It’s a week late for an end-of-year report, but I do everything late. I didn’t have a kid til I was 53. Let’s think of it as a turn of the year report.

Everyone else has already pointed out that it was quite a year, so I won’t. The contrast between the political and economic moods were starker than I can ever remember. In the political realm, everyone from David Brooks to the Communist Party is giddy over the imminence of the Obama regime. But in the economic realm, well the Intrade depression contract is now trading around 30, which means that the betters on this Irish electronic futures exchange think there’s a 30% chance that the U.S. economy will contract by 10% or more this year. A week or so ago, it was at 15%. My own guess is that 15% is closer to the mark, but the fact that such a thing exists and we’re talking about it is pretty extraordinary.

Since there’s a psychological appeal to taking pain before pleasure, and not only if your name is Severin, let’s talk first about the economy. The financial crisis followed by the sharp fall in the real economy were stunning. There’s no other word for it. It certainly can’t be called a surprise—economies plural, not just the U.S., have been playing with fire for a couple of decades. No one can really be shocked by exploding derivatives, busted hedge funds, or the rottenness of the Christmas retail season. No one except maybe the people who were in charge of these things, who seemed to think that everything was OK.

It’s common, though, to think of all this fire play as a bad decision, produced by bad politics, or bad thinking, or individual greed. It was all of those things of course, but more too. Capitalism, as Gore Vidal concisely put it once, needs low costs and strong markets. Reconciling those conflicting needs is its perpetual task. That’s not the same as saying it’s impossible. There are certain kinds of Marxists who think that problems like this are critical faults that will ultimately bring down the whole pig system.

Some go further and claim that the crisis is already here. Writers like my friend Patrick Bond argues that capitalism has been in crisis for something like the last 30 or 40 years, after the postwar boom began to fray. Since the postwar boom lasted about 25 years, that would mean that capitalism has been in some sort of crisis for something like 50 out of the last 75 years, a period when real GDP grew by almost 1300%. Raising Bond considerably, James O’Connor, a man I admire a great deal for his writing on fiscal politics and political ecology, once told me that capitalism has been in crisis since the 13th century.

I don’t get this. How a system that has transformed the world utterly, for century after century for something like the last seven, can be described as being in a crisis is beyond me. The thing is often brutal and viciously unstable, but that’s not its crisis, that’s its version of health.

And despite the crisis tendencies of so many Marxists, Marx himself wrote this in the Grundrisse: “Those economists who, like Ricardo, conceived production as directly identical with the self-realization of capital — and hence were heedless of the barriers to consumption or of the existing barriers of circulation itself…having in view only the development of the forces of production and the, growth of the industrial population — supply without regard to demand — have therefore grasped the positive essence of capital more correctly and deeply than those who, like Sismondi, emphasized the barriers of consumption…. The former more its universal tendency, the latter its particular restrictedness.” Apologies for the fragmented nature of that—the Grundrisse, though a glory to read, is a set of notebooks, not a polished work of prose. But the point is that capitalism, throughout its history, has always managed to overcome the barriers to its expansion, as impossible as that might have seemed at times. That’s worth remembering now that the system looks to be in a box. And it’s worth remembering when you hear people say that capitalism can’t overcome the environmental crisis. Maybe—nothing is forever. But if capitalists can find a way to make money off solving the environmental crisis, that may be in accord with what Marx called capital’s universal tendency. What capitalism can’t solve are poverty, maldistribution, and alienation; those are also part of its universal tendency. Those can only be solved by politics—by wrestling those universal tendencies to the ground.

Ok, back from that theoretical excursion, though it does provide a framework for what I’m about to say. In the late 19th century, capitalism repeatedly faced serious crises—financial panics and economic depressions. During the last three decades of the 19th century, the U.S. economy spent almost half its time in recession or depression. One of the reasons for that was the deeply constricted purchasing power of the working class: wages were very low, and there was no way that workers could buy what they made. Yet despite that constraint, the economy grew an average of 4% a year, though the ups and downs were wild. The U.S. grew from an agricultural backwater, at least in comparison to Britain, into a major world industrial power. Workers often labored under horrendous conditions, even in good years—though of course the rich lived very very well in that, the First Gilded Age. The relentless pressures of deflation and recurring crises gave rise to the Populist movement in the countryside, and to socialist and radical labor movements in the cities, which were often violently suppressed.

The economic and political volatility of the late 19th century led to the reformist Progressive movement of the early 20th. Though it stole some of the anticorporate rhetoric of the radicals, capital-P Progressivism, embodied by the blustering macho imperialist figure of Teddy Roosevelt, was a largely successful attempt to rationalize capitalism into something more stable and sustainable. It worked, for a while, though in many ways the boom of the 1920s was a return to the reckless, massively unequal style of the First Gilded Age. But despite their rampant excesses, both the Gilded Age and the Roaring Twenties were driven by real technological developments—steel and railroads in the first, and cars and radio in the second. The 20s also saw the early development of consumer credit, on which more in a bit.

