profits as a share of GDP approached a level not seen since the late 1960s/early 1970s. This marked, in Marx's terms, a shift from the “general formula for capital” M(oney)-C(commodity)-M¢ (original money plus surplus value), in which commodities were central to the production of profits – to a system increasingly geared to the circuit of money capital alone, M-M¢, in which money simply begets more money with no relation to production. Since financialization can be viewed as the response of capital to the stagnation tendency in the real economy, a crisis of financialization inevitably means a resurfacing of the underlying stagnation endemic to the advanced capitalist economy. The deleveraging of the enormous debt built up during recent decades is now contributing to a deep cri­sis. Moreover, with financialization arrested there is no other visible way out for monopoly-finance capital. The prognosis then is that the economy, even after the immediate devaluation crisis is stabilized, will at best be characterized for some time by minimal growth, and by high unemployment, underemployment, and excess capacity. The fact that U.S. consumption (facilitated by the enormous U.S. current account deficit) has provided crucial effective demand for the production of other countries means that the slowdown in the United States is already having disastrous effects abroad, with financial liq­uidation now in high gear globally. “Emerging” and underdeveloped economies are caught in a bewildering set of problems. This includes falling exports, declining commodity prices, and the repercussions of high levels of financialization on top of an unstable and highly ex­ploitative economic base – while being subjected to renewed imperial pressures from the center states. The center states are themselves in trouble. Iceland, which has been compared to the canary in the coal mine, has experienced a complete financial meltdown, requiring rescue from outside, and possibly a massive raiding of the pension funds of the citizenry. For more than seventeen years Iceland has had a right-wing government led by the ultra-conservative Independence Party in coalition with the centrist social democratic parties. Under this leadership Iceland adopted neoliberal financialization and speculation to the hilt and saw an excessive growth of its banking and finance sectors with total assets of its banks growing from 96 percent of its GDP at the end of 2000 to nine times its GDP in 2006. Now Icelandic taxpayers, who were not responsible for these actions, are being asked to carry the burden of the overseas speculative debts of their banks, resulting in a drastic decline in the standard of living. A Political Economy Economics in its classical stage, which encompassed the work of both possessive-individualists, like Adam Smith, David Ricardo, Thomas Malthus, and John Stuart Mill, and socialist thinkers such as Karl Marx, was called political economy. The name was significant because it pointed to the class basis of the economy and the role of the state. To be sure, Adam Smith introduced the notion of the “invisible hand” of the market in replacing the former visible hand of the monarch. But, the political-class context of economics was nevertheless omnipresent for Smith and all the other classical economists. In the 1820s, as Marx observed, there were “splendid tournaments” between political economists representing different classes (and class fractions) of society. However, from the 1830s and '40s on, as the working class arose as a force in society, and as the industrial bourgeoisie gained firm control of the state, displacing landed interests (most notably with the repeal of the Corn Laws), economics shifted from its previous questioning form to the “bad conscience and evil intent of the apologetics.” Increasingly the circular flow of economic life was reconceptualized as a process involving only individuals, consuming, producing, and profiting on the margin. The concept of class thus disappeared in economics, but was embraced by the rising field of sociology (in ways increasingly abstracted from fundamental economic relationships). The state also was said to have nothing directly to do with economics and was taken up by the new field of political science. Economics was thus “puri­fied” of all class and political elements, and increasingly presented as a “neutral” science, addressing universal/transhistorical principles of capital and market relations. Having lost any meaningful roots in society, orthodox neoclassi­cal economics, which presented itself as a single paradigm, became a discipline dominated by largely meaningless abstractions, mechanical models, formal methodologies, and mathematical language, divorced from historical developments. It was anything but a science of the real world; rather its chief importance lay in its role as a self-confirming ideology. Meanwhile, actual business proceeded along its own lines largely oblivious (sometimes intentionally so) of orthodox economic theories. The failure of received economics to learn the lessons of the Great Depression, i.e., the inherent