Robert Brenner took part in an interview on an internet radio station in September 2009. Here is a link to listen, details of the interview, followed by a rough transcript.
Your Call 093008 Global capitalism and its discontents
Monday, September 29, 2008
Guests: Robert Brenner is the director of the Center for Social Theory and Comparative History at UCLA, and the author of The Boom and the Bubble.
J. Bradford DeLong, Professor of Economics at UC Berkeley
(don’t) Click to Listen: Global capitalism and its discontents
(An approximate transcript)
Is capitalism the ideal model for wealth creation?
Brenner
UCLA Boom and the bubble, US in the world economy.
Brad de Long R Grasping reality with both hands – blog – deputy of.. in Clinton Admin
4 congressmen in Bay Area voted No.
What happened?
Brenner: Problem is straight forward. Banks have insufficient capital because they were involved in giant speculative gambles. It’s not just investment backs but supposedly regulated banks. Key to making the economy run. The banks freezing up the lending market. The bail out was supposed to take these bad loans off the banks books so they can start lending again. The only way this can work i.e. to make K available again is to overpay for them. They wouldn’t be there. The taxpayers are picking up the tab for these horrible financial institutions. And when things get better, the banks will profit in another way – purchase the best and make a profit again. So they get bailed out going down but back up. Problem is not only fairness but also inadequacy. It is not simply the housing market, loans from there going down, lots more will happen as prices have fallen only 15% will happen re, will come in credit cards and across the board. A huge problem of capital to get that economy going by getting lending going again. How to deal with it.
Political situation is paradoxical – republicans opposing form the ultra-right as if this is the 1st step towards socialism. They are doing that for very ideological reasons as well they thin and I think they are right, that there will be a huge backlash against it. Then the Liberal democrats against it who see it like I do as unfair and inadequate. They would want a plan that is more fair so that the taxpayers don’t end up cleaning up for the behaviour of the banks, one that is more effective.
You are talking about the Democrats like Barbara Lee, Lu
Irony of this should not be lost on the listeners. This essentially extraordinarily pro wall street operation is the democratic party and it has become effectively the main bulwark of the financial system, usually what’s good for GM is good for America, today what’s good for Goldman Sachs is good for America, and the democrats feel they have to play along partly because…. And partly because they are financed by these people, the democrats largest source of fund is the financial corps on wall street, who led the way into this debacle. Huge problem, very real, has to be lending increased to the real economy but they way this has to be done will cause huge problems for tax payer and …
Alt
I: De Long what do you make you were the past treasurer in Clinton administration. Apparently calls to congressmen are 15:1 anti bail out.
DeLong: Distinguish between original Paulson plan which has treasury buying mortgaged backed securities, and … the flow of finance to – will get going again
Paulson Dodd plan voted yesterday – 700 billion had some buying mortgage backed securities and some invested in banks, partial nationalisation in terms of fed government taking equity share
And I would like to see what Sweden did n 1992, financial sector taken too much risk and government take over and run for a few year, then maybe sell off, re-privatise and hopefully make a profit.
Now we are tyring to move 8m workers out of construction into manufacturing whish is expanding and they need to borrow ant reasonable interest rate and they can’t SO any of the 3 plans put forward would have been better than nothing. The middle of the plans was on offer yesterday and we ought to have passed it.
Brenner: Brad’s option is the beginning of the way to go. I see no reason to apologise for democrats failing to take that option. They can do that very easily all it takes is standing up to Wall Street. It is said the Bush admin will veto, then maybe we have to take the 2nd best, and then democrats can go to election on basis of standing up to wall street. I agree with fundamentals of what brad is saying and democrats right to push for it. but what is needed is log bigger, inject a lot more money and be clear about government equity stakes in … financial firms should pay as big a price as they can, not allowed to give out dividends, government goes in with an equity stake, have to put up the $$ themselves. Even that may happens. The housing make itself has to unfrozen, have bail out plan form below, as in 1930s, buy up essentially debt mortgages that people are unable to pay.
