[OPE] David Harvey, "Why the U.S. Stimulus Package is Bound to Fail"

From: Gerald Levy <jerry_levy@verizon.net>
Date: Mon Feb 09 2009 - 22:45:00 EST

> Much is to be gained by viewing the contemporary crisis as a surface
> eruption generated out of deep tectonic shifts in the spatio-temporal
> disposition of capitalist development. The tectonic plates are now
> accelerating their motion and the likelihood of more frequent and more
> violent crises of the sort that have been occurring since 1980 or so will
> almost certainly increase. The manner, form, spatiality and time of these
> surface disruptions are almost impossible to predict, but that they will
> occur with greater frequency and depth is almost certain. The events of
> 2008 have therefore to be situated in the context of a deeper pattern.
> Since these stresses are internal to the capitalist dynamic (which does
> not preclude some seemingly external disruptive event like a catastrophic
> pandemic also occurring), then what better argument could there be, as
> Marx once put it, “for capitalism to be gone and to make way for some
> alternative and more rational mode of production.”
> I begin with this conclusion since I still find it vital to emphasize if
> not dramatize, as I have sought to do over and over again in my writings
> over the years, that failure to understand the geographical dynamics of
> capitalism or to treat the geographical dimension as in some sense merely
> contingent or epiphenomenal, is to both lose the plot on how to understand
> capitalist uneven geographical development and to miss out on
> possibilities for constructing radical alternatives. But this poses an
> acute difficulty for analysis since we are constantly faced with trying to
> distill universal principles regarding the role of the production of
> spaces, places and environments in capitalism’s dynamics, out of a sea of
> often volatile geographical particularities. So how, then, can we
> integrate geographical understandings into our theories of evolutionary
> change? Let us look more carefully at the tectonic shifts.
> In November 2008, shortly after the election of a new President, the
> National Intelligence Council of the United States issued its delphic
> estimates on what the world would be like in 2025. Perhaps for the first
> time, a quasi-official body in the United States predicted that by 2025
> the United States, while still a powerful if not the most powerful single
> player in world affairs, would no longer be dominant. The world would be
> multi-polar and less centered and the power of non-state actors would
> increase. The report conceded that US hegemony had been fading on and off
> for some time but that its economic, political and even military dominance
> was now systematically waning. Above all (and it is important to note that
> the report was prepared before the implosion of the US and British
> financial systems), “the unprecedented shift in relative wealth and
> economic power roughly from West to East now under way will continue.”
> This “unprecedented shift” has reversed the long-standing drain of wealth
> from East, Southeast and South Asia to Europe and North America that had
> been occurring since the eighteenth century (a drain that even Adam Smith
> had noted with regret in The Wealth of Nations but which accelerated
> relentlessly throughout the nineteenth century). The rise of Japan in the
> 1960s followed by South Korea, Taiwan, Singapore and Hong Kong in the
> 1970s and then the rapid growth of China after 1980 later accompanied by
> industrialization spurts in Indonesia, India, Vietnam, Thailand and
> Malaysia during the 1990s, has altered the center of gravity of capitalist
> development, although it has not done so smoothly (the East and South-East
> Asian financial crisis of 1997-8 saw wealth flow briefly but strongly back
> towards Wall Street and the European and Japanese banks). Economic
> hegemony seems to be moving towards some constellation of powers in East
> Asia and if crises, as we earlier argued, are moments of radical
> reconfigurations in capitalist development, then the fact that the United
> States is having to deficit finance its way out of its financial
> difficulties on such a huge scale and that the deficits are largely being
> covered by those countries with saved surpluses – Japan, China, South
> Korea, Taiwan and the Gulf states – suggests this may be the moment for
> such a shift to be consolidated.
> Shifts of this sort have occurred before in the long history of
> capitalism. In Giovanni Arrighi’s thorough account in The Long Twentieth
> Century, we see hegemony shifting from the city states of Genoa and Venice
> in the sixteenth century to Amsterdam and the Low Countries in the
> seventeenth before concentrating in Britain from the late eighteenth
> century until the United States eventually took control after 1945. There
> are a number of features to these transitions that Arrighi emphasizes and
> which are relevant to our analysis. Each shift, Arrighi notes, occurred in
> the wake of a strong phase of financialization (he cites with approval
> Braudel’s maxim that financialization announces the autumn of some
> hegemonic configuration). But each shift also entailed a radical change of
> scale, from the small city states at the origin to the continent-wide
> economy of the United States in the latter half of the twentieth century.