But the 1920s boom crashed famously in 1929, ushering in the greatest economic crisis in the history of capitalism. That crisis was both economic and political—the economic part is obvious, but it’s easy to forget how discredited the private ownership of the means of production looked in the 1930s. But that discrediting was greatly aided by the existence of the Soviet Union. I don’t need anyone to tell me that Stalin was a monster and the Soviet system was abominable in many ways, but its existence was evidence that an economy could be organized in a radically different way. And domestically, we had an active Communist Party—and again, I don’t need anyone to remind me of its shortcomings, but such reminders aren’t our most urgent historical task at the moment—which helped organize unions and tenants. We wouldn’t have had rent control in New York had it not been for the Communist Party. And now that the CP is a fading memory, so is rent control.

That joint political and economic crisis led, of course, to the New Deal. The New Deal never spent enough to get the U.S. out of Depression, though there were some years of strong growth in the mid-1930. It took World War II to force the level of government spending necessary to end the slump. But the institutional changes of the New Deal were the foundation of the post-World War II economic order. Broad wage growth and an expanding public sector helped drive a couple of decades of strong growth and a lessening of inequality.

Nothing lasts forever, though. Capitalism doesn’t like broad income gains and a lessening of inequality for too long. Workers gain confidence, and start expecting too much. If the unemployment rate gets too low, work discipline suffers and, as the Polish economist Michal Kalecki once put it in a classic essay on the political impossibility of full employment, the sack loses its sting. (Sack, of course, as in getting the sack, not sack of potatoes.) Sure enough, the profitability of U.S. capital peaked in the mid 1960s and began a long decline. And inflation began an unprecedented uptrend. The situation was untenable from the elite’s point of view.

And so beginning in the late 1970s, the ruling class pushed for a new approach to economic policy, one that would break the confidence of the working class, and restore the sting to the sack. Paul Volcker took the reins at the Federal Reserve in 1979 and promptly drove interest rates up toward 20%, creating the deepest recession since the 1930s. A little over a year later, Ronald Reagan moved into the White House and broke unions and smashed the welfare state. Inflation fell, corporate profitability rose, and the financial markets launched a 25-year orgy.

That strategy of restoring profitability through wage cutting brings us back to a familiar contradiction, the one pungently summarized by Gore Vidal. It’s good for lowering costs, but not strengthening markets. You can’t sustain a mass consumption economy that way. And so borrowing—credit cards and mortgages—made up the shortfall. What wages couldn’t buy, borrowed money could. It worked very well, on its own terms, for a couple of decades. With the collapse of the housing boom, it stopped working, and it doesn’t look like it’s going to be revived.

So where do we go from here? My guess is that we’re about to embark on a major systemic renovation. Though everyone is pointing to FDR as the model, they may be looking at the wrong Roosevelt—there could be a lot of Teddy mixed in. Meaning a corporate-led reconstruction, and not so much social democracy.

But recall that both Rooseveltian reconstructions, Progressive Era and New Deal, were prodded by rebellions from below. We don’t have that this time, though that could change. In fact, I’m hoping that by having the state inject itself so massively and explicitly in the economy, the political terrain will inevitably change, and along with it, popular expectations. And who knows where that will lead.

I said at the beginning of all this that the optimism in the political realm was the opposite of the despair in the political. Much of that optimism is misplaced—Barack Obama is no radical, nor is he even an FDR. (Though it must be said that FDR himself was no FDR when he ran in 1932; circumstances changed him.) Escalating the war in Afghanistan looks like a very bad idea, and I’d be shocked if Obama did anything to rein in Israel’s horrific war on Gaza. People around Obama are talking about creating a domestic intelligence agency—a CIA for the home front. In other words, less of a departure from George W. Bush than many expect. But I have to admit that on the economic stimulus, Obama and his advisors, particularly Larry Summers, have been saying the right things. In an op-ed piece in last Sunday’s Washington Post, Summers—who, in the past, has proven himself a fairly hateful defender of the status quo, whose worst offense was probably his 1991 description of Africa as vastly underpolluted—made several important points. These include:

1) “In this crisis, doing too little poses a greater threat than doing too much.”

2) But any short-term plan to jump-start job growth wouldn’t be enough—we also need to tend to the medium and long term. That means, says Summers, repairing our rotting physical infrastucture, building schools, and developing clan forms of energy. These are forms of investment, oriented towards the future. Merely stimulating consumption wouldn’t do us much good, because we have to rebuild the productive side of our economy, which has been rotting.

Summers doesn’t put it this way, but one of our longer-term economic problems has been the lack of a driving new industry—like steel and railroads in the Gilded Age, or radio and cars in the Roaring Twenties, or auto-driven suburbanization in the 1950s and 1960s. (I’m no fan of the latter, but it did generate a lot of growth.) We don’t have that now. It’s quite possible, though, that clean energy and other environmentally friendly technologies could become the motor of a fresh wave of growth in the coming years. It won’t happen spontaneously, though—it needs the prodding of the state. And whatever their other shortcomings, and they are many, it looks like the gang about to take office understands that. It will be the job of people like us to push it in a more humane, egalitarian direction. But at least we won’t be beating entirely against the current.