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Michael Roberts interview: How far can the US economy fall?

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As US politicians agree tax hikes and spending cuts to avoid the ‘fiscal cliff’, Marxist economist Michael Roberts warns of a long depression that’s only going to get worse
Issue 2335
The average rate of profit on investments tends to go down, driving the system into crisis
The average rate of profit on investments tends to go down, driving the system into crisis

Who will benefit from the new US budget deal?

The deal in the US Congress over the 2013 budget was just a halfway house. The Democrats and Republicans agreed to extend George Bush’s tax cuts for most Americans except the top 1 percent of taxpayers.

That saved average Americans from a huge tax rise this year—although those who are earning up to £250,000 a year avoided the biggest bill.

But Congress also agreed to reverse a cut in social security contributions from those in work. This means working Americans will have to pay between £400 and £625 extra a year. This “saves” about £80 billion from the 2013 budget.

Congress could have saved around £95 billion a year by closing the tax loopholes enjoyed by US corporations. Instead it extended some of them. And although profits are at record highs, corporate tax remains at its lowest rate ever.

So corporate America will pay less in tax while working America will pay more.

What does it say about the Democrats that president Barack Obama conceded so much?

It says that the Democratic Party is as much a representative of the interests of capital as the Republicans, even though the Democrats get support from organised labour and more progressive Americans.

Obama is set to make much bigger “concessions” to capital in the ensuing negotiations—just as he did when he participated in the £400 billion bank bailout in 2008.

Obama said recently that “my policies are so mainstream that if I had set the same policies that I had back in the 1980s, I would be considered a moderate Republican.”

Does the deal affect the nature of the crisis?

All it shows is that the strategists of capital see the way out of the crisis only through increasing profits for capitalists. But it is only half of the so-called fiscal cliff.

The other half is how much and where to cut federal government spending—including services and benefits—for the next ten years.

Both sides agree that government spending should be cut. The Republicans want to avoid defence and security cuts. They want to slash programmes such as Medicare, Medicaid and social security—the heart of America’s pitiful welfare state.

The Democrats also want to cut government services such as health, education, transport. These have already been cut to the bone and are at their lowest share ever.

Could the US government default on its debt, or is that just hype to justify cuts?

In one sense there is no debt crisis. The US government debt to GDP ratio is about 100 percent. That’s high, but it has been much higher in the past.

Also, the US government can always “print money” to pay for extra borrowing. Indeed, the Federal Reserve has been doing just that through its quantitative easing. It has been the biggest purchaser of government debt in the last three years.

So to an extent the debt crisis has been hyped up in order to get Americans to accept that they are “living beyond their means” and agree to welfare cuts and tax rises.

But in another sense it is a crisis, because the strategists of capital correctly see that a large government sector and welfare budget is a burden on their profitability. These result in higher taxes or higher interest rates for the bosses.

Over time, if government debt and spending keep rising, they will eat into the capitalists’ profits. Even before that, investors may panic and refuse to buy US bonds without a much higher interest rate. So the costs of servicing government debt will rise.

We have seen that cause a crisis in Greece, Portugal, Spain and elsewhere. The US is a long way from that, but it is a risk down the road.

How does all this affect the rest of the world?

The impact of the US fiscal crisis is global. The automatic rules that Congress has already agreed to mean that if nothing was done, then an austerity programme would immediately come into operation.

That would be twice as large as the British government’s austerity measures to 2015, and in just one year!

It would drive the still weak US economy back into recession. And if the US went back into a slump, the rest of the world’s major economies would follow.

As it is, the likely deal reached by Congress will probably lower US economic growth to a rate well below the feeble 2 percent achieved in 2012.

How different is the US approach to that in Europe? What effect does that have?

Up to now, the governments of Britain and parts of Europe have applied austerity measures more severely than the US or Japan.

That partly explains why the US has recovered a little better than Europe. But then again Japan has not.

The real reason for the relatively better recovery in the US is that the profitability of capital has been restored much more in America than in Europe or Japan.

So business investment—which is still weak—has been relatively better, creating relatively more jobs.

But now Congress is preparing a significant hike in austerity, at a time when Britain and other governments are being faced with the failure of austerity as a way out of the crisis.

What’s happening with the rate of profit in the US?

However you measure the US rate of profit, it is well below the level reached in 2006. That in turn is below the previous peak in 1997, which in turn is below the previous peak in 1965. The underlying trend is down, with cyclical up phases.

I reckon that the US rate of profit has further to fall because there is still too much unprofitable capital, both in real tangible assets and fictitious capital—that is, debts. That will have to be liquidated to make US capitalism sufficiently “lean and mean” to start a sustainable up phase.

In 2012, holding down wages led to another rise in total profits. This just about compensated for the downward pressure on profitability from the overhang of past debts and unproductive assets.

But it will take another slump to clear this capitalist mess up. I expect the US rate of profit to fall in 2013.

If the rich are getting richer, how are they in crisis?

The rich in America have never been richer, whether you measure in absolute real income or wealth or by the degree of inequality. The same is true of Britain and many other major capitalist economies.

But this is the personal wealth of the rich, and it does not necessarily translate into the accumulation of capital or investment in production.

Capitalist investment across the major economies is way down from before the crisis. As a share of national output it has been steadily falling, particularly in manufacturing and other key productive areas.

Capitalism is on an investment strike. That is why the crisis is severe and so far unending.

Can the system get out of the crisis?

Capitalism is in a Long Depression, like the one it experienced in Britain and the US from 1873 to the mid-1890s, and like the Great Depression of the 1930s. This is not the “usual” boom and slump cycle.

Now capitalism is locked into low or no growth in production that cannot restore employment and incomes to previous levels.

No amount of monetary easing, fiscal stimulus or austerity will work to turn this round. It will require a major slump like the 1880s or the early 1980s before things could improve.

Of course, that assumes we are all prepared to put up with this horrible, inefficient and damaging way of organising our economy and society.

What are the prospects for resistance?

If the working class does not resist, then the result will be high unemployment and reduced living standards for a whole generation—at best.

At worst, there could be wars, social convulsions of a reactionary nature, and further crippling damage to the environment.

Further reading

Michael Roberts blogs at

Suggested books to learn more about Marxist economics:

  • Capital by Karl Marx
  • The Great Recession by Michael Roberts, £14.99
  • Unravelling Capitalism by Joseph Choonara, £6.99
  • Zombie Capitalism: Global Crisis and the Relevance of Marx by Chris Harman, £15

Available at Bookmarks, the socialist bookshop. Phone 020 7637 1848 or go to


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