The Political Effects of Economic Chaos

Class conflict and struggle occur, according to Karl Marx, because of the economic organization of most societies. Consequently, capitalism due to its internal contradictions, inevitably moves from crisis to crisis. Neoliberalism rose to prominence by representing the subsequent crisis of the 1970s as a crisis of Keynesianism, against which the neoliberal project could be advanced as the return to the natural order of market society. In this system the source of profit in exploitation is concealed, economic value is an expression of subjective preferences, rather than a measure of labour time. In the 1970s the Western world faced a devastating new problem: inflation. It took economic chaos to bring new ideas into government – neoliberal policies would counter the economic problems created by the 1970s oil crisis and runaway inflation. Economies would automatically self-adjust to full employment and it would be unnecessary to use fiscal policy to raise employment.

The Bretton Woods agreement was created in a 1944 conference of all of the World War II Allied nations. It took place in Bretton Woods, New Hampshire. Up to 1971, most  countries promised that their central banks would maintain fixed exchange rates between their currencies and the dollar. After a rash of spending on the military and foreign aid during the Vietnam War, there was not enough gold to cover the amount of dollars in circulation. In response the Nixon administration pulled the US out of the Bretton Woods Accord – essentially abandoning the Gold Standard whereby the price of the dollar had been pegged to the price of gold, while other currencies were pegged to the US dollar. Other nations followed suit. In addition countries, led by the US, expanded their money supplies concerned that currency values would fluctuate unpredictably for a time. This in turn, led to the depreciation of the dollar and other currencies, followed directly by massive inflation and recession.

In the 1970s oil production in the US had started to decline; then two oil crisis created economic havoc. The first oil crisis occurred when OPEC (Organization of Arab Petroleum Exporting Countries) proclaimed an oil embargo in response to US support for Israel during the Yom Kippur War. By the end of the embargo, the price increased from $3 per barrel to $12 globally, with the US prices significantly higher. The 1973-74 market crash was regarded as the first discrete event since the Great Depression to have a persistent effect on the US economy. The second oil shock occurred in the US due to the decrease in oil output in the wake of the Iranian revolution. While the oil supply only decreased by 4%, industry (the economic elite) manipulated the system driving prices much higher. The price of oil more than doubled to $39.50 per barrel over the next 12 months.

Economic chaos in the US consisted of a combination of double-digit economic contraction with double-digit inflation. In his 1980 campaign speeches, Ronald Reagan presented his economic proposals as a return to the free enterprise principles – a free market economy that had been in favor before the Great Depression and FDR’s New Deal policies. Reagan was elected on platform of trickle-down economics and a promise to make America great again. At the same time he attracted a following from the supply-side economics movement, which formed in opposition to Keynesian demand-stimulus economics. Basically corporate tax cuts were the best way to grow the economy. The long-term consequence of this change in policies has been the fact that the income gap between the wealthy and the rest of society continues to grow. The myth of trickle-down economics continues to provide a powerful ideological cover for neoliberal capitalism.

After 1948 Yugoslavia oriented its business mainly with western countries. The country experienced considerable prosperity in the 1960s, but became dependent on world trade. In the 1970s it was badly hit by a down-turn in the volume of goods exchanged, unable to import materials and unable to ship to the West. With the oil crisis migrant workers had to return home, and the government refused to introduce significant reforms and relied on taking out foreign loans. In the 1980s Yugoslavia was saddled with a large foreign debt, rising inflation, while the standard of living fell and unemployment rose dramatically. Reagan supply-side economics precipitated a recession in 1981-83; the effects were felt everywhere, not the least in Yugoslavia. In 1989, Yugoslav prime minister, Ante Markovic warned Bush economic reforms would bring social problems, an increase in unemployment to 20% and the threat of increasing ethnic and political tension among the country’s six republics and two autonomous provinces. A deep-seated economic crisis preceded the civil war.1

The oil crisis reduced the demand for the large gas guzzling cars that the US automakers were producing for sale. Customers turned to the smaller more fuel-efficient cars made in Japan. Japan surpassed US car production. In response to US government import quotas, Japan and eventually other foreign car manufacturers outsourced operations by opening assembly plants in the southern US as import automakers were not on friendly terms with labour unions from the Rust Belt. Niall Ferguson observes globalization evolved into products designed in California and manufactured in China. This made technology affordable while destroying jobs in the US. The principal beneficiary of this system since 1990 benefits primarily a communist one party system in which 300 million Chinese were brought out of poverty. This was associated with a significant erosion of living standards of middle and working class in Canada and the US.

