Just A Question Of Time

I was watching Marc Faber on CNBC this morning.





Marc Faber is Editor of the "Boom, Doom and Gloom Report". Faber correctly predicted the Dot Com Crash - not that he was alone. He basically takes an Austrian position, and his argument is that the methods being taken now to resolve the crisis will lead to more bubbles, which when they burst will mean that Capitalism collapses. He suggests a timescale of 5-10 years.

He gives a similar view here:



I think his argument is false for reason I'll come to later, but my disagreement is more about timing.

I beleive that we are in the boom period of a Long Wave, that began around 1999. I'd argue the low point then in Gold and raw material prices, the preceding debt blow off of the Asian currency and Rouble crises were symptomatic of what has been seen at the end of Long Wave downturns previously. I'd also argue that because we are still in the Spring Phase of the cycle, we have an explanation for the fact that wages have not begun rising rapidly yet - still large reserves of exploitable labour - whilst raw material prices have continued to rise - new supplies with lower marginal costs have not yet come sufficiently on stream to meet demand, which normally happens around 12 years into the cycle.

I thought that the recession would end in the second quarter of 2009, with growth resuming in the third. That was too pessimistic as figures show that growth resumed in the second quarter. I think the reason for that is that having massively destocked, as the world economy simply stopped in the Fourth Quarter of 2008, by the second quarter that destocking had ceased, orders resumed, and that had a dramatic effect in reversing the decline. However, it does not look to me as though restocking occurred in the second quarter. Firms seem to have simply re-ordered to cover current demand, fearful that it might be a false dawn. The same seems to apply to the take-on of labour. I expect that as actual re-stocking takes place, from the end of the second quarter and into the third quarter, we will see an accelerator effect, pushing growth rates up for the Third Quarter, which may also be subject to a multiplier effect, as the rest of fiscal stimulus feeds through.

But, I suspect that we might then see a plateauing effect for one or two quarters from the beginning of 2010 as that restocking is completed - a reverse accelerator. That is the importance of Governments NOT introducing cuts during that period. I think, however, that the growth in Asia and other developing areas will act as a locomotive dragging the world economy forward, with US and UK performance lagging in relative terms, but still growing absolutely.

However, what we also have to bear in mind as Marxists is not just the immediate future, but the longer term, which comes upon you quicker than you think even when dealing with a 50 year cycle.

I think Faber's basic argument is false, and his timescales are wrong. We had asset price bubbles in the preceding period because the huge monetary stimulus, pumped into the world economy, from the late 80's onwards, was intended to counteract the effects of the Long Wave downturn - i.e. restrained aggregate demand. It did so in a period where China, and other developing economies, were able to satisfy demand for consumer goods with increasingly lower priced goods. The excess liquidity then found its way into asset prices. But, in a period of boom, that money will increasingly find its way into end demand for consumer goods - in fact it already was doing so before this crisis, as witnessed by hugely rising food prices, and a concern in the US and UK and Europe with inflation that was prompting higher interest rates. The Velocity of circulation will rise as economic activity resumes, and prices will rise. Moreover, the capacity for China to continue to pump more and more, ever lower priced, consumer goods, into the world economy, is restricted. (That will only come about again when the next round of industrialisation in Africa develops new huge pools of exploitable cheap labour). Chinese wages are rising rapidly, production constraints are appearing, and it faces its own rising cost curve for raw materials etc. needed to manufacture those goods. That is one reason it will let the RMB rise to lower its costs of imports. It also needs to divert an increasing proportion of its output to domestic consumption. The consequence will be a rise in consumer goods prices on the world markets, choking off the availability of liquidity to fuel further asset price bubbles.

That again is consistent with the move from the Spring to the Summer phase of the Long Wave. However, the Summer phase is still a period of strong economic growth. What, as Marxists we have to be concerned with is what happens when that Summer Phase transforms into the Autumn Phase. On my timescale that is in around 15-20 years from now. It is at this conjuncture that in the past has seen big upheavals of wars and revolutions - usually the latter provoked by the former. As I wrote in my blog, Third World War? , last year, there are more similarities, in the current Long Wave, with the position leading up to 1914 than there are with the position leading up to the end of the last Long Wave in the early 70's. At the time of the latter, the world economy was dominated by the US hegemon - as previous periods in the 19th century had been dominated by the British hegemon - and imperialist competition was constrained both by that, and by their common front against Stalinism. 1914 saw a world where British hegemony had broken down, and opened the door to economic competition giving way to military competition. The breaking down of US economic hegemony, and absence of a common enemy, for imperialism, to coalesce against, sees the world divided into three main economic blocs, which increasingly have different world views and global interests and ambitions, and which increasingly are developing their own independent military forces. Such a conflagration would likely spell the end of human civilisation given the nature of modern weapons. The current grabs for strategic global positions described in my blog, and which are there for all to see, are very reminiscent of the period at the end of the 1890's, and the current posturing over disarmament is also reminiscent of the many anti-war and disarmament conferences that took place in the run up to WWI, and which acted only to favour those powers that could quickly produce new more deadly weapons when the conflict began.

That is why it is vital that Marxists use the period of the current boom to recreate a Labour Movement armed with the means of creating a different world here and now. When you are young 15 years seems almost a lifetime, when you get to my age it seems like the blink of an eye.