Systemic, Conjunctural or Policy Created?
Edited by Turan Subasat
This chapter focuses exclusively on the policy-based and conjunctural causes of the 2008 crisis and argues that policy-based factors are in essence also systemic as policy-making is deeply enrooted in class relations. It argues that the crisis was caused primarily by the simultaneous deregulation of trade and financial sectors which created large and unsustainable balance-of-payments problems in a number of major developed countries which were also aggregated by a number of conjunctural factors: the accumulation of large foreign reserves in a number of developing countries after their financial crisis since the 1980s, the rapid increase in the crude oil prices between 2002 and 2008, China’s competitive exchange rate policy and its accession into the World Trade Organization in 2001, and the introduction of the euro in 1999, all have contributed to the rapid increase in global liquidity and large current account problems in a number of developed countries. The rapidly increased foreign debt and current account deficits created ‘overfinancialization’ which was evident from the emerging bubble economies that inevitably collapsed.
This chapter argues that while the conjunctural and policy-based factors played an important role in the 2008 crisis, the systemic causes of crisis should not be ignored. Prior to the crisis, for example, the United States economy was already unsustainable, not only because of the large current account deficits but also due to the stagnant real wages which had been compensated by excessive lending to workers to offset insufficient demand. Based on Marx’s reproduction schemes, and by emphasizing the distribution of income between capitalists and workers, and the time gap between the production of means of production and consumption, this chapter develops a new theoretical model to explain the cyclical nature of capital accumulation and crisis. The model shows that even when the shares of profits and wages in total output remain the same, problems associated with insufficient demand and crisis can occur, since different stages of capital accumulation require different levels of wages and profits to avoid insufficient demand. The dynamics of capital accumulation process necessitates radical changes in income distribution to maintain sufficient demand which is near impossible to achieve. When there is a large reserve army of labor (unemployment), lower wages bring about faster accumulation of capital; and once the reserve army of labor declines substantially, demand deficiency starts which requires capitalists to radically increase either their consumption or wages. Both are very difficult adjustments for capitalists.