Contours of the Crisis: An Interview with Michael Roberts

by C. Derick Varn on June 19, 2013

Michael Roberts is a Marxist Economist. He wrote The Great Recession – A Marxist View in 2009.  He blogs at The Next Recession and is currently writing a new book.  C. Derick Varn is an international writer and teacher, who has worked and done activism in places as diverse as the Southern U.S.A., South Korea, and Mexico.

Do you think the recent battles against neo-liberalizing movements, such as that of Greece, Cyprus, and, to a lesser degree, the US, have blinded some socialists to the problems of Keynesian economics?

Well, yes.  The neoliberal policies adopted by governments and the economic consensus have been exposed as failures after the experience of the Great Recession of 2008-9 and the subsequent very poor economic recovery in the advanced capitalist economies — which I have described as a long depression. These neoliberal policies were: a return to ‘free markets’ (a myth); reducing labor movement rights on job security, conditions and minimum wages; cutting and ‘outsourcing’ public services (except defence and police); privatising state assets into private monopolies; deregulating business activities, including banking, so that ‘anything goes’; slashing corporate taxes but hiking indirect taxes; allowing inequality of income and wealth to spiral while claiming that making top people richer will ‘trickle down’ to the rest of us.

These policies proved to be failures. Economic growth in the major economies from the 1980s through 2007 was lower on average than during the period from 1948 to 1973 — the so-called Golden Age, when there was more regulation, more welfare state, more public ownership, better labour rights.  But here is the crucial thing. The only thing that did improve in the major capitalist economies from the 1980s to the end of the century was the profitability of capital. And that was the real aim of neoliberal policies, not improving economic growth or living standards for the majority. And when profitability began to fail again from the late 1990s in many capitalist economies, the scene was set for renewed economic crises.  Given that huge amounts of debt or fictitious capital had been generated and invested increasingly in unproductive capital like financial assets and real estate, the eventual collapse has been even more severe than in other capitalist slumps.

Now it is this analysis of profitability and fictitious capital that Keynesian economics does not recognise, let alone accept.  Keynesian economics finds nothing wrong with the productive sector of capitalism: i.e., production for individual capitalist gain in the markets is fine.  The Keynesians reckon that the problem is that the role of money in a capitalist economy can be damaging, causing instability and slumps in demand.  It’s the fault of finance capital that is unregulated and out of control, but not of the capitalist mode of production.  So a slump is not caused by anything to do with profitability or even the mass of profits.  It is caused by a lack of demand, in turn caused by the hoarding of money. So what is needed, says Keynesian economics, is for government and the monetary authorities to intervene to restore ‘aggregate demand’; either by lowering interest rates to zero; or, if that does not work, by ‘creating’ money for agents of the economy (banks, businesses, people) to spend; or failing that, for the government to increase its spending.  You see, there is no consideration of the impact on profitability from these policies — the argument is that more spending means more growth and eventually more profits.  The Marxist view is the opposite of that sequence: more profits, means more investment and growth and that means more spending.

If you follow the Keynesian view, then if politicians and governments fail to spend more they are really insane.  Don’t they want capitalism to recover?  This is the view of the most prominent Keynesian economist, Paul Krugman, whom many socialists follow for their arguments against neo-liberal policies — and what has come to be called ‘austerity’.  In April 2013, Krugman said in his blog: “[t]he main reason our economic recovery has been so weak is that, spooked by fear-mongering over debt, we’ve been doing exactly what basic macroeconomics says you shouldn’t do — cutting government spending in the face of a depressed economy.”  But is that the main reason for the Long Depression?  I think not.  A Marxist approach would look to see what is happening to profitability in the major economies.  You find that only the U.S. profitability has been barely restored to 2006 levels, but even here it is still below the peak of 1997, and in other European economies and Japan profitability is still well below the 2006 peak.  So capitalist productive investment is very weak everywhere and so economic growth is poor.  Capitalist firms prefer to keep their profits and/or pay down overhanging debt or speculate again in financial assets made cheap by central bank low interest policies.

That is why fiscal spending programmes are not adopted by governments: it is not because they are insane but because they may not work to boost profitability.  Sure, increased government spending may create some jobs, especially if it is done through direct government investment in infrastructure projects and the spending is raised by borrowing rather than more taxation.  But that policy will not deliver higher profitability for the majority of capitalists and so will not kickstart capitalist investment.  Either governments would have to go onto take over the bulk of investment in an economy, which would amount to socialist planning, or they will find that growth does not return, while government debt has risen and interest on that debt to the banks and the capitalists has reached crippling proportions.  The experience of the Great Depression of the 1930s was that Roosevelt New Deal measures did restore some employment for a while but it could not be sustained and eventually the U.S. economy went back into recession in 1937-8 because profitability had not recovered.  And as Krugman himself argued in End Depression Now, it took a war economy to restore employment and growth.  It seems Keynesian economics only work as “military Keynesianism”.

