“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.

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  1. Rob L

    Where has he been hiding all these years?

    I highly recommend “The Weight of the Yen” by R. Taggart Murphy. Not sure if it is still in print, but it is essential reading on Japan.

    Glad to see that he’s back.

  2. purple

    I agree with Brenner that this is at root, a crisis of over production. Besides Marx, Brenner is also influenced by Wallerstein who has been arguing for a long time that the demise of the US would break up the existing world system of capitalism.

    Minqi Li has fleshed out China’s role in this in interesting ways. Bringing Chinese rural labor into the capitalist economy has been key over the last two decades. No other country with a large rural population has China’s infrastructure, however.

    1. Charley

      I am sorry, but therre is no overproduction. I have just returned from Mozambique and witnessed such poverty as you cannot believe exists.

      This is a case of overwork, not overproduction. The hours of work in the US, and Europe are too long, and represent wasted labor time of unimaginable scale. This make goods produced here uncompetitive.

      1. Houses

        Overproduction refers to the movement of cash in an economy. The movement of goods and cash in a a capitalist economy is set firstly by demand. Demand, as your objection morally urges us to redefine, is not need.

        Mozambique, all of Africa, the developing world and the slums of America demonstrate each and every suffering day have plenty of need. Anyone searching for a warm shelter, a bucket of clean water or a way to cross town to a job can tell you the economy is not working, capitalism is not working, production is not working. Capital does not produce for need. Capitalism produces for demand.

        Overproduction is the state where production has produced more goods than can be bought by those with demand, with money. That does not affect need. Just as when production of automobiles, toothbrushes, DVDs, jeans, apples, porn and electricity was being bought up quickly, before overproduction, the NEEDS of people are still not being met, but there is also a problem of jobs being lost because the jeans are piling up in warehouses, so the workers making jeans are being laid off.

        Need is not demand. Thats why there is always a crisis coming in capitalism. Thats why Keynesian stimulus is necessary, to re-introduce demand, someone to buy the goods produced, which allows the hiring of workers, who then have a demand(money) to buy other goods produced.

        1. psychohistorian

          To me the elephant in the room is marketing/sales. The world is sold consumerism along with their approved government lackey. It has nothing to do with need or demand. The demand is created just like the acceptable narratives about the rest of what passes for the churning of civilization on the TV. You are told what to think about as well as the parameters of acceptability within the defined scope.

  3. attempter

    That’s a good piece, and I intend to read Brenner’s book.

    Along similar lines I’ll mention the work of Paul Sweezey, Harry Magdoff, John Bellamy Foster, Fred Magdoff, Robet McChesney and others at Monthly Review

    Here’s two selections I find illuminative:



    The only thing missing from the Brenner/Murphy puzzle is Peak Oil. The Industrial Revolution, modern globalization, as well as the co-optation of the workers into the temporary mass middle class of the mid-20th century (and probably the spread of liberalism, civil liberties and rights, and so on), were all founded upon the platform of cheap, plentiful fossil fuel.

    The big changes of the latter decades have to be seen in light of the Peak of US production in 1970 and the anticipated global Peak in the early 21st century (we’ve been on the so-called “bumpy plateau” since 2005, at global production of 86-87 million barrels per day).

    Since real growth, let alone phony debt-based “growth”, depend upon exponentially increasing cheap oil supplies, it’s no surprise that globalization had to become more agressive, financialization more predatory, and the global economy more volatile, as the oil supply has become more precarious relative to the decreasing ability of the system to discover and produce new supplies. Discovery peaked in the 60s, production has peaked in the latter half of this decade. That lies at the core of the boom-bust, bubble-crash, rentier-disaster capitalism cycle of the Orwellain Great Moderation.

    And those guys are right, there’s nothing accidental about any of it.

    For further reading on Peak Oil, here’s a good place to start.


    1. Houses

      Peak oil is a temporary crisis in the supply of a particular energy source. The difference in cost of oil, plus the added cost of militarily protecting oil supplies is not significantly higher than other sources.

      When you consider that America flushes about one eighth of the economy down the drain of Insurance company profits, it is easy to see there is room in a growing economy for other sources. a fully electric car is not a huge stake in the heart of a middle class.

      Build a clean green economy now, with more fairness in wages, and the middle class dream can be global. Windmills and solar are capable of replacing oil in a decade long building boom, which it so happens, because of the crisis of overproduction, is exactly what we need all nations to start on, including ours. Tell Obama we need a green jobs program right damn now.

      1. mannfm11

        I don’t believe there is a peak oil so much as there hasn’t been a reason to shift to something else yet. The world has enough natural gas to buy time to shift due to the recent knowledge gained in extracting gas out of shale. To say all the oil has been discovered when in fact the past 100 years has been spent restraining production to keep the price up instead of being down to the last barrel where Goldman Sachs could twist a high price out of a surplus. I believe the US game left when the rest of the world could build their own industrial surplus and the US didn’t hold a monopoly on capital goods and money. Bretton Woods set the US up as the demand. There is talk about another currency, but getting off the horse onto another in the middle of the race isn’t possible. The marriage between US and Asian oligarchy is an interesting idea, one where other Americans and Asians are used to basically sustain their lifestyles. The really interesting thing about the whole process is that after a few million dollars, it is all fluff. As long as the game is credit and to keep the credit intact, the game won’t change. Keen and Hudson have ideas worth looking at if we intend to maintain a middle class.

        1. Francois T

          “I don’t believe there is a peak oil so much as there hasn’t been a reason to shift to something else yet.”

          If I may modify the above to:

          “I don’t believe there is a peak oil so much as there hasn’t been a(n) *economic* reason to shift to something else yet.”

          When one considers the external costs associated with oil (rise in respiratory diseases, in atmospheric CO2 just to name those two) the premise of the original statement becomes far less obvious.

