The Global Capitalist

Crisis:
Its Origins, Nature and Impact
Prof. Berch Berberoglu
Department of Sociology
University of Nevada, Reno

Copyright 2011 by Berch Berberoglu

No part of this power point presentation can be used for any purpose without prior
written authorization and permission obtained from the author.

Introduction

The U.S. and the global economy have been and

continue to be in serious crisis, and the current
global recession is the worst economic downturn
since the Great Depression of the early twentieth
century

The Dow Jones plunged more than 50 percent from

its highs of 14,000 in late 2007 to below 6,500 in
early 2009, with more than a trillion dollars of
value lost
in the stock market in little over a
year

Although the Dow rose to around 12,500 a

little over two years after its worst decline,
the recent turmoil on Wall Street over the past
two weeks, which pushed the Dow down to
the the 10,000 level could make things worse a
double-dip recession turning into a depression

Clearly, the global capitalist economy is

going through its deepest crisis since the
Great Depression of 1929, and this
signals serious challenges for global
capital over the next decade, especially
for the United States

The best example of this impact, and what

is in store for us over the next few years,
is what has been happening with the
sovereign debt crisis in Greece, Portugal,
Spain, Ireland, and Italy, as well as the
United States (and with what has
happened to the icons of U.S. big business
General Motors, AIG, Citigroup, and
other big corporations and banks)

Lets take a brief look at these oncepowerful icons of the U.S. economy to
assess the magnitude of the damage

Figure 1. Lehman Brothers stock, 2007-2011 (in dollars and volume traded)
$80

$18

4 cents

Source: Yahoo Finance http://finance.yahoo.com retrieved August 19, 2011.

Figure 2. General Motors Corporation stock, 2007-2011 (in dollars and volume traded)
$40

$5

$1
4 cents

Source: Yahoo Finance http://finance.yahoo.com retrieved August 19, 2011.

Figure 3. Citigroup, Inc. stock, 2007-2011 (in dollars and volume traded)

$55

$26

$2.68

Source: Yahoo Finance http://finance.yahoo.com retrieved August 19, 2011.

Figure 4. American International Group stock, 2007-2011 (in dollars and volume traded)

$1,450

$1,000
0

$600

$22

Source: Yahoo Finance http://finance.yahoo.com retrieved August 19, 2011.

Figure 5. Fannie Mae stock, 2007-2011 (in dollars and volume traded)

$50

$22

20 cents

Source: Yahoo Finance http://finance.yahoo.com retrieved August 19, 2011.

Figure 6. Freddie Mac stock, 2007-2011 (in dollars and volume traded)

$70
$63

$32

31 cents

Source: Yahoo Finance http://finance.yahoo.com retrieved August 19, 2011.

Origins of the Crisis

The periodic crises resulting from the

capitalist business cycle now unfolds at the
global level
The current crisis of the world economy is
an outcome of the consolidation of economic
power that the globalization of capital has
secured for the transnational corporations
This has led to a string of problems associated
with the financial, banking, real estate, and
productive sectors of the economy that
have triggered the current economic crisis

Nature of the crisis

The central problem of our present capitalist

economic system is the recurrent business
cycle which is now operating at the global
level. It manifests itself in a number of ways,
including:
The problem of
overproduction/underconsumption
Increasing unemployment and
underemployment
Decline in real wages and rise in super-profits
The sub-prime mortgage and credit card debt
Speculative corporate financial activities
Increased polarization of wealth and income

Table 1. Share of Aggregate Income Received by Each Fifth and Top 5 Percent
of Households, 1975 to 2009 (in percentages)
_____________________________________________________________________
Lowest
Second
Third
Fourth
Highest
Top
Year
20%
20%
20%
20%
20%
5%
_____________________________________________________________________
1975

4.3

10.4

17.0

24.7

43.6

16.5

1980

4.2

10.2

16.8

24.7

44.1

16.5

1985

3.9

9.8

16.2

24.4

45.6

17.6

1990

3.8

9.6

15.9

24.0

46.6

18.5

1995
21.0

3.7

2000

3.6

8.9

14.8

23.0

49.8

22.1

2005

3.4

8.6

14.6

23.0

50.4

22.2

9.1

15.2

23.3

48.7

2009
3.4
8.6
14.6
23.2
50.3
21.7
______________________________________________________________________
Source: U.S. Bureau of the Census, Current Population Reports, P60-235, August 2008;
Statistical Abstract of the United States, 2012 , Table 694, p. 454.

