The First Great Depression of the 21st Century

The general economic crisis that was unleashed across the world in 2008 is a Great Depression. It was triggered by a financial crisis in the US, but that was not its cause. This crisis is an absolutely normal phase of a long-standing recurrent pattern of capitalist accumulation in which long booms eventually give way to long downturns. When this transition occurs, the health of the economy goes from good to bad. In the latter phase a shock can trigger a crisis, just as the collapse of the subprime mortgage market did in 2007, and just as previous shocks triggered general crises in the 1820s, 1870s, 1930s and 1970s. Those who choose to see each such episode as a singular event, as the random appearance of a ‘black swan’ in a hitherto pristine flock, have forgotten the dynamics of the history they seek to explain. In the 1980s, a new boom began in all major capitalist countries, spurred by a sharp drop in interest rates which greatly raised the net rate of return on capital, i.e. raised the net difference between the profit rate and the interest rate. Falling interest rates also lubricated the spread of capital across the globe, promoted a huge rise in consumer debt, and fuelled international bubbles in finance and real estate. Deregulation of financial activities in many countries was eagerly sought by financial businesses themselves, and except for a few countries such as Canada, this effort was largely successful. At the same time, in countries such as the US and the UK there was an unprecedented rise in the exploitation of labour, manifested in the slowdown of real wages relative to productivity. As always, the direct benefit was a great boost to the rate of profit. The normal side effect to a wage deceleration would have been a stagnation of real consumer spending. But with interest rates falling and credit being made ever easier, consumer and other spending continued to rise, buoyed on a rising tide of debt. All limits seemed suspended, all laws of motion abolished. And then it came crashing down. The mortgage crisis in the US was only the immediate trigger. The underlying problem was that the fall in interest rates and the rise in debt which fuelled the boom had reached their limits. How is it that the capitalist system, whose institutions, regulations and political structures have changed so significantly over the course of its evolution, is still capable of exhibiting certain recurrent economic patterns? The answer lies in the fact that these particular patterns are rooted in the profit motive, which remains the central regulator of business behaviour throughout this history. Capitalism’s sheath mutates constantly in order for its core to remain the same.

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