Janet Yellen. The mainstream: meeting the historic challenges?

The "People's" Economist? Yellen raked in $7 million in 2 years from Wall Street Firms

by Michael Roberts

Recently, newly confirmed US Treasury secretary and former Fed chief, Janet Yellen, spelt out the challenges facing US capitalism in a letter to her new staff.  She said: “the current crisis is very different from 2008. But the scale is as big, if not bigger. The pandemic has wrought wholesale devastation on the economy. Entire industries have paused their work. Sixteen million Americans are still relying on unemployment insurance. Food bank shelves are going empty.”  That’s now; but ahead, Yellen says that there were “four historic crises: COVID-19 is one. But in addition to the pandemic, the country is also facing a climate crisis, a crisis of systemic racism, and an economic crisis that has been building for fifty years. “

She did not spell out what this 50-year crisis was. But she was confident that mainstream economics can find the solutions to these crises. “Economics isn’t just something you find in textbook. Nor is it simply a collection of theories. Indeed, the reason I went from academia to government is because I believe economic policy can be a potent tool to improve society. We can – and should – use it to address inequality, racism, and climate change.  I still try to see my science – the science of economics – the way my father saw his: as a means to help people.”

These are fine words. But is mainstream economics really designed to ‘help people’ improve their lives and livelihoods?  Indeed, is mainstream economics really offering a scientific analysis of modern economies that can lead to policies that can solve the ‘four historic challenges’ that Yellen outlines?

The failure of mainstream economics to forecast, explain or deal with the global financial crash and the ensuing Great Recession of 2008-9 is well documented – indeed see my paper here.  That hardly backs up Yellen’s claims.

Mainstream economics cannot deliver even on its own terms because it makes two basic assumptions that are not based on reality; one in so-called ‘microeconomics’ and one in so-called ‘macroeconomics’. As a result, mainstream falls down as a scientific analysis of modern (capitalist) economies.

First, there is utility theory and marginalism – and the resultant adoption of general equilibrium theory.  Where does ‘wealth’ come from in society and how do we measure it?  The classical economists, Adam Smith, David Ricardo etc recognised that there was only one reliable and universal measure of value: the amount of labour (hours) that is expended to produce goods and services. But this labour theory of value was replaced in the mid-19^th century by utility theory, or more precisely, marginal utility theory.

This became the dominant explanation for value.  As Engels remarked: “The fashionable theory just now here is that of Stanley Jevons, according to which value is determined by utility and on the other hand by the limit of supply (i.e. the cost of production), which is merely a confused and circuitous way of saying that value is determined by supply and demand. Vulgar Economy everywhere”.  But marginal utility theory quickly became untenable even in mainstream circles because subjective value (ie every individual values something differently according to their inclination or circumstance) cannot be measured and aggregated, so the psychological foundation of marginal utility was soon given up.  For more on the fallacious assumptions of mainstream value theory, see Steve Keen’s excellent book, Debunking economics, or more recently, Ben Fine’s critique of both micro and macroeconomics.

Engels called mainstream economics ‘vulgar’ because it was no longer an objective scientific analysis of economies but had become an ideological justification for capitalism.  As Fred Moseley has explained, “marginal productivity theory provides crucial ideological support for capitalism, in that it justifies the profit of capitalists, by arguing that profit is produced by the capital goods owned by capitalists. All is fair in capitalism. There is no exploitation of workers. In general, everyone receives an income that is equal to their contribution to production.” In contrast, “The main alternative theory of profit is Marx’s theory and the conclusions of Marx’s theory (exploitation of workers, fundamental conflicts between workers and capitalists, recurring depressions, etc.) are too subversive to be acceptable by the mainstream. But these are ideological reasons, not scientific reasons. If the choice between Marx’s theory and marginal productivity theory were made strictly on the basis of the standard scientific criteria of logical consistency and empirical explanatory power, Marx’s theory would win hands down.”

The ultimate logical result of this vulgar economics is general equilibrium theory, where it is argued that modern economies tend towards equilibrium and harmony. The founder of general equilibrium theory, Leon Walras, characterised a market economy as like a giant pool of water. Sometimes a rock would be thrown into the pool, causing ripples across it.  But eventually, the ripples would die out and the pool would be tranquil again.  Supply might exceed demand in a market through some shock, but eventually the market would adjust to bring supply and demand into equilibrium.

Walras was well aware that his theory was an ideological defence of capitalism.  As his father wrote to him in 1859, when Marx was preparing Capital, “I totally approve of your plan of work to stay within the least offensive limits as regard property owners. It is necessary to do political economy as one would do acoustics or mechanics.”  More recently, Nobel prize winner Esther Duflo gave a speech in 2017 to the American Economics Association in which she reckoned economists should give up on the big ideas and instead just solve problems like plumbers “lay the pipes and fix the leaks”. 

