I. Babylon is Fallen
Resumption of the Crisis of Overaccumulation
Resource crises (Peak Oil)
Fiscal Crisis of the State
Decay of the Cultural Pseudomorph
(Failed) Attempts to Counteract the Crisis of Value with Enclosure of the Digital Commons
II. Relocalized Manufacturing
Paul Baran and Paul Sweezy described the Great Depression as “the normal outcome of the workings of the American economic system.” It was the culmination of the “stagnationist tendencies inherent in monopoly capitalism,” and far from being a deviation from economic normality was “the realization in practice of the theoretical norm toward which the system is always tending.” 
Fortunately for corporate capitalism, World War Two postponed the crises for a generation or so, by blowing up most of the plant and equipment in the world outside the United States. William Waddell and Norman Bodek, in The Rebirth of American Industry, describe the wide-open field left for the American mass-production model:
General Motors, Ford, General Electric and the rest converted to war production and were kept busy, if not prosperous, for the next four years. When the war ended, they had vast, fully functional factories filled with machine tools. They also had plenty of cash, or at least a pocket full of government IOUs. More important, they also had the entire world market to themselves. The other emerging automobile makers, electric product innovators, consumer product companies, and machine tool builders of Europe and Asia were in ruins. 
The destruction of capital postponed the crisis of overaccumulation until around 1970, when the industrial capacity of Europe and Japan had been rebuilt. By that time, according to Piore and Sabel, American domestic markets for industrial goods had become saturated. 
According to Walden Bello, the capitalist state attempted to address the resumed crisis of overproduction with a long series of expedients — including a combination of neoliberal restructuring, globalization, the creation of the tech sector, the housing bubble and intensified suburbanization, and the expansion of the FIRE economy (finance, insurance and real estate) — as successive expedients to soak up surplus capital. 
Unfortunately for the state capitalists, the neoliberal model based on offshoring capital has reached its limit; China itself has become saturated with industrial capital.  The export-oriented industrialization model in Asia is hitting the walls of both Peak Oil and capital saturation. Bello points out that 75% of China’s manufacturers were already complaining of excess capacity and demand stagnation, even before the bubble of debt-fueled demand collapsed. 
And today, as “goods pile up in wharves from Bangkok to Shanghai, and workers are laid off in record numbers, people in East Asia are beginning to realize they aren’t only experiencing an economic downturn but living through the end of an era.” The clear lesson is that the export-oriented industrial model is extremely vulnerable to both increased shipping costs and decreases in Western purchasing power — a lesson that has “banished all talk of decoupling” a growing Asian economy from the stagnating West. Asia’s manufacturing sector is “linked to debt-financed, middle-class spending in the United States, which has collapsed.”  The Asian export economy, as a result, has fallen through the floor.
Worldwide, industrial production has ground to a halt. Goods are stacking up, but nobody’s buying; the Washington Post reports that “the world is suddenly awash in almost everything: flat-panel televisions, bulldozers, Barbie dolls, strip malls, Burberry stores.” A Hong Kong-based shipping broker told The Telegraph that his firm had “seen trade activity fall off a cliff. Asia-Europe is an unmitigated disaster.” The Economist noted that one can now ship a container from China to Europe for free — you only need to pick up the fuel and handling costs — but half-empty freighters are the norm along the world’s busiest shipping routes. Global airfreight dropped by almost a quarter in December alone; Giovanni Bisignani, who heads a shipping industry trade group, called the “free fall” in global cargo “unprecedented and shocking.” 
Suburbanization, thanks to Peak Oil and the collapse of the housing bubble, has also ceased to be a viable outlet for surplus capital.
It was after the collapse of the tech bubble that financialization — the use of derivatives and securitized debt as surplus capital sponges to soak up investment capital for which no outlet existed in productive industry — really came into its own. As Joshua Holland noted, in most recessions the financial sector contracted along with the rest of the economy; but after the 2000 tech bust it just kept growing, ballooning up to ten percent of the economy.  We’re seeing now how that worked out.
Financialization was a way of dealing with a surplus of productive capacity, whose output the population lacked sufficient purchasing power to absorb, because almost all increases in productivity had gone to increasing the wealth of the upper class. Financialization enabled the upper class to lend its increased wealth to the rest of the population, at interest, so they could buy the surplus output. But the housing asset bubble collapsed, government is unable to reinflate housing and other asset values even with trillion-dollar taxpayer bailouts, and an alarming portion of the population is no longer able to service the debts accumulated in “good times.” Not only there are no inflated asset values to borrow against to fuel demand, but many former participants in the Ditech spending spree are now becoming unemployed or homeless in the Great Deleveraging. 
