Posts by RJ Random

The Death Spiral of Capitalism

July 24th, 2013
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    1) The Declining Rate of Profit

The early major theorists of capitalism, Adam Smith, David Ricardo, and Karl Marx, all predicted that the rate of profit of capitalist enterprises should fall, as a general trend over time.

Each reached this conclusion in his own way. Adam Smith derived it from increased competition; David Ricardo from rising rent costs. Karl Marx was able to show that the greater the proportion of fixed capital (eg machinery) to variable capital (eg labor costs) in an investment, the lower the profitability. Marx’s theory has the most explanatory power, but the fact that other theorists reached a similar result is not insignificant — all predicted that the graph would trend downward toward an eventual 0% rate of profit.

History, too, has proved the correctness of this prediction. The tendency of the rate of profit to fall can be seen quite clearly today; the attempts of capitalists to mask it merely demonstrate that it is a reality they cannot alter.

    2) Masking the Decline

The first method is depressing wages. Over the last several decades in the USA, the bottom sixty percent of earners have suffered real wage losses, while the sixty-to-eighty percenters have remained stagnant. Reducing labor’s share of production has allowed enterprises to keep their profits up, even while profitability declines.
Fact: average real wages for private non-agricultural industries peaked in 1972 and are 14% below peak today. (1)

The second method is debt. Also over the last several decades, consumer and student debt have grown at astronomical rates. Extension of credit has helped working people retain an approximation of their standard of living, and helped keep up demand for products and services – of course, at a price.
Fact: total American credit card debt is $856.5 billion, mortgage debt is $7.86 trillion, and student loans are $999.3 billion. (2)

The third method is government intervention. The tendency of the rate of profit to fall makes the economic system increasingly unstable and enterprises increasingly precarious. To counter the inevitable breakdowns, the government has propped up the system via direct intervention. The size of these bailouts, from the early 1970s through the latest financial rescue, has been increasing.
Fact: $328.6 billion in bailouts 1970-1995, $1.78 trillion in bailouts 1995-2013 (all in 2008 dollars). (3)

These methods are all adaptations to the tendency of the rate of profit to fall. Their function is to try to preserve profit by shifting the burden of capital’s need to expand onto workers – by lower wages, debt-financed consumption, and bailouts using public funds.

And still — the economy’s growth slows.
Fact: USA average yearly GDP growth 1970-1979: 10.3%, 1980-1989: 7.7%, 1990-1999: 5.6%, 2000-2009: 4.0%, 2010-2013: 3.8%. (4)

    3) Over-Accumulation of Capital

Investments generate profit. Capital piles up. It needs an investment outlet. That is why a necessary symptom of the tendency of the rate of profit to fall is increased financialization.

As the prospects of productive investments go down, speculation on commodities becomes relatively more attractive and increases. Capital flows away from production in a self-reinforcing process – as more capital flows to commodities, the potential for profitable commodity trading increases, attracting more capital. Oil, wheat, gold, housing etc. up through complex financial instruments like derivatives come to represent an increasing portion of investment, and become subject to increasing fluctuations.

Financial capital chases financial capital. The portion of the economy made up by the finance sector increases.
Fact: the financial sector made up 8.6% of GDP in 2011, quadrupling its share from the 1950s. It made more than 30% of corporate profits on the year. (5)

In short, capitalism begins to smother production and consumption – the “real” economy – through a game of false values created by financialization.

At the same time, increasingly difficult profits induce monopoly structures in markets. Thin profit prospects make economies of scale increasingly decisive. Small enterprises are usually bankrupted first in severe crises, and are less likely to be bailed out. At the same time, lack of attractive investment gives big firms more incentive to use their resources to try to guarantee profit (at the expense of consumers and competitors) by strangling competition.

Exponential growth and mergers help to create increasingly monopolistic market structures over time. However, it is not only a natural tendency of capitalism, but one that is accelerated by the political power of the large enterprises. Through legislation, government contracts, and the ability to command a bailout, the large enterprises enhance their advantage.

In fact, many large enterprises now generate more revenues annually than mid-sized states do tax revenue. Resources are the basis of power, so it is safe to say, that corporations are increasingly more powerful than states.
Fact: Exxon-Mobil Corporation has yearly revenues of $482 billion, while Sweden’s 2011 total tax revenue was $239.6 billion, and Spain’s was $467.2 billion. (6) (7)

    4) Escaping the Death Spiral

The last time capitalism reached such an advanced stage of its death spiral of falling rate of profit and over-accumulation of capital, was in the period leading up to WW2. The Second World War provided an escape through the massive destruction of capital and enterprises. That reset the rate of profit to an earlier, higher level.