But do economies and markets really tend to equilibrium, if occasionally disrupted by ‘shocks’?  We only have to look at the gyrations in the stock markets of the world this week to doubt that.  Actually, modern economies are more like oceans with rolling waves (booms and slumps), with tides pulled by the gravity (profit) of the moon and storms (crashes) from the forces of the weather. There is no tranquility or equilibrium but continual, turbulent movement.  Marxist economics aims to examine the dynamic ‘laws of motion’ over time in modern capitalism; in contrast to mainstream economics where time stands still and any ‘disturbances’ are caused by ‘shocks’ external to ‘free’ markets.

Of course, some mainstream economists admit that marginal utility and general equilibrium theory is nonsense.  And occasionally some physicists of the ‘natural sciences’ attack the assumptions of mainstream economics. The latest critic is a British physicist Ole Peters who claims the Everything We’ve Learned About Modern Economic Theory Is Wrong.  What’s wrong is that mainstream economic models assume something called “ergodicity.” That is the average of all possible outcomes of a given situation informs how any one person might experience it.

Peters takes aim at mainstream utility theory, which argues that when we make decisions, we conduct a cost-benefit analysis and try to choose the option that maximizes our wealth. The problem, Peters says, is this fails to predict how humans actually behave because the math is flawed. Expected utility is calculated as an average of all possible outcomes for a given event. What this misses is how a single outlier can, in effect, skew perceptions. Or put another way, what you might expect on average has little resemblance to what most people experience. His solution is to borrow math commonly used in thermodynamics to model outcomes using the ‘correct average’.

Peters is saying that reality operates more often like ‘power laws’, where far from markets, wealth, employment etc tending towards the average, or towards the equilibrium, Walras-style; instead, inequality can increase to extremes, unemployment can rise not fall etc.  Outliers in the statistics can become decisive in their impact.

But it does not take us very far just to recognise uncertainty and chance and feed that into some mathematical model.  We need to base economic ‘models’ on the reality of capitalist production, namely the exploitation of labour for profit and the resultant regular and recurring crises in production and investment ie the laws of motion of capitalism. Marxist economist of the early 20^th century, Henryk Grossman perceptively exposed the failure of mainstream theories which are based on static analysis.  Capitalism is not gradually moving on (with occasional shocks) in a generally harmonious way towards superabundance and a leisure society where toil ceases – on the contrary it is increasingly driven by crises, inequality and destruction of the planet.

Instead, mainstream economics just invents possible exogenous causes or ‘shocks’ to explain crises because it does not want to admit that crises could be endogenous.  The Great Recession of 2008-9 was ‘a chance in a million’or an ‘unexpected shock’, or a ‘black swan, the unknown unknown, that perhaps requires a new mathematical model to account for these shocks.  Similarly, the COVID-19 pandemic is apparently an unforeseen exogenous ‘shock’, not a well forecast consequence of capitalism’s drive for profits from expansion into remote areas of the world where these dangerous pathogens reside.  But the mainstream does not require or want a theory of endogenous causes of crises.

At the level of macroeconomics, modern Keynesian theory has also been found wanting.  Modern Keynesianism (or ‘bastard Keynesianism’ as Joan Robinson called it) bases its analysis of crises in capitalism on ‘shocks’ to the equilibrium and uses Dynamic Stochastic General Equilibrium (DGSE) models to analyse the impact of these ‘shocks’.

Among others, Keynesian economic journalist Martin Sandbu has been running a little campaign against the DSGE approach. There is “little doubt that mainstream macroeconomics is in deep need of reform.” He says: “the question is how, and whether the standard approach, DSGE modelling, can be sufficiently improved or should be jettisoned altogether.” As Sandbu says, “DSGE macroeconomics does not really allow for the large-scale financial panic we saw in 2008, nor for some of the main contending explanations for the slow recovery and a level of economic activity that remains far below the pre-crisis trend.” Sandbu wants to plough on with “a more expansive and liberal form of DSGE”.

Recently he has praised the idea of so-called multiple equilibria as a standard feature of their core mainstream macro model ie “allowing that there are several different self-reinforcing states the economy can fall into, not just a single equilibrium around which it fluctuates. But with multiple equilibria, there is no single central tendency. If anything, there are several, and while one can give probability distributions around the precise outcome in each equilibrium, predicting in which equilibrium the economy will find itself is a different beast altogether.” Sanbu puts up this multiple equilibria approach as a method of getting better results from economics: “it becomes clear that by far the most important policy question is equilibrium selection: how to get the economy out of a self-reinforcing bad state, or prevent disruptions that tip it out of a good state.” But that sounds little different from general equilibrium models. And even worse, if there really are ‘multiple equilibria’ in modern economies then, says Sandbu, it “is something economists are not well-equipped to advise on.”

If that is so, then we cannot expect mainstream economics to meet the four historic challenges that Janet Yellen reckons capitalism faces.  What were they again?  Dealing with future pandemics; solving the climate crisis; ending inequality and racism; and the undefined 50-year crisis of capitalism (which is presumably the regular and recurring turbulence in capitalist production for profit).

We can only hope that Janet Yellen’s speeches to financial institutions in Wall Street, which has earned her over $7m in the last few years, provided these bastions of capital the solutions to those historic challenges.  But don’t hold your breath.

