Einstein reputedly said that you can’t solve problems with the same level of thinking that caused them in the first place. The political and economic establishments tasked to deal with problems, unfortunately, do so by intensifying the very forces that led to the crisis; as Ivan Illich put it, they “attempt to solve a crisis by escalation.”[1] They do so because the current problems are a byproduct of the pursuit of institutional self-interest by the people who direct this society. So any “responsible” and “moderate” solution will, by definition, be one that can be implemented through the institutions those people run, without any fundamental structural changes; and any solution that directly addresses the structural causes of the problem will, by definition, be “extremist.” Sociologist C. Wright Mills’ memorable term for that mindset was “crackpot realism.”
The crackpot realists have been busy lately, feverishly promoting bailouts to preserve the “industrial infrastructure.” Their vision of how to restore “the economy,” naturally, amounts to a return to an economic “normalcy” defined by giant corporations and mass consumer society.
The problem is, the present model of industrial production is about as sustainable as the Titanic. It came into existence only through government policies to subsidize the operating costs and inefficiencies of big business, and a regulatory framework (including ”intellectual property”) to protect it from competition. And that industrial model is hitting a wall, a systemic crisis, in which government will no longer have the resources to subsidize inputs at the level at which they are demanded.
The present industrial model, identified with GM’s Alfred Sloan and celebrated by Alfred Chandler, is based on enormous market areas and costly, product-specific machinery. The only way to keep the unit costs of such machinery down is large-batch production to utilize full capacity, and then worrying about making people buy it only afterward (commonly known as “supply-push distribution.”[2] So Sloanist industry, under ”Generally Accepted Accounting Principles,” produces goods to sell to inventory, regardless of whether there are orders for it or even of whether the product works, and has an astronomical recall rate.[3] It follows a business model based on consumer credit and planned obsolescence to keep the wheels running. As Ralph Borsodi described it, the push distribution system required by Sloan-style mass production amounted to making water run uphill.[4] The overall logic of the system is that instilled by hypnopaedic suggestion in Brave New World: “Ending is better than mending.” “The more stitches, the less riches.”
The state capitalist system has been plagued by chronic crises of overaccumulation and underconsumption since the crisis of the 1890s.[5] These crises were the main force behind the growth of big government in the 20th century. The U.S. government pursued a policy of what William Appleman Williams called “Open Door Imperialism,”[6] forcibly opening markets to provide American industry with an outlet for excess goods and capital. Domestically, government resorted to Keynesian policies of aggregate demand management and redistribution of purchasing power, in order to mitigate the problem of underconsumption. Government also directly purchased the corporate economy’s surplus output, as described by Paul Baran and Paul Sweezy.[7] When these tendencies culminated in the Depression of the 1930s, American state capitalism was saved from its systemic crises only because the great powers blew up most of the industrial capital outside the U.S. The war also nationalized around half of U.S. productive capacity and created a permanent war economy that has helped to absorb surplus output ever since. In the postwar period, the U.S. government found new ways to absorb surplus capital and output: among them the government-financed building of the Interstate Highway System, the mass suburbanization associated with it, and the creation of entire new industries. The latter industries, created almost entirely through government-funded R&D during and after WWII, and/or whose existence was possible only through the action of government in guaranteeing a market for their product, included civilian jumbo jets, microelectronics, cybernetics, and the use of automated control systems for machine tools.[8]
The cumulative effect of these policies postponed the day of reckoning and earned ”consensus capitalism” a generation or so of extra life, until around 1970 or so when the rest of the world had rebuilt its plant and equipment. Since then neoliberalism, globalization, the creation of the tech sector, the housing bubble and intensified suburbanization, and the expansion of the FIRE economy (finance, insurance and real estate) have served as successive expedients to soak up surplus capital. [9]
It was after the collapse of the tech bubble that derivatives and securitization of debt really came into their own as surplus capital sponges. As Joshua Holland noted, in most recessions the financial sector contracted along with the rest of the economy; but after 2000 tech bust it just kept growing, ballooning up to ten percent of the economy.[10] We can see now how that worked out.
The problem is, there was barely enough demand to keep the wheels running and absorb the full product of overbuilt Sloanist industry even when everyone maxed out their credit cards and tapped into their home equity to replace everything they owned every five years. And we’ll never see that kind of demand again. So there’s no getting around the fact that a major portion of existing plant and equipment will be rust in a few years.
The crisis goes beyond the traditional problems of underconsumption and excess capacity that caused previous recessions, even in greatly intensified form. In the past, the state compensated for the falling rate of profit by subsidizing the inputs of big business and creating an artificial market for its surplus output. The corporate economy grew at least as much from extensive addition of inputs as from increased efficiency in its use of existing ones. And it directed a great deal of its productive capacity to selling goods to the state, for which there was no market demand.
But now, in addition to the crises of overaccumulation and underconsumption, the state is facing a crisis of inputs which limits its capacity to absorb costs in this manner. It’s a basic rule of economics that when you subsidize something, demand increases. The subsidized consumption of energy and transportation inputs led, as subsidies always do, to the exponential growth of demand, until the corporate economy’s demand for energy and transportation inputs has outstripped the state’s ability to subsidize them. And the state’s ability to increase energy inputs, in particular, has hit the wall of Peak Oil.[11]