Página/12: What is your opinion about the decision of the Treasury Department to consider taking ownership stakes in many United States banks? Do you think this is the right political-economic strategy? I mean, will it lead to the recovery of the system?
JBF: The Treasury Department proposal to purchase majority shares in major U.S. banks (the extent of this is still not clear) is, in a U.S. context, an act of sheer desperation, following a whole series of increasingly desperate actions. It signals that the crisis is out of control. The standard operating procedure whenever there is a major credit crisis is to activate the lender of last resort function and for the central bank to flood the economy with liquidity, while bailing out large financial and economic institutions that threaten to bring down the whole ship. Since the publication in 1963 of Milton Friedman and Anna Schwarz’s A Monetary History of the United States, most U.S. economists have come to believe that the Great Depression was a result of the failure to open up the monetary floodgates when necessary; that it had little to do with the real economy. All of the prevailing notions of how to deal with a financial/economic crisis grew out of this. This is the tradition that Ben Bernanke, the current Federal Reserve Board chairman, comes out of. It meant dealing with the problem primarily in monetary/interest rate/price terms.
But in the face of this massive financial crisis, now 14 months old, and rapidly morphing into what looks like a full-scale debt deflation on the order of the Japanese meltdown/stagnation in the early 1990s — even threatening to turn into a new Great Depression on the scale of the 1930s — the U.S. government is bailing like mad with bigger and bigger buckets, and trying absolutely everything it can think of. It has poured hundred of billions of dollars, and is prepared to pour trillions of dollars more, into bailing out the financial sector (witness the Treasury Department’s $700 billion bailout plan, and the Federal Reserve Board’s declaration that it will be the buyer of last resort for the commercial paper market, to the full amount of $1.3 trillion). The lender of last resort has changed into the buyer of last resort on a huge scale. An array of tools has been unleashed to combat the crisis of a kind and of a magnitude scarcely even imagined before. Just the other day central banks across the world cut interest rates basically in tandem. Nothing has worked. The meltdown has continued. The financial contagion is spreading globally, with all of Europe and now Japan caught in the downswing.
It is only in these dire circumstances that the United States, where private property is more sacrosanct probably than anywhere else in the world, is talking about some kind of nationalization of banks, if only limited. In financial circles they are now calling this “regime change,” borrowing the term of course from a different context. But it is clear what it means: the end of neoliberalism, and the rise of aggressive government interventions into the economy. It represents a clear recognition that this is not a liquidity crisis that can be solved by pouring more money into financial markets or by lowering interest rates. What difference does a reduction in rates make for a borrower who could not obtain a loan at a higher rate and now cannot obtain a loan at a lower rate? There’s a lot of dollars out in the financial world, the problem is that those who own the dollars are not willing to lend them to those who cannot be certain to pay them back — and that’s just about everyone who needs the dollars. This is a solvency crisis, where the balance sheet capital of the U.S. and U.K. financial institutions — and many others in their sphere of influence — has been wiped out by the declining value of the loans (and securitized loans) they own, their assets. As an accounting matter they are insolvent.
Will it work? Can they avoid a massive devaluation of capital across the board? I doubt it. It is likely too late to stabilize things in this way. Things have gone too far. The crux of the matter is that the whole “Atlantic” economy is in trouble, not just the financial sector. Consumption is collapsing in the United States, where it represents more than two thirds of total demand, and a good part of world demand. Fifteen percent of the population is under water with their mortgages. Real wages in the United States have not risen since the 1970s and people are deeply in debt and their circumstances are eroding. Unemployment is way up and jobs are vanishing. Where the productive base of the economy is weakening drastically, a falling financial superstructure, finding the ground shifting under it, is unlikely to be able to right itself.
As for the politics of nationalization of banks in the U.S. and U.K., one should not confuse this, as is all too common, with socialism or even radicalism, unless one is talking about socialism for the rich. This is just another desperate stop-gap measure aimed at preventing a full-scale debt deflation. But as a sign of the total collapse of the “U.S. model” of “free market” finance capitalism, the moral and political consequences are vast.
Página/12: Which sort of policies should the government implement to sort out this crisis, extending beyond the financial market?
JBF: I don’t think anyone knows how to “sort out” or stop this crisis. What we are seeing is a lot of improvising while the house is falling down around us. There is no possibility of avoiding a very severe world economic crisis at this point; the object has shifted to avoiding a deep debt deflation as in the 1930s. We are facing one of the great crises in the history of capitalism; nothing this bad has been seen in advanced capitalist world in eighty years, since the Great Depression itself.