          But this is what capitalism has been all about hasn’t it? Limit the scope of the *private* costs under consideration and dump the rest on the society at large.

  4. Doc at the Radar Station

    “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).”

    Very interesting! This dovetails quite well with Michael Pettis’s thinking:

    “In either case US consumption must grow faster than US GDP, and the choice for the Fed is whether to target a “normal” growth in consumption, and permit rising unemployment, or a “normal” growth in GDP, and so permit rising indebtedness.”

  5. MarcoPolo

    Thank you for this, the most comprehensive macro view I’ve read of current economic malaise. I call it Industrial Counter-revolution. As the basis of our industrial system (valuable labor) is undermined by the inclusion of populations which are not so constrained.

    Reform (resolution) comes not from fine tuning who answers the phones at the Fed, but in bringing those new populations into an arrangement in which they equitably share the benefits of the industrial model. Or, create a new model altogether – which is what Marx would have advocated. In either case the solution comes from the east.

  6. Too Fat For Me

    Agreed as to the centrality of over-production in economic instability: it seems that our scientists and process engineers are a little too good at what they do, eh?
    Yet I still somehow prefer these “problems” to those of under-production and scarcity eg of food.

    As to “peak oil” – and I hope I’m not feeding a troll! :
    Oil as energy only counts for mobile energy uses: as of the 20th C and today, that means its most useful for the purposes of war. Coal gas windmills solar and nuclear are all equally useful as ( or more useful than) oil for less “mobile”, that is, stationary or “in place” energy uses.

    “Peak oil” is a myth generated as an alternate explanation for the (too) high price of oil, which is actually an effect of political instability in the societies which possess the lands where oil is most abundant and cheap cheap cheap to produce.
    But climate change may dictate that high oil prices must be maintained by outright taxation in order to reduce its use to some level less toxic to the environment. At least then the benefit flows to society, rather than to reward those whose business has most contributed to the environmental damage.

    Oil is currently over-priced and the “security” spending associated with it jacks up its price in many ways often not counted: if the Mid-east were to become as peaceful as say Iowa, Alaska and the Alberta tar sands would probably have to shut down as being uneconomic. Barring of course any needed “climate change” tax to reduce oil’s use.

    1. DownSouth

      One has to admire your preemptive shot over the bow—“I hope I’m not feeding a troll!”—but that is a piss-poor defense for the defactualized world in which you live.

      There is of course a $/BTU premium paid for “mobile” energies—principally oil– over that of “less mobile” alternatives like coal, natural gas, windmills, solar and nuclear. But your statement that oil is “most useful for the purposes of war,” while at the same time ignoring the oblivious role “mobile” energy (oil) plays in your hallowed food production and distribution, entails a level of ideological bias and blinkeredness that boggles the mind.

      Also completely MIA from your comment is any acknowledgment of EROEI (energy return on energy invested), not only its steady erosion for conventional oil production, but its relatively low value for some of the energy alternatives you mention. This indicates a total lack of understanding on your part of what is transpiring in the world of energy.

      While I certainly don’t buy into the materialistic determinism embraced by many, or even most, of the Peak Oilers (in fact I detest it), this is nevertheless no reason to live in some Alice-in-Wonderland universe, completely divorced from factual reality.

      1. DownSouth


        Should read… obvious role “mobile” energy (oil) plays in your hallowed food production

    2. Charley

      I strongly disagree with this – I am outraged!

      There is no “overproduction” there is only overwork…people eating dirt cookies in Haiti are not being flooded by superfluous food products.

      1. craazyman

        those are not inconsistent positions. you can have overproduction in one region — leading to garbage and waste — and starvation in another, where social structures prohibit effective and fair economies. Borders and culture matter and have a profound impact on distribution of goods and services, both from imports and from internal farming and production. Cultures can become mentally ill, just like people, either from exogenous shocks and stresses or from the failure to effectively channel aggression and instinct through healthy social channels. One can take either a psychoanalytic or a pharmacological model and apply it to the broader social psyche and in either case realize their is something that could usefully be called an illness — yet this runs afoul of the relativism common in both anthropology and ethics.

        Professor EuGene P. Robustus,
        Professor of Contemporary Analysis
        University of Magonia

    3. attempter

      “Feeding a troll”. – For someone with the mind of a child you sure are quick with the insults.

      I’ll just correct a few of your inanities.

      Oil as energy only counts for mobile energy uses: as of the 20th C and today, that means its most useful for the purposes of war. Coal gas windmills solar and nuclear are all equally useful as ( or more useful than) oil for less “mobile”, that is, stationary or “in place” energy uses.

      All of these depend upon the oil platform. It’s always funny to see people who think you can have a solar or wind buildout other then upon the fossil fuel platform.

      It’s highly questionable whether a large-scale renewable energy system could ever support itself without the fossil fuel subsidy, both economically and in terms of energy. It definitely can’t be built in the first place without it.

      And the last time I checked, there’s about zero chance such a buildout will ever be done anyway. Even if in theory there’s still enough oil to support it, economically and especially politically it simply won’t be done. This irrevocably broken country won’t even provide itself with decent health care. It’s sure not going to do anything else.

      The same is true for nukes (and peak uranium is predicted for sometime in the 2020s at current usage rates anyway). Peak Coal, also the 20s. Gas before that.

      As for the price of oil, the main determinant is a thing called supply and demand. That’s really the last thing I ever expected to have to explain on an economics blog.

  7. John A

    IMHO, climate change is the myth, not peak oil. Even the IEA, notorious for it’s overly rosy outlook, has said that we’re facing a rocky road ahead. Meanwhile, we’re using a few hundred years (at the most!) of reliable climate data to extrapolate future climate change. We’re trying to convince people that we know that climate variations taking place today are not merely changes in a larger-scale, longer-timeline series of natural climate changes.