Besides, the problem with debt-inflated consumer demand was was that there was barely enough demand to keep the wheels running and absorb the full product of overbuilt industry even when everyone maxed out their credit cards and tapped into their home equity to replace everything they owned every five years. We’ll never see that kind of demand again, obviously. So there’s no getting around the fact that a major portion of existing plant and equipment will be rust in a few years.
State capitalism seems to be running out of safety valves. Barry Eichengreen and Kevin O’Rourke suggest that, given the scale of the decline in industrial output and global trade, the term “Great Recession” may well be over-optimistic. Graphing the rate of collapse in global industrial output and trade from Spring 2008 to Spring 2009, they found the current rate of decline has actually been steeper than that of 1929-1930. It is, in short, “a Depression-sized event,” with the world “currently undergoing an economic shock every bit as big as the Great Depression shock of 1929-30.” 
Left-Keynesian Paul Krugman speculated that the economy narrowly escaped another Great Depression in early 2009.
A few months ago the possibility of falling into the abyss seemed all too real. The financial panic of late 2008 was as severe, in some ways, as the banking panic of the early 1930s, and for a while key economic indicators — world trade, world industrial production, even stock prices — were falling as fast as or faster than they did in 1929-30.
But in the 1930s the trend lines just kept heading down. This time, the plunge appears to be ending after just one terrible year.
So what saved us from a full replay of the Great Depression? The answer, almost surely, lies in the very different role played by government.
Probably the most important aspect of the government’s role in this crisis isn’t what it has done, but what it hasn’t done: unlike the private sector, the federal government hasn’t slashed spending as its income has fallen. 
This is not to suggest that the Keynesian state is a desirable model. Rather, it is made necessary by state capitalism. But make no mistake: so long as we have state capitalism, with state promotion of overaccumulation and the maldistribution of purchasing power that results from privilege, state intervention to manage aggregate demand is necessary to avert depression. Given state capitalism, we have only two alternatives: 1) eliminate the privileges and subsidies to overaccumulation that result in chronic crisis tendencies; or 2) resort to Keynesianism, Social Credit, or something else of that sort.
And we should bear in mind that it’s far from clear the worst has, in fact, been averted. Karl Denninger argues that the main reason GDP fell only 1% in the second quarter of 2009, as opposed to 6% in the first, was increased government spending. As he points out, the fall of investment slowed in the second quarter; but given that it was already cut almost in half, there wasn’t much further it could fall. Exports fell “only” 7% and imports 15.1%; but considering they had already fallen 29.9% and 36.4%, respectively, in the first quarter, this simply means that exports and imports have “collapsed.” Consumer spending fell in the second quarter more than in the first, with a second quarter increase in the rate of “savings” (or rather, of paying down debt). Denninger’s take: “The recession is not ‘easing’, it is DEEPENING.” 
In any case, if Keynesianism is necessary for the survival of state capitalism, we’re reaching a point at which it is no longer sufficient. If pessimists like Denninger are wrong, and Keynesian policies have indeed turned the free fall into a slow motion collapse, the fact remains that they are insufficient to restore “normalcy” — because normalcy is no longer an option. Keynesianism was sufficient during the postwar “Consensus Capitalism” period because of the worldwide destruction of plant and equipment in WWII, which postponed the crisis of overaccumulation for a generation or so.
Bello makes the very good point that Keynesianism is not a long-term solution to the present economic difficulties because it ceased to be a solution the first time around.
The Keynesian-inspired activist capitalist state that emerged in the post-World War II period seemed, for a time, to surmount the crisis of overproduction with its regime of relatively high wages and technocratic management of capital-labor relations. However, with the addition of massive new capacity from Japan, Germany, and the newly industrializing countries in the 1960s and 1970s, its ability to do this began to falter. The resulting stagflation — the coincidence of stagnation and inflation — swept throughout the industrialized world in the late 1970s. 
