[OPE-L:5893] expectations and the current economic crisis

From: Gerald_A_Levy (Gerald_A_Levy@email.msn.com)
Date: Thu Sep 06 2001 - 08:52:55 EDT

Since the mid-1930's mainstream (bourgeois) economists have overwhelmingly held
the position that the (capitalist) state can 'manage'  economic crises through the
(judicious) use of fiscal and monetary policies.  This is a position shared by Keynesians, 
monetarists, and supply-side economists. 

Doesn't the experience of the current economic crisis suggest limits to which the
state can 'manage'  markets?  For example, in the U.S. the Fed decreases and
decreases and decreases interest rates. What happens as a result? Not much. 
And there was a (supply-side) tax cut in the U.S. promoted by the Usurper Bush
Jr.. Result?  One might argue that such a policy will take more time to see its
net effect. Yet, I don't think it's too early to say that the 'tax cut' will have a very
marginal effect on the economy.

What is going on?  Well, there seems to be general agreement that a _part_ of
what is happening has to do with the *expectations* of capitalists and workers.
Thus, when the Fed cuts interest rates,  capitalists anticipate such cuts even 
before they happen and when they do happen the effect in terms of stock market
activity, and in terms of real investment, tends to be marginal or even negative.

Keynes might have said: "I told you so". Yet,  the current experience not only
highlights the role of expectations (which, of course, was emphasized by
Keynes) but *also* the _ relative inability of the state to alter expectations through
government intervention in the economy_ (which wasn't emphasized by Keynes).

There are some interesting questions here:

1) how *precisely*  can/are expectations incorporated within Marxian theory?
I think one can make the case that expectations tend to reinforce a tendency
for commodities to be sold below their value during the slump and above their
value during the expansion.  Yet,  I don't think that Marxians have really
developed this 'intuition' into a theory of capitalist cyclical behavior.  Can anyone
cite any Marxian sources where the role of expectations in cyclical behavior
has been emphasized and explained?

2) another additional explanation for what is happening in the US economy
concerns the _relative cynicism of capitalists and others re state policies_.
Of course, in the U.S. the fact that the 'government lies' has penetrated
working-class consciousness at least as far back as the Vietnam War
and Watergate.  Now it seems that capitalists also understand this motto
and discount whatever is said by the government, including the Central
Bank, about the economy.  Doesn't this suggest that state fiscal and
monetary policies are _less_ able to bring about 'real' changes in the
macroeconomy than during the later half of the 20th Century?  Would the
following analogy be far off-base?  In the 1930's and since the capitalist
state have tried to administer  'magic bullets' (state fiscal and monetary
policies) to help  the patient (capitalism) recover from economic 'illnesses'.
Yet, now the patient has developed, it appears, an increasing *resistance* 
to such medications.  Where this analogy breaks down, perhaps, is that
it doesn't incorporate the role of expectations, and social and class
psychology, into the effectiveness of the medicine. Yet, most doctors
realize that the 'state of mind' of the patient(s) has a major effect on the
effectiveness of many medical treatments.  If state pronouncements are
viewed strictly as propaganda, though, then whatever they (the 'doctors') say is 
discounted by all economic classes. Thus, are the economic 'patients'
increasingly mistrustful of government analyses?   (Or is this a really bad analogy 
and should I go back to sailing?).

3) Given some of these circumstances, how do you think that the
contemporary economic crisis will be resolved?   How specifically will the
working class be impacted by the manner in which the state attempts
to resolve the crisis? Doesn't the current crisis suggest that there is a
"fallacy of control" re the capitalist state? I.e. while the state can to
some (a decreasing?) extent 'influence' capitalist behavior isn't it a fallacy to believe 
that they can control capitalism? 

In solidarity, Jerry

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