I could go on — as you can see!  But the worry for me is that little of this critique of Keynesianism emerges within the left fighting against neoliberalism. Keynesian ideas of less austerity, more spending, or that the problem is ‘inequality’ (not accepted by Krugman by the way) or ‘low wages’ dominate the thinking of the left.  Why?  Well, partly because it is politically more acceptable to promote more spending may oppose ‘austerity’ but it does not threaten the idea of capitalism itself, so it is more ‘acceptable’ to Labour [Party] and trade union leaders.  And partly because it is simpler to argue for more wages and spending and blame bankers than to think through the processes of capitalist production and work out its inherent faults.

While uniting with Keynesians and others against neoliberal free market and austerity policies, socialists need to realise that Keynesian alternatives are no long-term solution and could even build up worse problems, such as declining profitability and higher inflation rates, for capitalism (and therefore for workers) down the road as they did in the 1970s.

Do you think the Cyprus model may become a standard model for action for other European countries in the continuing crisis and what do you think this means?

The Cyprus bailout included so-called ‘haircuts’ for depositors for the first time.  Up to then, any haircuts had been for the shareholders in banks that went bust or needed recapitalisation due to heavy losses; or to so-called unsecured bank bondholders and creditors.  Deposits were safe.  But in the case of Cyprus, as deposits constituted 95% of all the liabilities of the Cypriot banks (mainly deposits by Russian tax dodgers and oligarchs), they had to take any hit.

The original idea that even those deposits below the insured level of €100k could be hit was a disastrous mistake because it raised the idea in people’s minds that none of their money in banks could be safe from the thieves in the Eurozone institutions. This idea had been proposed originally by the right-wing Cypriot president, who wanted to reduce the hit to his rich Russian friends — and, it now seems, to his fellow politicians.  But eventually that mistake was withdrawn under the democratic pressure of the Cypriot parliament.  It still leaves the risk that in future bailouts that there will be a run on deposits by people trying to save their money. We may see that possibly in Cyprus too when capital controls are ended.

What it also means is that from now on, bailouts will involve losses to the capitalist sector (i.e., other banks) because the German taxpayer does not want to keep picking up the bill to pay for the crimes and misdemeanours (as they see it) of Greek, Cypriot, and perhaps Slovenian bankers.  That may sound fairer. But it also means that in Cyprus, the haircuts imposed on the private sector [and] the last Greek bailout led to Cypriot banks losing huge amounts on their holdings of Greek debt and so they went bust.  One thing can lead to another in this global capitalist nexus.

How do you see the last recession changing the political playing field of Europe and the U.S.?

Well, in Europe, there is a continued and deepening recession or depression, with the exception of Scandinavia and Germany where there is some low growth. Even Eastern Europe is struggling.  Unemployment especially among youth has rocketed to unprecedented heights.  Even the Euro leaders recognise that sufficient economic growth to turn unemployment rates around is a distant prospect.  The longer this depression lasts, the more people will turn away from the mainstream parties of centre-right and centre-left towards so-called extremes, or more properly to new alternatives (SYRIZA and Golden Dawn in Greece); Five-Star in Italy; the indignados in Spain; even a Euro-sceptic party in Germany who are pushing for ditching the E.U.  But this development has not yet reached breaking point for the euro.  The majority of people in the Eurozone still support the idea of the euro, even in Italy, Greece, Cyprus, or Germany — for now.  If economic growth returns, the euro will survive.  But that could take years and if there is another global recession, all bets are off.

The U.S. economy has done relatively better than Europe for the reasons (profitability) I mentioned above.  So the political landscape has not really altered much.  Both Democrats and Republicans agree on fiscal austerity, one just wants more taxation and one wants more government spending cuts.  We see that the opposition to austerity, the bankers, the destruction of American welfare remain high in opinion polls.  But it is not expressed in any new party or movement as in Europe.

Again, if a global slump should return, that picture may change.  But not yet.

Why do you think many Keynesian and Marxian underconsumptionists, who argue that the primary issues are related to consumption rates,  are seemingly quiet on stagflation in the early and middle 1970s prior to neo-liberalism as if neo-liberalism was just a political project?