Today, with our more advanced weaponry, World War is not an option. It is only an escape from the tendency of the rate of profit to fall, inasmuch as it is an escape from human life and civilization on the planet.

Some say technological growth will come to the rescue of the world economy. Technology always grows – that has not stopped the tendency of the rate of profit to fall. The internet boom did not prevent slowed growth.

Others point to third-world development as a panacea. Opening new markets is indeed one of the few ways that the tendency of the rate of profit to fall, derived from the over-accumulation of capital, can be overcome. But this is only a temporary shot in the arm. Profits from new markets translate into additional capital accumulation, driving profit decline. Ever more intense doses of the drug are needed, and in the end there is no way to provide enough – the world is of finite size.

Capitalist theoreticians have been working hard to keep the system afloat. The amount of economic understanding and skillful manipulation of the markets and economy has increased magnitudes since the Great Depression. But the skill and technique of an expert doctor cannot save the life of a terminal patient – only extend it. And, as extending the life of someone dying can sometimes be inflicting misery, prolonging the current system is to inflict agony on its suffering masses.

The current system has reached the end of its historical usefulness.

The so-called “creative destruction” of the market, already a blind anarchy with a high human cost, no longer serves its nominal purpose of removing failures to make way for new growth – witness the bailouts. Those financial elites who claimed to deserve their ludicrous salaries because they were such great winners and economic sages were revealed as losers dependent on the workers whose labor they profit off not just for work, but for public bailout. The beautiful system of competitive firms ensuring efficiency they claim to wisely guide is in actuality populated by zombie behemoths run by failures.

The rate of profit falls – and they have no answer; no way to ensure growth. Instead they are compelled to smother the economy in financialization and to push workers down further and further, to try to keep making profits.

What is needed is a transformation of economy and politics so that abundance is shared by all, and so that growth can be revitalized stronger than before, based on rational planning to meet the needs of the entire population.

That transformation will not achieve itself. History has proved it a utopian optimism to think that capitalism itself can achieve it, or that at a certain time the common sense of such a transformation will make it inevitable. The realistic view is that it will only occur when the power of the class with an interest in preserving the profit system is broken by the power of another, stronger class, that aims to abolish it.

(1) http://www.middleclasspoliticaleconomist.com/2012/03/basics-real-wages-remain-below-their.html
(2) http://www.nerdwallet.com/blog/credit-card-data/average-credit-card-debt-household/
(3) http://www.propublica.org/special/government-bailouts
(4) http://www.multpl.com/us-gdp-growth-rate/table/by-year
(5) http://thinkprogress.org/economy/2011/12/14/389487/financial-sector-gdp-recession/
(6) http://en.wikipedia.org/wiki/List_of_largest_companies_by_revenue
(7) http://stats.oecd.org/Index.aspx?QueryId=21699

Syria, pt 2

June 16th, 2013
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US aid, can only come along with bombings, foreign fighters, etc. In general, if there were a home-grown movement capable of ousting Assad, it would not benefit from US aid. For example, in the case of Afghanistan, it is clear that any association with foreigners who bomb wedding parties and patrol the skies with drones is harmful to aspirations for political power. [As a note, according to Stanford and NYU researchers, 1 out of every 50 death’s caused by a drone is a “terrorist” ,(the other 49 being civilians]

Even if making this Faustian pact some how works out, you have given up more than you gained. The real control of any movement lies with those who control the material functioning of the movement — if US arms are the key to the success of any rebels, and those arms are accepted and relied on, then in the end, those rebels do not have any real control of their movement. Even with arms already surreptitiously supplied, the rebels were incapable of victory, and hence the foreign fundamentalist fighters have been introduced as well. Even worse.

While the movement is too weak, the only choices in open conflict are defeat or usurpation and corruption by Imperial interests. Better not to fight directly at that time.

It was already a symptom of astroturfing that the Syrian “Arab Spring” turned into a civil war at all. US, Turkish, and Israeli intelligence must have had a hand in the choice to fight. See for example statements by former French Foreign Minister Dumas where he indicates something was in the works for a long time.

Thus the movement was forced to fight before it was ready, before everyday Syrians had a hope of winning power on their own, in their own name. This will set them back a long time.

I do not support the Assad regime. The Assad regime would murder me if I lived there and has certainly murdered numerous of my co-thinkers. My allegiance is to the exploited of Syria. It is only their own action which can lead to their liberation — as Marx said. At this point, they have gone for Assad, because they see what sort of a demon has been taken in to their house. Even NATO admits 70% of Syrians support Assad with 20% neutral and 10% supporting the rebels. In other words, at this point, according to NATO, Assad supporters outnumber rebel supporters 7:1.

