John Bellamy Foster is editor of Monthly Review and professor of sociology at the University of Oregon. He is the coauthor with Fred Magdoff of The Great Financial Crisis: Causes and Consequences, recently published by Monthly Review Press. This is a heavily abridged version of an interview was conducted by Mike Whitney that first appeared at Dissident Voice.
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The financial crisis is quickly turning into a political crisis. How does one take deep-seated discontent and rage and shape it into a political movement for structural change?
The first thing to recognise is that we are suddenly in a different historical period. One of my favourite quotes comes from Gillo Pontecorvo's 1969 film Burn! where the main character, William Walker (played by Marlon Brando), states: "Very often between one historical period and another, ten years suddenly might be enough to reveal the contradictions of an entire century."
We are living in such a period, not only because of the financial crisis and what the International Monetary Fund (IMF) is now calling a depression in the advanced capitalist economies, but also because of the global ecological crisis that during the last decade has accelerated out of control under business as usual, and due to the reappearance of "naked imperialism".
What made sense 10 years ago is nonsense now. New dangers and possibilities are opening up. A whole different kind of struggle is emerging.
The sudden fall of the governments in Iceland and Latvia as a result of protests against financial theft is remarkable, as are the widespread revolts in Greece and throughout the EU, with millions in the streets.
The general strikes in Guadeloupe and Martinique (the French Antilles), and the support given to these movements by the France's New Anti-Capitalist Party (NAP) is a breakthrough.
In fact much of the world is in ferment. Latin Americans are engaged in a full-scale revolt against neoliberalism, led by Venezuela's Bolivarian Revolution, and the aspiration of a new socialism for the 21st century (as envisioned also in Bolivia, Ecuador and Cuba).
The Nepalese revolution has offered new hope in Asia.
Social struggles on a major scale are occurring in emerging economies such as Brazil, Mexico and India. China is experiencing unrest.
The one place in the world where this world historical ferment appears to not be having telling effect at present is the United States.
This can be traced to two reasons. First, the US as the centre of a world empire is a fortress of conservatism. Second, the election of the Barack Obama administration has confused progressive forces, leading to absurd notions that the Democratic Party under Obama is going to create a New New Deal without renewed pressure arising from a revolt from below.
Meanwhile, under Obama's watch, and with the help of his chosen advisers, vast amounts of state funds are being infused into the financial system to benefit private capital.
What is needed in the US today is a renewal of the classic concept of "political economy" (with its class perspective), whereby it comes to be understood that the economy is subject to public control, and should be wrested from the domination of the ruling class.
The bailing out of the system right now is going on with taxpayer funds but without the say of the public. A revolt to gain popular control of the economy is therefore necessary.
It is possible to start with the demand for a New New Deal rooted in the best legacy of the Franklin Roosevelt administration in the 1930s, most notably the Works Progress Administration.
But the struggle has to move quickly beyond that to an expansion of workers' rights along socialist principles, breaking with the logic of capital.
For this to occur there has to be a great revolt from below on at least the scale of the industrial unionisation movement of the 1930s that created a new political force in the country (later destroyed in the McCarthy era). This rising labour movement was led by socialists and radical syndicalists.
In the US, a primary goal of any radical politics should be to cut military spending, which is the imperial iron heel holding down the entire world, while corrupting the US body politic and diverting surplus from pressing social needs.
The obvious weak link of the whole political and economic structure in command in the US is that the system has clearly failed to meet peoples' real needs. Rather than addressing these pressing needs in the crisis, the emphasis of the economic overlords is to bail out private capital at virtually any cost.
The robbing of public funds to bail out private capital is now on a scale probably never before seen. A politicised, organised working class capable of understanding and reacting to that theft, and choosing thereby to restructure society, to meet real social, egalitarian needs is what is now to be hoped for.
The title of a recent cover story Newsweek declared: "We Are All Socialists Now". As it turned out, Newsweek's editors were simply referring to the increase in public spending now taking place — hardly an indication of socialism.