Capital Wars

by Michael Roberts

We’ve had the argument that the major global issue of the 21^st century is the growing trade and technology war between the US and China.  In their book, Trade Wars are Class Wars, Klein and Pettis reckon that the trade imbalances are cause by inequality and income and consumption in the two powers: China has ‘excess savings’ and the US has ‘excess consumption’.  I have argued that this argument is false in previous posts.

Now we have Capital Wars as an alternative scenario for the rivalry between China and the US.  The rivalry between the US and China in the economic sphere has so far been on trade and technology. There has been little comparable friction in financial markets. Indeed, as more Chinese stocks are incorporated into global indices, US investors have been pouring capital into China via their investment in index-tracking funds.

Yet that is unlikely to last, according to Michael Howell, a former research director of investment bank Salomon Brothers who now runs his own ‘boutique’. In Capital Wars he points out that the swap lines extended by the US Federal Reserve to other central banks after the 2008 financial crisis — an exercise repeated since coronavirus struck — have been extended to friendly nations, while China has been pointedly excluded. So the Fed’s role as a global lender of last resort has been both partial and politicised.

Howell reckons the nature of the relationship between these two powers is unbalanced. Despite its declining share of global output, the US is the main provider of the dominant reserve currency to world markets. But its economy is marked by low productivity growth along with highly developed financial markets. China has enjoyed high productivity growth as it catches up, but it has underdeveloped financial markets. Persistent trade surpluses have contributed to a huge accumulation of foreign exchange reserves: the majority is in dollar assets. All this creates a fractious interdependence.

China’s economic rise coincided with a long period of liberalisation in international financial markets. A central theme of Howell’s book is the ballooning of global liquidity — gross flows of credit, savings and international capital that facilitate debt, investment and cross-border capital flows. In 2019, this international pool of funds was estimated at $130tn, two-thirds larger than world GDP. China’s contribution was close to $36tn.

There is nothing new in Howell’s insight here.  Indeed, several authors, including myself, have pointed out the huge rise in ‘liquidity’ ie money supply, bank credit, debt (both public and private) and debt instruments like derivatives, particularly since the early 2000s.

What is new is Howell’s emphasis on what new ways the financial system has found to expand what Marx called ‘fictitious capital’, ie financial assets supposedly representing future new value and profits.  Whereas banks used to rely on customer deposits to lend and speculate with; now the chief source of funds is not deposits, but repurchase agreements or ‘repos’, a form of borrowing that has to be backed by ‘collateral’ in the form of “safe” assets such as government bonds.

Howell argues, like others, that the financial system has moved from the post-war model, where banks were the main facilitators in lending.  They borrowed from their retail depositors and lent to individuals and companies. Today, wholesale markets predominate; and the main providers of funds are financial institutions and large companies such as Apple or Toyota. Users range from companies and banks to hedge funds and governments: non-bank finance or ‘shadow banking’.

Howell’s main argument is that the chief source of instability in the modern financial system has been a shortage of safe assets for these liquidity creators to hold as there was not enough government debt and the return was low anyway.  Indeed, before the 2008 financial crisis, investment bankers tried to invent new ‘safe assets’ such as collateralised mortgage obligations.  Of course, we now know that such assets were not ‘safe’ at all, but nothing but a giant Ponzi scheme of credit that turned out to be very ‘fictitious’ indeed in the global financial meltdown in 2007-9.

The question that Howell hints at is whether the huge injection of credit money by the Federal Reserve and other central banks to bail out companies and governments in the COVID pandemic slump will lead to a similar financial ‘shock’ in due course.  The difference now is that it is the state that is buying up these ‘safe assets’ directly, rather than the banking or shadow banking system as in 2008-9.  Nevertheless, the size of central bank purchases of corporate and mortgage bonds, as well as government paper is so huge that, if there were to be substantial explosion of bankruptcies, the lender of last resort (central bank) – now turned into the first buyer for fictitious capital – may end up with huge losses for governments to absorb.

One merit of Howell’s book over others of the same ilk is that he offers an explanation of why there was this drastic change from ‘traditional banking’ to the ‘financialisation’ of government and corporate assets.  He puts the cause squarely at the collapse of profitability in the productive sectors of the economy.

Howell reckons that falling profitability in industrial capital led to rising global ‘liquidity’ and this contributed to declining interest rates across risk assets, leading to the search for safe financial assets beyond government debt and into ‘repos’, to the detriment of productive investment.

Here Howell half grasps the story of the 30 years leading up to the global financial crash and the Great Recession. Unfortunately, despite referring to Marx’s analysis on occasion, Howell does not use it. Instead he falls back on the usual Keynesian macro-identities to explain why crises occur.  Thus, as with all Keynesian macro identities, profits disappear from the equations.

Howell takes the basic identity: savings = investment and revises it into his key equation: Liquidity = fixed investment plus the net acquisition of financial assets.  Liquidity is really profit plus credit in its various forms.  But for Howell, the driving force of modern capitalism is not the profit part of ‘liquidity’, however, -that’s old hat.  It’s the credit part.  For him, financial flows and the risk-taking behaviour of investors drive the real economy and asset prices, not vice versa.  More liquidity leads to more purchases of financial assets.  And more purchases of financial assets require more liquidity.  Thus, we move from a view of capitalism as a mode of production for profit, to capitalism as a mode of financial speculation and financial instability.  This theory is akin to the Minsky approach and the modern ‘financialisation’ theories.