My own view is that the sole object at this point — though it is hard to imagine this in the United States at present due to the weakness of labor and of working-class organizations in general — should be to reorganize social and economic priorities to meet the needs of those at the bottom. It is a fact that the U.S. economy over decades has drastically weakened the conditions of the wider population, which is at the root of the whole problem. So addressing those conditions is the real key. But even if that were not the case, the goal of those who identify with the great majority of the population, with the working class, the propertyless, the poor, should be clear: to put the employment, food, nutrition, housing, health, education, environmental conditions of those at base of society first. This is simple humanity and justice. Why flood the financial world (which means first and foremost the rich, the near-rich, and corporations) with trillions of dollars ultimately at taxpayer expense, probably to no avail, when something might be done for the greater population? Marx said, in one of his ironic moments, that the only part of the national wealth that was held in common amongst all the people was the national debt. If the wealth is not shared, why should the public take on more debt, supporting the opulence at the top while the great majority of the people are seeing their basic conditions deteriorate? Let the system take care of itself; let us devote our public resources to the people. More good would be accomplished that way. Of course what this means is a reactivation of class struggle from below; something we haven’t really seen in the United States in a long time. I ended a lecture recently by saying that the working class in the United States could learn a lot from how class struggles have been waged in the streets in Argentina. You may think your working class has not accomplished all that much, but from our perspective things look different.
Página/12: Do you think it is necessary to change the regulation of the financial system or sector to solve the crisis?
JBF: If you mean by regulations, placing more limits on the financial system, it certainly will happen in the future after the economy settles down to whatever level it will end up at. But no real regulations will be imposed now during the height of a financial meltdown. The Federal Reserve and Treasury Department in the United States and the other branches of the government, and of course other governments as well, are doing everything they can to combat a more catastrophic financial meltdown, including getting the printing presses going (this is a metaphor of course these days since now it is done electronically) in order to pour liquidity and capital into the system. Beyond that they want to “restore confidence,” which is code for increased risk-taking. The goal is to get the “animal spirits,” as Keynes called them, going again. To inflate the financial system they are reducing, not increasing, regulations at the present moment; and that is how the state authorities always respond to a financial crisis. They have no choice as long as they represent the interests of capital. Imposing tough regulations would make things worse for financial interests that find everything closing in on them at present. The goal is to get money flowing again. So the answer is that for the moment at least any real reregulation is not in the cards.
The truth is the advanced capitalist system has been dependent on a process of financialization (the increase in the financial superstructure relative to the “real economy”) as the main means of combating the stagnation of production and investment for decades now — beginning in the 1960s, but accelerating in the 1980s, and accelerating still more in the 1990s. It is the underlying tendency to stagnation rooted in exploitation and inequality that is the root problem. (This was brilliantly and relentlessly explained in a long series of articles by Monthly Review editors Harry Magdoff and Paul Sweezy from the 1960s to the 1990s.) Financialization, the blowing of one bubble after another (ideologically justified by neoliberalism), was offered as the solution to stagnation in the real economy. It was this that mainly spurred economic growth in the United States and elsewhere at the center of the system given the stagnation of investment in new productive capacity (held down by existing overcapacity). Ultimately, however, there was no “solution” other than the wiping out of capital: “the real barrier to capitalist production,” Marx wrote, “is capital itself.”
We are once again up against that real barrier. Hence the issue of regulation/deregulation/reregulation is, at this point, immaterial — at least if one is talking about new restraints on capital as a solution to the immediate problem. Restabilization of capitalism requires what has always been the saving function of crises: a vast amount of existing capital must be extinguished to enable a smaller surviving amount to begin again the process of blind, crazed accumulation. But the real-world suffering that would accompany such a massive “devaluation of capital” — the lost jobs, housing, self-respect, and the misery, even starvation, which would follow on a global scale today — would mean the end of the U.S. model of capitalism, since the rest of the world would never accept such a result. What we need and must fight for is real regime change: that is a socialism for the 21st century.
John Bellamy Foster is editor of Monthly Review and professor of sociology at the University of Oregon. This is the full text of the interview with Foster conducted by Página/12 (Argentina). A shorter version of this interview will appear in Página/12.