Brenner:
One side of the problem is the supply side – loans are being held back to corporations and households. Other side of the problem is household sector which has driven the economy by borrowing and spending, sole source of economic growth in the last cycle, these people now are massively indebted and even if there was opportunity for them to borrow they are in no position, so where they n borrowed before because they had ever more with their house prices going up, now they have ever less, so their houses are no longer saving orf them so they are going to have save, have declining consumption, and so the other aspect is to go tho the source of the problem as they did in the 30s and provide house owners with relief as we are providing relief to the financiers, so we need to have the government buy up mortgages from the backs at low cost, and … so the mortgages are lower, and effectively give them back to the home owner who will have lower debt burden and lower borrowing cots.
De Long: what Yes – we did this during the great depression with the homeowners loan corporation, and ??? was the chairman of adviser.. Clinton has been trying get people interested in it. Since 1945 the US treasury ahs been offering a form of mortgage insurance implicitly by saying if you buy a bond with Fannie May effectively you will get paid off, Treasury was planning to offer that kind of insurance to the … if you want to get into business of .. and sell them out into the great wide maker so long as you pay the insurance.. there are plans like this already under discussion. If this happens depends on what happens in the election. Plans to move in direction that Brenner would find more congenial. All swamped by recent..
Delong – How we got here – always into a bubble. The world changes. In 2 ways – US that there is no longer free land within ½ hour of where you want to be. Became a scare resource with a high price, not just Manhattan. With industrialisation of India and China a lot of people wanting put put $$ into USA to keep safe, and others wanting to keep their currencies low for exports – buy dollars and spend own currencies – upward pressure on housing prices and housing demands because of low interest rates borrowing from abroad, house prices go up and get more excited, and it ….goes up… speculative bubble peaked in 2007, then it crashed as speculative bubbles do. Real estate in LA and Florida is not that huge. Should just have had a negative financial shock, Get shock as all the time. 1 trillion dollars lost in 2000(?) and we lost twice that yesterday. The magnitude of the response is greater than the magnitude of the …??
Caller – 30 year ago decision of powers that be – changed us from a manufacturing economy, to a consumer economy. Speculation, not an investment economy = counter-argument get it now – that speculation was pushed upon us and deliberate decision was made to move us from manufacturing to consumer economy is at root
Interviewer: 1965 – 53% of the economy was manufacturing jobs in 2004 just 9% lost …3.2 million jobs disappeared.
De Long – we have had a speculative economy since 1830s factories and railroads, industrial capital not good that could easily consume – 1st industrial business cycle and have been dealing with disease for 2 centuries – 1st principal of dealing since 18… given vulnerability of modern economies to speculative excess and crash. Some crises are too important to be left to the market – so government took on job of administering the money market. Bankers are now saying not just control short term interest rate on govt debt but also macroeconomic risk.
Brenner – got ahead of ourselves a bit – back to couple of things – somewhat different take. Brad says two sides – unified – dynamic capitalist system – flip side is financial sector to service it that runs ahead of it, As expansion, get bubbles, try to regulate to keep the underlying strong economy going. This is nothing like since the end of the 1990s. Housing prices (look a Robert Schiller) any valuation of house prices, house prices have NOT risen in response to supply and in whole post-war period, they didn’t’ rise faster than inflation – so the housing bubble is not a natural response to irrational exuberance which goes along with a powerful underlying economy. This has been an extremely weak economy weakest of the post-war period without comparison. Properly understood – employment hours did not rise between 000 and 2007. Hardly any real investment in plant and equipment without comparison. GDP grew by far the slowest. Real wages flat. Median family income for 1st time did not rise. Slow down in 70s 80s 90s people were adding jobs, women, overtime – but no increase in median family income very sock 200 -2007. Bubble is flip side of the a weak economy extremely low interest rates, world d capitalist investment fell after crisis of late 90s so unbelievable development of falling real interest rates, flip side of real economy allowed people to have extremely low interest rates..
Interviewer – what about manufacturing – now 1.10th of national xx million works. What is solution re manufacturing?
Brenner: Source of problem, 1st instance – like to hear Brad del long comment because close to policy making in Clinton admin. The short answer to what killed manufacturing is very high dollar – introduced by Reagan to stop inflation, cut wages and bring financial expansion to make Wall Street financial capital. Very high dollar and collapse of manufacturing such that manufacturing employers in 1985 went to Reagan and said bring down the dollar or we get protection form congress, and you have a fairly decent stabilisation of manufacturing 85-95, and recovery of profitability, take off between 93-95 then for variety of reason, they moved, flipped back to the Reagan position to push up the dollar and support finance and undercut manufacturing, basically since about 1997 on a straight downward path.