For Howell, the coming war between the US and China will be fought not so much through trade or technology, but through financial flows and the control of international currencies as rival powers struggle to offer the ‘safest’ financial assets to global capital: eg the dollar or the renminbi?

There is clearly some truth in this.  If China were able to offer a strong and liquid currency to replace the dollar, US imperialism would be in serious trouble.  But a strong currency cannot be ‘created’ by financial markets; it comes about from the relative strength of the productivity of labour and value creation in an economy. That is where the economic war is centred; with trade, technology and financial being the battle grounds.  Value decides, not credit.

Keep On Moving! Homes on Wheels Not Wanted in Bay Area

Jason O'Neal, FFWP

Last night, I read an article published by Berkeleyside titled, Berkeley City Council tells RVs to hit the Road.  At first glance it appeared to be another perspective from a long list of narratives about the “blight” of motorhomes and RVs parking on public streets in the Bay Area.  As I continued to read the article I could see it pitted the “boon dockers” ( a common term for RVs that move from place to place with no permanent hookup) against the homeowners and businesses in Berkeley.  

Of course there were the quotes from elected city officials, some who cast dissenting votes in the 6-3 city ordinance approving the ban, but the end result is the same.  If you can’t afford to live in Berkeley, the city’s residents and leaders don’t want you there. And to think this is the same “liberal” Bay Area city that has a “socialist” campus which threatens free speech for conservatives (although Berkeley is far from a socialist school and neither of the individuals in the most recent altercation to gain national media coverage are students there).

What is missing from this story is that Berkeley is a city with almost 120,000 residents and has a median income of more than $70,000 a year.  When I moved there in the summer of 2015, my girlfriend and I earned less than half of that and a studio apartment was renting for $1,700 a month.  Transferring from a community college in San Diego, I was told by an anthropology professor to be prepared for the high cost of housing because she had to live in someone’s garage while receiving her PhD there.  

Two days before my first scheduled class, and with a few hundred dollars in my pocket, we set out for Berkeley in our used RV which we had purchased two weeks before.  My girlfriend and I were not married and we were not eligible for student housing together. We had spent close to a month looking for room shares without success and had limited options by this point.  I would later discover that this is all too common for students at America’s first-ranked public university. The University of California, Berkeley enrolls approximately 27,000 students every year, but has nowhere near the affordable accommodations required to house them all.  For those lucky enough to gain entrance into one of the dozens of co-op houses, prices might be reasonable. But, for those forced into campus-contracted student housing, many have to take on roommates or a part-time job to afford it. A friend of mine, who was also moving to Berkeley, checked in the day before classes without knowing exactly where they were going to live.  

During my two years at UC Berkeley (where I was a fellow student with council member Rigel Robinson) I met hundreds of students who lived in the housing surrounding campus.  Many were using student financial aid, with a sizeable sum forked over to property owners in the area. Some may say this is akin to Section 8 vouchers for low-income housing where the federal government is subsidizing landlords to house poor people.  However, there is one glaring detail about the alumni at Berkeley which was brought to my attention while I was a student there. Nearly sixty percent of the students are not using financial aid and their parents are paying full-price which can reach an upwards of more than $30,000 a year when housing is factored in.  Either way, the university attendance is injecting about $300 million dollars a year in rent money to the surrounding area, and this figure does not include graduate students or professors.

Needless to say, my housing allowances were not spent there.  With relatively few places to park in the entire Bay Area, we were left looking for alternatives.  Even those parks that did accept RVs had strict rules on how old a caravan could be. Most would not take motorhomes older than fifteen years.  My first disbursement of student aid was issued and we applied for several places to no avail.

Like the RV owners who are now shunned by the city, we were hoping to save on expenses needed to live in Berkeley.  I met a graduate student and an employee at the Lawrence Berkeley National Laboratory who were living in RVs next to People’s Park.  They had much smaller motorhomes which were easily moved from one block to the next, but my girlfriend and I did could not get that close to campus.  After nearly three weeks at a motel parking lot in El Cerrito, where we spent $20 a day, we found someone willing to let us park in their backyard in Concord.  It was more than twenty miles from campus, but we only had to pay $500 a month. Six months later our landlord was evicted and we moved to the old Naval Air Station at Alameda where we parked in a low-income housing collaborative for the same price.  Another six months went by before we were forced out of there and we ended up at an RV park in Oakley, which put us forty-five miles from campus. This is where we stayed for most of my final year at Cal.

I graduated in 2017 and after a few months we eventually moved back to San Diego and sold the motorhome.  We now live in Phoenix, AZ were our one bedroom apartment costs less than $700 a month including utilities.  Cheaper housing has come at a price, however, because the fifth largest city in the United States has an infrastructure built entirely on individual automobile ownership.  It feels like public transportation is light-years behind BART and AC Transit, although one of the contracted carriers is a multi-billion dollar international conglomerate.  But, that is another story.

