Groucho Marxism

As most people know, a major global financial crisis took place in 2008. The context for the crisis was the neoliberal boom of the late 90s and early 2000s, during which western governments claimed to have ended boom-and-bust. However a surface-level analysis is enough to make clear that ending boom-and-bust completely is not possible under capitalism. Even a naive ‘household’ theory of government spending demonstrates that you cannot grow an economy on money borrowed from the future for any significant period of time. This was made abundantly clear in 2008 when the celebrated boom, which had been going on over a decade by then, was ended by the deepest crisis of capitalism since the great depression.

Despite the hubris of the pre-crash era, on some level the capitalist class must have understood they were being confronted by the largest fundamental problem of capitalism – namely, that growth cannot continue indefinitely. Having exhausted new areas of exploitation for the capitalist machine, the capitalist class convinced their friends in government to relax lending regulations. So loan eligibility regulations were eased to keep the money flowing. Banks understood that many of these loans would not be repaid, so they packaged them up with other, higher-rated debt into what became known as collateralized debt obligations or CDOs. Competition between credit rating agencies created a race to the bottom whereby many of these CDOs were given the highest AAA rating.

Banks would then proceed to sell these AAA-rated CDOs to other banks in the market. But the banks buying these CDOs were well aware of what was going on as they were engaged in exactly the same dodgy practices themselves, so demanded an insurance policy against non-payment of these loans. This insurance policy took the form of a financial instrument called a credit default swap or CDS. These CDS instruments then started being traded on the market themselves, with further insurance – this time called re-insurance – taken out for any resulting losses. Inevitably the whole house of cards came crashing down when the underlying loans were not repaid. Looking back now it seems remarkable that any of this was allowed to happen.

The capitalist media used the word ‘contagion’ to describe knock-on effect the crisis had on the wider economy, as if it was caused by some kind of outside invading force rather than an inherent problem with capitalism itself. The collapse of the financial services industry hit the UK particularly hard as Margaret Thatcher and her government had dismantled our primary secondary industries in the 1980s and re-organized the economy around the financial sector. Instead of bailing out workers, who had trusted banks with their money, states prioritized preventing banks from going bankrupt by guaranteeing liabilities and injecting liquidity: the US government issued $426 billion in bailouts to the banking sector, and the UK government £137 billion.

These bailouts resulted in the crisis being transferred from the private to the public sector. The debts generated by speculative finance were effectively socialized – that is, paid for by ordinary people. Private financial excess was transformed into public debt and then repackaged politically a crisis of state overspending, which was then used to justify the austerity programs that followed. The UK coalition government that came to power in 2010 wasted little time in dismantling public services and farming out those that remained to the private sector. The impact on working people was devastating. Dependency on food banks increased dramatically and the UK saw are return of diseases not seen for over 100 years such as scurvy and rickets.

Just as the boom causes the crises, usually the crisis also causes the next boom, as failing business are sold off cheaply to new capitalists who are then more easily able to extract a profit from them. However in this case there was no such recovery. Since 2008 capitalism has entered a zombified state with austerity and anemic growth the norm. You might wonder why governments are still inflicting austerity on us nearly 20 years after the crash occurred – particularly as the argument for austerity, which rests heavily on the government-as-household analogy, has now been completely discredited. The short answer is that capitalism relies on scarcity in order to function effectively. As we move to a post-scarcity society, scarcity must be imposed artificially through austerity.

The 2008 crash was not simply a crisis of irresponsible lending, greedy bankers, or a few bad financial products.  It was a crisis rooted in the contradictions of capitalism. Faced with declining opportunities for profitable investment, capital increasingly turned towards financialization, debt expansion, and speculation to maintain growth. The inevitable collapse that resulted was paid for by working people through austerity, privatization, falling living standards, and the dismantling of public services. One thing is clear: the claim that capitalism can operate without boom-and-bust cycles has been well and truly debunked. The question is not whether capitalism will produce another crisis but whether the working class is organized to respond politically when the next one arrives.