flaws of a system of class-based accumulation in its monopoly stage, included a tendency to ignore the fact that the real problem lay in the real economy, rather than in the monetary-financial economy. Today nothing looks more myopic than Bernanke's quick dis­missal of traditional theories of the Great Depression that traced the underlying causes to the buildup of overcapacity and weak demand – inviting a similar dismissal of such factors today. Like his mentor Milton Friedman, Bernanke has stood for the dominant, neoliberal economic view of the last few decades, with its insistence that by holding back “the rock that starts a landslide” it was possible to prevent a financial avalanche of “major proportions” indefinitely. That the state of the ground above was shifting, and that this was due to real, time-related processes, was of no genuine concern. Ironically, Bernanke, the academic expert on the Great Depression, adopted what had been described by Ethan Harris, chief U.S. economist for Barclays Capital, as a “see no evil, hear no evil, speak no evil” policy with respect to asset bubbles. It is therefore to the contrary view, emphasizing the socioeconomic contradictions of the system, to which it is now necessary to turn. For a time in response to the Great Depression of the 1930s, in the work of John Maynard Keynes, and various other thinkers associ­ated with the Keynesian, institutionalist, and Marxist traditions – the most important of which was the Polish economist Michael Kalecki – there was something of a revival of political-economic perspectives. But following the Second World War Keynesianism was increasingly reabsorbed into the system. This occurred partly through what was called the “neoclassical-Keynesian synthesis” – which, as Joan Rob­inson, one of Keynes's younger colleagues claimed, had the effect of bastardizing Keynes – and partly through the closely related growth of military Keynesianism. Eventually, monetarism emerged as the ruling response to the stagflation crisis of the 1970s, along with the rise of other conservative free-market ideologies, such as supply-side theory, rational expectations, and the new classical economics (summed up as neoliberal orthodoxy). Economics lost its explicit political-economic cast, and the world was led back once again to the mythology of self-regulating, self-equilibrating markets free of issues of class and power. Anyone who questioned this, was characterized aspolitical rather than economic, and thus largely excluded from the mainstream economic discussion. Needless to say, economics never ceased to be political; rather the politics that was promoted was so closely intertwined with the system of economic power as to be nearly invisible. Adam Smith's visible hand of the monarch had been transformed into the invisible hand, not of the market, but of the capitalist class, which was concealed behind the veil of the market and competition. Yet, with every major economic crisis that veil has been partly torn aside and the reality of class power exposed. Treasury Secretary Paulson's request to Congress in September 2008, for $700 billion with which to bail out the financial system may constitute a turning point in the popular recognition of, and outrage over, the economic problem, raising for the first time in many years the issue of a political economy. It immediately became apparent to the entire population that the critical question in the financial crisis and in the deep economic stagnation that was emerging was: Who will pay? The answer of the capitalist system, left to its own devices, was the same as always: the costs would be borne disproportionately by those at the bottom. The old game of privatization of profits and socialization of losses would be replayed for the umpteenth time. The population would be called upon to “tighten their belts” to “foot the bill” for the entire system. The capacity of the larger public to see through this deception in the months and years ahead will of course depend on an enormous amount of education by trade union and social movement activists, and the degree to which the empire of capital is stripped naked by the crisis. There is no doubt that the present growing economic bankruptcy and political outrage have produced a fundamental break in the continuity of the historical process. How should progressive forces approach this crisis? First of all, it is important to discount any at­tempts to present the serious economic problems that now face us as a kind of “natural disaster.” They have a cause, and it lies in the system itself. And although those at the top of the economy certainly did not welcome the crisis, they nonetheless have been the main beneficiaries of the system, shamelessly enriching themselves at the expense of the rest of the population, and should be held responsible for the main burdens now imposed on society. It is the well-to-do who should foot the bill – not only for reasons of elementary justice, but also because they collectively and their system constitute the reason that things are as bad as they are; and because the best way to help