[OPE-L] Lapavitsas on the financial crisis

From: Jurriaan Bendien (adsl675281@TISCALI.NL)
Date: Wed Jan 23 2008 - 15:17:54 EST


Thanks for the comment. What I have said before on OPE-L is, that the subprime crisis in itself isn't quantitatively sufficient to generate a recession, but that, insofar as it exposes a bigger problem of bad loans (the overextension of credit), it creates a crisis of confidence in the markets, you are faced with a bunch of unknowns causing investors to overreact, and that very likely leads to a recession, you might get a real GDP growth rate of 2% or possibly even less (it doesn't hit all countries equally). So you could see the subprime crisis as "trigger" of a recession. 

What I have said before on OPE-L was, that I thought a new recession was inevitable "at some point", essentially because it is impossible to know in advance, what the limits of the enormous credit expansion in previous decades are, or to adjust for it accordingly. The central banks cannot even control the expansion of credit, they can only influence it. The capitalist system reveals its limits, only when you get an unmanageably large amount of actual credit defaults. There were foreclosures, bankruptcies and credit defaults all the time, for many years, but at a certain point this rises quantitatively beyond a critical level. Even so, point is that the critical level itself depends partly on market perceptions, from there on you get the "herd mentality" operating. In the end, the whole system is based on trust, but trust is a rather intangible factor.

In the end, you get a crisis of confidence in the banking system, and that is what the central banks try to do something about, by proving that sufficient capital resources can be mustered to tide things over. I think what you must have meant by the "freeze-up" is the threat of bottlenecks in interbank lending. The stock crash doesn't just affect the banks, because of corporate self-financing, so it hits the non-financials as well. The social effect is to exacerbate socio-economic inequality and competition all round, and create a more conservative stance with regard to the extension of credit, but I don't prophesy any capitalist collapse, although a recession could wreak havoc, especially in countries which are already in a marginal position.

What I have noted before on OPE-L was, that the confidence that existed previously disappeared, and naturally then capital shifts out of stocks and weakening currencies, into things like gold, real estate, bonds and the like. The world is awash in "surplus capital" as far as I can see (i.e. capital not productively invested), but in fact most of it is owned by a relatively small amount of people in the world population, I mean the concentration of wealth has become enormous. I cannot say in advance how severe the recession will be, quantitatively speaking, in part because I think it depends on the ability of financiers to calm things down and curb irresponsible lending. 

I am a bit reluctant to go into all this in great detail, because I am not a paid academic able to research it all professionally, as I think it should be done, I just write a few bits in my free time. To get a Phd I have to publish a bunch of articles in refereed journals which are not too leftwing. I think I can do it, but finding the time, that's often a problem if you work fulltime in a normal job. 

I was a Dutch child in the 1960s, when things only seemed to get better and better, and economists said that the problems of recession had been licked. Then when I got out of school in 1977 in New Zealand, there was a steep rise in unemployment, it was difficult to get jobs, I mean I wanted to go into the printing trade, but I ended up in forestry and later as photographer for the suburban papers. Then I decided to go to university, but when I got out of university, it was just after the second oil-shock, and it was again difficult to get jobs. I also studied for Phd (didn't complete it), you had the 1987 crash and so on. But, I have had many friends who built successful lives and professional careers, and if I haven't, and am again looking for jobs, it is really my own problem to solve. Point is, focusing too much on the crises of capitalism can be detrimental to focusing on what you have to do in life. For the apologists of capitalism, each crisis is always the last, and for many Marxists each crisis spells the doom of capitalism. But meanwhile you have to live your life, and you have to live it, whatever the economic climate is, making the best of it, even if it did not turn out the way you expected or wanted. 

A good article would be one which explored what the meaning of the financial crisis is for ordinary working people, but I have read any recently. I quite like Mike Davis's stuff, to the extent that he doesn't simply focus on economic mechanisms, but tries to show what it means for the whole culture of the world we live in, what it means for people's lives, for human relations. For hundreds of millions of people, there's a permanent crisis, it is just that within the ""gated global community" it is more or less a constant factor, often at a fairly remote distance, and so it doesn't make the news much. Ernest Mandel said to a friend of mine once that if you could grasp the total suffering of people on the planet, you'd go crazy, you couln't handle it, necessarily people shut it out of their consciousness. He considered this symptomatic of the decadence of the world we live in. There is something to be said for that view, but on the other hand if you are constantly focusing on crises, you get that in your field of vision all the time, and that becomes your life. That is not healthy either.

I don't think that the '68 generation of leftist scholars coped very well analytically with the "neoliberal" era starting around 1980. I don't find the analyses very credible, that's my bias. I think that a lot more theoretical and empirical work needed to be done on "financialisation" phenomena, which is why I am interested in your research as well. My experience is, that each new generation faces a specific set of problems which shapes their outlook, but then the world changes, and if you don't change with it, then in the end you are just left with rhetorics, I mean it is no longer clear what the real questions are, that have to be answered.
That aside, the economics profession often seems a bit of a chaos to me. Firstly, people cannot even agree on theoretical foundations. Secondly, the theories typically fail to explain things outside of a very limited context. Economics, it seems, cannot explain very much, unless it is connected with other human sciences, but this typically occurs eclectically and ideosyncratically. You get a sort of "new age" mentality in which people let loose all kinds of concepts on situations for which they were not intended. I call it "lumpen-theory" and then I prefer the thinking of people who carefully worked out concepts, rather than treating them sort of like instant coffee. There's a place for both, but they ain't the same. 


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