> This change of scale makes sense given the capitalist rule of endless
> accumulation and compound growth of at least three per cent for ever. But
> hegemonic shifts, Arrighi argues, are not determined in advance. They
> depend upon the emergence of some power economically able and politically
> and militarily willing to take on the role of global hegemon (with its
> costs as well as its advantages). The reluctance of the United States to
> assume that role before World War II meant an interregnum of multi-polar
> tensions that could not halt the drift into war (Britain was no longer in
> a position to assert its prior hegemonic role). Much also depends on how
> the past hegemon behaves as it faces up to the diminution of its former
> role. It can pass peaceably or belligerently into history. From this
> perspective the fact that the United States still holds overwhelming
> military power (particularly from 30,000 feet up) in a context of its
> declining economic and financial power and increasingly shaky cultural and
> moral authority, creates worrying scenarios for any future transition.
> Furthermore, it is not obvious that the main candidate to displace the
> United States, China, has the capacity or the will to assert some
> hegemonic role, for while its population is certainly huge enough to meet
> the requirements of changing scale, neither its economy nor its political
> authority (or even its political will) point to any easy accession to the
> role of global hegemon. Given the nationalist divisions that exist, the
> idea that some association of East Asian Powers might do the job also
> appears unlikely as does the possibility for a fragmented and fractious
> European Union or the so-called BRIC powers (Brazil, Russia, India and
> China) to stay on a common path for long. For this reason, the prediction
> that we are headed into another interregnum of multi-polar and conflictual
> interests and potential global instability appears plausible.
> But the tectonic shift away from United States dominance and hegemony that
> has been under way for some time is becoming much clearer. The thesis of
> both excessive financialization and “debt as a principal predictor of
> leading world powers’ debilitation” has found popular voice in the
> writings of Kevin Phillips. Attempts now under way to re-build US
> dominance through reforms in the architecture of both the national and the
> global state-finance nexus appear not to be working while the exclusions
> imposed on much of the rest of the world in seeking to re-shape that
> architecture are almost certain to provoke strong oppositions if not overt
> economic conflicts.
> But tectonic shifts of this sort do not come about as if by magic. While
> the historical geography of a shifting hegemony as Arrighi describes it
> has a clear pattern and while it is also clear from the historical record
> that periods of financialization precede such shifts, Arrighi does not
> provide any deep analysis of the processes that produce such shifts in the
> first place. To be sure, he cites “endless accumulation” and therefore the
> growth syndrome (the three per cent compound growth rule) as critical to
> explaining the shifts. This implies that hegemony moves from smaller (i.e.
> Venice) to larger (e.g. the United States) political entities over time.
> And it also stands to reason that hegemony has to lie with that political
> entity within which much of the surplus is produced (or to which much of
> the surplus flows in the form of tribute or imperialist extractions). With
> total global output standing at $45 trillion as of 2005, the US share of
> $15 trillion made it, as it were, the dominant and controlling
> share-holder in global capitalism able to dictate (as it typically does in
> its role as the chief shareholder in the international institutions such
> as a the World Bank and the IMF) global policies. The NCIS report in part
> based its prediction on loss of dominance but maintenance of a strong
> position on the falling share of global output in the US relative to the
> rest of the world in general and China in particular.
> But as Arrighi points out, the politics of such a shift are by no means
> certain. The United States bid for global hegemony under Woodrow Wilson
> during and immediately after World War I was thwarted by a domestic
> political preference in the United State for isolationism (hence the
> collapse of the League of Nations) and it was only after World War II
> (which the US population was against entering until Pearl Harbor occurred)
> that the US embraced its role as global hegemon through a bi-partisan
> foreign policy anchored by the Bretton Woods Agreements on how the
> post-War international order would be organized (in the face of the Cold
> War and the spreading threat to capitalism of international communism).
