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.

5 Comments on “Consumption: a response to Michael Roberts

  1. Abstract calls for revolution certainly don’t cut it. But focusing on the short term and ignoring long-term strategy doesn’t cut it either. We certainly need to fight for higher wages, less inequality, drastically reducing the use of fossil fuels, and lots of other things in the here and now, but we also need to figure out a way to unite those struggles into a movement that can make much bigger demands on the system and eventually change it. If that was easy, we’d have socialism already, but the fact that it’s hard doesn’t make it any less essential. The alternative is one variety or another of capitalist barbarism, not in the long-term but in our lifetimes.

  2. Isn’t the debate of consumption versus profits a bit little chicken or the egg ? It’s a circular system and each influences the other.

  3. The distance between DH and MR looks pretty wide, to me. FWIW, I’m glad DH didn’t use his space in the NYT to repeat Marxist boilerplate about the need for a new system. The question is whether Marxian thinking is needed to explain what’s wrong with this system. It as, as DH showed.

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