    I’m sure human activity influences the Earth’s climate to some degree, but I’m suspicious of any claims of imminent disaster due to carbon emissions. I think over-population is probably a much larger threat…

    1. DownSouth

      Well then, let’s completely toss out global warming.

      But even if you do that, you still have other devastating consequences of carbon dioxide contamination, such as the increasing acidity levels of the oceans, as pointed out here by Tony Haymet, director of Scripps Institution of Oceanography at UC San Diego.


      The increasing acidity of the oceans has every bit as dire of consequences as global warming, is much easier to measure and document than global warming, and yet you hardly ever hear anything about it.

      Why do you suppose that is?

  8. DownSouth

    • And climbing out of their graves are the bodies of those who contend that the reductionist assumptions of neo-classical/ rational choice orthodoxy are not simply inadequate but flawed in the most fundamental sense.

    • So the world suddenly seems more receptive to those who contend that economic life is not all about interchangeably autonomous “actors” maximizing their utility, but that institutions matter, that culture matters, that history and place matter – and above all that power matters.

    Leading in with statements such as these, I was hoping for some really out-of-the-box thinking from Murphy.

    Instead, what we get is an analysis that fits very neatly within the ironclad box of scientific-materialism that Adams erected and that Marx never challenged.

    I find the work of those like Reinhold Niebuhr, Hannah Arendt, David Sloan Wilson and Jonathan Haidt to be much more revolutionary, much more radical, and much more in the vanguard. They do, after all, actually challenge the materialistic orthodoxy. Wilson and Haidt, using some of the latest tools available to neuroscience, claim that man makes decisions based on things like morality, and then only later use “reason” and “rationality” to justify those already-made decisions.

    So these are Murphy’s concluding remarks:

    This dominant faction of China’s elite, as exporters and creditors to the world economy, has established a symbiotic relation with the American ruling class, which has striven to maintain its domestic hegemony by securing the living standards of U.S. citizens, as consumers and debtors to the world. Despite occasional squabbles, the two elite groups on either side of the Pacific share an interest in perpetuating their respective domestic status quos, as well as the current imbalance in the global economy…Unless there is a fundamental political realignment that shifts the balance of power from the coastal urban elite to forces that represent rural grassroots interests, China is likely to continue leading other Asian exporters in diligently serving—and being held hostage by—the U.S.”

    Indeed, Hung entitles his article in referring to China, “America’s Head Servant?”

    Now granted, the first two sentences give an extremely accurate description of the situation. However, because of his materialistic bias, Murphy draws the wrong conclusions. This is far from being a situation where China loses and the United States wins.

    First, it says nothing about the evisceration of American productive capacity that this arrangement entails.

    Second, it says nothing about the growing inequality in America that results from this arrangement.

    And third, and for me most importantly, it says nothing about the role Americans play in this arrangement, which is that of consumers. In the broad array of activities human being are capable of—thought, speech, action in the public arena, political engagement, work–perhaps no other is more crass, depraved and base than that of zombie-like materialistic consumption.

    1. Captain Teeb

      Hi DownSouth,

      I’m glad to hear someone else who was disappointed with Murphy’s essay weigh in.

      Yeah, sure Marx could see the whole of capitalism in a way we can’t now. As Marshall McLuhan pointed out “Marx based his analysis most untimely upon the machine”, missing the importance of the electronic revolution (then underway with telegraphy), with its concomitant changes in social order, division of labor, politics, diplomacy, financial connectedness, and most everything else. (I would add McLuhan, by the way, to the authors you mention.)

      I hope that the underlying book is better. If it is, then a shallow review like this one does it no favors.

  9. marblemouth

    Agreed, the idea is important, that overcapacity may not be self-limiting. The writing in that article sucks moose, though. Better to get Brenner’s book than to sit still for the pompous bullshitter that reviewed it.

    1. Captain Teeb

      Amen dude/dudette,

      95% of the commenters to this blog could write better prose than that.

      Perhaps because internet prose has such a short half-life, little care is put into it. Kind of like all that stuff from China.

      1. Phil


        I second Gordon here. I think that you would find Brenner’s article here very interesting. Besides the Global Turbulence book, I’d also recommend his book, The Boom and the Bubble.

  10. Blindweb

    Pretty boring article, couldn’t get through it all. He tries to expand the debate past capitalism but only moves one step out. He is still trapped within a trained economist mindset. It never occurs to him that the whole field of economics is extremely limited. (although still useful as part of a larger set of analytic tools)

    As several comments have already pointed out he completely misses peak oil, the most important ‘bubble’ of which we’re in the center of.

    He also seems to still think in a direct cause-effect manner. “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:” He thinks in a very linear fashion, as though governments are separate entities directly causing things to happen. The world of economics is better thought of as an ecology not a machine.

    The best macro-commentators I know who bridge the gap between economics the intellectual field and economics in reality are Max Keiser and John Michael Greers.

  11. marblemouth

    Our fearless leader Yves was very kind to finesse the problem with those euphemisms because she can write.

    1. DownSouth

      What’s to defacutalize?

      You are providing evidence that undermines your own argument.

      So the DoD uses a little bit north of 300,000 BOPD. That’s out of total United States usage of 19,419,000 BOPD, which means the DoD uses a tad more than 1.5% of total US consumption.


      Now while I would certainly agree that oil is useful to the DoD, and in fact without it the DoD’s operations would grind to a halt, I hardly see the DoD’s oil usage playing the dominant role that you do. I see oil’s usefulness in transport and food production as being every bit as important, if not more important, than its usefulness “for the purposes of war.”

        1. MarcoPolo

          I’ve done that, siggy. With mules. Never so lucky to have good Percherones. An argument can be made for tractors.

