In Das Kapital, Marx proposed that Capitalism contained the seeds of its destruction within itself. The thesis was simple - the only motive recognised by Capitalism is profit. In his endless quest to maximise profits, the capitalist must reduce wages. The problem with this however, is obvious - every wage earning worker is also a consumer, the driving force of Capitalism. If the consumer has no money to spend, the machinery of Capitalism - industrial production - grinds to a halt, leading to even lower wages or mass layoffs, and even less expenditure in turn driving the economy deeper into a hole. Marx saw that this inherent contradiction would inevitably lead to the collapse of the system.
This downward spiral of the economy is starkly revealed today in the US. The quest for higher profit margins is driving more and more jobs - in the millions - abroad. Manufacturing is going to China, while the lower and mid level white collar jobs are going to India and other English speaking third world countries. Unemployment in the US is already affecting private expenditure, causing a recession. The American consumer, that most optimistic of creatures, is being cautious for probably the first time in generations.
One way to cure the recession is to give the people more money to spend. In the absence of wage increases from private employers, the only way to infuse cash in the economy is through tax cuts. This is being done by the current US administration. Tax cuts however, cause deficits. Deficit financing causes mid to long term pressure on interest rates, pushing them higher, thus making capital investment or economic expansion more expensive. So, tax cuts are really only a temporary measure, and risky, because unless the fresh infusion of cash succeeds in kickstarting the economy - a big if - the end result could be a deeper descent down the spiral of recession, coupled with higher cost of funds for industrial recovery through expansion. The result also impacts private spending, because private consumer credit becomes more expensive and thus less attractive. Higher credit rates mean less houses built or purchased, less cars purchased, less large consumer items purchased - more pressure on industry to produce less to match lower demand, and thus more layoffs, and even less consumer spending, etc etc.
Another way, and this has been tried before, is to institute federal command and control to stop profiteering, and create employment scemes for the unemployed. This was essentially what FDR did with his "New Deal" during the Great Depression. In fact, the "New Deal" was nothing more than a food for work labour program, like the Gramin rozgar Yojana, or JRY, or IAY or the scores of other such programs running in India at any given time. There is reason to believe that without the surge in demand created by the Second World War, the New Deal would not really have worked. The problem with this approach is that consumers blaoted on the excess of the 80s and 90s are unlikely to take willingly to such subsistence programs However, this is speculation.
Wars are another way for economic resurgence. However, they are also risky, in terms of unpredicatble outcomes, and nearly always result in increased national debt. The current Iraq and Afghanistan wars are cases in point, where only the defence industry is likely to benefit, but the larger economy remains disrupted because of the threat of terrorism, lowered public morale, and the huge expense of conducting the war adding to the already growing deficit picture.
To summarise, it does seem that Marx's thesis about the inherent contradictions of Capitalism was correct, and despite temporary transfusions by desperate leaders, the collapse of the capitalist economic system of the United States, and the larger world, seems inevitable. This is still a macro-economic overview, which could play out any which way in the end, because of intangibles, but even so, it has exposed the inherent vulnerability of the US economic system, which only a couple of years ago was touted as the world's most vibrant and unassailable.
It is useful to examine the possible effects or consequences for the rest of the world. As the American economy collapses, countries like China, Japan, and India which produce goods and services for American consumption, will also see economic hardship. Countries like the Phillipines, Indonesia, Thailand and Taiwan, which are symbiotically locked into the US economy are likely to see harsher collapses. Social unrest on an organised scale already exists in these countries or in their neighbourhood, and held at bay only by economic prosperity. Economic reverses are likely to make the insurgent movements in these countries stronger. Further, in such a scenario, Europe, which depends to a large extent on America for security, both internal and external, will also suffer destabilisation and unrest. This will further pressure the export oriented economies of South-east and South Asia.
Speculation about the disruptive social impact of such economic hardship in these societies is the stuff of nightmares. I think though, that instead of global chaos, what is more likely to emerge is a reoriented global trade system, focussed on emerging consumer economies in countries like Australia, South Africa and India. One would also like to see emerging trends favoring (a) conservation and (b) sustainable consumption. Whether this will really happen is again conjecture, based largely on the premise that humankind will learn from its mistakes. Our past record however does not favor this.
One way to cure the recession is to give the people more money to spend
Tax cuts however, cause deficits.
Originally posted by Paul Stevens:
Tax cuts by themselves do not cause deficits.
Even if that were true, federal employees do eventually retire. We could reduce the work force without firing anyone just by not hiring replacements for retiring workers. But that is not relevant anyway because the number of government employees steadily goes up. We can't even get it to remain level.
Originally posted by Paul McKenna:
A federal job is forever and I dont see the number of federal employees going down.
Karl Marx (1818-1883) did not have a theory of morality; he had a theory of history. Thus, Marxism was not about right or wrong but about what will happen in history. Marx was contemptuous of people who judged things in moral terms. When diehards say that Marxism has actually never been "tried" (despite what Lenin, Stalin, Mao, Castro, Ho, and Daniel Ortega thought they were doing), they don't understand that Marxism was not a rule for behavior or a program for action; it was supposed to be the theory of a deterministic mechanism that will produce the future, a theory of actions that will arise spontaneously because of historical circumstances. This was not a theory about "human nature" or "human psychology" , but about how the mode of economic production (how goods and services are produced) determines all the other political, social, cultural, and moral structures of a society. The needs of the "English petty bourgeois" are thus not "false needs" , however dismissive Marx sounds, but true needs in relation to a capitalistic mode of production -- needs which will change over time, in a historicist sense, as the mode of production changes. As a "science" of history, Marxism would succeed or fail to the extent that it could actually predict the evolution of production and its various effects.