Conventional left-Keynesian economists are at a loss to imagine some basis on which a post-bubble economy can ever be reestablished with anything like current levels of output and employment. This is especially unfortunate, given the focus of both the Bush and Obama administrations’ banking policies on restoring asset prices to something approaching their pre-collapse value, and the focus of their economic policies on at least partially reinflating the bubble economy as a source of purchasing power, so that — as James Kunstler so eloquently puts it —
the US public could resume a revolving credit way-of-life within an economy dedicated to building more suburban houses and selling all the needed accessories from supersized “family” cars to cappuccino machines. This would keep everyone employed at the jobs they were qualified for — finish carpenters, realtors, pool installers, mortgage brokers, advertising account executives, Williams-Sonoma product demonstrators, showroom sales agents, doctors of liposuction, and so on. 
The problem is that pre-collapse levels of output can only be absorbed by debt-financed and bubble-inflated purchasing power, and another bubble on the scale of the tech and real estate booms just ain’t happening. 
Keynesianism might be viable as a long-term strategy if deficit stimulus spending were merely a way of bridging the demand shortfall until consumer spending could be restored to normal levels, after which it would use tax revenues in good times to pay down the public debt. But if normal levels of consumer spending won’t come back, it amounts to the U.S. government borrowing $2 trillion this year to shore up consumer spending for this year — with consumer spending falling back to Depression levels next year if another $2 trillion isn’t spent. So capitalism might be sustainable, in terms of the demand shortfall taken in isolation — if the state is prepared to run a deficit of $2 trillion a year indefinitely. The problem is, there will never again be a tax base capable of paying for these outlays, because (as we shall see below) the implosion of production costs from digital production and small-scale manufacturing technology is destroying the tax base.
It might be possible to sustain such spending on a permanent basis via something like the “Social Credit” proposals of Major Douglas some eighty years ago (simply creating the money out of thin air instead of borrowing it or funding it with taxes, and depositing so much additional purchasing power interest-free in every citizen’s checking account each month). But that would undermine the basic logic of capitalism, removing the incentive to accept wage labor on the terms offered, and freeing millions of people to retire on a subsistence income from the state while participating in the non-monetized gift or peer economy. What’s more, it would be a disaster on the scale Christian theologians attribute to the possibility that Adam and Eve might have eaten the fruit of the Tree of Life in their fallen state: it would enable the present model of mass-production capitalism, based on push distribution and planned obsolescence, to keep right on indefinitely — running at full capacity to produce goods for the landfill — until it consumed the biosphere.
Those who leaven their Keynesianism with some degree of “green” sensibility have a hard time reconciling the fundamental contradiction involved in the two sides of modern “Progressivism.” Paul Krugman is a good case in point:
I’m fairly optimistic about 2010.
But what comes after that? Right now everyone is talking about, say, two years of economic stimulus — which makes sense as a planning horizon. Too much of the economic commentary I’ve been reading seems to assume, however, that that’s really all we’ll need — that once a burst of deficit spending turns the economy around we can quickly go back to business as usual.
In fact, however, things can’t just go back to the way they were before the current crisis. And I hope the Obama people understand that.
The prosperity of a few years ago, such as it was — profits were terrific, wages not so much — depended on a huge bubble in housing, which replaced an earlier huge bubble in stocks. And since the housing bubble isn’t coming back, the spending that sustained the economy in the pre-crisis years isn’t coming back either.
To be more specific: the severe housing slump we’re experiencing now will end eventually, but the immense Bush-era housing boom won’t be repeated. Consumers will eventually regain some of their confidence, but they won’t spend the way they did in 2005-2007, when many people were using their houses as ATMs, and the savings rate dropped nearly to zero.
So what will support the economy if cautious consumers and humbled homebuilders aren’t up to the job? 
(I would add that, whatever kind of post-bubble “normalcy” we’re restored to, in the age of Peak Oil and absent previous pathological levels of consumer credit, it’s unlikely the U.S. will ever seen a return to automobile sales of 18 million a year. If anything, the current output of ten million cars is probably far above sustainable levels.)
And Krugman himself, it seems, is not entirely immune to the belief that a sufficient Keynesian stimulus will restore the levels of consumer demand associated with something like “normalcy.” Krugman first compares the longer duration and greater severity of depressions without countercyclical government policy to those with, and then cites Keynes as an authority in estimating the length of the current Great Recession without countercyclical stimulus spending: “a recession would have to go on until ‘the shortage of capital through use, decay and obsolescence causes a sufficiently obvious scarcity to increase the marginal efficiency.’” 
