“In the Eye of the Storm: Updating the Economics of Global Turbulence”

Normally I relegate items that I deem important, but to which I have comparatively little to add, to Links and label as “Today’s Must Read.”

Even thought this offering falls into that general category, it is far and away the most important “Must Read” I can recall coming across, and so I am highlighting it in a separate post.

The Asia-Pacific Journal features the Introduction to an updated version of Robert Brenner’s Into the Eye of the Storm (hat tip reader Bill A). I have to make the guilty confession that I’m not familiar with Brenner’s work, and I am kicking myself for that. It dovetails very well with some ground I cover in my book, particularly the idea that what we are in the midst of is a paradigm breakdown. It would have been nice to have fleshed that out a bit more with Brenner’s help. He sees the period we are going through now as a protracted and fundamental transition, as significant as the one between feudalism and capitalism.

What makes this particularly interesting to me is that this analysis (by Tag Murphy, a Japan scholar that I met years ago) focuses on Japan as the exemplar of the intensification of international competition, how that played out (Murphy and Brenner recognize, as too few in the US do, that the Japanese bubble was no accident, but policy, an attempt to use asset prices to stoke domestic demand to compensate from the fall of exports that resulted rise of the yen engineered by the 1985 Plaza Accord). China, of course, emulated that model even though it turned out badly for Japan.

Most important, according to Brenner, bubbles were no accident. The massive expansion of credit was the only way to cope with manufacturing overcapacity (and note Brenner is not advocating this course of action, but depicting it as the least bad of unpalatable choices). As Murphy notes:

If this is correct, there is no easy fix for our problems. The blowing of asset bubbles is not an unfortunate side effect of regulatory capture or Wall Street’s greed. It was the only way governments could keep economic growth from falling below politically dangerous levels once traditional Keynesian methods of fiscal stimulus through deficit spending were no longer adequate to compensate for the sclerosis at the heart of the advanced capitalist economies: “worsening difficulties with profitability and capital accumulation.” Brenner labels this bubble-blowing “stock market Keynesianism” referring to deliberate measures by governments to steer credit into equity markets.

This piece is more cerebral than the usual NC fare, but is it very important, and I recommend you find a few quiet minutes to read it.