But the fact that this is said at all in the mainstream media points to the fact that we are in a different historical moment in which radical forces have the possibility of moving forward.
As the economy has become more dependent on "financialisation" (the move away from investment in actual production towards financial speculation) for growth, the gap between rich and poor has grown wider and wider. As you point out in your book, "In the United States the top 1 percent of wealth holders in 2001 owned more than twice as much as the bottom 80 percent of the population. If this was simply measured in terms of financial wealth, the top 1 percent owned more than four times the bottom 80 percent". How have working-class people managed to keep their heads above water with all this wealth being shifted to the rich?
The answer is fairly obvious. If people cannot maintain their standard of living on the basis of their income, they will borrow against income and against whatever wealth they have.
The result — if their incomes don't rise, or if the value of whatever assets they have do not increase — is that they will get deeper and deeper in debt in an attempt simply to stand still.
I published an article based on this research in the May 2000 issue of Monthly Review entitled "Working-Class Households and the Burden of Debt". I then followed this up six years later with an article in the May 2006 Monthly Review on "The Household Debt Bubble".
I wrote: "The housing bubble and the strength of consumption in the economy are connected to what might be termed the 'household debt bubble', which could easily burst as a result of rising interest rates and the stagnation or decline of housing prices."
This is of course what happened, and the reason why this crisis has turned out to be so severe was the destruction over decades of the finances of working-class households, on the back of which financialsation took place.
We should note that the stimulus package introduced by the Obama administration is far too small to pump up demand and reflate the economy under these circumstances.
It is less than US$400 billion a year, 40% of which is tax cuts, so that the increased governmental spending is minuscule compared to the size of the hole created by the drastic drop in consumption, investment, and state and local government spending.
It is also dwarfed by the total federal government support programs, primarily to financial institutions, which now amount to more than $9.7 trillion in the form of cash infusions, debt guarantees, swaps of Treasuries for financial toxic waste, etc.
Karl Marx seems to have anticipated the financial meltdown we are now facing. In Capital, he said, "The superficiality of political economy shows itself in the fact that it views the expansion and contraction of credit as the cause of the periodic alterations of the industrial cycle, while it is a mere symptom of them". Marx appears to agree that the real problem is deeper — economic stagnation that forces surplus capital to look for more profitable investments. While the monetarist theories of Milton Friedman are now under withering attack, John Maynard Keynes and Marx seem to have held up rather well. What does Marx mean when he talks about "political economy"?
Marx was an acute analyst of financial crises in his time and described their main features. However, he saw financial expansions as occurring at the peak of a boom, not as a secular phenomenon.
Financialisation in the sense of a long-term shift in the centre of gravity of the economy toward finance, with financial speculation building over decades, is a completely unprecedented situation.
Marx and Engels did place great emphasis on the growth of joint-stock companies/corporations and the appearance of a market for industrial securities that began to appear near the end of the 19th century. It was this creation of the modern market for industrial securities that was the real beginning of the emergence of finance as a relatively independent aspect of the monopoly capitalist economy.
There are essentially two pricing structures to the economy: one in the real economy related to the production of goods and services, the other in the financial realm associated with the pricing of assets (paper claims to wealth).
The two are interrelated but can be disassociated from each other for periods of time.
Keynes in the 1930s singled out the dangers of an economy that was increasingly governed by the speculative pricing of financial assets. Marx was such an acute observer of capitalism, that even in his time he began to see the contradictions emerging between money (or fictitious) capital and real capital.
Marx argued that surges in financial speculation were responses to stagnation and decline in the real economy, as capital desperately sought a way to maintain and expand its surplus.
Thus he wrote that the "plethora of money capital" in such periods was due to "difficulties in employment, through a lack of spheres of investment, i.e., due to a surplus in the branches of production" and showed nothing so much as the immanent barriers to capitalist expansion.
