On Postone’s concept of the hollowing out of working society – XIX

by Jehu

August 1997: Speaker Newt Gingrich smiles as President Bill Clinton signs the balanced-budget agreement that ultimately sent the US national capital into its third depression in 90 years.


In my last post, I left you with this this chart:

The chart is a snapshot of the United States national capital up to the year 2000, the eve of the event that is today known as the bursting of the dotcom bubble.

It is also the eve of the third Great Depression in the last ninety years, although few observers realize this.

Most of the political events of that period don’t concern us except a very interesting conflict that began during the period from 1982 or so to 2000 as Washington struggled to constrain an uninterrupted series of federal budget deficits that began under the Reagan administration. This rather bizarre conflict may explain a lot of what happens over the next twenty years after 2000, until today.

I say a bizarre conflict over federal deficit spending, because there is at least one Marxist out there who, like me, thinks federal deficit spending has been at least a significant contributing factor to maintaining the rate of profit since 1971 and the collapse of the Bretton Woods agreement.

That Marxist, Peter Jones, has produced an interesting thought experiment that goes something like this:

Suppose, instead of taxing the rich, the federal government just borrowed what it needed to finance its operation from them. Essentially, the rich would keep their billions of dollars of assets, while the government would finance its spending largely by borrowing from them. For example, If the government wanted to finance tax cuts for the rich, it could just borrow the necessary cash from the rich to finance the tax cuts. With their new tax cuts, the rich and corporations could go on a spending spree, handing out bonuses to executives, dividends to shareholders, running buybacks to inflate share prices, bribing colleges to accept their snotty privileged rugrats, etc. Profits would swell, although no new surplus value was being created anywhere.

[NOTE: Modern money theory argues that the state would not even have to borrow the cash from the rich to do this. As the sovereign issuer of currency, it could just create the currency on a computer terminal and mail out tax cuts to the rich to force the currency into circulation that way. But I will stick to Jones’ example. — Jehu]

Jones argues that this method of financing government expenditures has big implications for labor theory:

The important point here is that this could be a real effect of a shift towards deficit financing. But it is not one that Marx’s law is designed to explain. In the example above, there is no change in either the socially necessary labour time performed by productive workers, productive workers’ consumption (or their wages), or the expenditure of surplus value by any sector. So there is no change in the production or distribution of value. Nor is there any change in the rate of growth. But this measure of the rate of profit nevertheless increases, along with dividends.

To paraphrase, Jones warns that this sort of deficit spending by the state makes it appear the state can basically “create money out of nothing”, i.e., to spend surplus value as revenue without producing it or deducting it from the profits of capital or indirectly squeezing it from the wages of the working class. This creates the illusion that government borrowing itself can create or add to the mass of surplus value or profits.

While I completely disagree with the part about Marx’s law being able to explain this and intend to show the opposite, I think Peter Jones is on to something very important here. What Jones is pointing to fits neatly in with Postone’s argument on the hollowing out of working society.

I love that picture of Gingrich and Clinton at the top of this post, because it confirms Jones argument beyond the fondest wishes of any Marxist economist. If deficits are being used to prop up the rate of profit, a Marxist economist might ask, what would happen if the deficits went away?

Jones might argue that the rate of profit would fall. And the orthodox response to that suggestion would be that if the rate of profit fell, this would produce a huge crisis — an economic contraction, a depression.

So is Jones right about deficits and the rate of profit?

The Clinton-Gingrich deal in 1997 answered that question pretty conclusively.

Even before the deal was finally signed, the dollar began to strengthen and the Asia crisis exploded.

The contagion swept Thailand, Indonesia, South Korea, Philippines, Mainland China, Hong Kong, Malaysia, Mongolia, Singapore and Japan, because many of these countries had pegged their currencies to the dollar.

The next round of currency crises hit Russia, Brazil and Argentina.

And when a currency crisis hit Russia, it helped bring down Long-Term Capital Management, a hedge fund run by a couple of Nobel laureate simpletons, who decided to put their vast knowledge of economics to work feathering their nests and in the process almost caused the collapse of the entire U.S. financial system.

Then the chickens came home to roost, when the dotcom bubble burst.

By 2002, the Federal Reserve and just about everyone else was talking about imminent deflation and the zero lower bound on monetary policy.

The Clinton-Gingrich deal and its aftermath confirmed that not only are the fascists using deficit spending to prop up the rate of profit, as the charts below shows, when the fascists finally got second thoughts about the implications of this behavior and tried to balance the budget, as during the Clinton administration …

… the United States national capital almost immediately rolled over like a sinking garbage scow into the third depression in the last 90 years — a depression that has, so far, lasted 20 years:

Oh, you didn’t know we have been in a depression since 2000?

It’s not just you. A lot of dumb Marxists, like Andrew Kliman, have been arguing on behalf of the role of the falling rate of profit in crises and don’t realize we have been in a depression for precisely this reason for two decades. You are a member of a very big club.

Who knew it was as easy to fool poor dumb Marxists with valueless currency as it was to fool poor, historically doomed dirt farmers — even in the middle of a depression that has lasted two decades now?