  12. steve from virginia

    Of course the bubbles were not an accident. None of them were, the ‘inflection point’, to use an overworked term, was the 1973 oil embargo.

    Japan embraced asset bubbles, to hedge against rising energy/oil costs. The US embraced deregulation and outsourcing, deregulation taking hold with Reagan’s election. The European countries agreed to a unified currency regime.

    All approaches failed. Bubble price hedges require real- economy support which proved impossible in Japan or the US. Exporting high- wage jobs exported high- paying customers at the same time, while deregulation created an entire class of white- collar criminals. The Euro regime founders on the productivity differences between wealthy members and the rest. The hedges all failed leaving the increasing energy costs added to the massive costs of the failed hedges.

    Any more ‘bright’ ideas, anyone?

    The economic original sin was and is industrialization. Consider it a life form, one which is alien to this planet. We humans have created a massive ecosystem for our pet alien and it is busy devouring the nature services we humans require. Alien has imposed alien rules – constant machine ecosystem growth at all costs – while grudging some conveniences in return.

    Since most of the world lacks conveniences – most lack running water – the industrialization experiment is a costly failure on its face. Expanding industry to all is impossible, the demand would exceed carrying capacity as its ‘success’ would undermine itself, if only on account of increasing overcapacity. Industrialization should be dismantled … as it is in the process of dismantling itself by exhausting the natural services we humans require.

    Time to return to a craft/workshop/artisan model. Removing industrial infrastructure would cost less than the destroyed hedges and return some natural services that we humans …

    It’s not just peak oil. Peak cheap oil, the kind industrialization requires, took place in 1998. Add to this the effects of peak water, peak metals, peak topsoil, peak phosphorus, peak good credit, etc. The machine has run amok, time to shut it off before its too late.

    It’s hard to believe how much all and sundry have sacrificed and are still willing to sacrifice for the cars. Good grief, get rid of them. It’s them or us!

    1. alex

      “The economic original sin was and is industrialization. … Time to return to a craft/workshop/artisan model.”

      Ah, the good old days. Say early 18th century? (before the 1st Industrial Revolution). No electric lights, running water, modern sanitation or vaccinations. Like typhus much?

      “Since most of the world lacks conveniences – most lack running water – the industrialization experiment is a costly failure on its face.”

      Or simply hasn’t expanded far enough. I like running water. Oh, the Romans had it. Did I mention that their daily per capita water use was 10x ours due to the inefficiency of their pre-industrial (albeit very clever in its day) water works?

      “Industrialization should be dismantled … as it is in the process of dismantling itself by exhausting the natural services we humans require.”

      You can heat a lot more homes using solar and/or ground sourced heat pumps than you can with the wood that our ancestors used, but what are facts when you’re in the rapture of pre-industrial nostalgia?

  13. Dan Duncan

    If you’re a middle-aged, male Academic who’s a bit overweight and in need of The Little Blue Pill to help you with your amorous adventures, have I got news for you!!

    Now, courtesy of Robert Brenner and TagTeam Murphy, you can put your heads to rest:

    No more of those all night visits to the ER for those pesky 5 hour erections!

    No more awkward exchanges with the perky, young pharmacist, where you avoid all eye contact—while pretending that you are NOT trying to avoid all eye contact—as you wait for her to count out 60 blue pills. [And no more self-loathing rhetorical questioning of yourself, as you ask “WHY?!? WHY did I just say as I was leaving, ‘See you next week!”???]

    No more awkward interruptions of The Tender Moment, as you simultaneously reach for Father’s Little Helper, while singing to the Keith Richard’s riff in your head:

    “‘Things are different today,’
    I hear ev’ry Father say.
    Father needs something tonight to ‘rouse him up
    And though he’s not really ill
    There’s a Little Blue Pill.
    He goes running for the shelter of his Father’s ‘Little Helper,
    And it helps him in his fight, gets him through his busy night.”

    No More Hassles!

    If you’re a Middle-Aged, male Academic, you MUST download this article. We guarantee…after reading these sentences, you will feel–after all these years!– your long-latent affection for all things Marxist stir, once again, in your loins.

    “Arise, Long Dormant One!”

    We like to think of our relationship with Karl as a “friend with benefits.” We want you to do the same.

    Who knows, maybe you’ll be inspired to break out the black turtleneck sweater, the good ole tweed corduroy sports jacket and The Professor’s Pipe!

    [All you’ll need to do next is to head on out to the Mazda dealership, drive off the lot in a convertible Miata…and you’ll have a full-blown, academic mid-life crisis on your hands! But don’t blame us, though… you virile rascal, you!]

  14. chad

    “Most important, according to Brenner, bubbles were no accident.”

    We all know bubbles are bad news, that’s been told over the years time and time again from the MSM to the people who make policy. If the powers that be were intentionally blowing economic bubbles while telling the populace that they were trying to prevent bubbles it would be a tremendous conspiracy. I just don’t believe our government has it together enough to keep a conspiracy of that magnitude in the dark for any length of time. I mean they can’t even keep random people from showing up at White House dinners.

    1. Yves Smith Post author


      You need to read Daniel Ellsberg’s Secrets. He maintains (based on having had the very top security clearances himself) that there are many matters of vital interest to the public that are known by thousands of people and kept secret.

      A minor recent example. I was arguing with a McKinsey director over Iraq prior to the invasion. He maintained that if Saddam did not have WMD, someone would have leaked that to the New York Times. Well, he didn’t and no one did.

      There are thousands of examples of that sort. There is a level of information that people DO keep secret. And if they did in the 1960s, the incentives are even greater now, given the security/monitoring apparatus the government has in place.

      1. alex


        Frankly the Iraq War is a bad example. While the NYT towed the war fever line, McClatchy published lots of reasons to be skeptical of the WMD claims. Anything published in a major mainstream newspaper chain is obviously not a secret.

