Michael Roberts - The Long Depression

Michael Roberts' The Long Depression is an accessible and important work of Marxist political economy. I'd rank it close to Chris Harman's Zombie Capitalism for activists trying to understand the current state of the world economy and what may happen to capitalism in the coming years.

Roberts' book is an attempt to explain the economic crisis that began in 2008 with the banking crisis and has now become a "long depression". He argues that mainstream economists cannot explain it properly, because they see the capitalism economic system as a stable one that is merely subject to external shocks of various sorts. In contrast, Marxist political economy sees the system as one that is inherently unstable, subject to regular economic crisis.

At the core of his argument is a reassertion of the importance of the falling rate of profit, something Marx put as the central cause of economic crisis. Firstly Roberts argues that Marx's "law" is "logically consistent", and then shows that it fits the reality of capitalism. So:

The US rate of profit has been falling since the mid-1950s and is well below where it was in 1947. There has been a secular decline... Thus the counteracting factors cannot permanently resist the law of the tendency of the rate of profit to fall. But the US rate of profit has not moved in a straight line. In the US economy as a whole after the war, it was high but decreasing in the so-called Golden age from 1948 to 1965, Profitability kept falling also from 1965 to 1982. However, in the era of what is called 'neoliberalism,' from 1982 to 1997, US profitability rose.

Following Marx, Roberts shows how there are factors that counter the tendency of the profit rate to fall, and these are at the heart of his explanation of why the economic crisis of 2008 has become a long depression. Capital is currently unable to restore profit rates, and thus move out of depression.

Roberts demonstrates the value of Marx's approach by explaining historic slumps and depressions. He shows how the rate of profit's decline was the root cause of these, even though the actual trigger for crisis varies.

The trigger in 2008 was the huge expansion of fictitious capital that eventually collapsed when real value expansion could no longer sustain it, as the ratio of house prices to household income reached extremes. But such 'triggers' are not causes. Behind them is a general cause of crisis: the law of the tendency of the rate of profit to fall.

Failing to understand this helps explain why mainstream economists have failed both in terms of their explanation of crisis but also in their ability to solve the depression. Robert systematically exposes them, in particular he is critical of "Keynesian economists" who see state investment as a solution to the situation.

For orthodox Keynesians, a slump is due to the collapse in aggregate or effective demand in the economy (as expressed in a fall of investment and consumption). this fall in investment leads to a decrease in employment and thus to less income. Effective demand is the independent variable, and incomes and employment are the dependent variables. There is not mention of profit or profitability in this schema. Investment creates profits, not vice versa.

For me, these were some of the most useful sections of  the book for they demonstrated two things. Firstly that "common sense" arguments about the way to solve the economic crisis, such as massive state investment won't work. Secondly these solutions effectively function as an ideological fig leaf for capitalism, suggesting that the system can be made to work. Roberts shows that there isn't a reformist way to patch together a system that is inherently crisis prone.

In this context Roberts also argues that the austerity policies of most capitalist governments are "not insane" as Keynesians think, they "follow from a need to drive down costs, particularly wage costs, but also taxation and interest costs, and the need to weaken the labor movement so that profits can be raised. [Austerity] is a perfectly rational policy from the point of view of capital.

So can capitalism get out of its hole? Roberts argues that it can, but doing so requires the restoration of profitability which means that huge amounts of existing capital needs to be destroyed. These solutions (just as the bank bailouts did) will benefit the system and some of the capitalists, but the majority of the population will suffer. There are likely to be many more company collapses, bankruptcies, redundancies and wage cuts (and all the social ills that accompany these) before capitalism restores its profitability. The "dead-weight" of debt remains in the system and

The current low-growth world is a reflection of the burden of still high debt levels on the cost of borrowing relative to potential return on capital and thus on growth. The job of a slump (to devalue assets, both tangible and fictitious) has not yet been achieved.

I've focused in this review on what I consider to be the key part of The Long Depression - it's systematic explanation of the cause of slump and the importance of a Marxist approach. There is much more here. Readers of Michael Robert's blog will know that the has discussed the question of robot and AI technology and whether this will lead to a rosy future or a dystopian nightmare. Again he puts the question of profitability at the heart of this, showing that a completely robotic knowledge economy in the future is impossible. The chapters that look at the economic prospects for particular countries and regions are also interesting, if sobering, accounts of the bleak future for most working people unless they fight back. In the midst of the post-Brexit discussions in the UK I also felt Roberts' discussion on the role of the EU was particularly interesting. In particular he points out that the currency union wasn't logical and only serves the interest of the two major European economic powers.

The Eurozone countries are more different from each other than countries in just about any hypothetical currency union you could propose. A currency union for Central America would make more sense. A currency union in East Asia would make more sense. A currency union that involved reconstituting the old Soviet Union or Ottoman Empire would make more sense. In fact, "a currency union of all countries on Earth than happen to reside on the fifth parallel north of the Equator would make more sense". But the currency union went ahead because of the political ambitions of France and Germany to have a Europe led by them, even after Britain refused to join.

Finally Roberts puts the economic problems of capitalism in the context of its ecological destruction. I won't rehearse his arguments as this blog has frequently discussed these. But his conclusion is a sensible place to end this review. Unless capitalism is replaced in the next fifty years, ecology destruction will be on such as scale that "economic growth will slow, natural disasters will become common, and the cost of restoration and prevention will become too much for a profit-making mode of production to handle."

Related Reviews

Harman - Zombie Capitalism
Choonara - Unravelling Capitalism
Harvey - Seventeen Contradictions and the end of Capitalism
Marx - Value, Price and Profit