By 2000, the oligarchy that looks after the interests of the big banks in the US had convinced the politicians of the need to keep the market unfettered by regulation – that controlling the banks was bad – creating the over-leveraged market that imploded in 2008. It was imagined that the world was governed by mathematical formulas – or more specifically by serious men in dark suits who understood complex formulas and the patterns playing out on their computer terminals. Everyone accepted the idea that deregulated markets were self-correcting. The illusion was that this system, a product of globalization, could self-correct as required. The ugly truth was that a few greedy bankers on Wall Street could just about collapse the world financial system. It was triggered by the consequences of policies championed by a small group of influential people. The financial sector took advantage of the system, empowered by reckless deregulation. Deregulation has been above all else, a means to reducing corporate business accountability to the public.

The drought in Syria that started in 1998 caused 75% of farms to fail and 85% of livestock to die between 2006 and 2011. Before the bloodshed of the civil war in Syria, the country’s economy was diverse. The agriculture sector accounted for 22 percent of the economy and 25 per cent of the employment in the country. The effects of the drought have been aggravated by a mismanaged water system. By 2013 a significant increase in inflation had occurred – one of the factors that contributed to the drop in the local currency is the government’s decision to quadruple the amount of printed notes compared to the end of 2010 that was facilitated in part by the Russian government. The regime of Bashar al-Assad failed to respond to the existing problems of unemployment and corruption. The drought created the chaotic situation and an opportunity for ISIS to thrive in the area.

Neoliberal narrative claims markets as superior computational devices, thus the best people to clean up the crisis are the bankers and financiers who created it in the first place. Consequently there is no need to consider further regulations. In a crisis, conflict between the integrity of the financial institutions, on one hand, and the well-being of citizens on the other, the former is privileged. This system claims the common good depends entirely on the uncontrolled egoism of the individual, and especially on the prosperity of the corporation, hence freedom for corporations consists of freedom from responsibility and commitment to society.

There is not one big reason Donald Trump won. His election promises represented an appeal to popular resentment, to so-called herd instincts. Trump sold the image of America in decline, a crisis that only he could handle. This means curtailing immigration and tearing up trade deals like NAFTA. Trump feasts on social divisions and has perfected harnessing the rage of the workers driven by the failure of neoliberal capitalism. He connected with those workers who felt they had been left behind. The oligarchs and their proxies take advantage of the structure of the Internet to control information that serves the interest of financial capital and globalized elites in the redistribution of wealth upward, helped secure Trump’s election. ‘Drain the swamp’ or tackling corruption in Washington – a goal tied to increasing transparency and decreasing the influence of lobbyists and major donors – presently eludes the Trump team.

Neoliberal doctrine explains the market ensures that factors of production are paid what they are worth, obviating the need for institutions of social protection and trade unions. A financial elite set in motion a process to reinvent government and have the market serve as a model for restructuring all social relations. The fabrication of trickle down economics provided the opportunity to dismantle the gains of the New Deal. It justified slashing funds for welfare programs to support a pro-growth agenda claiming centralized planning of big government doesn’t work because it creates a culture of dependency that can trap people. The evolution of the neoliberal project should be understood, not as a meticulous manipulation of social reality, but a series of increasingly desperate attempts to hold the very fabric of reality together. Neoliberalism has become an anxiety-ridden form of crisis management that is constantly attempting to cover over the gaps in its ideological contradictions amongst the economic chaos.

1 Gervasi, Sean. Germany, US and Yugoslavia crisis. (1992) https://www.tmcrew.org/news/nato/germany_usa.htm

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