both the economy and those at the bottom is to address the needs of the latter directly. There should be no golden parachutes for the capitalist class paid for at taxpayer expense. But capitalism takes advantage of social inertia, using its power to rob outright when it can't simply rely on “normal” exploitation. Without a revolt from below the burden will simply be imposed on those at the bottom. All of this requires a mass social and economic upsurge, such as in the latter half of the 1930s, including the revival of unions and mass social movements of all kinds – using the power for change granted to the people in the Constitution; even going so far as to threaten the current duopoly of the two-party system. What should such a radical movement from below, if it were to emerge, seek to do under these circumstances? Here we hesitate to say, not because there is any lack of needed actions to take, but because a radicalized political movement determined to sweep away decades of exploitation, waste, and irrationality will, if it surfaces, be like a raging storm, opening whole new vistas for change. Anything we suggest at this point runs the double risk of appearing far too radical now and far too timid later on. Some liberal economists and commentators argue that, given the present economic crisis, nothing short of a major public works program aimed at promoting employment, a kind of new New Deal, capital is stripped naked by the crisis. There is no doubt that the present growing economic bankruptcy and political outrage have produced a fundamental break in the continuity of the historical process. How should progressive forces approach this crisis? First of all, it is important to discount any at­tempts to present the serious economic problems that now face us as a kind of “natural disaster.” They have a cause, and it lies in the system itself. And although those at the top of the economy certainly did not welcome the crisis, they nonetheless have been the main beneficiaries of the system, shamelessly enriching themselves at the expense of the rest of the population, and should be held responsible for the main burdens now imposed on society. It is the well-to-do who should foot the bill – not only for reasons of elementary justice, but also because they collectively and their system constitute the reason that things are as bad as they are; and because the best way to help both the economy and those at the bottom is to address the needs of the latter directly. There should be no golden parachutes for the capitalist class paid for at taxpayer expense. But capitalism takes advantage of social inertia, using its power to rob outright when it can't simply rely on “normal” exploitation. Without a revolt from below the burden will simply be imposed on those at the bottom. All of this requires a mass social and economic upsurge, such as in the latter half of the 1930s, including the revival of unions and mass social movements of all kinds – using the power for change granted to the people in the Constitution; even going so far as to threaten the current duopoly of the two-party system. What should such a radical movement from below, if it were to emerge, seek to do under these circumstances? Here we hesitate to say, not because there is any lack of needed actions to take, but because a radicalized political movement determined to sweep away decades of exploitation, waste, and irrationality will, if it surfaces, be like a raging storm, opening whole new vistas for change. Anything we suggest at this point runs the double risk of appearing far too radical now and far too timid later on. Some liberal economists and commentators argue that, given the present economic crisis, nothing short of a major public works program aimed at promoting employment, a kind of new New Deal, natural resources can and should be used for all the people and not for a privileged minority.” In the 1930s Keynes decried the growing dominance of financial capital, which threatened to reduce the real economy to “a bubble on a whirlpool of speculation,” and recommended the “euthanasia of the rentier.” However, financialization is so essential to the mo­nopoly-finance capital of today, that such a “euthanasia of the rentier” cannot be achieved – in contravention of Keynes's dream of a more rational capitalism – without moving beyond the system itself. In this sense we are clearly at a global turning point, where the world will perhaps finally be ready to take the step, as Keynes also envisioned, of repudiating an alienated moral code of “fair is foul and foul is fair” – used to justify the greed and exploitation necessary for the accu­mulation of capital – turning it inside-out to create a more rational social order. To do this, though, it is necessary for the population to seize control of their political economy, replacing the present system of capitalism with something amounting to a real political and eco­nomic democracy; what the present rulers of the world fear and decry most – as “socialism.” Footnotes to this article can be found at http://www.monthlyreview.org/0820foster-magdoff.php