Syria, pt 1

June 16th, 2013
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Two years of fighting — and it seems the Syrian people now solidly back Assad over the rebels. The rebels were never a homogenous group, always having been an unstructured movement including elements organized by Turkish intelligence, American intelligence, and fundamentalist Muslim fighters, but at least at the outset there were some “normal” Syrians. However, at this point it seems the “normal” Syrians are in support of Assad, as the foreign and jihadi elements are now dominant among the rebels. The brutality of these forces has been made clear, eg execution for blasphemy, murder of pro-government religious figures, and sectarian killings of Shia, Christians, etc

Because of the solidification of public opinion against the rebels, Assad’s regime has begun to win the civil war. They have gained control of a number of towns. In fact, the insurgency appears close to defeat.

And yet, Obama & the Imperialist gang are now doubling down on the rebels. America had always supplied weapons and logistical support to certain rebel elements, now Obama is upping the ante to direct and open military support on the basis of supposed use of poison gas by Assad’s forces.

The Imperialist motives of the US are clear. Under the pretext of the “Arab spring” the US has taken the opportunity to try to recalibrate the region in its interests. Thus, rebellions in Libya and Syria, countries governed by regimes Washington always wanted to do away with, were militarily aided and pushed out of all proportion to their popular support, in order to oust the regime. At the same time, in countries like the repressive dictatorship monarchy Bahrain, a US ally, in which protesters were slaughtered, the US did not raise a peep. Neither did it in Saudi Arabia, Jordan, or any other similar country. In Egypt, the US remained funding and supporting Mubarak even as the police slaughtered hundreds in violent crackdowns. Only after Mubarak’s ouster by the people of Egypt, did the US change tack and declare Mubarak an unconsciounable dictator and establish ties with the Muslim Brotherhood, trying to co-opt the new regime, not caring whether it was reactionary or progressive.

In fact Obama’s actions have generally backed the more reactionary side. Libya and Syria were both, in the spectrum of Arab countries, relatively secular, redistributionist, and mindful of foreign economic exploitation. In Libya, NATO bombed and killed in order to support a shaky coalition of Islamic-jihadis, Libyan tribalists, and ready-made foreign cronies under the auspices of US-based think tanks. The country today is a wreck. In Syria, again it is, with some degree of variation, a cocktail of ethnic groups, fundamentalist-jihadis, and cronies who have been waiting in the wings in Turkey or the USA for a long time.

See for instance, Rafif Jouejati, who claims to play a leadership role in the Syrian rebellion (in reality this is not the case, as the rebels are largely locally autonomous and composed of groups that can’t work together). She is listed as one of the leaders of the astroturfed structure created by Washington to pretend to lead the rebels, and to put a good face on them. Joujeati lives in Washington DC and is head of a think tank called P3 Solutions. Her business also services clients including federal agencies, and corporations such as Microsoft, Dell, and Raytheon. Truly the salt of the Syrian earth.

Perhaps one could see it as ironic, that the US government spies on us all in the name of counter-terrorism, in true 1984 fashion, while at the same time, directly funding and arming fundamentalist forces who behead civilians as part of their jihadi quest. But there is no real joke there. It’s just the same geopolitical maneuvering the bourgeoisie always have and will do — that which puts Imperialist competition, resources, and ultimately profit, above all else.

Allow me to finish with excerpts from an interview given by Zbigniew Brzezinski, the “geostrategist” who was National Security Advisor of the Carter regime, now a Professor at Johns Hopkins:

Brzezinski: …According to the official version of history, CIA aid to the Mujahadeen began during 1980, that is to say, after the Soviet army invaded Afghanistan, 24 Dec 1979. But the reality, secretly guarded until now, is completely otherwise: Indeed, it was July 3, 1979 that President Carter signed the first directive for secret aid to the opponents of the pro-Soviet regime in Kabul. And that very day, I wrote a note to the president in which I explained to him that in my opinion this aid was going to induce a Soviet military intervention…

… Regret what? That secret operation was an excellent idea. It had the effect of drawing the Russians into the Afghan trap and you want me to regret it? The day that the Soviets officially crossed the border, I wrote to President Carter: We now have the opportunity of giving to the USSR its Vietnam war…

Q: And neither do you regret having… given arms and advice to future terrorists?

Brzezinski: What is most important to the history of the world? The Taliban or the collapse of the Soviet empire? Some stirred-up Moslems or the liberation of Central Europe and the end of the cold war?