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Current global crisis and power theory

PostPosted: Tue Dec 09, 2008 12:22 pm
by Scott
Any power perspectives on the current state of global recession?

I suppose I am one to wonder where the money actually went, and if this is the biggest transfer of wealth posing as `economic collapse` yet.

Is this an example of the capitalization of power: you employ the restraint of a compulsive gambler on a coke binge investing in bad debt, then, when everything collapses, the government becomes your friendly banker, ready to lend you money to recoup losses experienced during your `wild nights in vegas`.

But then, Im just going by whats in the media, which I admit is probably pointless.

So, anyone wish to take a stab?

Re: Current global crisis and power theory

PostPosted: Wed Dec 10, 2008 8:31 pm
by marion
Firstly let me confess that I'm neither a researcher, economist or knowledgable about power theory, just a wide reader, who is politically active.

I recommend Dr Michael Hudson's analyses of the current crisis. Husdon, amongst other things is an economic advisor to Dennis Kucinich and he has been very vocal in identifying the American response to the financial crisis as a massive transfer of wealth to the extremely wealthy. Hudson's website is at and his latest writings can be founds on the excellent activist website run by Canadian economist Michel Chossudovsky see . An interesting Bill recently tabled by Denis Kucinich is the Transparency in the Creation of Wealth Act of 2008 (see ).

Economist Joseph Steigliz also sees the response to the crisis as a massive wealth redistribution to the wealthy


Australian economist Steve Keen is producing some very interesting analyses of the Australian and US debt burdens (see


I also find the writings of F William Engdahl and Henry Liu very interesting.

Other sources well worth keeping an eye on are Counterpunch and Asia Times Online


It's seems to me that since human beings moved from hunter-gather social structures, which were essentially communistic, into increasingly complex societies where specialisation has enabled the creation of surplus, those in society hungry for power have had an incentive to control the essential resources and social structures which enable power to be exercised. Democracy, however flawed, seems to be the only mechanism by which power can, at least in theory, be exercised in the interests of the common good. The key social mechanism that the powerful seek to control is the creation of money, as money is the key enabler of complex societies and specialisation. We have increasingly allowed private interests to dominate the creation of money, through credit loaned at interest. Much of this credit is created out of thin air when the credit is issued. As compound interest grows at an exponential rate whereas the real, productive economy grows, at best, at a very slow, roughly linear rate, the debt obligations eventually overwhelm the real economy, resulting in a crash, where assets are sold at distressed prices to the cashed-up members of society (generally the banks and the extremely wealthy), resulting an even greater transfer of wealth to the weathy. Two world wars and the recession last century lead to the partial realisation of the flaws inherent in unregulated finance capitalism and the misery it produces, and as a result the Bretton Wood system was introduced, together with most post-WWII governments emphasiing the need for strong bank regulation and policies aimed at full employment. Over the last 30-40 years we have forgotten these lessons and enabled the lobbists for finance capitalism to achieve their goal of undoing these monetary reforms, resulting in the ever increasing cycle of financial crises over the last 20 years.

I believe we need, and have an unprecedented opportunity, to reconsider some very fundamental issues, such as, what is the purpose of money?, what is the purpose of credit? should ususary be allowed, and if so, to what extent?, what social structures and mechanisms can we develop to try to ensure that the sociopaths who are driven to appropriate more than their fair share of the surplus produced by the many are ostracised and controlled rather than feted? how do we educate people so that they understand the need to balance the interests of the individual against the common good and are motivated to become engaged in constructive debates on how this is best achieved.

As I have read very little about power theory (other than Jonathan Nitzan and Shimshon Bichler at if their writings form a part of what is considered power theory) I would greatly appeciate someone posting some links to key papers and books in this area.

Marion

Re: Current global crisis and power theory

PostPosted: Thu Dec 11, 2008 3:36 pm
by sanha926

Re: Current global crisis and power theory

PostPosted: Thu Dec 11, 2008 6:24 pm
by Scott

Re: Current global crisis and power theory

PostPosted: Fri Dec 12, 2008 2:11 am
by DanielRose
I personally think that the crisis itself was not intentionally set in motion, nor that it was foreseen by the capital elite. We are talking here about a complete meltdown of capital, of assets being wiped out and of huge banks going bankrupt. However, it is clear that when the crisis struck, it is the elite who can make the best of it, and try to re-arrange the system for its own benefit. We see it of course with the bailout plan, but also with the gargantuan mergers and acquisition wave generated by the crisis. JP Morgan buying Bear Stearns with federal money is probably the single greatest thing that happend to this bank since the 1890's, and percipitates greatly the process of consolidation in the financial sector.

What we could see here is an act of 'creative destruction' on a huge scale, but unlike what Schumpeter thought, this has nothing to do with the new and efficient weeding out the old and decadent.

Re: Current global crisis and power theory

PostPosted: Fri Dec 12, 2008 7:55 pm
by Scott
An intimidating topic, and rightly so.

Perhaps it would be more useful to approach this from perspectives on engagement: in other words, as a power theorist, how would you begin to analyze the current crisis? As any other theorist?




For example, perhaps this is in line with the idea of vertical expansion (sure doesnt appear to be greenfield!).