My takeaway from the two years I spent in the Bay Area is that the rich liberals don’t want poor people around and the cost of living is out of reach for anyone working on minimum wage.  In Oakland there are tent cities under freeways and nearly 5,000 homeless people migrating through the East Bay. If one factored in those living in their cars and RVs, I am sure the number would be much higher.

It appears affordable housing isn’t even on the table for discussion in these communities. There is not enough money to be made for those in power. While city councils are brokering deals with real estate developers, to gentrify neighborhoods to raise property values with higher tax revenues, human beings are kicked out into the streets where it is getting harder to survive.  Keep in mind, many of them are retirees, or on disability, and have nowhere to go. With this new ban on overnight parking ordinance now in effect, RV and motorhome owners will be joining them. Unfortunately, Berkeley residents and the city council doesn’t care as long as it’s somewhere else farther down the road.  

Reasons Why the Green Party Will NOT Lead the Political Revolution

Jason O'Neal

Green Party Activist and former NTEU Steward

Will the Greens become another "bourgeoisie" party?

Anyone following the rising tide of organized mass protest movements in the United States will attest that the issues can at times become blurred and confusing.  For many Americans, life is a daily struggle to survive. 
Overwhelmed by a multitude of outlets for entertainment few Americans follow the daily news.  Corporate media companies run 24-hours a day with “breaking news” about Russia’s involvement in our elections or the latest Twitter rant by the degenerate occupying the White House.  And we must not forget the weekly shake-ups in the circus cabinet of the President.  With such a spectacle is it any wonder why so many Americans do not understand the importance of the many marches for better wages, women’s rights, healthcare, science, the environment, and police brutality on people of color? 

That said, however, the plight of millions of Americans is excluded from the conversation or even participation in the discussions provided by those channels covering these events.  Almost always depicted as a war between Democrats and Republicans, interpretations of the increased protest actions are biased to force voters to choose between one or the other.  A third option, like the Green Party, is always absent from the discussion.  Because of this, millions of Americans have practically given up on politics and who could blame them?  Elections have given them nothing more than a diminishing standard of living over the last fifty years.  As their children grew up, they watched both parents go to work.  When the factories were shut down and their jobs shipped overseas or replaced by automation, their savings accounts or retirement pensions were raided and their credit card bills piled up.  Living hand to mouth every month, it is not uncommon for some families to have adult children who still live at home while working part-time to pay off their student loans.  And to think that those are the lucky ones.

Aside from the fact that the Trump presidency has ushered in a new fervor to march in the streets, many movements remain splintered or under direct control of the liberal wing of the current national government.  This includes many labor union leaders and could possibly explain why there has been very little mentioned other than statements which are anti-Trump or against his GOP allies.  Unless, of course, one considers the union leaders from the building trades who gleefully rubbed shoulders with the former reality television character now sitting in the Oval Office.  But, hasn’t this always been the case in the United States?  In absence of a Labor Party, which the Green Party is far from being, workers are cornered into supporting the lesser evil liberals who help broker deals with big business and conservatives.

This is the story of American democracy which has existed for more than one hundred and fifty years under the control of the two political cartels of economic power.   At the same moment in time when the most productive generation limps into retirement and social security, millions of Americans are underemployed or without work.  Wall Street, however, is busier than ever as the Dow Jones Industrial Average shattered past 22,000 this week.  An unprecedented level even for the past twenty-five years of globalization.  With no jobs to go to and failing neighborhood schools, crime and poverty cripple urban centers across America.  And, what was once depicted as a problem solely in the inner-city ghettos, gang violence and drug addiction now exist in rural communities throughout the Midwest and the South.  Wait until those problems hit the suburbs. 

Meanwhile, politics and the media have Americans divided along lines of gender, race, ethnicity, nationality, sexual orientation, and religious zealotry.  These problems did not just arrive out of nowhere, but it takes a politically conscious person to understand their complexity.  This is where class becomes a crucial lens for interpretation and this is exactly why the Green Party will fail in its endeavor to become the newest political party of the people. 

With so many voters enamored by Bernie Sanders’ campaign rhetoric they had nowhere to turn when he endorsed Hillary Clinton as the Democratic Party nominee.  Some capitulated and returned to the herd in fear of Trump in the White House while others happily cast a vote for “the Donald.”  Those who “#DemExit”-ed were dispersed to write-in campaigns or voting for third party candidates who collected approximately 4.5 percent of the total 137 million votes cast.  That is less than 6 million votes.  The Green Party’s nominee, Jill Stein, received only 1.5 million.  Hardly a dent in the 65.8 million votes for Clinton or the 62.9 million given to Trump, and a poor showing even for a reform party.  To move forward, the Green Party must address this failure and purge the progressives and liberal elements from its leadership if it ever hopes to become a legitimate revolutionary party of the working class.