> That the United States had long been developing into a state that in
> principle could play the role of global hegemon is evident from relatively
> early days. It possessed relevant doctrines, such as “Manifest Destiny”
> (continental wide geographical expansion which eventually spilled over
> into the Pacific and Caribbean before going global without territorial
> acquisitions) or the Monroe Doctrine which warned European Powers to leave
> the Americas alone (the doctrine was actually formulated by the British
> Foreign Secretary Canning in the 1820s but adopted by the US as its own
> almost immediately). The United States possessed the necessary dynamism to
> account for a growing share of global output and was quintessentially
> committed to some version of what can best be called “cornered market” or
> “monopoly” capitalism backed by an ideology of rugged individualism. So
> there is a sense in which the US was, throughout much of its history,
> preparing itself to take on the role of global hegemon. The only surprise
> was that it took so long to do so and that it was the Second rather than
> the First World War that led it finally to take up the role leaving the
> inter-war years as years of multipolarity and chaotic competing imperial
> ambitions of the sort that the NCIS report fears will be the situation in
> 2025.
> The tectonic shifts now under way are deeply influenced, however, by the
> radical geographical unevenness in the economic and political
> possibilities of responding to the current crisis. Let me illustrate how
> this unevenness is now working by way of a tangible example. As the
> depression that began in 2007 deepened, the argument was made by many that
> a full-fledged Keynesian solution was required to extract global
> capitalism from the mess it was in. To this end various stimulus packages
> and bank stabilization measures were proposed and to some degree taken up
> in different countries in different ways in the hope that these would
> resolve the difficulties. The variety of solutions on offer varied
> immensely depending upon the economic circumstances and the prevailing
> forms of political opinion (pitting, for example, Germany against Britain
> and France in the European Union). Consider, however, the different
> economic political possibilities in the United States and China and the
> potential consequences for both shifting hegemony and for the manner in
> which the crisis might be resolved.
> In the United States, any attempt to find an adequate Keynesian solution
> has been doomed at the start by a number of economic and political
> barriers that are almost impossible to overcome. A Keynesian solution
> would require massive and prolonged deficit financing if it were to
> succeed. It has been correctly argued that Roosevelt’s attempt to return
> to a balanced budget in 1937-8 plunged the United States back into
> depression and that it was, therefore, World War II that saved the
> situation and not Roosevelt’s too timid approach to deficit financing in
> the New Deal. So even if the institutional reforms as well as the push
> towards a more egalitarian policy did lay the foundations for the Post
> World War II recovery, the New Deal in itself actually failed to resolve
> the crisis in the United States.
> The problem for the United States in 2008-9 is that it starts from a
> position of chronic indebtedness to the rest of the world (it has been
> borrowing at the rate of more than $2 billion a day over the last ten
> years or more) and this poses an economic limitation upon the size of the
> extra deficit that can now be incurred. (This was not a serious problem
> for Roosevelt who began with a roughly balanced budget). There is also a
> geo-political limitation since the funding of any extra deficit is
> contingent upon the willingness of other powers (principally from East
> Asia and the Gulf States) to lend. On both counts, the economic stimulus
> available to the United States will almost certainly be neither large
> enough nor sustained enough to be up to the task of reflating the economy.
> This problem is exacerbated by ideological reluctance on the part of both
> political parties to embrace the huge amounts of deficit spending that
> will be required, ironically in part because the previous Republican
> administration worked on Dick Cheney’s principle that “Reagan taught us
> that deficits don’t matter.” As Paul Krugman, the leading public advocate
> for a Keynesian solution, for one has argued, the $800 billion reluctantly
> voted on by Congress in 2009, while better than nothing, is nowhere near
> enough. It may take something of the order to $2 trillion to do the job
> and that is indeed excessive debt relative to where the US deficit now
> stands. The only possible economic option, would be to replace the weak
> Keynesianism of excessive military expenditures by the much stronger
> Keynesianism of social programs. Cutting the US defense budget in half
> (bringing it more in line with that of Europe in relation to proportion of
> GDP) might technically help but it would be, of course, political suicide,
> given the posture of the Republican Party as well as many Democrats, for
> anyone who proposed it.
> The second barrier is more purely political. In order to work, the
> stimulus has to be administered in such a way as to guarantee that it will
> be spent on goods and services and so get the economy humming again. This
> means that any relief must be directed to those who will spend it, which
> means the lower classes, since even the middle classes, if they spend it
> at all, are more likely to spend it on bidding up asset values (buying up
> foreclosed houses, for example), rather than increasing their purchases of
> goods and services. In any case, when times are bad many people will tend
> to use any extra income they receive to retire debt or to save (as largely
> happened with the $600 rebate designed by the Bush Administration in the
> early summer of 2008).