Well, Keynesian[s] supported the Phillips Curve that supposedly showed a trade-off between unemployment and inflation was the message of the Keynesians in the 1970s. So explaining why the curve was wrong and you could have both high unemployment and high inflation at the same time was difficult for Keynesian theory. I have seen explanations based on the idea that there are various employment equilibria that change according to the liquidity preference of economic agents, namely that if businesses and people become more uncertain they start to hoard money at higher levels of unemployment. And if central banks keep pumping money in, it only drives up inflation.  This seems pretty close to the monetarist theory of the non-accelerating inflationary rate of unemployment [or NAIRU].

As for the underconsumptionists, they have to explain why the “wages share” was so high in the 1970s and there was still a major economic slump in 1974-75 and in 1980-82.  Both Keynesians and underconsumptionists deny any role for profitability, and yet the classic fall in profitability from the mid-1960s through to 1982 can explain the crises and allow us to model why the Keynesian/underconsumptionist explanations and policies failed. Post-Keynesians sometimes argue that the 1970s was a “profit-led” crisis (squeeze on profits) and the current crisis is “wage-led” (squeeze on wages). I’m not sure what this has to do with Keynes though — it is more Kalecki.

Neoliberalism was a policy development in reaction to the failure of Keynesian policy, which was aimed at keeping wages and inflation down through income policies.  Neoliberalism was an economic project that aimed to get the rate of profit up, it was not just a “political project” designed to be nasty to workers. “There is no alternative” as Thatcher said.

Do you think that a party of labor could emerge in the U.S. in response resulting from a crash in Europe?

Parties of labor have seldom emerged during Depressions (1880s or 1930s). They have usually emerged towards the end of the recovery period that follows when labor gets stronger. The new unions based on new industries came in the 1890s and later led to the Debs’ Socialist Party in 1900s and Labour Party in the 1900s in the U.K. and the same happened in Europe. Even Chartism in the U.K. came in the 1830s and 1840s, well after recovery from the war/post-Napoleanic War depression.

So I’m guessing that we won’t see a party of labor in the U.S. or revitalized parties in Europe until after a period of relative recovery. In the meantime, we have disparate anti-capitalist protest movements searching for an alternative way. But this prophecy is only a guess and nothing is ever quite the same.

Are there any trends in Marxian economic analysis that bother you at the moment?

Marxist economists remain divided on their analysis of value theory, Marx’s law of profitability and his theory of crisis.  They conflict on the data too.  But such is the way of science and the world.  That is no worry in and of itself.  What bothers me is that some Marxists emphasise that capitalist crises are caused by a lack of consumption (low wages and extreme inequality) and not a lack of investment.  Obviously we can disagree: I don’t think Marx backed the underconsumption or inequality explanation that is so dominant with Richard Wolff or David Harvey or post-Keynesians.  But so what?  Marx could be wrong.   But the empirical evidence is overwhelming that the Great Recession was a crisis of investment, not consumption (see graph below).


And there is a policy danger that arises from this mistake.  Some Marxists and others will campaign for higher wages as the ‘solution’ to the crisis in higher wages.  This, however, will not be a solution, as it will negatively affect profitability.  It would be a policy ‘within the capitalist mode of production’ not a replacement of that mode.

Why do you think the underconsumptionist model is so popular?

It is easy to understand: more wages means more spending means more growth.  It is safer to expound within the labour movement: low wages and inequality are unfair.  It does not pose the replacement of the capitalist mode of production as the only permanent economic solution.  Higher wages and more equality can do the trick within a fairer capitalism — as in the ‘mixed economy’ of the 1960s.

What do you think a non-economist with interest in Marxian theory should look for when evaluating an economist?

Yikes.  Handsome good looks!  Or maybe a clear explanation of what distinguishes a Marxian view from mainstream economics and a convincing account of what causes crises and inequality in modern economies.  And humility about what it is possible to know is true.  A good Marxist economist can combine an understanding of Marxist theory with testable empirical evidence to back it up and some practical policies to change the economic world.

On empirical evidence, do you have any predictions on what is going on with China’s slowing of production right now and what it could mean for the working classes?

Mainstream economics and so-called ‘China expert[s],’ such as Michael Pettis and Richard Layard, are convincing themselves that China will be forced into transforming itself away from its very successful economic model of state-led investment and manufacturing exports into some ‘normal’ capitalist model of a middle-class consumer society.  That transformation will require a complete move to a private-sector dominated economy led by domestic and foreign capitalism, eventually without the controlling role of the ‘party’.  If that does not happen, the argument goes, China’s state-led party controlled  economy will slow to a crawl or have a major property and credit bust that will force it form a proper ‘bourgeois democracy’.

