Sunday, March 02, 2014

Krugman, bubbles and all that

There has been some controversy whether Paul Krugman recommended a housing bubble in 2002 bubble or not. More recently, we have from this FTAlphaville post in September 2013, "Paul Krugman had an insightful post this week on secular stagnation. It alluded to the fact that bubbles may increasingly be coming to our rescue by inadvertently propping up our economy in a way that usually boosts employment." The article by Izabella Kaminska (registration may be needed) goes on to describe Dean Baker's summary and quotes Dean Baker "In principle, secular stagnation is a story of wealth, not poverty. It means that we are capable of producing more goods and services than we are actually using. It is an incredible indictment of our economic system that it can lead to the sort of suffering we saw in the Great Depression and are seeing again today." And says "For now, Krugman is not disagreeing."

This does not seem too different from what Marxists have been saying. Adam Booth says in The permanent slump - an organic crisis of capitalism "It has often been noted that the serious bourgeois analysts frequently arrive at the same conclusion as the Marxists, albeit with a slight delay. Nowhere has this aphorism been more aptly demonstrated than in a recent article by Paul Krugman, the Nobel prize-winning economist, entitled “A Permanent Slump”.

In This article, Krugman hypothesises what the Marxists have explained many times since the onset of the current crisis: that this is no ordinary period of recession, but that depression has become the new normality for the world economy. What we are witnessing is not a temporary phenomena, but an organic crisis of the capitalist system..................The use of credit to artificially maintain demand and avoid a crisis is a symptom of the contradictions of capitalism itself: primarily the contradiction of overproduction, due to the nature of capitalism as a system whereby production is in private hands and is only for profit, which means that – since profit is nothing but the unpaid labour of the working class – the working class (as a whole) can never afford to buy back (with wages alone) all that they produce.

The current crisis is a reflection of this contradiction unravelling itself on a global scale. All the chickens have come home to roost for the capitalists, and now they –and society as a whole – are faced with an organic crisis of capitalism and a new normality."

And Adam Booth recommends "Yet the solution is staring us in the face: to take the enormous wealth that exists in society and put it to use for public need, not for profit; to nationalise the banks and the major monopolies and put them under a rational and democratic plan of production; to abolish the anarchy and chaos of competition and the market through the socialist transformation of society.

This is the only alternative to a “permanent slump”; to years of economic stagnation; to decades of crisis, austerity, and falling living standards. This – the socialist alternative – is what the Marxists of Socialist Appeal and the IMT are fighting for internationally."

But it is not clear to me how feasible this is and how it will come about.

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