Table 2. Distribution of Wealth in the United States, 2007, by Type of Asset

(in percentages)
__________________________________________________________________
Investment Assets
Top 1%
Top 10%
Bottom 90%
__________________________________________________________________
Stocks and mutual funds
49.3
89.4
10.6
Financial securities
60.6
98.5
1.5
Trusts
38.9
79.4
20.6
Business equity
62.4
93.3
6.7
Non-home real estate
28.3
76.9
23.1
__________________________________________________________________
Total for group
49.7
87.8
12.2
__________________________________________________________________
Source: Edward N. Wolff, Recent Trends in Household Wealth in the United
States: Rising Debt and the Middle Class Squeeze, Working Paper No. 589 (March
2010), p. 51.

How Did All This

Happen?
According to Prof. Richard D. Wolff

Department of Economics, University of Massachusetts at Amherst

Richard D. Wolff, Capitalism Hits the Fan, in Gerald Friedman et al. (eds.), The Economic Crisis Reader (Boston: Dollars & Sense,
2009).

From 1820 to 1970, every decade U.S. workers

experienced a rising level of wages
In the 1970s this came to an end; real wages
stopped rising and they have never resumed
since
U.S. workers became more productive, but got
paid the same; wages began to stagnate and
decline
The gap between labor and capital grew bigger

1859

69

79

89

99

1909

19

29

1939

1947

1955

1965

1975

1985

1995

2005

The large corporations made huge

profits and had much money at their
disposal
They bought other corporations
(mergers and acquisitions) and they
put their money into banks
The banks loaned that money (with
interest) to workers who didnt have
money to consume
This was done to raise their

Then What?
Since employers no longer raised
workers wages, the workers had to go
into debt to survive
Debt went up and up and things got
out of control
The banks continued to loan money
through new loans (secondary
mortgages) at high interest rates, and
this was a profit bonanza for the banks
As corporations increasingly began to
invest abroad (outsourcing
production
and services),

Unemployed workers with a lot of

debt
were unable to make their
mortgage and
credit card
payments, and this led to
foreclosures and bankruptcies
This, in turn, led to the collapse of
the banking system,
necessitating a
government
bailout of the banks
It is only through the nearly trillion
dollar stimulus funds that the U.S.
government poured into the economy

Heres a view of the housing bubble in 2006 by looking

at the stock chart of one home builder Hovnanian
Enterprises (HOV)
Stock price: $70 per share in 2006; $1.30 per share in 2012.

$ 70

Source: http://finance.yahoo.com retrieved on December 28, 2011.

Extent of the Crisis

The current economic crisis has been deep and

widespread on a global basis, especially in the
U.S.
In the epicenter of the crisis, in the United
States, unemployment increased from 7 million
in December 2007 to 16 million in October 2010
Counting the discouraged and part-time workers,
the unemployment rate reached 18% in 2010
Foreclosures have been running over 1 million a
year
Poverty is on the rise (now 44 million Americans

1 in 7 live at or below the poverty line)

With the steady decline of the manufacturing sector in the United States
through outsourcing of production to cheap labor areas abroad, 2.9
million well-paying manufacturing jobs have disappeared in the period
2005-2008 alone. And thats on top of a loss of more than 3 million jobs
in manufacturing from 1998 to 2003, with millions more lost in the
entire postwar period.

Long-term Unemployment and

Underemployment (as of January 2011)

The mean unemployment duration was 36.9

weeks, and the median was 21.8 weeks.
The share of unemployed workers who
have been without work for over six months
was 43.8%, one of the highest on record.
A total of 6.2 million workers have been
unemployed for longer than six months.
There were 25.1 million workers who were
either unemployed or underemployed.

Average Annual Unemployment Rate, 20072010 (in percent)

Source: Bureau of Labor Statistics.

Today, the labor market remains 8.1 million

jobs below where it was at the start of the
recession over three years ago in December
2007.

This number vastly understates the size of the

gap in the labor market because keeping up
with the growth in the working-age population
would require adding another 3.4 million jobs
over this period.

Thus, with the above 9% unemployment rate

today, the labor market is now 11.5 million jobs
below the level needed to restore the prerecession unemployment rate of 5.0% in
December 2007.