        Rather than keeping secrets, the approach was simply to shout down and overwhelm the opposition claims. “(Almost) everybody says” is unfortunately a powerful approach to shaping public opinion. Nowhere is it easier to use than with War Fever or Financial Fever.

        1. Yves Smith Post author


          “Reasons to be skeptical” is not a leak. Those could (and not knowing the particulars, probably did) come from those outside the security clearance cordon sanitaire. If someone did want to leak, they would not do it via McClatchy, It would be the NYT or WaPo.

          1. alex

            “Reasons to be skeptical” is as good as it gets, and plenty good enough to damp war fever. No in the US or its allies had definitive proof that Iraq did _not_ have WMD’s anymore than they had definitive proof that they _did_ have them. As is often the case, it’s an educated guess (oops, I mean intelligence analysis). Nevertheless there was more than enough reason to doubt the WMD story, as known by both the government and the public (if they read McClatchy anyway).

            “If someone did want to leak, they would not do it via McClatchy, It would be the NYT or WaPo.”

            A minor point, but debatable. The NYT had its “speaking truth to power” heyday with the Pentagon Papers and WaPo with Watergate. Despite their lingering prestige, I think that these days McClatchy is a better bet for that. I know that the next time I want to leak something, I’m going to them!

          2. Yves Smith Post author


            McClatchy simply is not on the DC radar. The point of a leak would have been to undermine the Bush strategy. Having it run in a paper that is not read by the New York/DC power crowd would not have been productive and (probably) not worth the career risk.

            Criminey, papers in Australia were expressing skepticism about the WMD argument, and they most certainly were not the recipients of leaks. Your haven’t yet made a persuasive case as to why those articles from McClatchy were based on leaks from insiders, as opposed to skeptics who, say, have some understanding of the relevant technologies.

            You need to read Ellsberg.

          3. alex

            Yves: “Your haven’t yet made a persuasive case as to why those articles from McClatchy were based on leaks from insiders”

            I never claimed that they were based on leaks. In fact my point was that they weren’t. It wasn’t analogous to the Pentagon Papers, and that’s why I thought your example a poor one. There were no “Iraq has no WMD” smoking gun memos to leak, and it wasn’t necessary to have them. Sufficient information was available from some US newspapers (and Australian newspapers – easy to read on the Internet) to cast plenty of doubt on Bush’s WMD claims. But propaganda usually doesn’t need to completely hide the truth. It’s sufficient to have people not notice the truth due to the volume of contrary information.

            The impact of the Pentagon Papers was so great because there was already strong opposition to the Vietnam War by 1971. Otherwise I doubt the NYT would have published them. I doubt they would publish them today no matter what (it was a big decision even in 1971). Their current style is to use the likes of Judith Miller as a mouthpiece for Bush. And WaPo investigate Watergate? Not when they’re (in Dean Baker’s words) aka Fox on 15th Street. Even by the Reagan administration they were tame rather than daring. I stand by my assertion that McClatchy is far more willing to speak truth to power.

            “Having it run in a paper that is not read by the New York/DC power crowd would not have been productive and (probably) not worth the career risk.”

            Career risk? Ellsberg knowing risked criminal charges. To me he’s a hero, and thank heavens that back then we had a press that was willing to stir up a hornet’s nest. But much of their willingness came from the fact that there was already strong opposition to the Vietnam War. Similarly WaPo’s Watergate investigation came from the fact that Nixon was an easy person to hate. Reagan? He was everybody’s kindly grandfather (and had enormous popular support). So let’s not make too big a deal out of Iran-Contra, ok?

        2. Yves Smith Post author


          With all due respect, you have lost the plot. This was the original point I was responding to:

          I just don’t believe our government has it together enough to keep a conspiracy of that magnitude in the dark for any length of time..

          I argued that people with security clearances do, all the time, as Ellsberg stressed. I used Iraq as an example because the McKinsey guy I mentioned, as the writer I responded to did in a different context, assumed there WOULD INEVITABLY be leaks (and by the way, he was a good personal friend of Kissinger).

          You wind up supporting that argument by saying the press would not report a leak even if there was one!

          1. alex

            I never disagreed with your point about it being possible to keep a secret amongst thousands. I simply thought your example was a poor choice because it was not a case where there were any great secrets that needed to be revealed. The information was in plain sight but ignored.

            In general I think that many bad policies are perpetrated not by keeping any great dark secrets, but just by making enough noise to distract people from the plain truth. An “Emperor’s New Clothes” sort of mass delusion. If anything this is more pernicious. Would people think the emperor wasn’t naked because the NYT said he wasn’t? Probably. And no “smoking gun secrets” reporting will cause people to change their minds, as the “secret” was in plain sight all along. Only the manure hitting the fan big time will do it. As you often point out, people don’t like to admit big mistakes. When a “smoking gun secret” is revealed people can easily change their minds based on the rationale that they were deceived, but mass delusion is harder to excuse.

            Anyway, I guess we’ve talked this one to death. Time to tell Helicopter Ben to go wheels down (or is that a fixed wing expression?).

  15. Mickey, Akron, Ohio

    Much of this is a replay of the NIDL – New International Division of Labor – literature that emerged in the late 70s onwards. Wallerstein was one of the principles. But it didn’t really examine what was happening in the US and Western Europe as a consequence. The focus was primarily on the changes occurring in the “periphery”. There was some debate on “deindustrialization” but it never gained much traction… Why not is an interesting question.

    In any case, the key is to examine employment in manufacturing in the countries of Western Europe and that of the US. It peaked around 1969-1970 in all of them, including the US if you disaggregate the data on the basis of Northern states versus Southern states [US Census of Manufactures]. After 1969, almost all growth in employment in manufacturing in the US occurs in the South as the “deindustrialization” of the North had already begun. Whether OECD, Eurostat, BLS the pattern is pretty much the same. [I have the numbers for what their worth from approx 1950 to 2008.] But it clearly is not a coincidence!

