A Disrupted and Distorted Wave
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| The Long Wave expansion from 1843 to 1870 is clearly visible. The effect of the 1847 financial crash, and later too the 1857 financial crisis is also visible. The 1847 financial crisis caused GDP to fall by around 37%. But, once the credit crunch is resolved, the long wave expansion continued apace. |
There is a similarity of 2000 and 2008 with the stock market crash of 1847, which arose just 4 years into a new upswing, as excess money-capital flooded into railway shares. But, in 1847, when the stock market crashed, it stayed crashed, and after the Bank Act was suspended, and the credit crunch relieved, money-capital flowed back, at pace, into real capital accumulation, and the economic boom continued. That is because liquidity was released to relieve the credit crunch, and no more.
What characterised every crash in asset prices between 1987 and today has been that central banks have kept printing money, and backstopping asset prices without end, in order to reflate them, undermining the real economy and real capital accumulation where necessary, in order to do so. That is actually what creates the distortion of the current long wave. It is also what creates the mindset that the basis of wealth is fictitious capital, and speculative capital gain, rather than revenue. Harold Wilson even disliked Premium Bonds, because he saw them as gambling and creating such a mindset. John Major brought in the National Lottery, Blair oversaw its extension and liberalising of gambling laws. Numerous surveys have shown that people have seen the way to get on being by such means, becoming a celebrity, and so on, as well as being able to make some kind of compensation claim.
Paul explains the distortion by the collapse of workers resistance to the adaptation of capital in the 1980's, compared to resistance to the adaptation in every previous cycle of the long wave. I don't think that argument is sustainable, for the reasons I've set out previously. In every wave, we see capital respond to labour shortages, in the crisis phase, by seeking out labour saving technologies. These technologies, bit by bit, replace labour, undermine its position, create a relative surplus population, reduce wages, and boost profits. That is what happened in the 1980's, just as it happened in the 1920's, and in the 1870's, and the 1820's.
And, the facts are clear that a new upswing is discernible from 1999, which is why Paul has to date the fifth wave from the late 90's, even as he argues that the fourth wave ran until 2008! The fact is that, much like 1847, the growth of productivity and profit has been so strong that, even allowing for all of the profits that flowed into unproductive financial and property speculation, there was still sufficient money-capital to finance an enormous accumulation of real capital, particularly after 1999. This is the undeniable fact that those who claim there was no rise in the rate of profit, after 1987, cannot explain. In other words, if the rate of profit did not rise, where did all the additional capital come from?
Paul provides a chart of global GDP growth (p 94). As he says, it shows the phases of the last two long waves clearly. The usual method of examining such charts is to look for a trend whereby a series of higher highs, and higher lows, transition to lower highs, and lower lows. On that basis, there is a clear upward trend between the mid 1940's to the mid 1970's, followed by a downward trend to 1999, followed by a new uptrend.
Paul also provides a chart of interest rates over the period, though, for the reasons I have discussed previously, such charts should be treated with a large degree of caution and scepticism, because, as measures of official interest rates, or government bond yields, they are not, as Marx pointed out, even 150 years ago, representative of actual market rates of interest. That is illustrated today by the fact that we have near zero official interest rates, government bond yields that, for shorter dated maturities, are negative, whilst simultaneously, we have small and medium sized businesses unable to get loans, having to resort to credit cards or peer to peer lending, whilst millions of consumers are reliant on expensive overdrafts, payday lenders or worse. The lunacy is illustrated by Italian bond yields below those of the UK, which surge overnight on political risk, and the possibility that ECB support for these bonds might disappear.
Paul also gives a chart for the price of nickel. He uses this to support the argument of the extension of the fourth wave after 1989. But, in actual fact, the 1987 spike, in nickel prices subsides after 1990, more or less to its previous level. The real sustained rise comes after 1999, as the chart shows. And, Paul's narrative emphasises the point. Citing the US Geological Survey, he says that China's nickel usage doubled from 30 kt. In 1991, to 60 kt. In 2001, but between 2001 and 2012, it rises 13 fold, from 60 kt. to 780 kt.! A look at all other primary products, including agricultural products, shows this same sharp rise in demand and prices after 1999. In 2014, prices fell back sharply, not because of a fall in demand, but because the usual long wave response of increased investment in supply, brings large volumes of these products flooding on to the market. 
I've set out the other data previously that shows clearly that 1999 marks a conjuncture. Up to 2008, that was pretty indisputable, but 2008 changed the climate in which this underlying economic reality was viewed. The severity of the financial crisis flowed over into the real economy, though as I've illustrated elsewhere, the measures undertaken in 2008/9 were quickly reversing those effects. The shock initially scared the bourgeoisie, undermined their confidence in the system, and led to them reaching instinctively for the traditional social-democratic levers. For the Left, of almost every hue, it appeared once more to confirm the idea that the system was in some kind of inevitable decline, restoring all those old catastrophist notions about permanent or semi-permanent crises and inevitable collapse.
With even progressive bourgeois economists, like Larry Summers, talking about secular stagnation, a general media labelling of the events as The Great Recession, and left-wing economists talking about The Long Depression, it was hard to swim against the stream, and to insist, as I and a few others did, during this period, that we were actually in a period of long wave upswing. But, that is the reality. Unfortunately, writing in 2015, Paul finds himself in a similar situation to that he describes in relation to Bukharin, in 1929, but reversed.
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