Secular Stagnation, or is it worse?

Commentary No. 433, September 15, 2016

The world’s economists have been wrestling with something they have found difficult to explain. Why is it that stock market prices have continued to go up despite the fact that something called growth seems to be stagnant? In mainstream economic theory, it’s not supposed to work that way. If there’s no growth, market prices should decline, thereby stimulating growth. And when growth recovers, then market prices go up again.

Those who are faithful to this theorizing say that the anomaly is a momentary aberration. Some even deny it is true. But there are others who consider the anomaly to be an important challenge to the mainstream theorizing. They seek to revise the theorizing to take into account what many are now calling “secular stagnation.” The critics include various prominent persons, some of them Nobel Prize laureates. They include such different thinkers as Amartya Sen, Joseph Stiglitz, Paul Krugman, and Stephen Roach.

While each of these persons has a different line of argument, they share some beliefs. They all believe that what the states do has a large impact on what happens. They all believe that the present situation is unhealthy for the economy as a whole and has contributed to a significant increase in the polarization of real income. They all believe that they should try to mobilize public opinion to put pressure on governmental authorities to act in specific ways. And they all believe that, even if the present unhealthy and anomalous situation may last for some time yet, there do exist appropriate state policies that will make possible a less polarized and unhealthy economy.

In short, and this is my main point here, none of the critics are ready to go further and accept the argument that the capitalist system as such has entered a phase of inevitable decline. This means that there does not exist any governmental policy that will restore capitalism’s functioning as a viable system.

Not so long ago, secular stagnation was a term used by many analysts primarily to describe the state of the Japanese economy beginning in the 1990s. But since 2008 the use of the concept has been applied to diverse areas – Eurozone members as Greece, Italy, and Ireland; oil-rich states as Russia, Venezuela, and Brazil; recently the United States as well; and potentially such previously strong economic actors as China and Germany.

One of the problems for those who seek to understand what has been happening is that different analysts use different geographies and different calendars. Some are talking of the situation state by state and some are trying to assess the situation in the world-economy as whole. Some see secular stagnation starting in 2008, others in the 1990s, still others as of the late 1960s, and a few as of even earlier.

Let me propose once again another way of viewing secular stagnation. The capitalist world-economy has existed in parts of the globe since the sixteenth century. I call this the modern world-system. It has steadily expanded geographically, finally encompassing the entire globe since the mid-nineteenth century. It has been a very successful system in terms of its guiding principle, the endless accumulation of capital. That is, seeking to accumulate capital in order to accumulate still more capital.

The modern world-system, like all systems, fluctuates. It also has mechanisms that limit the fluctuations and push the system back to equilibrium. This looks like a cycle of ups and downs. The only problem is that the downs never return to the previous low point, but rather to one somewhat higher. This is because, in the complex institutional pattern, there is resistance to going all the way down. The real shape of the cyclical rhythms is two steps up and one step down. The point of equilibrium is therefore moving. In addition to the cyclical rhythms, there are secular trends.

If one measures the abscissa of the trends, they move toward an asymptote of 100%, which of course they cannot cross. Somewhat before that point (say, about 80%), the curves begin to fluctuate wildly. This is the sign that we have moved into the structural crisis of the system. It bifurcates, meaning that there are two different, almost opposite, ways to choose the successor system(s). The only thing that is not possible is to make the present system operate in its previously normal fashion.

Whereas before that point, great efforts to transform the system resulted in little change, now the opposite is true. Every small effort to change the system has great impact. It is my argument that the modern world-system entered into this structural crisis circa 1970 and will remain in it for another 20-40 years. If we wish to assess useful action, we need to bear in mind two different temporalities, the short term (at most three years) and the middle term.

In the short term, what we can do is minimize the pain of those most negatively affected by the increasing income polarization that is occurring. Real people live in the short term and need some immediate relief. Such relief, however, will not change the system. Change can come in the middle run as those favoring one or another kind of successor system obtain sufficient strength to tilt the bifurcation in their direction.

Here is the danger of not going far enough in critical analyses of the system. Only if one sees clearly that there is no way out of persistent stagnation can one in fact become strong enough to win the moral and political struggle. One prong of the fork stands for the replacement of capitalism by another system that will be as bad or even worse, retaining the crucial features of hierarchy, exploitation, and polarization. The other prong stands for a new system that is relatively egalitarian and relatively democratic.

In the years to come, there may be upturns that seem to indicate that the system is functioning again. Even the level of employment in the system as a whole, the key measure of the state of the system, may rise. But such a rise cannot last long because the global situation is too chaotic. And the chaos paralyzes the readiness of both powerful entrepreneurs and simple persons to expend their remaining capital in ways that will risk loss and therefore their survival.

We are in for a wild ride and a very unpleasant one. If we are to behave sensibly, clarity of analysis is the first requirement, followed by moral choice, and political judgment. The bottom line is that we are way past the point in which there is any way that capitalism as a historical system can survive.

Trump vs. Clinton: Predictions Have Consequences

September 1, 2016, Commentary No. 432

The world media, and especially U.S. media, are following with intense interest and concern the November presidential elections in the United States. Almost all the stories discuss which of the two principal candidates, Donald Trump and Hillary Clinton, is likely to win and by what margin. The media also are filled with explanations of the polling results, which of course vary over time.

However, almost none of the coverage of the election poses the question, who does the respondent expect to win regardless of the respondent’s own preferences? We do not know how many persons feel certain about their prediction. Whatever the number today, it is likely to grow as we approach the final moment of choice. My guess, and it is really only that, is that perhaps at most one-third of the electorate will feel they know what the results will be. Please keep in mind that feeling sure about the victor is quite distinct from feeling sure about one’s own preferences.