Before the keyboards are set ablaze with the flurry of fury from the reactionaries within the Green Party, I would like to elaborate on my position.  For the record, I am a registered Green Party member in the state of California.  I have been an active member of the Green Party since 2013 and before that I volunteered and worked within the Democratic Party of San Diego for about six years.  After moving to the Bay Area, I attended meetings with the Alameda County Green Party, as well as the Oakland Greens, and I was also a founding member of the UC Berkeley Green Party student organization.  It’s because of my experience within the party, and my interpretation of political theory and social movements, that I say the Green Party will not be leading a revolution anytime soon, if ever. 

To begin, this position must be situated within our current social crisis, both political and economic.  In the United States and other industrialized nations around the world economics is determined by those groups who control the political apparatus of the government.  This means Democrats and Republicans argue over the best way to grow the economy and spend money, usually in favor of the same people.  Wall Street banks, technology companies, pharmaceutical giants, industrial food producers, and big insurance companies spend money on candidates from both major parties.  Globalization, which has been pushed by leaders in both parties, is the latest endeavor for a corporate dominated means of production whose existence relies on establishing new markets for exporting surplus goods in exchange for cheap labor, raw materials, and resources.  Today, the unfettered capital of big business, which fueled the rapid economic expansion of the United States during the two decades following World War II, is no longer bound to remain at home.  Unlike the early years of the Cold War, when the United States and the Soviet Union competed for access to markets in developing nations, corporate investment in national infrastructure and social services through taxation is practically nonexistent. 

This is the reality in which we live.  Any attempts to reverse course on this path of development have been met with sharp rebuke from legislatures and courts across this nation.  It is also important to understand that the quality of life enjoyed by middle class workers who lived during the 1950s and 1960s will more than likely never return to the shores of this country so long as the status quo is maintained.  To believe a presidential candidate can restore “greatness” to a nation where millions of Americans are in a downward economic slide could be fatal for a so-called democratic society obsessed with continuous growth and consumption. 

The policies which created today’s conditions were put in place decades ago by presidents along with men and women in Congress from both political parties.  To make matters worse, justices sitting on the Supreme Court have sided with them and their high dollar campaign contributors by cementing in place the influence of corporate money and power within our society.  As the mass media follows script keeping reporters and commentators focused on the identity group differences between the two parties, the rusty gears of the economy continue to grind out profits for a few at the expense of the many.  These days the only choices Americans have are centered around what brand names to buy and where one chooses to spend their money.  Bridled by ignorance, and perhaps even apathy, those Americans fortunate enough to have a job now work harder and longer for less money while all of us get a minimal return from services and benefits paid for by our tax dollars.

To expand on this downward spiral of economic and financial insecurity for the American working class one needs only to remember the past and the lives of our parents.  For Americans born during the two decades after World War II, today may appear to be a bad dream.  A retiree today remembers a time when a high school graduate could get a job at a factory which paid enough money to buy a home and put food on the table for their family.  They had a car, took vacations, invested in retirement and savings, and some paid for their children to go to college if it wasn’t already completely free.  As war raged on in the developing nations of the world and U.S. troops were deployed to protect political allies in foreign markets, tax cuts for wealthy corporations began to trickle down at home. 

By the 1970s both parents were in the workforce to maintain the same standard of living provided by a single earner just ten years earlier.  Shocks to oil markets and currency manipulation brought unemployment and interest rates higher.  In response, America began deindustrializing as factory jobs relocated overseas.  Usually, to countries were American bombs were dropped just a few years before.  Those producers who remained began to implement automation in their manufacturing plants and on assembly lines.  Blaming the loss of their economic livelihood on the advancement of rights for women and people of color, many working-class Americans saw an opportunity to move against “socialist” programs of big government.  Unfortunately for them, their jobs did not return. 

The 1980s saw more tax cuts for the wealthy.  Households where both parents were working could no longer afford to invest in retirement or savings as Cold War military spending ballooned the federal budget.  Arming religious fundamentalists and right-wing dictators with modern weaponry to fight communism was the idea at the time.  However successful or flawed that strategy may have been, it clearly had negative effects on the domestic economy and has made an impact on American credibility worldwide ever since. 

Following the fall of the Soviet Union, the 1990s ushered in NAFTA and the dot.com speculation bubble to drive the economy as Americans were buying goods and services on credit debt.  After more tax cuts, and a restructuring of welfare, the new millennium witnessed an increase in global commerce and military campaigns in the oil producing regions of the world.  More deregulation of banks allowed financiers to craft multiple schemes to push consumers into home ownership and the bad loans issued nearly collapsed the global economy in 2008.  Households across America were barely getting by with both parents working as billionaire bankers received a taxpayer-funded bailout of several trillion dollars.  Usually renting a home and financing a car, there was no money left over for savings or retirement.  Company pensions were replaced by stock shares, IRAs, and a 401k and many college educated children lived at home to help pay bills.  Not much has changed for the better.  After a dismal economic recovery, and facing the next global financial meltdown, many families will have nowhere to go except to join the millions of Americans already living in the streets.  Ultimately, that is where a revolution will begin—millions of organized protesters marching in the streets.   

