Critical of Capitalism

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ECONOMIC DEPRESSION, five likely causes

There is an inherent instability in the capitalist system.  Almost every year there is a crash with a government defaulting on its payments.  In the last decade, Mexico, Argentina (Nov. 02, $805M), Russia, Ivory Coast (June 04 on $700M), and several Asian nations in 98.   What follows are predictions for 05, followed by 5 economic wild-cards that could bring on a recession or worse.  Vital also to such understanding is the economic stats that follow.  Capitalism is inherently unstable and exploitative. 

Economic Downturn 05, Likely Causes

Predictions for 05, a survey of 60 forecasters:

1.  GDP growth of 3.5%

2.  Profits grow by 6.7%

3.  Oil to slip to $39/barrel by year’s end

4.                  Fed Reserve to raise fed fund  rates from 2.25% to 3.5%

5.                  10-yearTreasury bonds will increase form 4.3% to 5.1%

6.  Dollar lose about 10% value against major currencies

 

 

FIVE NEGATIVE ITEMS THAT COULD THROW THESE PREDICTIONS OFF:

A.  Dollar collapse: growing concern for US ability to attract foreign capital to finance both private and public investments.  The effect of high budget deficit subtracts from domestic savings (and thus investing) and the huge trade deficit also adds to financing needs.  This dependence on foreign financing reducing confidence in the US economy (in 85-87 the dollar fell 49% against major currencies, Treasury bonds increased 2%, and stock prices fell 30%.   A falling dollar would especially effect US corporate bonds (held 50% by foreign investors).

B.  Oil rise would slow consumer demand, and this would under mine business and consumer confidence. 

C.  Inflation, both rising oil and falling dollar make consumer goods more expensive (inflation). China would thus revaluate their currency higher, thus increasing inflation.  High inflation makes existing bonds unattractive and new one must be offered at a higher rate.

D.  Housing bubble:  higher interest rates of 2% could bust the housing bubble, and deflating price deflates household wealth, and so on. 

E.  Global economy:  Euro is weighed down by currency appreciation, and both Euro and Japan are experiencing a slow down of economic growth, and increasing Arab violence would erode business and consumer confidence. 

Economic data, various sources
 

Today’s news stated that in the last year job increased in San Diego county by 15,000 and for the state of California by 43,000.  Actually unemployment must have increased for more than 43,000 people who had been gainfully employed had mov3ed to California.  And what of the gain from those finishing their schooling? 

 

Stats on corporate crime, Citizen works, Ralph Nader

Health care, $100 billion, estimate from Government Accounting Office.

Trade violations $250 billion annually, Prof. Francis Cullen, U. of Cincinnati, Criminal Justice Dept.

Burglary, larceny, motor vehicle, & arson, under $18 billion, FBI for 2002.

66,971 job-related injury and occupational disease deaths (doesn’t include deaths of non-employees due to pollution, tainted foods, and like), 1992, Professor J. Paul Leigh.

Enron Corporation fraud and bankruptcy cost investors, pensioners, and employees $60 billion.

 

STATS ON DEFICATE FINANCING & CHANGES IN US ECONOMY:

Trade deficit for, 4/04, $48.3 billion,

Manpower  output up 3% per year from 95-03—SR

Foreign investors hold 43% of all U.S> Treasury debt, 25% of corporate paper, 12% U.S. equities—SR

U.S. consumer, business, government savings after allowances for depreciation of existing investment is 1-2% of GDP for 03-4; average for 1960-1999 was 7.5%--SR

Current Account Deficit (What foreigners earn on U.S. investments minus what U.S> garners from foreign investments is $660B, or nearly 6% of the GDP, thus consuming 80% of the world’s saving surplus annually.  (A 5% reading is normally enough to trigger an IMF intervention.—SR

In 2003 deficit of $2.7T; in 1980 a surplus of $360B.—SR

 

Future signs:

Drop in capacity-enhancing spending, down in 03 60% from the 00 high.  This entail a slowing of expansion and thus a less attractive investment for foreign countries.