De Long? Two points. 1. Underlying is the very long term century by century trend – last week I told a student to read one of Brenner’s articles about 15th c when agric was big and is now 2%. Some degree manufacturing is part of that long run. The … factory in Berkeley had only 10 workers when maybe 100 years ago it would have had 100.
2. Agree that high dollar is an artificial source of manufacturing weakness – I would qualify that early was [rob, but the late 90s dollar cc?? was not so bad – high tech in silicon valley was cause of us as centre place in new tech revolution. And now dollar is no longer strong and about to become a lot weaker and will be a source of a manufacturing revival in next few years, as construction falls we want manufacturing and export services… no way to approach full employment without manufacturing replacing construction, we should accept a weka dollar to give US a competitive edge and greater market share to stay near full employment.
Interviewer:
Joan Oakland – trying to get to root, appreciate – Q 1st – I agree that this is a system of an unhealthy economy because of cosmetic fixes rather ten the root of a healthy economy. Lack of foresight and only hindsight, instead of a vision – it was obvious the housing bubble would burst. But what about energy, we are dependent on an expensive source of energy – if we have alternative, then the cost to manufacturing, transport – wouldn’t have to spend so much. We don’t; have an efficient way of life.
Brenner: Complicate discussion – shift of subjects before finished with them – will speak, but need a couple of preliminaries – what is really important to see – step back – on this question of manufacturing decline is very crucial, is understandable in terms of continuing transformation of the word economy, capitalism has moved in uneven way and now have storm centres in china combining cheap labour and sophisticated power in importing Japanese and Korean high tech equipment – we are up against his is very tough tot compete against and cheap labour. I have no quick answer, but political economy of US has been skewed by multinational and financiers have welcome d and pushed ahead, they don’t care, they can take advantage, no powerful interest supporting manufacturing and getting amore viable economy, what is missing is power, power of working class, speaking very broadly people who have wage work, have no power in the economy because unions have been decimated, will be very unlikely that those who have power will worry very much. I hope that Brad e long ins correct that this new decline in the currency will allow us to have more manufacturing, but US has become financial centre and consuming centre – and if US does not consume now rest of world will go into serious recession which I will predict, so globalisation will come back to bite us because the world is so completely interdependent.
I: What do you think noting change without shift in power. Obama is raising more from wall street than McCain.
Delong; More than 2 theories on why US union movement and to less degree Europe lost so much strength. 1st theory is political accident – bunch of politicians took on national labour relations board – government all round north Atlantic had been supporting union movement then Reagan and Thatcher too thumbs off and went other way, union with legal troubles, corporations destroy unions drives, get more unequal societies. T this point middle class of mid 50s was for white guys only – remembers if look back at 50s as utopia.
2nd view is that they way things went from 50s to 70s was unstable, economy in which union movement was expected to restrain higher wages so that full employment without high inflation. Unreasonable to expect unions to preserve political goal of low inflation, so this pattern broke down and union movements began asking for higher wage increases, and these parties came in and said these unions are enemies, elect us and we will give power to central banks to fight inflation, and that includes pushing up unemployment.
Brenner: thinks that there is a lot of truth in both theories but what is crucial to qualify is politics and class power ???? we have this trend to political and class power but in Europe where union power is stagnant, but even during this difficult time the welfare state ahs expanded rather impressively, expansion and no comparison with the level of welfare state between USUK on one had and the regulate economies – still expanding welfare states in w Europe due to strength of working class. Get this apology of how bad things are in Europe but poverty in France is 6% but poverty is 18% in US. That is probably the single key to changing anything – change the power relations, increase power of working people. Financial insanity of last years was so great that even the e powers of wall street will agree to some increased regulation, but unless there is some intervention by people below, because the very people who are running the.. are so tied up .. Obama says that we can’t give this tax break, we can’t do this – he says these are good people these rich people. Is a sign culturally of where he is coming from.
I: Thanks