So, to achieve the pre-recession unemployment

rate in five years, the labor market would have to
add 285,000 jobs every month for the next 60
months.

But, more importantly than that, beyond the

impact of the great recession and the slow
recovery in the years ahead, the big issue is the
impact of globalization on the labor force
structure and job creation in the United States

And that will depend in large part how the

problem of outsourcing is addressed in
conjunction with the role of the state in providing
stimulus funds to create jobs in the public sector
jobs that private industry is unable or unwilling
to create in the era of neoliberal globalization.

A boom in corporate profits, a bust in jobs,

wages
Economic disconnect: Corporate profits surge while jobs and
wages
remain at recession levels
Paul Wiseman, AP Economics Writer, Friday, July 22, 2011.

WASHINGTON (AP) -- Strong second-quarter earnings from McDonald's, General Electric

and Caterpillar on Friday are just the latest proof that booming profits have allowed
Corporate America to leave the Great Recession far behind.
But millions of ordinary Americans are stranded in a labor market that looks like it's still
in recession. Unemployment is stuck at 9.2 percent, two years into what economists call a
recovery. Job growth has been slow and wages stagnant.
"I've never seen labor markets this weak in 35 years of research," says Andrew Sum,
director of the Center for Labor Market Studies at Northeastern University.
Wages and salaries accounted for just 1 percent of economic growth in the first 18 months
after economists declared that the recession had ended in June 2009, according to Sum
and other Northeastern researchers.
In the same period after the 2001 recession, wages and salaries accounted for 15 percent.
They were 50 percent after the 1991-92 recession and 25 percent after the 1981-82
recession.
Corporate profits, by contrast, accounted for an unprecedented 88 percent of economic
growth during those first 18 months. That's compared with 53 percent after the 2001
recession, nothing after the 1991-92 recession and 28 percent after the 1981-82 recession.
(For full text of this article, see the appendix at the end of this power point presentation).

A Second Great Depression, or Worse?

SIMON JOHNSON, Thursday, August 18, 2011
Simon Johnson, the former chief economist at the International Monetary Fund, is the co-author of "13 Bankers."
With the United States and European economies having slowed markedly according to the latest data, and with global growth
continuing to disappoint, a reasonable question increasingly arises: Are we in another Great Depression?
The easy answer is "no" - the main features of the Great Depression have not yet manifested themselves and still seem unlikely.
But it is increasingly likely that we will find ourselves in the midst of something nearly as traumatic, a long slump of the kind
seen with some regularity in the 19th century, particularly if presidential election-year politics continue to head in a dangerous
direction.
The Great Depression had three main characteristics, seen in the United States and most other countries that were severely
affected. None of these have been part of our collective experience since 2007.
First, output dropped sharply after 1929, by over 25 percent in real terms in the United States (using the Bureau of Economic
Analysis data, from its Web site, for real gross domestic product, using chained 1937 dollars). In contrast, the United States had a
relatively small decline in G.D.P. after the latest boom peaked. According to the bureau's most recent online data, G.D.P. peaked
in the second quarter of 2008 at $14.4155 trillion and bottomed out in the second quarter of 2009 at $13.8541 trillion, a decline
of about 4 percent.
Second, unemployment rose above 20 percent in the United States during the 1930s and stayed there. In the latest downturn, we
experienced record job losses for the postwar United States, with around eight million jobs lost. But unemployment only briefly
touched 10 percent (in the fourth quarter of 2009; see the Bureau of Labor Statistics Web site).
Even by the highest estimates - which include people discouraged from looking for a job, thus not registered as unemployed - the
jobless rate reached around 16 to 17 percent. It's a jobs disaster, to be sure, but not the same scale as the Great Depression.
(For full text of this article see the Appendix at the end of this power point presentation).

Which Way Out of the

Crisis?
Economic remedies to save the system from

collapse are bound to fail so long as they

remain within the framework of the existing
capitalist system
Changes that are required to revitalize the
economy and turn things around point to a
redistribution of wealth and income to
increase mass consumption
This would increase demand for consumer
goods, hence increase production, and create
jobs for the unemployed, as well as raising
revenue for the state through corporate and
individual income taxes

All these would require a restructuring of the

economy away from failed neoliberal corporate
capitalist policies and toward a new set of
priorities that promote the interests of working
people
Such restructuring requires the transformation of
our current capitalist economic system and the
existing social order in the direction of providing
greater rights and benefits to working people
And this would, in turn, benefit society greatly
and set us on a prosperous course that would
vastly improve living standards and pull us out of
the economic crisis

But, who listens ?