    Hence, the sudden relevance of “manufacturing” to policy makers appears quaint to those of US in the rustbelt who have watched its demise play out over the course of the past 40 years. Growing up in Akron, Ohio, once the RUBBER CAPITAL of the world, it was hard to miss! Now Akron is the home of LeBron James…

    But clearly the argument that what occurred in agriculture – excess capacity – occurred in manufacturing is spot on. Is it a coincidence that supply-side economic theory began to influence policy makers at this time? We are witnessing the deliberate, systematic scaling back of production in the “center” to adjust supply to demand within the logic of capitalist accumulation in the “periphery”.

    Without having read Brenner, which I will do, I’m a bit skeptical if the transition described is comparable to that from feudalism to capitalism. Rather, it’s the migration of capital to locales more conducive to capitalist accumulation, something that has occurred more than once since its inception. Merely because “capitalism” emerged in Western Europe does not mean that it is destined to disappear there first. So long as transnational corporations can relocate production, distribution, exchange, and consumption at will, the process of capitalist accumulation can continue on a global scale far into the future as they migrate from one greenfield to another in their quest for profits. If anything, the nation-state is increasingly irrelevant as a “neofeudal” order of corporate fiefdoms with disparate manors/holdings worldwide is emerging. And the techno-peasantry is becoming marginalized at the center much like the peasantry in the periphery.

    Crucial to how this plays out is the nation-state? Is a decoupling of the nation from the state occurring? A situation in which the state finds itself “groveling” to capital because of its fiscal dependency on it for revenue, leaving the “nation” to fend for itself? Where will sovereingty ultimately reside – the nation, the state, or the transnational corporation?

  16. i on the ball patriot

    The story behind the story …

    Ruling elite loan sharking goes global with a twist while the marks are still stuck on; decoy capitalism, motherhood, apple pie and lots of other dumb shit …

    After extensive testing in Japan, the latest method of global ruling elite loan sharking is rolled out world wide. The new twist — where the loan shark creates the need for the loans by making credit available at low cost and channeling the loans to land and stock markets thereby artificially pumping up prices and creating a bubble — is currently a fabulous global success with literally billions of people being enslaved and exploited. Augmented with the creation of unregulated highly leveraged financial derivative products — which amount to no more than counterfeit money — this new system of pernicious ruling elite deception is being used to wipe out the old fashioned vanilla greed competition and form interdependent alliances with new gangs all over the planet.

    Meanwhile, the marks, many who have not yet realized just how screwed they are, continue to rail at the decoys and deflections; capitalism, excess production capacity, import export ratios, deflation, inflation, stock market Keynesianism, blah, blah, blah, etc., thus preventing them from seeing that this is just a plain old fashioned con job, corn holing, in a new suit.

    Brenner makes the same mistake Marx did; he accepts the decoy of capitalism and looks at the capitalist world economy holistically as a system and gets lost in the details and mindset of “his work as a historian of systems in transition”. Neither of them go deep enough into the root cause — deception.

    So where does this leave us? Fucked, unless we all wake up and realize that deception is countered with perception that requires incessant oversight and regulation of all major alliances so as to lessen the spread of exploitation within those alliances.

    Deception is the strongest political force on the planet.

  17. Charley


    I have said on this blog in my comments, since the beginning of this crisis, working time will have to be reduced. The work week is too long and needs to be greatly shortened. This is further evidence of this. The problem is not over-production, it is over-work.

    Brenner’s analysis is not new or surprising, despite the fact that everything he states is true. This is simply a case of the alternative analysis unable to break through the white noise. I have been blogging this problem for four years now. And making the argument in other ways for two decades.

  18. Ronald

    Finally someone brings up manufacturing automation a topic not discussed in the MSM since technology is thought of as God. He also makes a good point that the financial sector share of GDP is embedded in the power structure as early equipment obsolescence requires financial junkyard duties such as consolidation,BK,mergers and new equipment financing.

    We have bet the farm on tech/financial sector marriage.

  19. don

    Lets be clear, Brenner is NOT a classic economist. He is an economic historian.

    Also, Brenner has NOT been hiding. His work is readily available. It is just that too many who follow the economic and financial blogs don’t have within their field of vision thinkers such as Brenner.

    To add a couple more such thinkers that have no doubt escaped many holding conventional views::

    An article by Peter Gowan:


    An audio interview with Leo Panitch:


    An audio interview with David McNalley:


    And an audio interview with Sam Gindin and Leo Panitch:


  20. Kay4`


    You are right, the government did not have known too much or anything about the bubbles and this was not on purpose. Obviously the government is not that smart as we can see through the crisis.

  21. valuemonitor

    A further parallel that Brenner may have overlooked between the Japan of the late 1980s and the US in the early 2000s lies in the deliberate manipulation of land prices.-Tag Murphy

    I think there is deliberate structural manipulation of land prices going on in the US today. It’s beneficiaries include banks, crooked real estate appraisers, the federal government, and state and local governments.

    Property valuations must be accompanied by appraisals to be credible. Yet during booms, business migrates to appraisers who are willing to be creative on the upside. Sellers and transaction oriented parties like mortgage originators want high values so deals can get done. During busts, there are few or no transactions, so the real price is not very clear. I mean, banks might have to mark their collateral down in value and take a charge! And what would happen to municipal governments if property values were actually marked to market?

    I have seen plenty of examples of low prices for property never getting recorded in the Courthouse. High prices, on the other hand, are always well documented.

  22. P Johnston

    Sorry Yves — but I can’t go along with you on this article. It’s meretricious.