> What appears prudent and rational from the standpoint of the household
> bodes ill for the economy at large (in much the same way that the banks
> have rationally taken public money and either hoarded it or used it to buy
> assets rather than to lend). The prevailing hostility in the United States
> to “spreading the wealth around” and to administering any sort of relief
> other than tax cuts to individuals, arises out of hard core neoliberal
> ideological doctrine (centered in but by no means confined to the
> Republican Party) that “households know best”. These doctrines have
> broadly been accepted as gospel by the American public at large after more
> than thirty years of neoliberal political indoctrination. We are, as I
> have argued elsewhere, “all neoliberals now” for the most part without
> even knowing it. There is a tacit acceptance, for example, that “wage
> repression” - a key component to the present problem - is a “normal” state
> of affairs in the United States. One of the three legs of a Keynesian
> solution, greater empowerment of labor, rising wages and redistribution
> towards the lower classes is politically impossible in the United States
> at this point in time. The very charge that some such program amounts to
> “socialism” sends shivers of terror through the political establishment.
> Labor is not strong enough (after thirty years of being battered by
> political forces) and no broad social movement is in sight that will force
> redistributions towards the working classes.
> One other way to achieve Keynesian goals, is to provide collective goods.
> This has traditionally entailed investments in both physical and social
> infrastructures (the WPA programs of the 1930s is a forerunner). Hence the
> attempt to insert into the stimulus package programs to rebuild and extend
> physical infrastructures for transport and communications, power and other
> public works along with increasing expenditures on health care, education,
> municipal services, and the like. These collective goods do have the
> potential to generate multipliers for employment as well as for the
> effective demand for further goods and services. But the presumption is
> that these collective goods are, at some point, going to belong to the
> category of “productive state expenditures” (i.e. stimulate further
> growth) rather than become a series of public “white elephants” which, as
> Keynes long ago remarked, amounted to nothing more than putting people to
> work digging ditches and filling them in again. In other words, an
> infrastructural investment strategy has to be targeted towards systematic
> revival of three percent growth through, for example, systematic redesign
> of our urban infrastructures and ways of life. This will not work without
> sophisticated state planning plus an existing productive base that can
> take advantage of the new infrastructural configurations. Here, too, the
> long prior history of deindustrialization in the United States and the
> intense ideological opposition to state planning (elements of which were
> incorporated into Roosevelt’s New Deal and which continued into the 1960s
> only to be abandoned in the face of the neoliberal assault upon that
> particular exercise of state power in the 1980s) and the obvious
> preference for tax cuts rather than infrastructural transformations makes
> the pursuit of a full-fledged Keynesian solution all but impossible in the
> United States.
> In China, on the other hand, both the economic and political conditions
> exist where a full-fledged Keynesian solution would indeed be possible and
> where there are abundant signs that this path will likely be followed. To
> begin with, China has a vast reservoir of foreign cash surplus and it is
> easier to debt finance on that basis than it is with a vast already
> existing debt overhang as is the case in the US. It is also worth noting
> that ever since the mid 1990s the “toxic assets” (the non performing
> loans) of the Chinese Banks (some estimates put them as high as 40 per
> cent of all loans in 2000) have been wiped off the banks’ books by
> occasional infusions of surplus cash from the foreign exchange reserves.
> The Chinese have had a long-running equivalent of the TARP program in the
> United States and evidently know how to do it (even if many of the
> transactions are tainted by corruption). The Chinese have the economic
> wherewithal to engage in a massive deficit-finance program and have a
> centralized state-financial architecture to administer that program
> effectively if they care to use it. The banks, which were long state
> owned, may have been nominally privatized to satisfy WTO requirements and
> to lure in foreign capital and expertise, but they can still easily be
> bent to central state will whereas in the United States even the vaguest
> hint of state direction let alone nationalization creates a political
> furor.
> There is likewise absolutely no ideological barrier to redistributing
> economic largesse to the neediest sectors of society though there may be
> some vested interests of wealthier party members and an emergent
> capitalist class to be overcome. The charge that this would amount to
> “socialism” or even worse to “communism” would simply be greeted with
> amusement in China. But in China the emergence of mass unemployment (at
> last report there were thought to be some 20 million unemployed as a
> result of the slow-down) and signs of widespread and rapidly escalating
> social unrest will almost certainly push the Communist Party to massive
> redistributions whether they are ideologically concerned to do so or not.