The Chinese elite enjoy the benefits of one of the most unequal societies in the world and there is clearly a sizeable minority in the leadership that agree with the World Bank and these China ‘watchers’.  But it is not the majority view or even the majority view of the people, insofar as we ever hear what they think.  The idea of a ‘consumer’, laissez-faire, neoliberal China is anathema to most Chinese.

The current relative slowdown is a product of two things:

  1. Measures by the government to curb a property and credit boom induced by malinvestment and corrupt local government elites.
  2. The slowdown in the ‘consumer’ economies of the G7 and the OECD.  Exports have fallen back as Europe has dropped into depression and Japan continues to stagnate.  China’s slowdown is due to the failure of capitalism elsewhere.  But the slowdown is only relative:  Chinese output has contributed the bulk of all growth in the world economy since the trough of the Great Recession of 2009.

What is true is the growing strength of labor, as China’s rapid manufacturing growth has created a huge urban workforce concentrated in large and ever more cities.  This force has been flexing its muscle on behalf of its interests in thousands of strikes and protests, all local, and often strikers demands are often met by the elite.  If growth remains below 8% a year (the minimum required to absorb the influx [of labor] from the country[side]), then pressure will build on the elite.  And down the road, the reserve army of labour in China will begin to contract (by about 2025 onwards, the working population will start to decline).

That sets the scene for labour gains against the billionaire elite.

Are there any signs that the Chinese Communist Party (CCP) is ready or willing to work on the side of labor empowerment?

Well, one indicator has been improved labor rights since the 2008 labor law.   This has allowed wages to rise significantly.  And the right to more benefits has been approved.  Of course, these things have to be fought for, but the new law does open an opportunity for action.  No doubt the CCP is divided on how far it will allow this to go.

Do you think that any of the labor gains in China will have any carryover effect, positive or negative, to European anti-austerity movements?

Not much.  China’s workers are on the move but they are localised struggles.  Europe needs economy-wide, indeed regional, movements against austerity and the reduction in living standards.  And Chinese workers are on the offensive for higher wages, Europe’s workers are the defensive to save jobs and incomes and stop government contraction.

Are there any little known economic trends that we should be watching right now?

  1. Slowing long-term economic growth in the major economies over the next generation.
  2. Falling populations in many parts of Europe (emigration) and Japan (low birth rate).
  3. Sharp drop in crime and personal violence in the advanced economies.
  4. Consumption remains firm in many countries but investment remains low.
  5. Increased extreme weather conditions from global warming damaging agricultural output.

The current crawling growth rate in the major economies will probably give way to a new slump by 2015-2018.  If there is no social transformation out of this, this slump could create conditions for a new lease of life for capitalism based on higher profit rates at the expense of high unemployment and low wages and new technologies that could last 15-20 years.  But there is no escape for capitalism: a new period of crisis will eventually return (after I’ve gone!).

{ 12 comments… read them below or add one }

Pham Binh June 19, 2013 at 9:28 pm

– What is fictitious capital? I thought capital was a social relationship, not a tangible thing like factories.

– How are financial assets and real estate unproductive capital? What is “unproductive capital”?

– Reducing interest rates to zero is not a Keynesian strategy because it is not a measure that increases aggregate demand.

– States that post-WWII Keynesianism was “aimed at keeping wages and inflation down through income policies.” Incomes policy I thought was a British-specific thing? Either way, I though Keynesianism was aimed to keeping aggregate demand up to prevent or mitigate slumps.

Points of agreement:
– I like that Roberts readily acknowledges the return of profitability post 2008, unlike Alan Freeman.

– Agree on his 5 trends worth watching.

– Agree that Keynesian policies and fighting for higher wages is not the long-term solution to capitalism. However, the way he speaks about it here makes it seem almost like he would oppose higher wage demands since that would hurt profitability and trigger a bust/economic contraction. This is very close to the Chamber of Commerce line against McJobs’ fight for $15/hour.

I think Maduro’s Venezuela is a good example of how pro-worker pro-poor reforms run up against the limits of capitalism — poverty and unemployment were cut in half under Chavez, but there are huge economic problems like shortages, inflation, currency devaluations, and higher crime. Wish Roberts had talks about that more.


jim sharp June 20, 2013 at 2:56 am

pham binh asks
– What is fictitious capital? I thought capital was a social relationship, not a tangible thing like factories.
maybe a lad from the antipoes can help you out on that score

‘Fictitious capital’ : from original intent to hyper-inflation

With the development of interest-bearing capital and the credit system, all capital seems to double itself, and sometimes treble itself, by the various modes in which the same capital, or perhaps even the same claim on a debt, appears in different forms, in different hands. The greater portion of this ‘money-capital’ is purely fictitious.
Karl Marx, Capital, III.[1]


Pham Binh June 20, 2013 at 3:53 am

Thanks for the link Jim. On first glance, I highly recommend it since the Marx quote provided doesn’t tell us much.


