Tragedy and Farce in the Second Great Depression: A Marxian Look at the Panic of 2008 and Its Aftermath

Abstract

In this essay I recount some of the farcical things that were said about the economic prospects of the United States at the end of the great housing boom and the peak of the stock market in 2007; then I turn to a discussion of the causes of the Panic of 2008, examining the relation between productive and unproductive labor in the economy. I discuss the explanations according to which the Panic and subsequent Second Great Depression are blamed on neoliberal ideology. I critically examine the call for a Keynesian solution of government regulation and stimulus, counterposing it to a Marxian strategy of class transformation.

Keywords:

• Macroeconomic Policy
• Fiscal Stimulus
• Productive Labor
• Unproductive Labor
• Class

Notes

¹The distinction between productive and unproductive is found in the “classical” economics of François Quesnay and Adam Smith, but Marx honed the distinction well beyond what had existed in the classical literature that preceded him. Modern neoclassical economics has no real place for the concept; all activities that receive remuneration are seen as productive, though that word is not generally used. There is no way to argue in neoclassical theory that an increase in the number of retail jobs does not add to economic growth, because there is no notion of surplus value and therefore no distinction between activities that directly produce surplus value and those that contribute only indirectly. The same can be said for Keynesian theory, and many so-called heterodox approaches do not employ the concept, including Austrian and institutionalist economics (Rothbard 1962; Paul 1982; Phelps 1978; Bernanke 2002, 2005). Needless to say, all these approaches have their own merits; they simply do not discuss productive and unproductive economic activity.

²Keep in mind that, since this is a proportion of total employment, it is already corrected for changes in gross domestic product, inflation, and population growth, though the proportion is affected by the size of the unemployed population and the extent of unmeasured informal economic activity. It's a shame that Shaikh and Tonak (1994) have not updated these numbers; nor has Moseley (1992, 2005a) or Wolff (1987). My anecdotal sense is that the trends they describe have accelerated in the past twenty years, making the percentage of productive activity dwindle further. Because the Bureau of Labor Statistics does not tabulate gross domestic product using the categories of productive and unproductive labor, the proportion must be painstakingly reconstructed.

³My source is the Federal Reserve, Bureau of Economic Analysis. This figure does not include the uncounted (but probably rather large) future pension-fund obligations that business and government face, the latter in the form of Social Security and Medicare benefits. These unfunded obligations are a multitrillion-dollar shadow deficit.

⁴I mention this because an initial influence on the Obama stimulus plan may have been provided by Pollin (2008), who had argued for a $300-billion stimulus in an article boldly titled “How to End the Recession.” Krugman (2008) went further, arguing for a $600-billion stimulus. The Obama administration went further still, and there are calls for a second stimulus of the same size as the first, which was $787 billion. It seems possible that even that incredible sum could be increased.