12 October—The social parasites who control the financial institutions on Wall Street are the product of a completely irrational social system—capitalism—that has plunged humanity into economic crises and imperialist wars for over a century. The Occupy Wall Street movement, which has spread to cities across the continent, is an expression of the profound discontent felt by working people forced to pay the costs of a crisis they did not create. The following is excerpted from an article published in our journal 1917 (No.32, 2010) outlining some of the causes and consequences of the world economic downturn.
Global capitalism is currently in the grip of the most severe economic contraction since the Great Depression of the 1930s. The ultimate depth and duration of the downturn remain to be seen, but there are many indicators that point to a lengthy period of massive unemployment in the imperialist camp and a steep fall in living standards in the so-called developing countries.
The effect of a prolonged downturn in a “globalized” economy, characterized by fabulous wealth for a handful at the top and desperate poverty for billions at the bottom, will inevitably magnify the already enormous disparities. For those in the neo-colonies struggling to eke out a living on a dollar or two a day, this crisis will literally be a matter of life and death.
Between 1974 and 2004, the median annual income of American men in their thirties fell from $40,000 to $35,000 a year in constant dollars, while “CEO pay increased to 262 times the average worker’s pay in 2005 from 35 times in 1978” (Associated Press, 25 May 2007). At the same time, the capitalists reduced systemic overhead costs by slashing government social spending and cutting corporate taxes:
“Over the three decades from 1972 to 2001, the wages and salaries of even those Americans at the 90th percentile (those doing better than 90 percent of their fellow citizens) experienced income gains of only 1 percent a year on average. Those at the 99.9th percentile saw their income rise by 181 percent over these years (to an income averaging almost $1.7 million). Those at the 99.99th percentile had income growth of 497 percent.”
—Monthly Review, June 2007
The fall in real wages and deregulation of banking, transportation and communications [in the 1980s] produced a partial restoration of profitability (see Fred Moseley, “The United States Economy at the Turn of the Century: Entering a New Era of Prosperity?”), though GDP growth and capital accumulation rates remained lower than in the 1950s and early 1960s. Big capital increasingly turned to financial speculation in search of higher returns. This pushed up nominal profit rates during the 1990s and 2000s but, as has become evident, much of this was fictitious.
The expansion of the financial bubble was presided over by Federal Reserve Chairman Alan Greenspan, a disciple of Ayn Rand and Milton Friedman (high priest of the “Chicago School” of free-market theology). During Greenspan’s tenure at the Fed (from 1987 to 2005) total public and private debt in the U.S. soared, from roughly $20 to $50 trillion, while the financial sector’s share of gross profits quadrupled from 10 percent in the early 1980s to 40 percent in 2006 (see Robert Chernomas, “The Economic Crisis: Class Warfare from Reagan to Obama,” in Bankruptcies and Bailouts). This was paralleled by a shift in the ratio of U.S. GDP to total financial assets (including bank deposits, stocks, bonds and other securities), from 1:4 to 1:10 in the same period. A similar process was underway internationally.
The internationalization of financial speculation, which allowed highly-leveraged institutions to make risky bets in overseas markets, ensured that a major problem anywhere in the system would quickly become a problem everywhere. This became evident as American real-estate values began to sour and a chaotic chain reaction rocked global credit markets in 2008. In the U.S., home mortgages had been pooled and “securitized” for decades without problems. Investors bought shares of the total payments from long-term “prime” mortgages issued to borrowers with substantial equity in their properties and sufficient income to make the payments. Defaults were unusual, so these investments were generally considered safe. This changed with the introduction of “collateralized debt obligations” (CDOs) in the 1990s, which expanded the mortgage pool beyond—and eventually far beyond—prime mortgages.
Millions of working people lured by the banks into taking out these “subprime” mortgages did so in an attempt to maintain their living standards in the face of falling real wages. To offset concerns about higher risks, the CDOs were tiered—with “senior” shareholders entitled to get paid before others. This was sufficient for the rating agencies to grade them as “triple-A” on the grounds that even if many borrowers defaulted there would still be enough cash flow to cover the “seniors.” The triple-A rating in turn attracted pension funds and other institutional investors looking for better rates of return than government or corporate bonds offered. To meet the increased demand, those packaging the CDOs simply ventured deeper into subprime territory.
The rapid deflation of the American real-estate market produced a panic which, in September 2008, brought the entire financial system to the brink of collapse. To avert a total meltdown, the U.S. government agreed to cover the liabilities of institutions deemed “too big to fail.” While the con artists running Ponzi schemes had their losses made good with hundreds of billions of dollars from the public coffers, millions of their victims watched as their mortgages went “underwater” (the market price of their houses shrinking beneath the amount still owed).
The bailout of the financial racketeers in the U.S. (paralleled by similar interventions in other rich countries) provides an object lesson in the realities of class politics. This has not been entirely lost on the public, which is deeply disturbed that the architects of the disastrous collapse not only escaped any consequences, but are now collecting new windfall profits for supposedly helping to clean up the mess they made.
There will inevitably be revolts against a system characterized by “inequality, unemployment, injustice,” where factories are closed, production cut back and the lives of billions shattered. The pathology of capitalism is also apparent in the wholesale degradation of the natural environment upon which all life depends. Croplands are turned into deserts, tropical rainforests are clear cut, marine life is wiped out by factory fishing, the ozone layer is severely depleted and climate change threatens massive destruction. All of this is the direct result of the pursuit of maximum profit—a single metric that assigns no particular value to clean air and water and regards human health and well-being as “externalities.”
A modern economy can only transcend the anarchic chaos of capitalism through reorganizing production on a collectivized, i.e., socialist, basis. Only socialism offers a realistic plan for employing the enormous technological capacity developed under capitalism to ensure a secure, comfortable and sustainable material existence for all.
The first step on the road to the socialist future is a revolution to uproot global capitalism and establish the direct rule of the working class and the oppressed. This in turn requires the forging of a revolutionary party committed to the political program elaborated by Marx, Lenin and Trotsky. There is no other way for humanity to escape the madhouse of capitalism.
Drop all charges against ‘Occupy’ protesters!
Smash capitalist austerity attacks—labor strikes can stop layoffs & wage cuts!
End unemployment—for a 30 hour workweek at 40 hours pay!
Expropriate the banks and corporations!
Bail out the homeless—not financial racketeers!
Build a revolutionary workers’ party to fight for all the oppressed!
Capitalism can’t be fixed—forward to a workers’ government!