The primary reason that the Green Party will most likely fail in its endeavor to become the opposition party to lead this revolution is because it has no class identity.  When the Green Party started during the early 1990s, it was viewed as a left-wing party preoccupied with the environment.  Over the years it became a home for many disenfranchised voters, former democrats, environmentalists, sectarian left groups, anarchists, hippies, and conspiracy theorists.  Aside from having some members who claim to be actively involved in their local unions, the Green Party has no real connections to the everyday struggle of working class Americans.  It has yet to grow into a political option for the rank and file organized and unorganized worker. 

Politically, the Green Party has been a non-factor on the national scene.  While winning a few hundred elections at the local and county level, however, none of the fifty state legislatures throughout the U.S. have Green Party representation.  With no true political base to produce leaders organically the Green Party is tied to a strategy of depending on presidential campaigns every four years to increase membership.  This opens the door for opportunists to promote their cults of personality while ignoring the essential step of organizing workers and communities around real problems with concrete demands.  Could this be by design and orchestrated by those who benefit financially from non-profits tied to the Green Party?

During the 2000 Presidential Election won by George W. Bush, the Green Party candidate, Ralph Nader, was called a “spoiler” for taking votes away from Democrat Al Gore.  Never mind those Democrats who voted for Bush, or any of the other candidates who were on the ballot, particularly in Florida.  Perhaps this played a factor in the 2004 Presidential Election when nominee David Cobb and the Green Party chose not to campaign in swing states where voters might choose other than Democrat or Republican.  A lackluster election in 2008 with former Democratic Congresswoman Cynthia McKinney and back-to-back runs for Jill Stein in 2012 and 2016 have failed to generate the necessary momentum to surpass the popularity of Nader from nearly two decades ago.  An opposition party must continue to grow in popularity or it will become a meaningless voice in the boneyard of failed social movements which have fizzled out over past election cycles.  In some ways, the Green Party may be akin to the Democratic Party in this regard as it becomes a hospice for social movements on life support.    

During the last election in 2016, Stein received between 1.06-1.09 percent of the total votes cast.  It is important to remember that this election was a contest between the two least popular candidates in recent history representing the two major parties of big business and nearly half of eligible voters in America stayed home.  The Green Party finished fourth behind the Libertarians who ran a candidate, Gary Johnson, who had no clue where Aleppo, Syria was even located.  He received nearly three times as many votes as Jill Stein, but to listen to the likes of Cobb and others within the national leadership of the Green Party you wouldn’t know it.  They have been too busy touting that one percent of the vote as a victory which is a ridiculous position to take.  The Green Party must discuss why the election went so poorly and it can’t rely on the outdated excuses of a “media blackout.”  Party leaders appear to be content with using the same playbook from the Nader years and this will not help build a revolutionary party.      

The second reason it is unlikely to have a Green Revolution is the party leadership is controlled by a predominantly white, upper middle-class membership.  Sectarian left organizations have infiltrated the party in hopes of recruiting members to “build the vanguard” and they are countered by environmentally conscious business owners, landlords, and professionals.  Too often Green Parties, especially in California, remain detached from the rank and file labor unions and community organizations fighting for qualitative change on the ground and in the workplace.  The Green Party remains irrelevant in the lives of the very people who could build a strong and vibrant social movement.  Until the Green Party recognizes this disconnect and breaks away from the opportunists from the dysfunctional socialist elements, the academics who fail to acknowledge the role of workers, and the petit bourgeoisie (both white and non-white) who control the party purse strings, it will remain a minor blip on the political radar of American politics.  

Lastly, two additional failures of the Greens are its inability to generate revenue outside of donations during presidential campaigns and the consensus voting method.  If the party is to remain free of corporate influence, which also includes the corrupt ideology of the labor leadership, it must develop a sustainable way to collect dues from members.  This is for two reasons.  First, without a viable campaign war chest only candidates with access to money will be able to run for office in costly elections.  And, secondly, these candidates can remain unaccountable to party members and run on their own platform and agenda.  This was the case in 2016 when Jill Stein made few attempts to identify the Green Party as an “eco”-socialist party, a platform plank adopted at the nominating convention in Houston.  Perhaps, too busy appealing to former Bernie Sanders supporters, Stein missed an opportunity to stand as the lone voice against the environmental ravages of the planet promoted by the free-market economic policies of the other three candidates. 

This lack of accountability to membership leads to the structure of the internal life of the party.  Consensus may be the most ideal way to make decisions for groups, however, a political party cannot function in this way and remain democratic.  Too many times, a minority position holds up motions and elections on party issues because they are not completely satisfied.  A democratic organization should listen to all positions, including the least popular, and a majority vote should govern the decisions of the group.  If any member feels aggrieved or slighted they may continue to voice their opposition and build a coalition to support them.  Allowing a minority group to determine the agenda of the party is not democratic and can lead to a seizure of power which resembles the despotic rule of tyrants.  Steering committee members and delegates for the past fifteen years will know what I am referring to here. 

