Customer Reviews

The Boom and the Bubble: The US in the World Economy

5 star:		(3)
4 star:		(3)
3 star:		(0)
2 star:		(0)
1 star:		(0)

 

 

Picking up a book about economics is often like checking in with an accountant: it's no fun, but it may save trouble later on. Fortunately, Brenner's is a rewarding call to make. The text is accessible to the non-professional as well as the professional, although a familiarity with market fundamentals such as exchange rates, balance of payments, and other tools of the trade, is assumed. From the text, I gathered two key points that I believe can be capsulized. First, the so-called New Economy, touted by many stock market cheerleaders, was built on little more than old-fashioned market speculation plus timely intervention by central banker Greenspan. Moreover, the process was doomed once the disconnect between share prices and profit rates became too great, as it eventually did. Against this background, extravagant projections of New Economy iconoclasts like Newt Gingrich (Brenner himself names no names) should be measured, along with a stern warning for the future. Second, are two deeper, more ominous developments: namely, international overcapacity and falling profit rates, twin trends that have plagued industrial economies since the early 1970's. Against this backdrop, which Brenner also charts, longer-term prospects should be measured, even as international bankers tinker with short-term, burden-shifting measures like exchange rates. And though Brenner acknowledges the anodyne impact of military spending, he draws no conclusions about its future amidst a sagging GDP.Yes, the book is heavy with graphs, nonertheless the author can't be expected to substantiate his case without strong evidence. Moreover, Brenner's refreshing approach places the New Economy in a broader-than-usual context that furnishes the reader with an informed historical perspective. In most every respect, this is a check-in call worth making.

The book gives good insight in US economic and financial development during the 1990-ies. Brenner argues well for his criticism of the uniqueness of the so called New Economy, of which he must be regarded as a great disbeliever. It is also refreshing to read a well documented criticism of US monetary policy under Fed Chairman Alan Greenspan, whom Brenner sees as a player with heavy responsibility of the unprecedented inflation of US equity prices in the last half of the 1990-ies. Unfortunately Brenner's prose is rather dry and his text is accompanied by a high density of numbers. This documents his arguments well but demands great patience from the lay reader.
The book went to the press in mid 2001 which naturally leaves out the market turbulence July 2002. Nevertheless his analysis gives the patient reader a solid background for understanding the recent developments in US financial markets. And what may be in store...

Contrary to one reviewer, I found this book truly engrossing. Brenner powerfully summarizes how the rate of profit of world manufacturing fell (with its many implications). To rectify this problem, Greenspan made borrowing easier. As an aside, he notes how CEO's then used their corporations to borrow and buy the very stocks on which their options were based, thereby enriching themselves in a speculative frenzy. However, this is hardly the story: Brenner's analysis explains the crushing attacks on social spending as well as our current war drive--suggesting how this too will fail, leaving only the historic capitalist method for eliminating overcapacity, the elimination of enterprises by economic crisis.

This book is a detailed history of the global economy during the last three decades of the 20th century, with a particular emphasis on the U.S. "boom" in the 1990s. The basic idea is that global manufacturing overcapacity has put downward pressure on profits and made it hard for the key manufacturing centers -- Europe, the U.S., Japan, and East Asia -- to prosper simultaneously. Instead, prosperity tends to shift from one center to the other in the wake of shifting exchange rates.

The U.S. had a good run after 1985, when manufacturing profitability was restored because of currency depreciation, tax cuts, stagnant wage growth, and the slaughter of high-cost producers by high interest rates and cheap imports after 1980. A dollar revaluation in 1995 squeezed American manufacturers all over again -- but consumption and investment kept booming for a few years because of a "wealth effect" caused by inflated stock prices. However, since profits were actually declining while the stock market was going into orbit, the good times couldn't last forever. The huge investment in telecom and IT turned out to be overinvestment, contributing to the problem of overcapacity and leading to the recession of 2002.

In all, Brenner's book is a fascinating, neo-Marxist view of the economy, which poses a deep challenge to the prevailing "triumphalist" view of markets. The focus on profits as the key driver of economic performance is refreshing and realistic. I gave the book 4 stars instead of 5 only because the writing is unbelievably dry -- the book, basically, is a 300-page analysis of official statistics -- and because Brenner doesn't give provide much political context for his economic analysis.

The historian Robert Brenner's view is broader and deeper than academic economists' editorials in major US papers can be, his writing is accessible to the nonprofessional and to re-read passages is to have understanding grow on you. His insights are vital for his peers, for educated Americans, for the citizens of this democracy, unless you believe that being represented by a republican form of government means you don't need to know where we came from and where we are headed. Knowledge, and the wisdom that hopefully results from sound teaching, is the only antidote to our society, and that of other modern capitalist societies, being at the mercy of the consequences of economic forces and imperfect government policy. The Boom and the Bubble was as interesting to me as the mousetrap game is to children who see the seesaw connections between cause and effect.

Brenner's useful study of the US economy was written before the current crisis began. He shows how from 1973 to 1995 the US economy stagnated. Then in 1995 the stock market soared, creating the biggest financial bubble in US history. The bankers and their pet politicians pretended that productivity gains were driving equity prices up, but actually it was the higher equity prices that were driving equity prices ever higher. So the financial boom did not lift the real economy - there was a 25% decline in the rate of profit in manufacturing in 1997.

Speculative bubbles in equities, land and building cannot drive an economy forward. Services cannot do it either. Only the vital manufacturing sector can drive an economy forward.

The credit crunch is not new. In 1998, Long-Term Capital Management, a leading US hedge fund, was in crisis, so the Federal Reserve tried to bail it out. It lowered interest rates three times, trying to raise the paper wealth of companies and households, to get them to borrow more.

So companies borrowed record sums for mergers and acquisitions and to repurchase their outstanding equities. This massive borrowing, by driving up share prices, also lifted top executives' stock options. Under current tax law, companies pay less tax on their capital gains than on dividends, they can completely write off interest payments against tax, and they can deduct the costs of stock options from their income. So many big companies pay no tax at all.

Capitalism now depends more on private debt, corporate and consumer, than on our wages and therefore believes it does not need a working class to produce wealth. But this privatised Keynesianism, whereby private debt is supposed to increase demand, stimulate investment and so restore the rate of profit, does not work.
Even the current record levels of corporate and household debt have not fuelled an economic recovery.

Class struggle is always with us - the capitalist class wages class war by increasing their profits and attacking our wages and conditions, even if sections of the working class sometimes think they can duck out of struggle.