Thank You !

Appendix
Calculation of Rate of Surplus Value and Labors Share
of Production,
U.S. Manufacturing Industry, 1984 (in billions of
dollars)
__________________________________________________________
(1) Net Value Added by Manufacture
(value added less depreciation)
$931.1
(2) Wages
$231.8
(3) Surplus Value (1) minus (2)
$699.3
(4) Rate of Surplus Value (100 x (3) / (2))
302%
(5) Labors share (100 x (2) / (1))
24.9%
__________________________________________________________

Contact Information:
Prof. Berch Berberoglu
Department of Sociology
University of Nevada, Reno
Reno, NV 89557
E-mail:
berchb@unr.edu
Web Pages:
www.unr.edu/cla/soc/berchb.htm

Appendix

A boom in corporate profits, a bust in jobs,

wages
Economic disconnect: Corporate profits surge while jobs and
wages remain at recession levels
Paul Wiseman, AP Economics Writer, Friday July 22, 2011.

WASHINGTON (AP) -- Strong second-quarter earnings from McDonald's, General

Electric and Caterpillar on Friday are just the latest proof that booming profits have
allowed Corporate America to leave the Great Recession far behind.
But millions of ordinary Americans are stranded in a labor market that looks like it's
still in recession. Unemployment is stuck at 9.2 percent, two years into what
economists call a recovery. Job growth has been slow and wages stagnant.
"I've never seen labor markets this weak in 35 years of research," says Andrew Sum,
director of the Center for Labor Market Studies at Northeastern University.
Wages and salaries accounted for just 1 percent of economic growth in the first 18
months after economists declared that the recession had ended in June 2009,
according to Sum and other Northeastern researchers.
In the same period after the 2001 recession, wages and salaries accounted for 15
percent. They were 50 percent after the 1991-92 recession and 25 percent after the
1981-82 recession.
Corporate profits, by contrast, accounted for an unprecedented 88 percent of
economic growth during those first 18 months. That's compared with 53 percent after
the 2001 recession, nothing after the 1991-92 recession and 28 percent after the 198182 recession.

What's behind the disconnect between strong

corporate profits and a weak labor market? Several
factors:
-- U.S. corporations are expanding overseas, not so much at home.
McDonalds and Caterpillar said overseas sales growth outperformed
the U.S. in the April-June quarter.
U.S.-based multinational
companies have been focused overseas for years: In the 2000s, they
added 2.4 million jobs in foreign countries and cut 2.9 million jobs in
the United States, according to the Commerce Department.
-- Back in the U.S., companies are squeezing more productivity out of
staffs thinned by layoffs during the Great Recession. They don't need
to hire. And they don't need to be generous with pay raises; they know
their employees have nowhere else to go.
-- Companies remain reluctant to spend the $1.9 trillion in cash
they've accumulated, especially in the United States, which would
create jobs.
Caterpillar said second-quarter earnings shot up 44 percent to $1
billion. General Electric's second-quarter earnings were up 21 percent

Carl Van Horn, director of the Center for Workforce

Development at Rutgers University, says the housing market
would normally revive in the early stages of an economic
recovery, driving demand for building materials, furnishings
and appliances -- creating jobs. But that isn't happening this
time.
And policymakers in Washington have chosen to focus on
cutting federal spending to reduce huge federal deficits
instead of spending money on programs to create jobs: "If we
want the recovery to strengthen, we can't be doing that,"
says Chad Stone, chief economist at the Center on Budget
and Policy Priorities, a research group that focuses on how
government programs affect the poor and middle class.
For now, corporations aren't eager to hire or hand out decent
raises until they see consumers spending again. And
consumers, still paying down the debts they ran up before
the recession, can't spend freely until they're comfortable
with their paychecks and secure in their jobs.

A Second Great Depression, or Worse?