Marx remains the strongest foundation for the critique of the capitalist economy, down to our day. But the real Keynes (not to be confused with the bastardised Keynesianism of today) is also important, since he emphasised what he called the "outstanding faults" of the capitalist economy: the tendency to high inequality and high unemployment.
He also pointed to the dangers of a system geared to speculative finance.
Is wage stagnation and income inequality a direct result of financialisation?
I would put it the other way around. Wage stagnation and growing income and wealth inequality are components of the underlying stagnation tendency.
Both have shown a tendency to worsen over time, resulting in deepening stagnation tendencies within the overall economy.
Real wages (ie: taking into account inflation)in the US peaked in 1971, when Richard Nixon was president, and by 2008 had fallen back to 1967 levels, when Lyndon Johnson was president.
This is in despite of the enormous growth of productivity and expansion of wealth over the intervening decades.
This was accompanied by a massive growth of income and wealth at the top. As we stated in The Great Financial Crisis, "From 1990 to 2002, for each added dollar made by those in the bottom 90 percent [of income] those in the uppermost 0.01 percent (today about 14,000 households) made an additional $18,000".
By 2007 income/wealth inequality in the United States had reached 1929 proportions.
Financialisation made income and wealth inequality worse and contributed to the stagnation of wages. We can see "neoliberalism" as basically the ideology of monopoly finance capital, introduced originally as the ruling-class response to stagnation, and then increasingly geared to promoting the financialisation of capital, itself a structural response to stagnation.
Neoliberalism promoted incessant breaking of unions, forcing down wages, cutting state social welfare spending, deregulation, free mobility of capital, development of new financial architecture, etc.
One way to understand this is the enormous need for new cash infusions to feed a financial system that was voracious in its demand for new money, which it needed to leverage still more piling-up of debt and financial speculation.
Insurance companies, real estate and mutual funds all provided infusions into this financial superstructure, as did the state. All limits were removed.
Under these circumstances, workers were encouraged to use their houses like piggy banks to finance consumption, credit cards were handed out to teenagers, subprime loans were pushed on those with little ability to pay.
Individual retirement packages were shifted toward individual retirement accounts (IRAs) that were tied into the speculative financial system. This had all the signs of an addictive system.
In these circumstances too, the real economy, particularly production of goods and manufacturing, was decimated.
In the introduction to The Great Financial Crisis we include a chart covering the period since 1960 showing production of goods as a percentage of GDP in a slow, long-term decline, while debt as a percentage of GDP was skyrocketing over the same period.
All of this meant a massive redistribution away from working people to capital, and to those at the pinnacle of the financial pyramid.
With the bailouts of the financial system, we are experiencing one of the greatest robberies in history.
All the attempts to rescue the financial system at this time go in the direction of nationalisation. The federal government is providing more and more of the capital and assuming financial responsibility for the banks.
However, they are doing everything they can to keep the banks in private hands, resulting in a kind of de facto nationalisation with de jure private control.
Whether the federal government is forced eventually toward full nationalisation (that is, assuming direct control of the banks) is a big question.
But even that is unlikely to change the nature of what is going on, which is a classic case of the socialisation of losses of financial institutions while leaving untouched the massive gains still in the hands of those who most profited from the whole extreme period of financial speculation.
The fact that Todd Geithner, Obama's pick for treasury secretary, is overseeing the enormous robbery taking place, probably exceeding any theft in history, with the ordinary taxpayers picking up the tab, should certainly cause one to ask questions about the "progressive" nature of the new administration.
We should also understand that debt itself is an instrument of power and those at the bottom were chained by it, while those at the top were using it to leverage rising fortunes.
The total net worth of the Forbes 400 richest Americans (an increasing percentage of whom were based in finance) rose from $91.8 billion in 1982 to $1.2 trillion in 2006, while most people in the society were finding it harder and harder to make ends meet.
None of this is an accident. It is all intrinsic to the system.