PatrickSMcNally June 21, 2013 at 7:07 am

That’s a useful listing of all the places where Marx & Engels speak of “fictitious” capital. I agree that is a great mistake to equate “fictitious” with “finance” capital. As Marx realized, the ability of capitalism to expand the means of production was greatly enhanced by the practice of banks issuing credit loans which created a social basis for many prospective business owners to start a business which could eventually produce wealth even when the initial business owner did not possess the capital to pay the costs of start-up. For that reason the growth of productive forces became bound with financial bets made by banks which did not themselves produce anything. But it wasn’t fictitious.

However a frequent tendency which can be observed at many points in the history of capitalism is that when overproduction and the declining rate of profit begin to create a crisis for capitalism, one of the ways of trying to avoid this is financial manipulations. This hasn’t been the only way historically. In the 19th century USA, territorial expansion on the Western Frontier was a major way of overcoming a crisis of profits. In the early 20th century the USA sought to break down the trade barriers which the old European colonial empires used to keep in place, because replacing these closed regions with free trade zones opened room for the expansion of US capital.

It is also the case that an assault on wages can be a way of restoring profits had once been in decline. We’ve seen a great deal of that in the last 4 decades. In addition, profits can be maintained by the expansion of consumer needs. This laptop computer in front of me is a form of consumer need which I wasn’t aware for the first few decades of my life, but now I take it for granted. So there have traditionally been and still are other ways of addressing a prospective crisis in capitalism besides financial games.

However, as capitalism becomes more pervasive and developed across the whole globe, financial manipulations do start to a acquire a greater role as a principal method of attempting to deal with crisis. Yet financial investments can not themselves really deal with crisis, they can only facilitate the other methods of dealing with crisis. In the 19th century whenever a new territory was captured in the North American Wars and new settlers came in to build new towns, there was always a prompt appearance of money-lenders who issued easy credits which they claimed were backed by gold, but which were really just pieces of paper. That was not generally fictitious capital, because it did go right into the development of the means of production. But if there is no such expansion of the means of production, then too much finance tossed will rapidly start to generate fictitious capital.

On a global scale in this modern economy, it can actually be very complex to measure how much is too much and when have we become fictitious. If you look just at certain neighborhoods in Manhattan then you might easily draw a conclusion that this is too much finance capital and hence must be fictitious. Yet it is possible that if you traveled around the globe to Thailand then you might actually find that the means of production are being developed as a result of funds derived from some chain of financial derivatives somewhere across the planet. In that case we don’t fictitious capital, we have real capital.


purple September 4, 2013 at 5:28 am

Venezuela always had those problems, they didn’t start under Chavez. Inflation was lower in the Chavez regime than before, for starters. Chavez didn’t turn Venezuela into a middle-to-developing country, he inherited it as one.


purple September 4, 2013 at 5:30 am

Keynes liked low interest rates, he thought it induced more investment, or ‘animal spirits’ (the ludicrous term he invented and which is now intoned at Econ departments everywhere).


purple September 4, 2013 at 5:31 am

Fictitious capital is debt, especially leveraged debt.


Darwin26 June 20, 2013 at 2:02 am

very insightful ~ thank you very much.
When we get a Working Class Party in Congress in the majority Things will really change ~ like nationalizing: the Energy Cartel, Big Ag, Banking, Health Care and Transportation


purple September 4, 2013 at 5:25 am

I think the primary reason capitalists don’t like certain government spending is that it provides a floor on wages. It’s a tangible reason thing can see in day to day life. I even hear local businessmen complain that homeless people can make more than the minimum wage, thus inferring that they can’t find ‘good workers’ because people find it equally profitable to be homeless. Now imagine their thoughts on food stamps, AFDC, unemployment and disability.

And of course, wages directly cut into profits.


Richard Estes September 4, 2013 at 5:13 pm

this makes sense, but they fail to recognize that an austerity economy requires more law enforcement and incarceration, which is what we are experiencing in California

but, of course, they are willing to be taxed for cops and prisons, unlike social spending that addresses poverty


Derick Varn September 4, 2013 at 5:16 pm

That is a pretty sound and valid distinction that needs to be made, I agree Richard.


Manuela December 3, 2014 at 4:33 pm

My family members all the time say that I am killing my
time here at net, but I know I am getting know-how
daily by reading thes good posts.


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