    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 ….

    The assumption behind this sentence is that government is acting in good faith, making decisions that, while not very good, are the best that are possible given the circumstance.

    I don’t buy THAT for a second. Yes, sure, “politically dangerous “ consequences were in the offing, but for whom? Not the people — or whomever Murphy thinks government is acts in the name of. The danger was to government itself, i.e. to agents of government, i.e., beltway insiders , bureaucrats, crony capitalists, poverty pimps, affirmative action entrepreneurs and all the rest of the swarm of parasites. THEY are the ones who would have been swept away had the system not been “saved.”

    If you want to know who is being hurt, and who is benefiting, look at which city in this country is prospering. Hint: not one found in any of the 50 states.
    The meretricious nature of the article lies precisely in this: Murphy is defending an interest (inside the beltway power) without fessing up

  23. brodix

    The function of Capitalism is profit. The purpose of free markets is economic efficiency. They are not the same thing and in fact are contradictory, as profits represent excess wealth, while economic efficiency would be to recycle it back into the sources of the wealth to maintain sustainability of income.

    The law of supply and demand applies to capital, with lenders as supply and borrowers as demand. Those with an excess of supply find the only way to invest it is to loan it to those who buy the production, but cannot otherwise afford it. Henry Ford pointed out a hundred years ago that those making the products have to be able to afford to buy them for the system to work. So now we have enormous storm clouds of surplus capital floating over a parched economy and neither is served.

    One possible solution is to admit that a publicly guaranteed currency is actually a form of public utility, or commons, much like a public road system. Not only would it facilitate the larger community having greater control over the wealth generated, but people in their natural selfishness would be far more reluctant to convert resources into excess currency and this would serve as a natural brake to excessive economic growth. We all like having roads, but there is little inclination to pave everything over. The same principle of moderation might apply to monetizing our lives. Other methods of exchange would have the space to develop.

    Banking would be a public function, with local banks funding the communities that generate the wealth in the first place and using the services funded as inducement to attract business and people. These local banks would then be shareholders in regional or state banks and these would be the board for a national bank to issue currency. Thus it would be a bottom up democratic process, not a top down corporate entity.

    A related problem is the system of public financing, where enormous bills, stuffed with enough goodies to gain sufficient support, are rammed through the system. That’s not budgeting. The process of budgeting is to prioritize needs and desires, then decide where to draw the line between what can be afforded and what cannot. Some years ago there was a discussion about the “line item veto,” where the president could delete any item he wished from spending bills. Obviously this would remove all power of the purse from the legislature and likely be unconstitutional. In the spirit of actual budgeting, a possible solution would be to break these bills down to their constituent lines and then have every legislator assign a percentage value to each line and then re-assemble them in order of preference. The president would then draw the line at what would be funded. This would divide responsibility, allowing the legislature to prioritize, while giving the president final authority over total spending. Since making the cut would be graded on a curve, there would be much less incentive to trade favors and the percentage system would allow legislators to fine tune their granting of favors to other legislators and lobbyists. As local spending by the national government would be reduced, a local public banking system which recycled wealth back into local infrastructure would fill the hole.

  24. john c. halasz

    Well, it occurred to me in the mid-1990’s that those famous contradictions of capitalism were beginning to re-emerge in a high-tech form. And as for a transitional era, well, the current one does seem to be in the midst of a third industrial revolution, involving IT, telecom, and bio-tech, after the first industrial revolution, coal, steam engines, metallurgy, and mechanical machines, and the second, oil, electricity, and chemicals.

    As to the “tendential law of the falling rate-of-profit”, it’s precisely a tendency among other possible ones, so it ought to raise the consideration of what mechanisms/policies serve to counteract the falling rate-of-profit. At any rate, Marx couched it in terms of labor-values, as a consistent accounting convention, so for all that mainstream economists turn up their nose and sneer at LTV, while demanding “empirical” evidence, the question it raises is the capacity of the system to absorb the very resources it mobilizes, while sustaining sufficient consumption and (re)investment demand. And the point of “value” as opposed to nominal prices is shown forth precisely where nominal prices don’t and can’t “clear” markets and markets remain in reciprocal disequilibria. But it’s the vol.3 account of credit as endogenous to the production cycle and thus the prolongation of crisis tendencies into (over-)financialization of the production economy and the generation of increasing “masses” of fictitious capital that especially resonates nowadays, for all that some of the assumptions of the old crisis theory might be obsolete.

    There are a number of functional “virtues” claimed for a profit-driven “free market” economy. Profits pay for managerial services, replacement of capital stocks, “entrepreneurial” innovations in processes and products and provide measures for the functional integration of business organizations. But the most fundamental claim is that a profit-driven system optimalizes that allocation of capital investment between businesses and sectors and thereby maximalizes economic “growth”, as a supposed universal public good. But in the light of the huge underlying imbalances and misallocations of investment underlying the current crisis, that claim and the general equilibrium analysis that theoretically underpins it is undermined. (Not the least disequilibrium toward which GE analysis has been blind has been the declining wage-share of global output, which even in China, e.g., though wages and productivity have no doubt risen, the wage share of GDP has declined from 40% to 35% over the last cycle). A system driven entirely by the need to valorize aggregate capital stocks by maintaining the rate-of-profit might not equate with the social optimum, nor represent the best possibility available. Likely, a greater role for public investment, coordination, regulation and redistribution would be required for any genuine recovery and re-balancing, else massive destruction of attained “values” with prolonged stagnation, however disguised or manipulated through monetary illusions, would be the likely alternative.

