Consumption: a response to Michael Roberts
Michael Roberts writes in response to my piece on Marx:
However, Henwood reckons the current crisis is the result of inequality and low wages reducing consumption and thus the answer is to raise wages and public spending. The problem with this view of Marx is that it does not match the facts: consumption did not slump at all prior to the Great Recession: it was the collapse of the housing market, profits and then investment, not consumption. Raising wages and reducing inequality will help the majority but lower profitability further and thus reignite the capitalist crisis. It’s not higher shares for labour that is the answer but the replacement of the capitalist mode of production.
I’m all for the latter, but it’s a tall order. It’s one for the long run, and as the man said, in the long run we’re all dead. Keynes said that in response to the mainstream prescription for high unemployment, which is to do nothing because capitalism’s marvelous tendency towards equilibrium will take care of the problem in the long run. Sometimes I feel the same ways about these calls for revolution. The same with climate change. In the long run, revolution will take care of things, but in the short-to-medium run, things look fairly bleak.
But I never argued that consumption declined before the Great Recession. On the contrary, it was a record share of GDP during the 2001–2007 expansion, 67.3%, 7 points above the 1950s and 1960s averages. I said that borrowing was used to offset stagnant or declining incomes to sustain mass consumption:
[A] system dependent on high levels of mass consumption has a hard time coping with the stagnation or decline in mass incomes…. Borrowing sustained the mass consumption model for a few decades. Non-rich households borrowed to buy cars, buy food, pay medical bills, buy ever-more-expensive houses, and so on. Conveniently, rich households had plenty of spare cash to lend them. That model broke apart in 2008 and has not — and cannot — be revived. Without the juice provided by spirited borrowing, demand remains constricted and growth rates, low. (See also: Europe.)
A footnote: I didn’t have the space, but mass consumption is necessary not only to the pre-existing economic model, it’s politically essential for legitimating a brutal and unstable system. So far, the bourgeoisie has managed to keep discontent well-bottled, but you never know how long their luck will continue.
A second footnote: the consumption figure is inflated by medical expenditures that are paid for by third parties like insurance companies. Such expenditures are treated as consumption in the national income accounts; take those away, and consumption looks a lot weaker. More on that soon.