> As of early 2009, this seemed to be directed in the first instance to
> revitalizing the lagging rural areas to which many unemployed migrant
> workers have returned in frustration at the loss of jobs in manufacturing
> areas. In these regions where both social and physical infrastructures are
> lagging, a strong infusion of central government support will raise
> incomes, expand effective demand and begin upon the long process of
> consolidation of China’s internal market.
> There is, secondly, a strong predilection to undertake the massive
> infrastructural investments that are still lagging in China (whereas tax
> reductions have almost no political appeal). While some of these may turn
> into “white elephants” the likelihood is far less since there is still an
> immense amount of work to be done to integrate the Chinese national space
> and so to confront the problem of uneven geographical development between
> the coastal regions of high development and the impoverished interior
> provinces. The existence of an extensive though troubled industrial and
> manufacturing base in need of spatial rationalization, makes it more
> likely that the Chinese effort will fall into the category of productive
> state expenditures. For the Chinese, much of the surplus can be mopped up
> in the further production of space, even allowing for the fact that
> speculation in urban property markets in cities like Shanghai, as in the
> United States, is part of the problem and cannot therefore be part of the
> solution. Infrastructural expenditures, provided they are on a
> sufficiently large scale, will go a long way to both mopping up surplus
> labor and so reducing the possibility of social unrest, and again boosting
> the internal market.
> These completely different opportunities to pursue a full-fledged
> Keynesian solution as represented by the contrast between the United
> States and China have profound international implications. If China uses
> more of its financial reserves to boost its internal market, as it is
> almost certainly bound to do for political reasons, so it will have less
> left over to lend to the United States. Reduced purchases of US Treasury
> Bills will eventually force higher interest rates and impact US internal
> demand negatively and, unless managed carefully, could trigger the one
> thing that everyone fears but which has so far been staved off: a run on
> the dollar. A gradual move away from reliance on US markets and the
> substitution of the internal market in China as a source of effective
> demand for Chinese industry will alter power balances significantly (and,
> by the way, be stressful for both the Chinese and the United States). The
> Chinese currency will necessarily rise against the dollar (a move that the
> US authorities have long sought but secretly feared) thus forcing the
> Chinese to rely even more on their internal market for aggregate demand.
> The dynamism that will result within China (as opposed to the prolonged
> recession conditions that will prevail in the United States) will draw
> more and more global suppliers of raw materials into the Chinese trade
> orbit and lessen the relative significance of the United States in
> international trade. The overall effect will be to accelerate the drift of
> wealth from West to East in the global economy and rapidly alter the
> balance of hegemonic economic power. The tectonic movement in the balance
> of global capitalist power will intensify with all manner of unpredictable
> political and economic ramifications in a world where the United States
> will no longer be in a dominant position even as it possesses significant
> power. The supreme irony, of course, is that the political and ideological
> barriers in the United States to any full-fledged Keynesian program will
> almost certainly hasten loss of US dominance in global affairs even as the
> elites of the world (including those in China) would wish to preserve that
> dominance for as long as possible.
> Whether or not true Keynesianism in China (along with some other states in
> a similar position) will be sufficient to compensate for the inevitable
> failure of reluctant Keynesianism in the West is an open question, but the
> unevenness coupled with fading US hegemony may well be the precursor to a
> break up of the global economy into regional hegemonic structures which
> could just as easily fiercely compete with each other as collaborate on
> the miserable question of who is to bear the brunt of long-lasting
> depression. That is not a heartening thought but then thinking of such a
> prospect might just awaken much of the West to the urgency of the task
> before it and get political leaders to stop preaching banalities about
> restoring trust and confidence and get down to doing what has to be done
> to rescue capitalism from the capitalists and their false neoliberal
> ideology. And if that means socialism, nationalizations, strong state
> direction, binding international collaborations, and a new and far more
> inclusive (dare I say “democratic”) international financial architecture,
> then so be it.
> David Harvey is Distinguished Professor in the CUNY Graduate Center in New
> York. He is author of A Brief History of Neoliberalism.

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