  25. mannfm11

    I’m not finished reading this, but the miss on this begins because of what the writer insists is necessary, fractional reserve banking and central banking. The financial slice taken out of production is too thick at the present with the massive level of debt. If there wasn’t this fiction called banking involved, there wouldn’t be so much in the way of looming bankruptcy in making a sale. The problem at the present is that there is more debt/equity needed to exist than the system can support. It really doesn’t matter one way or another whether they try to rig keeping the debt intact or the equity intact, it will collapse and this is what is missing. The basis of Austrian economics is so far from the basis of finance, accounting and debt in general as taught and it the core of real capitalism, not the bankers fiction being run today. Without widespread financing, the employer must pay the employee enough to buy his goods or the transaction doesn’t take place and the idea that long term there is capitalist supression of labor is faulty. But, when we are dealing with reaping a return out of debt, out of equity and that it is not only due, but justified at all costs, we eventually come to that fork in the road where the world either has to shift or collapse. I am as dyed in the wool capitalist as the next guy on here, but I see the entire capitalist system in a fashion that may exclude the current view of capitalism (the bankers world we have today isn’t capitalism, but a modified fascist/ socialist enterprise that was endoresed by Marx himself). I am currently trying to digest Michael Hudson and Steve Keen to some degree, as it is the debt and the vig that Wall street and other entities that have very little to do with anything capitalist other than buying and selling seem to demand today. The world as we know it is about to end if we don’t find a way to disolve the debts that plague the system and get a new start. I would venture whether we like it or not, the value of assets are about to decline 75% to 95%, as the system can no longer pay the vig.

  26. Ed

    This has been the best thread I’ve seen here in some time (a good thing, I like the site). Interesting linked article, a perceptive post, and perceptive comments.

    So I have little to add. But the comments list a number of things that should be getting more attention in debates about the future of the world economy:

    1. Peak oil. Sound data, and serious effects. If oil really peaked globally in 2005-10, as some argue, that alone would explain the financial crisis. Has any economist other than James Hamilton looked at the effect of recent energy price changes as a possible cause of the current downturn? Big implication is that policies to get GDP growing again won’t work as well as in the past.

    2. “Over-work”, where the world really hits a wall in term of the numbers of people that can be profitably employed, due to rapid recent growth in both world population numbers AND labor saving technology. Add in slowing GDP. Implication being that we can’t change policies to put everyone back to work. Do we want to go the make-work route in that case or have lots of people living off of welfare?

    3. “Over-production”, which is really the possibility that the 1920s and 1930s is being played out again, but this time with China in the role of the U.S., and the U.S. in the role of Britain (hopefully not Germany).

    4. Apparently more deception and fraud than in past crisises, which clouds the ability of even senior policymakers to come up with a coherent strategy and limits the ability of bystanders -and investors- to figure out what is going on.

    I also agree with the comment that the known effects of increased carbon are worrying enough, even if every claim about climate change was debunked. Actually, if points #1 and #2 are true the Greens are right about the need to find a way to maintain a good standard of living without economic growth, even if their reasons may not correct.

  27. Matt L

    Yves! Thanks for talking about Robert Brenner! I read him in grad school. Its great stuff! I am looking forward to reading the article.

  28. mannfm11

    Well, I read the rest of it. I am going to read this thread as well just on the recommendation of the guy 2 slots above me. I have been thinking about the finish of this article for some time. It appears to me the biggest business in the world is building capacity and real estate improvements in Asia, namely China. So, we have a bomb with 2 fuses buring in opposite directions. Who says China can survive ceasing building capacity? This is the $64,000 question. Even if they quit expanding exports, the best they could do is shift labor. I believe the entire commodity bubble rests not on manufacturing in China, but in building capacity itself. The steel business in the US isn’t that large because the US quit building sizable capacity several decades ago.

    There is another game, which will be, who follows China? Will it be India or is this game already a game of India versus China in who supplies the capacity? Does the US reindustrialize and sell to China when this dance is done? Also, is there a middle class left in either country after the American elite finish making the middle class debt slaves and China finish making their own middle class manfuacturing slaves where there is less profit to be had? I believe the premises of this article also agrees with something I have supposed in my recent writings, that the oligarchy impounds the money that comes into China, throws the workers a bone in the form of currency issued off US collateral and goes on. If the US implodes, it will be those holding the currency in China that take the hit, not the property owners, though they may have to do something to avoid a revolution. Maybe 50 years of totalitarianism will keep the restless natives in check?

  29. David

    There is overproduction, such that even the American middle class, which used to dominate the world in production, is priced out and no longer needed. The people in the slums of America, and in Mozambique, have just be economically unproductive for longer. What do they have to offer the wealthy? Maybe there is an answer, but I do not know it, and without an answer, they cannot make money in a purely capitalist society.

    Pure capitalism cannot exist in a high-tech world. Most of the people are unnecessary. There is incredible competition for the few jobs remaining and all but the few winners starve. This is a form of blowup of capitalism that, to my recollection, Marx did not envision.

    The description at the end of the article, of a collusion between the economic elites in China and the USA to perpetuate the system in which they are winners is interesting. But if there is no effective pushback in the USA, there is in China. Hu Jintao is a man from the interior, somewhat of a left-winger, who has put down the businessmen from Shanghai who were indeed largely running things under his predecessor Jiang Zemin.

  30. john c. halasz

    @57 David:

    “This is a form of blowup of capitalism that, to my recollection, Marx did not envision.”

    Umm… there’s that bit about the “forces of production”, (i.e. both labor and its developed technical endowment), coming into conflict/”contradiction” with the extant “relations of production”, (i.e. with the prevailing investment and distributional “imperatives”), which might make Ole Grey-Beard,- I dunno,- something like a “pre-mature anti-fascist”. It’s just that he was relying on a quasi-metaphysical supposition of a harmonizing tendency of “Reason” in History. No such luck. Though that the subsequent historical world exploded even his sense of human limits, beyond which “humanity” was unimaginable, is not exactly to “our” credit.

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