But as he himself suggested in his earlier column, the post-stimulus economy may have much lower “normal” levels of demand than the pre-recession economy, in which case the only effect of the stimulus will be to pump up artificial levels of demand so long as the money is still being spent. In that case, as John Robb suggests, the economy will settle into a new equilibrium with levels of demand set at much lower levels.
The assumption is that new homes will eventually need to be built to accommodate population growth and new cars will be sold to replace old stock. However, what if there is a surge in multi-generational housing (there is) or people start to drive much less (they are) or keep their cars until they drop (most people I know are planning this). If that occurs, you have to revise the replacement level assumption to a far lower level than before the start of the downturn. What’s that level? I suspect it is well below current sales levels, which means that there is much more downside movement possible. 
The truth of the matter is, the present economic crisis is not cyclical, but structural. There is excess industrial capacity that will be rust in a few years because we are entering a period of permanently low consumer demand. As Peter Kirwan at Wired puts it, the mainstream talking heads are mistaking for a cyclical downturn what is really “permanent structural change” and “industrial collapse.” 
While Krugman lamely fiddles around with things like a reduction of the U.S. trade deficit as a possible solution to the demand shortfall, liberal blogger Matthew Yglesias has a more realistic idea of what a sustainable post-bubble economy might actually entail.
I would say that part of the answer may well involve taking a larger share of our productivity gains as increased leisure rather than increased production and incomes…. A structural shift to less-work, less-output dynamic could be catastrophic if that means a structural shift to a very high rate of unemployment. But if it means a structural shift toward six-week vacations and fewer 60 hour weeks then that could be a good thing. 
Exactly. But a better way of stating it would be “a structural shift toward a less-work, less-output, less-planned-obsolescence, and less-embedded-rents-on-IP-and-ephemera dynamic, with no reduction in material standard of living. A structural dynamic toward working fewer hours to produce less stuff because it lasts longer instead of going to the landfill after a brief detour in our living rooms, would indeed be a good thing.
Michel Bauwens ventures a somewhat parallel analysis from a different perspective, that of Kondratiev’s long-wave theory. According to Bauwens, 1929 was the sudden systemic shock of the last system, and from it emerged the present system, based on Fordist mass-production and the New Deal/organized labor social contract, the automobile, cheap fossil fuels — you know the drill. The system’s golden age lasted from WWII to the early 1970s, when its own series of systemic shocks began: the oil embargo, the saturation of world industrial capital, and all the other systemic crises we’re considering in this chapter. According to Bauwens, each long wave is characterized by a new energy source, a handful of technological innovations (what the neo-Marxists would call “epoch-making industries”), a new mode of financial system, and a new social contract. Especially interesting, each long wave presents “a new ‘hyperproductive’ way to ‘exploit the territory,’” which parallels his analysis (which we will examine in later chapters) of the manorial economy as a path of intensive development when the slave economy reached its limits of expansion, and of netarchical capitalism as a way to extract value intensively when extensive addition of capital inputs is no longer feasible.
According to Bauwens, the emerging long wave will be characterized by renewable energy and green technology, distributed p2p credit and microlending, relocalized networked manufacturing, a version of small-scale organic agriculture that applies the latest findings of biological science, and a mode of economic organization centered on civil society and peer networks. 
However, to the extent that the capture of value through “intellectual property” is no longer feasible (see below), it seems unlikely that any such new paradigm can function on anything resembling the current corporate capitalist model.
2. Paul Baran and Paul Sweezy, Monopoly Capitalism: An Essay in the American Economic and Social Order (New York: Monthly Review Press, 1966), p. 240. Some free market advocates may bristle at my reliance on the overproduction theories of left-wing critics of capitalism. The free market, they no doubt indignantly point out, has no such tendencies toward overproduction, overinvestment, and underconsumption. But the tendencies that would prevail in a “free market” have little relevance to the tendencies of the real-world system we live in; this is not a free market. Stagnationist theories, ranging from the underconsumptionism of Keynes to the overaccumulation theories of the neo-Marxists, are in fact quite useful as explanatory models of actually existing corporate capitalism.
3. William H. Waddell and Norman Bodek, Rebirth of American Industry: A Study of Lean Management (Vancouver, WA: PCS Press, 2005), p. 94.
4. Michael J. Piore and Charles F. Sabel, The Second Industrial Divide: Possibilities for Prosperity (New York: HarperCollins, 1984), p. 184.
5. Walden Bello, “A Primer on Wall Street Meltdown,” MR Zine, October 3, 2008 <http://mrzine.monthlyreview.org/bello031008.html>.
