Economic Crisis: a Long-Wave Perspective

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Economic Crisis a Long-Wave Perspective

• Lecture
• by
• Persefoni Tsaliki
• Department of Economics
• Aristotle University of Thessaloniki
• Perspectives on the Euro(crisis)
• Sharing Perspectives Foundation
• October 2013

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Economic Cycles and Crisis

• All economic variables fluctuate through the
  years
• Long-run perspective of a variable ? growth
  theory
• Short-run perspective of a variable ? theory of
  economic cycles
• The long-run tendency of a variable functions as
  its center of gravity
• Economic Crisis ? interruption of the
  reproduction of the economy
• The Great depression in 1930s ? questions on
  market mechanism
• Keynes ? state intervention
• The Golden Age of Accumulation (post-war period
  early 1970s) ? triumph of Keynesian economics
• The Silent Crisis of the 1970s-1980s gave rise to
  reconsider Keynesian economics
• The New Golden Age of Accumulation ? Neoliberal
  economics
• The First Crisis of the Millennium ? 2007 - ?????

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Fluctuations in Economics

• Regular fluctuations ? pattern ? internal forces
  ? laws of motion
• Neoclassical any deviation is temporary and is
  caused by exogenous forces
• Keynesian deviations may be serious and through
  enhancement in effective demand the state can
  play a vital role
• New-newclassical deviations are ephemeral and
  caused by state intervention. A free market
  brings the economy back to equilibrium
• Classical/Marxian fluctuations are regular and
  are caused by the way the capitalist mode of
  production functions. That is, it is in its
  nature to face fluctuations

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Categories of Economic Fluctuations

• Schumpeter (1935, p. 15) defines the following
  categories
• Kitchin or inventory or business cycle (3-5
  years).
• Jouglar or investment cycle (7-11 years)
• Kuznets or construction cycle (15-25 years)
• Kondratieff or long waves (45-55 years)
• Ideal presentation of a Long Wave

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Interpretations of Long Waves

• Orthodox economists
• ? denial of Long-Wave perspective of economies
• ? exceptions (Schumpeter, Rostow, Maddison,
  Forester and Samuelson)
• Schumpeter
• ? mass introduction of innovations
• ? the role of entrepreneur
• ? the black future of capitalism
• Social Structure of Accumulation
• ? introduction of new institutions
• ? contracts between various social groups
• Classical/Marxian (Smith, Ricardo, Marx)
• ? movement in fundamentals, such as rate of
  profit

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Economic Crisis interruption of the normal
reproduction of the economy

• Theoretical approaches to economic crisis
• Self-regulated system
• Neoclassical ? invisible hand ? no crisis
• Keynesian ? visible hand of state ? no crisis
• Incapable for its continuous self expansion
• Exogenously Under consumption (Luxemburg, Lenin,
  Sweezy)
• ? increase in productive capacity and decrease in
  incomes ? fall in effective demand ? need for
  external markets (imperialism) ? lack of them
  leads to crisis
• ? focus on consumption
• Endogenously Inner nature of capitalism (Smith,
  Ricardo, Marx)
• ? long-run falling rate of profit
• Profit squeeze
• Rise in organic composition of capital -
  mechanization

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Long-Run Falling Rate of ProfitThe most
important law of political economy (Marx)

• Rise in organic composition of capital
  mechanization
• Capital is a self expanding value Accumulation
• Competition
• Against workers
• Against other capitals
• Profit Rate in the long-run falls
• p ? / ?
• Profit squeeze
• - Rise in wage share leads to falling
  profitability

mechanization
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Mechanization of Production Process (Greece
1960-2012)
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Net Real Operating Surplus and Investment
(Greece 1960-2012)
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Productivity and Real Wage Products (Greece
1960-2013)
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Long-Run Falling Rate of Profit (Greece 1960-2014)
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Conclusions

• Economic crisis is a stylized and systemic
  element of capitalist reproduction
• Long wave approach is vindicated by historical
  data
• Prerequisites to overcome the crisis
• Rise in Profitability
• Increase profits
• Devalue capital invested
• Innovations
• Mergers and acquisitions
• Privatization of state enterprises
• War

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bibliography

• Bowles S., Gordon D. and T. Weiskopf. (1983)
  Beyond the Wasteland A Democratic Alternative to
  Economic Decline . Garden City, NY Doubleday.
• Glyn A. and B. Sutcliffe. (1972). British
  Capitalism, Workers and the Profit Squeeze.
  London Penguin Books.
• Klein N. (2007). The Shock Doctrine The Rise of
  Disaster Capitalism. New York Metropolitan
  Books/Henry Holt and Company.
• Shaikh A. (1978). An Introduction to the History
  of Crisis Theories. U.S. Capitalism in Crisis,
  U.R.P.E., New York
• Shaikh A. (1989). The Current Economic Crisis
  Causes and Implications. Detroit, MI Against the
  Current Pamphlet.
• Shaikh A. (1999). Explaining the Global Economic
  Crisis A Critique of Brenner, Historical
  Materialism, 5.
• Tsoulfidis L. (2010). Competing Schools of
  Economic Thought. Springer

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• Thank you for your time
• and attention