Another area is what appears to be a clear example of the capitalization of power, when governments run to the aid of major financial corps.

Re: Current global crisis and power theory

PostPosted: Sat Dec 13, 2008 1:02 pm
by jbrennan
Greetings fellow CMers. My name is Jordan and I'm a grad student at York Univ. I don't have any keen theoretical insights or interesting empirical work to share at the moment, but I did want to make a (fairly trivial) comment about the financial/political-economic crisis.

This is the first time that I've followed a crisis of this scale. What amazes me is the sheer hypocrisy of the mainstream press (esp. biz press) as well as business and political elites generally. When markets fail all types of disadvantaged people -- which I think they consistently do -- no one makes a fuss. When markets fail the poor, working class, single mothers, disabled, and a host of other disadvantaged people, most elites take this as given or 'status quo'. But when ('free') markets fail the rich -- Wall Street, Bay Street, etc -- we hear shrieks of horror emanate from the highest positions of power. It's a 'catastrophe', 'crisis', 'disaster', etc. when rich people lose money, but when our major societal institutions fail others on a daily basis we hardly hear a peep.

What's also mind-boggling is the sheer magnitidue of the resources that elites are able to muster (at lightning speed!) to bail the rich out. I think this speaks to what the purpose of the state is -- beyond its 'law and order' functions -- what it does and who it's for.

I think that anyone who cares to see how capitalism actually operates (who cared to see how the major structures and instituions function), and here I am thinking of mainstream business and economics departments, couldn't help but doubt their cozy little theories about the infinite and transcendent wisdom of the market. When it's time to go to war the public pays. When huge business concerns fail the public pays. When the dikes break and a city is flooded, i.e., when a 'natural' disaster strikes, the victims pay, and so on.

This crisis has helped 'straighten me out' on a number of ideological issues.

JB

Re: Current global crisis and power theory

PostPosted: Sat Dec 13, 2008 4:57 pm
by dtcochrane

Re: Current global crisis and power theory

PostPosted: Sun Dec 14, 2008 11:20 pm
by Scott

Re: Current global crisis and power theory

PostPosted: Wed Dec 17, 2008 11:02 am
by jbrennan
I have been reading a keen observer of business enterprise and financial crisis. Here is what he has to say – in general outline – about crisis:

At some point in the system of investment and business extension will be found some branches of industry which have gradually lost what differential advantage they started out with when they entered on the era of prosperity (here think of the American automobile industry); and if these are involved in large contracts and undertakings which are carried over into the phase of the movement at which this particular branch of industry has ceased to have a differential advantage in the price of its output over the cost of its supplies of material or labor, then what may have been a conservative capitalization of their holdings at an early phase, while their earning-capacity rested on a large differential advantage, will become an excessive capitalization after their earning-capacity has decline through loss of their differential advantage. Some branch or branches and some firms or class of firms necessarily fall into this position in the course of a period of phenomenally brisk times (think manufacturing and finance). A business concern so placed necessarily becomes a debtor, and its liabilities necessarily become, in some degree, bad debts. It is forced by circumstances to deliver its output at prices which preclude its obtaining such a margin as its extension of business presupposes. That is to say, its capitalization becomes excessive through shrinkage of its earning-capacity... If the claims against it are pressed, it has no recourse but liquidation through forced sales or bankruptcy. Either expedient, if the case is one of considerable magnitude, is disastrous to the balanced sequence of credit relations in which the business community is involved. The system of credit relations prevailing at such a time has grown up on the basis of an earning-capacity transiently enhanced by a wave of differential price advantage; and when this wave has passed, even if it leaves prices higher all around, the differential advantage of at least most concerns is past.

But when such a situation has come, all that is required to bring on the general catastrophe is that some considerable creditor find out that the present earning-capacity of his debtor will probably not warrant the capitalization on which his collateral is appraised (here think of the Wall Street investment banks that collapsed as a result of purchasing derivates and CDO’s linked to the housing market). In self-defense he must decline the extension of a loan, and forced liquidation must follow.

The point of departure for the ensuing sequence of liquidation is not infrequently the failure of some banking house, but when this is the case it is pretty sure to be a bank whose funds have been “tied up” in “unwise” loans…

The abruptness of the recapitalization and of the redistribution of ownership involved in a period of liquidation may be greatly mitigated, and the incidence of the shrinkage of values may be more equally distributed, by a judicious leniency on the part of the creditors or by a well-advised and discreetly weighted extension of credit by the government to certain sections of the business community (here is the obvious: the financial sector and autos)…But where the situation answers the specifications recited above, in respect of a large and widely prevalent discrepancy between earning-capacity and capitalization, a drastic readjustment of values is apparently unavoidable.

The point has already been adverted to once or twice that the most substantial immediate outcome of such a liquidation as is involved in a crisis is a redistribution of the ownership of the property concerned in the liquidation…

Thorstein Veblen. The Theory of Business Enterprise (1904).

While not exactly the same as today’s crisis, the sketch is surprisingly accurate. Veblen is remarkably timely with his reflections on crisis, valuation, credit and redistribution.

I always find it amazing when someone who, writing from another time or era, can say something that resonates generations into the future. Most of what is produced today, I think, is not of enduring value. To come across a writer who transcends his/her own time is a wonderful thing indeed!

JB