6. Walden Bello, “A Primer on Wall Street Meltdown,” MR Zine, October 3, 2008 <http://mrzine.monthlyreview.org/bello031008.html>.
7. Walden Bello, “Can China Save the World from Depression?” Counterpunch, May 27, 2009 <http://www.counterpunch.org/bello05272009.html>.
8. Walden Bello, “Asia: The Coming Fury,” Asia Times Online, February 11, 2009 <http://www.atimes.com/atimes/Asian_Economy/KB11Dk01.html>.
9. Joshua Holland, “The Spectacular, Sudden Crash of the Global Economy,” Alternet, February 24, 2009 <http://www.alternet.org/module/printversion/128412/the_spectacular%2C_sudden_crash_of_the_global_economy/>.
10. Joshua Holland, “Let the Banks Fail: Why a Few of the Financial Giants Should Crash,” Alternet, December 15, 2008 <http://www.alternet.org/workplace/112166/let_the_banks_fail%3A_why_a_few_of_the_financial_giants_should_crash_/>.
11. Charles Hugh Smith, “Globalization and China: Neoliberal Capitalism’s Last ‘Fix’,” Of Two Minds, June 29, 2009 <http://www.oftwominds.com/blogjune09/globalization06-09.html>.
12. Barry Eichengreen and Kevin H. O’Rourke, “A Tale of Two Depressions,” VoxEU.Org, June 4, 2009 <http://www.voxeu.org/index.php?q=node/3421>.
13. Paul Krugman, “Averting the Worst,” New York Times, August 9, 2009 <http://www.nytimes.com/2009/08/10/opinion/10krugman.html>.
14. Karl Denninger, “GDP: Uuuuggghhhh – UPDATED,” The Market Ticker, July 31, 2009 <http://market-ticker.denninger.net/archives/1276-GDP-Uuuuggghhhh.html>.
15. Walden Bello, “Keynes: A Man for This Season?” Share the World’s Resources, July 9, 2009 <http://www.stwr.org/globalization/keynes-a-man-for-this-season.html>.
16. James Kunstler, “Note: Hope = Truth,” Clusterfuck Nation, April 20, 2009 <http://jameshowardkunstler.typepad.com/clusterfuck_nation/2009/04/note-hope-truth.html>.
17. Michael Hudson, “What Wall Street Wants,” Counterpunch, February 11, 2009 <http://www.counterpunch.org/hudson02112009.html> (see also expanded version, “Obama’s Awful Financial Recovery
Plan,” Counterpunch, February 12, 2009 <http://www.counterpunch.org/hudson02122009.html>). Both the Paulson and Geithner TARP plans involve the same kind of Hamiltonian skullduggery: borrowing money, to be repaid by taxpayers with interest, to purchase bad assets from banks at something much closer to face value than current market value, to increase the liquidity of banks to the point that they may lend money back to the public — should they deign to do so — at interest. Or as Hudson put it, TARP “aims at putting in place enough new bank-lending capacity to start inflating prices on credit all over again.”
18. Paul Krugman, “Life Without Bubbles,” New York Times, January 6, 2009 <http://www.nytimes.com/2008/12/22/opinion/22krugman.html?ref=opinion>.
19. Paul Krugman, “Use, Delay, and Obsolescence,” The Conscience of a Liberal, February 13, 2009 <http://krugman.blogs.nytimes.com/2009/02/13/use-delay-and-obsolescence/>.
20. John Robb, “Below Replacement Level,” Global Guerrillas, February 20, 2009 <http://globalguerrillas.typepad.com/johnrobb/2009/02/below-replacement-level.html>.
21. Peter Kirwan, “Bad News: What if the money’s not coming back?” Wired.Co.Uk, August 7, 2009 <http://www.wired.co.uk/news/archive/2009-08/07/bad-news-what-if-the-money%27s-not-coming-back.aspx>.
22. Matthew Yglesias, “The Elusive Post-Bubble Economy,” Yglesias/ThinkProgress.Org, December 22, 2008 <http://yglesias.thinkprogress.org/archives/2008/12/the_elusive_post_bubble_economy.php>.
23. Michel Bauwens, “Conditions for the Next Long Wave,” P2P Foundation Blog, May 28, 2009 <http://blog.p2pfoundation.net/conditions-for-the-next-long-wave/2009/05/28>.