[OPE-L:6089] Re: empirical studies on causes of current world economic crisis?

From: Gerald_A_Levy (Gerald_A_Levy@email.msn.com)
Date: Thu Oct 25 2001 - 14:24:06 EDT

Re [6087]:

Fred, thanks for your response to the following question:

> What does the empirical evidence tell us about the cause or causes of
> the current world economic crisis?

You responded:

> I think the main factor that has caused the current crisis in the US
> economy is a very significant decline in the absolute amount of profit
> from 1997 to the present (in spite of corporate reports to the
> contrary).  <snip, JL>
>  The SHARE of
> profit in total income has declined even more, by about one-third, from
> 12.5% to 8.5%.  <snip, JL>
>  The RATE of profit, I would guess, has declined even more,
> because of the rapid increase of the capital stock during the "investment
> boom" of the late 90s.

Whether we're talking about the absolute magnitude of profit, the
share of profit (to total income), or the rate of profit, the question

what does the empirical evidence tell us about the cause or causes of
the decline in profit?

To suggest that a decline in profit is the main cause
of the current world economic crisis is a bit like saying, imo, that the
cause of baldness is the loss of hair.

>  It
> appears that the stock market boom of the late 90s was based on an
> illusion of rising profits, magnified by corporations cooking their books
> with all kinds of accounting tricks, which the BEA rejects.

This suggests that if investors had better information and weren't so
easily deceived then the stock market bubble wouldn't have been
created and eventually busted?

> I think this very significant decline in the amount and the share of
> profit is the main cause of the rapid decline of capital investment over
> the last year, which in turn has brought on the recession.

Which returns me to the question I asked above: what is the cause or
causes for that decline in the mass and share (and rate of) profit?

> This rapid decline of profits will also make it more difficult for
> businesses to meet their debt obligations in the coming months, and will
> probably result in increasing defaults, bankruptcies, etc., especially
> since business debt levels are at a very high level.  And spreading
> bankruptcies could turn a normal recession into something worse.

So you think that _at present_ it is a 'normal recession'?

> I would like to learn more about the magnitude of corporate debt and the
> likelihood of defaults and bankruptcies in the coming months.  If anyone
> knows of any good articles, data, etc. on this question, I would very much
> appreciate references.  I think that will be the crucial factor in
> determining the length and severity of the recession.

Yet, aren't defaults and bankruptcies a major part of how economic crises
are overcome?  I.e. isn't the 'rationalization' that accompanies the crisis
(and with it the forcible destruction of capital values) a major way in
which the
conditions for expanded profitability are made possible?

> Along with the
> record level of household debt, which also threatens to cause very high
> rates of personal bankruptcies.

The level of debt by working-class households could indeed be something
(relatively) 'new' about the current recession.

> P.S.  This crisis has nothing to do with "underconsumption of the
> masses".  To the contrary, over-consumption (i.e. spending greater than
> income) has been the main support for the economy over the last year,
> while capital investment has declined sharply.  This over-consumption will
> now require sharp retrenchment in consumer spending, which will make the
> recession worse.

I don't disagree (at least insofar as the US economy is concerned) but I
raised the question of the 'underconsumption of the masses' as a way to see
if  there were any on the list who thought that this was a causal factor for
the current crisis.  On another list, for example, a former listmember has
forward what some call 'underconsumptionist' arguments but which he has
labeled 'over-accumulationist'.  And, of course, there are still those who
advance Sweezy--like underconsumptionist explanations for crises. As
far as the empirical evidence on whether there is 'over-consumption', I
like to see data from other nations besides the US.  You might recall, e.g.
that consumer spending levels in the US in the last few years were higher
than in other advanced capitalist nations (that experienced the beginnings
of the
recession at an earlier date).  And, of course, this is a *world-wide
recession*  and I doubt that most regions in the capitalist world have
'over-consumption' during this time -- but I might be wrong and would
welcome data for comparative purposes from other nations and regions.

In solidarity, Jerry

This archive was generated by hypermail 2b30 : Fri Nov 02 2001 - 00:00:04 EST