The most obvious consequence of advance certainty affects those voters who are sure that their preferred candidate is certain to win. It is one that the candidates themselves always fear. Voters who feel sure that their preferred candidate will win may think it unnecessary to make the effort of actually voting. This is why candidates engage in elaborate efforts to get their pledged voters to actually vote.

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South Africa’s ANC Is Slipping Away

Commentary No. 431, August 15, 2016

After a long struggle, the system of apartheid in South Africa was overcome. Elections based on universal suffrage were held. The chief architect of this transformation was the African National Congress (ANC). And the principal hero of the struggle was the leader of the ANC, Nelson Mandela. Mandela was elected the first president of a post-apartheid government in 1994 by an overwhelming margin. The ANC won a commanding majority in the National Assembly.

Mandela declined to run for reelection in 1999 and he was succeeded for two terms by Thabo Mbeki. Two terms is the maximum allowable. Jacob Zuma was first elected in 2009 and re-elected in 2014. The first two presidents were Xhosa, one of the two major ethnic groups in South Africa. Zuma however was Zulu, and he reflected and enjoyed ethnic pride.

The major opposition party was the Democratic Alliance (DA). It was a party derived from the White liberal groups that existed during the apartheid regime. Initially, it received little support outside the White community, still about 20% of the population. It sought however to attract Black middle class voters and in recent years chose Black politicians as their leaders.

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Turkey and Erdoğan: Rise and Fall?

Commentary No. 430, August 1, 2016

Turkey is presently governed by the Justice and Development Party (AKP in its Turkish initials). The AKP was co-founded in 2001 by Recep Tayyip Erdoğan. He became Prime Minister in 2003 and served until 2014, when he became Turkey’s 12th president.

The stories of Turkey, Erdoğan, and the AKP were closely linked during the past fifteen years. They all remarkably strengthened their position in every possible way for the first ten of these past fifteen years. Then they all ran into increasing difficulty, culminating in an attempted coup d’état that began on the evening of July 15, 2016. Although the coup was crushed within two days, it is not clear that Turkey, the AKP, and Erdoğan have been able to stem their growing difficulties.

To understand what has risen and fallen we need to look first at Turkey’s situation in 2001. Turkey had become a republic in 1923 with Mustafa Kemal (Atatürk) as its first president. He was the leader of a military group that sought to replace the long-declining Ottoman Empire with a modern republic.

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Bastille Day: France’s Ultra-Confused Present

Commentary No. 429, July 15, 2016

Every year, France celebrates on July 14 the fall in 1789 of the Bastille, then the main prison in Paris. The celebration is meant to mark the end of the so-called Ancien Régime. It unifies the country around what are referred to today as Republican values.

The first time there was such a celebration was the very next year in 1790, one that was dedicated to peace and national unity. Bastille Day, however, did not become an annual celebration until 1880, when the legislature of the Third Republic proclaimed July 14 the fête nationale (national festivity), which it has remained up to today. But this year, the Republic is anything but unified, its immediate future could not be more uncertain, and there is much debate about exactly what constitute Republican values.

The present constitution is quasi-presidential, making the choice of a president politically crucial. However, at the same time, it establishes a system in which there are two rounds of voting, unless someone gets a clear majority on the first round. In the second round there are only two candidates, the two with the highest votes on the first round.

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Brexit: Symptom, Not Cause, of Turmoil

Commentary No. 428, July 1, 2016

On June 23, the referendum on a British withdrawal from the European Union (EU) won by a clear margin. Politicians and pundits have treated this as an unprecedented and earth-shaking decision. They have been giving various and quite contradictory explanations about the causes of this event and the consequences of this event for Great Britain and the rest of the world.

The first thing to note is that no legal decision to exit the EU has yet been taken. The referendum was, in legal terms, merely advisory. In order to withdraw from the EU, the British government must formally inform the EU that it is invoking Article 50 of the EU’s Lisbon Treaty, which is what provides the right and the mode of withdrawal. No one has ever invoked Article 50, so yes, it would be unprecedented. No one therefore can be sure how it would work in practice. While it seems most unlikely that any British government would ignore the referendum, strangely there has been no major British politician who seemed in a hurry to invoke Article 50, an action that would be irreversible.

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Ethnicity: Impassioned, Impermanent, Important

Commentary No. 427, June 15, 2016

Ethnicity refers to one of the basic realities of the modern world-system. We are all embedded in one or several groups that have a presumed (if remote) kinship base. These days we tend to refer to such groups as “identities.” Quite often, our feelings of loyalty to such groups become quite impassioned. We seldom recognize how impermanent are the names and boundaries of such groups. What is sure is that our sentiments about our identities, which vary in intensity, are always a very important part of our current political realities.

Let us start with the impermanence of the groupings. The names of the groups are constantly changing. The names we assign to groups of which we claim to be a part are very often different from the names non-members assign to these groups. More important, names disappear, as groups blend into and assume the identity of other groups, often more powerful ones. This is sometimes called “assimilation.” But at the same time, new names are constantly being created, in part by the secession of members of a given group or by their expulsion from the group. This may be because of differing class interests of members of the group.

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The Increasingly Unstable United States

Commentary No. 426, June 1, 2016

We are used to thinking of instability in states as being located primarily in the global South. It is about those regions that pundits and politicians in the global North speak of “failed states” in which there are “civil wars.” Life is very uncertain for the inhabitants of these regions. There is massive displacement of populations and efforts to flee these regions to “safer” parts of the world. These safer parts are supposed to have more jobs and higher standards of living.

In particular, the United States has been seen as the migratory goal of a very large percentage of the world’s population. This was once largely true. In the period that ran roughly from 1945 to 1970, the United States was the hegemonic power in the world-system in which life was indeed better economically and socially for its inhabitants.

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