 

The $150 billion for corporate subsidies and tax benefits eclipses the annual budget deficit of $130 billion. It's more than the $145 billion paid out annually for the core programs of the social welfare state: Aid to Families with Dependent Children (AFDC), student aid, housing, food and nutrition, and all direct public assistance (excluding Social Security and medical care)."


"After World War II, the nation's tax bill was roughly split between corporations and individuals. But after years of changes in the federal tax code and international economy, the corporate share of taxes has declined to a fourth the amount individuals pay, according to the US Office of Management and Budget." --Boston Globe series on Corporate Welfare, 1996

 

$521 billion federal deficit, estimate Common Cause, Vol. IX, No. 21, May 28, 2004.

 

Social Security is a fairly simple system to administer, both for the government and for employers.  Social Security spends less than 2 cents of every dollar on administrative costs.  A system of privatized accounts, however, would be quite different.  Privatized accounts would place massive burdens on employers and the government – and they could never be administered successfully.  The fees on the accounts, meanwhile, could soak up 40% of the value of the investment, reducing benefits while providing a huge wind to Wall Street.,

http://ourfuture.org/issues_and_campaigns/socialsecurity/index.cfm

 

 

Every day corporations and other wealthy special interests pump another $2 million into the coffers of our elected officials in Washington ad their party committees. For their money they get an estimated $160 billion a year in tax breaks, subsidies, and other sweet deals. That’s $160 billion lifted from taxpayers’ pockets—or about $1500 per taxpayer per year.

http://www.publicampaign.org/publications/index.htm

 

During the second quarter of 2003, when the war in Iraq was in full swing, some 60 per cent of the 3.3 per cent GDP growth rate was attributable to military spending.

 

 

The Bush deficit has not yet reached Reaganesque proportions (it stands at roughly 4.5 per cent of GDP). But Professor Pollin, for one, predicts that the resulting debt burden could rapidly rise to the levels seen in the 1980s, with interest repayments eating up as much as 18-19 per cent of the overall federal budget.

 

THE OIL STATS & THE CRUNCH 

 

Gasoline taxes average 43/gal

US consumer 25% of the world’s supply, though it is 5% of the population, about 3 gals/person/day. 

Production is of 1970’s. 

North Sea, North Slope of Alaska are in decline.

 

Consumption 02 (millions of barrels:  US 7,191, Japan 1,935, China 1935, Russia 985, Germany 949

3.2% increase 04, predicted 1.7 for 05

China added 2M cars in 03, up 70% from 02,

US consumption 80B barrels, of which 2/3 is for fuel. 

Business SUV deduction of up to $10,000

In 1981 oil was above $70/barrel in 2004 dollars, by the mid 80s it dropped to less than $25/barrel. 

The new deep-water Gulf filed has an estimated 25B barrels, another almost as large field is in the Artic National Wildlife Refuge in Alaska.

  Canadian shale oil cover 15,000 sq miles, equals 1.6 trillion baralles, but yields only 1 barrel for every two twon of deposit. 

 

Gasoline costs $1.57/ gal

.43 tax,

.75 crude oil,

.24 refining,

.15 distribution & marketing. 

 

Additional costs $2.44/gal

1.00 traffic congestion (time and wasted fuel),

.40 pollution (effects upon respiratory health),

.12 leaky oil from refineries & distribution centers. 

.80 traffic accidents

.12 effects of disruption in supply on economy

 

Total costs $4.01

National Geographic, The End of Cheap Oil,6/04, p. 97.

 

(Consider how much more surplus money would be in the pockets of each citizen of this country--and the world--how much cleaner the air would be, and how much more steel and petroleum there would be if mass transit was fully developed and utilized.)

 

Philosophy teaches the skills to see how the world ought to be.  Mathematics is the Queen for science, and logical analysis the Queen for skepticism.