Capitalism, not government policy, is the cause of the stagnant economy

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The following editorial below was originally published by Fight Back! News, the news wing of the Freedom Road Socialist Organization

June 6, 2012

On June 1, the Labor Department reported that only 69,000 net new jobs were created in May, less than half of what economists had expected and less than a third of the relatively strong job growth of the December through February period. Immediately the Republicans and the Romney campaign blamed President Obama and his policies, especially the health care reform act. The Democrats and the Obama administration quickly fired back, blaming the Republicans for blocking their economic stimulus proposals in Congress.

The U.S. economy is showing signs of stagnation – that is, slow economic growth combined with ongoing high unemployment – ever since the financial crisis and deep recession in 2008-2009. When economic stagnation first showed up in Europe in the 1980s, mainstream U.S. economists blamed the European social democratic policies of high taxation and extensive social welfare programs like universal health care. Then economic stagnation spread to Japan in the 1990s and again mainstream U.S. economists blamed the Japanese government policy of supporting certain industries.

Now the third center of world capitalism, the United States, has joined Europe and Japan. With unemployment still more than 8% almost three years after the official end of the recession, it would take about six more years at the current rate of job growth just to gain back the jobs lost during the last downturn. The U.S. economy has followed a much more free-market approach of deregulation of industry, cuts in social welfare programs and attacks on unions since the 1980s. But Wall Street bankers, freed from regulations dating back the Great Depression, let their greed run amuck, leading to a boom and then bust in the housing markets that ultimately led the biggest financial crisis in the United States since the Great Depression of the 1930s.

In a capitalist economy production of goods and services is done to make a profit. This drive for profits leads businesses to pay their workers less than the value of what the workers’ labor creates, which is what Karl Marx referred to as exploitation. This can be seen today in the United States as the purchasing power of wages has been flat while the value of what an average worker produces has been rising. This has led to record corporate profits, while more and more working people are living paycheck to paycheck and sinking into poverty.

At the same time, competition among businesses leads them to reinvest most of these profits into expanding their businesses and introducing new technology. This is what Marx called the accumulation of capital, which leads to the ability to produce more and more goods and services. But this ability to produce more comes into conflict with the fact that exploitation limits the ability of workers (who make up 90% of the population in the United States) to buy the goods and services that they have produced. The result is crisis of overproduction, or what are called recessions today.

During a recession, goods and services go unsold – not because they are not needed or desired, but because they cannot be sold at a profit. The most glaring example today is in the housing market, where there are a record number of homes standing empty at the same time as there are record numbers of homeless (counting not just those on the street, but including people living in cars and staying at friends and relatives).

This can explain the regular pattern of alternating periods of economic growth and recession, or what is called the business cycle. Here in the United States there have been 33 such cycles over the last 200 years.

For more than a hundred years, huge corporations have developed in more and more types of businesses, so that a small handful, or even just one, giant corporation can dominate an entire industry. What Marx called the concentration and centralization of capital can be seen in the recent takeover of more and more types of retail businesses such as office supply, bookstores and hardware stores by two or three companies.

These giant corporations can cut back on production to limit overproduction, but then end up with overcapacity, or the ability to produce more than they can produce and sell on the market for a profit. This overcapacity can be seen in many industries: car makers can produce more cars than can be sold, steel producers can produce more steel than there is a market for, etc.

With the ability to produce more than what can be sold, corporations are sitting on literally trillions of dollars of profits that are not being spent to expand business. This is what leads to stagnation: the lack of reinvestment of profits means slower economic growth and fewer jobs, i.e. the economic stagnation that we see today.

Neither the Republicans nor the Democrats offer a real solution to the economic woes for working people. The Republicans want to increase corporate profits by increasing the exploitation of workers using the methods of cutting pensions, smashing unions, limiting health care benefits and cutting unemployment insurance and other social safety net programs. In addition the Republicans would cut taxes and regulation on business to make them even more profitable. But this would only increase the contradiction between the limited purchasing power of workers and the ability of corporations to produce more, leading to another crisis of overproduction.

The Democrats would prefer to use the government to increase corporate profits through subsidies and loans for selective industries with new technology (like electric batteries and solar panels) or the health insurance industry (with the health care reform law). While the Democrats talk about helping out working people with cuts in payroll taxes and extending unemployment insurance, their support for balancing the budget will lead to more austerity: higher taxes and cuts to social programs, including the two biggest, Medicare and Social Security.

Only a socialist economy, where production is aimed at peoples’ needs, not for profit, can overcome the cycle of boom and bust and the economic stagnation that we face today. A socialist economy, with government and collective ownership of the means of production (and not just the extensive social welfare programs as seen in Europe), cannot be won at the ballot box, since both major parties are in favor of the 1% that benefits from capitalism. Only mass struggle can bring about the fundamental economic change that will benefit working people.

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