SIMON JOHNSON, On Thursday August 18, 2011, 5:00 am EDT

Simon Johnson, the former chief economist at the International Monetary Fund, is the co-author of "13 Bankers."
With the United States and European economies having slowed markedly according to the latest data, and with global growth
continuing to disappoint, a reasonable question increasingly arises: Are we in another Great Depression?
The easy answer is "no" - the main features of the Great Depression have not yet manifested themselves and still seem unlikely.
But it is increasingly likely that we will find ourselves in the midst of something nearly as traumatic, a long slump of the kind
seen with some regularity in the 19th century, particularly if presidential election-year politics continue to head in a dangerous
direction.
The Great Depression had three main characteristics, seen in the United States and most other countries that were severely
affected. None of these have been part of our collective experience since 2007.
First, output dropped sharply after 1929, by over 25 percent in real terms in the United States (using the Bureau of Economic
Analysis data, from its Web site, for real gross domestic product, using chained 1937 dollars). In contrast, the United States had a
relatively small decline in G.D.P. after the latest boom peaked. According to the bureau's most recent online data, G.D.P. peaked
in the second quarter of 2008 at $14.4155 trillion and bottomed out in the second quarter of 2009 at $13.8541 trillion, a decline
of about 4 percent.
Second, unemployment rose above 20 percent in the United States during the 1930s and stayed there. In the latest downturn, we
experienced record job losses for the postwar United States, with around eight million jobs lost. But unemployment only briefly
touched 10 percent (in the fourth quarter of 2009; see the Bureau of Labor Statistics Web site).
Even by the highest estimates - which include people discouraged from looking for a job, thus not registered as unemployed - the
jobless rate reached around 16 to 17 percent. It's a jobs disaster, to be sure, but not the same scale as the Great Depression.

Third, in the 1930s the credit system shrank sharply. In large part this is because banks failed in an uncontrolled
manner - largely in panics that led retail depositors to take out their funds. The creation of the Federal Deposit
Insurance Corporation put an end to that kind of run and, despite everything, the agency has continued to play a
calming role. (I'm on the F.D.I.C.'s newly created systemic resolution advisory committee, but I don't have anything
to do with how the agency handles small and medium-size banks.)
But the experience at the end of the 19th century was also quite different from the 1930s - not as horrendous, yet
very traumatic for many Americans. The heavily leveraged sector more than 100 years ago was not housing but
rather agriculture - a different play on real estate.
There were booming new technologies in that day, including the stories we know well about the rapid development
of transportation, telephones, electricity and steel. But falling agricultural prices kept getting in the way for many
Americans. With large debt burdens, farmers were vulnerable to deflation (a lower price level in general or just for
their products). And before the big migration into cities, farmers were a mainstay of consumption.
According to the National Bureau of Economic Research, falling from peak to trough in each cycle took 11 months
between 1945 and 2009 but twice that length of time between 1854 and 1919. The longest decline on record,
according to this methodology, was not during the 1930s but rather from October 1873 to March 1879, more than
five years of economic decline.
In this context, it is quite striking - and deeply alarming - to hear a prominent Republican presidential candidate
attack Ben Bernanke, the Federal Reserve chairman, for his efforts to prevent deflation. Specifically, Gov. Rick
Perry of Texas said earlier this week,,referring to Mr. Bernanke: "If this guy prints more money between now and
the election, I don't know what y'all would do to him in Iowa but we would treat him pretty ugly down in Texas.
Printing more money to play politics at this particular time in American history is almost treacherous - er,
treasonous, in my opinion.

In the 19th century the agricultural sector, particularly in the West, favored higher prices and effectively looser
monetary policy. This was the background for William Jennings Bryan's famous "Cross of Gold" speech in
1896; the "gold" to which he referred was the gold standard, the bastion of hard money - and tendency toward
deflation - favored by the East Coast financial establishment.
Populism in the 19th century was, broadly speaking, from the left. But now the rising populists are from the
right of the political spectrum, and they seem intent on intimidating monetary policy makers into inaction. We
see this push both on the campaign trail and on Capitol Hill - for example, in interactions between the House
Financial Services Committee, where Representative Ron Paul of Texas is chairman of the monetary policy
subcommittee, and the Federal Reserve.
The relative decline of agriculture and the rise of industry and services over a century ago were long believed
to have made the economy more stable, as it moved away from cycles based on the weather and global swings
in supply and demand for commodities. But financial development creates its own vulnerability as more people
have access to credit for their personal and business decisions. Add to that the rise of a financial sector that has
proved brilliant at extracting subsidies that protect against downside risk, and hence encourage excessive risktaking. The result is an economy that is at least as prone to big boom-bust cycles as what existed at the end of
the 19th century.