There have been countless arguments through social media and articles posted by Counterpunch and The Black Agenda Report highlighting the inner turmoil as the Green Party struggles to establish its class identity.  Green Party delegates are accusing one another of racism, sexism, and even assault as various factions jockey for power.  To Jill Stein’s credit, she has continued appearances at townhalls and media studios.  However, her campaign’s decisions to not release funds to the party and the subsequent challenge of the election results have the Green Party divided.  All of this was done while accepting money from organizations tied to the Democratic Party.  Understanding that the integrity of elections is essential to democracy, and in response to mass voter registration purges, I agreed with the challenge.  But, myself and other members of Facts For Working People demanded that new elections be held to right the wrongs of election fraud by the two major parties.

By not separating ourselves from the parties of big capital the Green Party will fall into the liberal economic trap of progressivism.  The Green New Deal is a great place to start, but it means nothing without identifying capitalism, not just predatory or crony capitalism, as the root cause of our pending climate catastrophe.  Restructuring the economy to make a nicer form of capitalism will fall short of changing society and holding the reins tighter on growth, or “de-growing,” is not possible.  Capitalism will consume everything on earth to produce commodities for markets because that is its nature.  When the leadership of the Green Party fails to take such a stance it is a good indication that they want another bourgeoisie party.  Trying to move right and appeal to Berniecrats just proves it. 

Also, attending a “democracy convention” at the University of Minnesota this weekend with “progressive” Democrat Keith Ellison in attendance doesn’t sound too revolutionary.  And neither does proudly claiming to be an international party while many Green Parties in other countries are corrupted by their own political systems.  Perhaps, the Democratic Socialists of America convention in Chicago would have been a better place to start looking for a revolution.  At least the DSA is in the process of breaking away from the Democratic Party and have voted for BDS (Boycott, Divestment, & Sanctions) against Israel.  They also voted to break with the Socialist International and pursue a course for reparations.  All three are revolutionary positions in today’s political arena.

Again, I am basing these statements on my observations and interactions with members of the Green Party in California.  There are great people in the Green Party who are conscious of the need for a new political party.  I believe we all want the same things in relation to the environment and social justice, but we must also address the economic system for our party platform.  We must have the courage to speak truth to power and hold our leadership accountable to the main.  The Green Party must not remain under the influence of those with money or access to financial resources.  There are many great revolutionaries fighting within the party in Colorado, Texas, Illinois, New York, Maryland, and New Jersey to do just that.  This is by no means an attempt to discredit their work.  It is, however, the beginnings of a discussion we must have to identify the best strategy needed to raise the collective consciousness of the working class and revitalize the militant forces of labor unions and community activists.  This is an opportunity to network and build coalitions within and between communities to fight back against the onslaught from big money and the two political parties it controls.  Some may say that my position is one where it is easier to criticize than to create, or that I prefer to tear down than to build.  However, myself and many others would like to know—who approved the blueprints for this path forward?  Just exactly what are we building?  And, to whose benefit?         

It may be difficult to imagine, but less than one hundred years ago workers in the United States didn’t even have the luxury of the social safety nets we temporarily enjoy today.  With union membership near record lows, and new legislation preventing workers from organizing, we may lose these rights paid for by the blood of those workers who organized and fought before us.  Millions of workers, including women and children, had to go on strike or walk off the job to force the bosses and the government controlled by big business to concede to better wages and working conditions for less hours while earning benefits like social security and healthcare.  It wasn’t a political party that saved them, it was an organized collective of determined workers and their families who fought and changed society.  Will the Green Party become the political arm of the new movement for social change?  With its current leadership I think not, but only time will tell and the clock is ticking.

Basic income – too basic, not radical enough

by Michael Roberts

The idea of a basic income has gained much popularity recently and not just among leftists but also with right-wing pro-capital proponents.  Basic income boils down to making a monthly payment by a government to every citizen of an amount that meets ‘basic necessities’ whether that person is unemployed or not or whatever the circumstance. As Daniel Raventós, defines it in his recent book:
“Basic Income is an income paid by the state to each full member or accredited resident of a society, regardless of whether or not he or she wishes to engage in paid employment, or is rich or poor or, in other words, independently of any other sources of income that person might have, and irrespective of cohabitation arrangements in the domestic sphere” (Basic Income: The Material Conditions of Freedom).

He lists various things in its favour: that it would abolish poverty, enable us to better balance our lives between voluntary, domestic and paid work, empower women, and “offer workers a resistance fund to maintain strikes that are presently difficult to sustain because of the salary cuts they involve”.

And recent books such as Inventing the Future by Nick Srnicek and Alex Williams and Postcapitalism by Paul Mason have also brought this issue to prominence. These writers reckon that the demand for a universal basic income by labour should be part of the struggle in a move to ‘post-capitalism’ and should be a key demand to protect workers from a capitalist world increasingly dominated by robots and automation where human beings will become mostly unemployed.

But ‘basic income’ is also popular among some right-wing economists and politicians.  Why? Because paying each person a ‘basic’ income rather than wages and social benefits is seen as a way of ‘saving money’, reducing the size of the state and public services – in other words lowering the value of labour power and raising the rate of surplus value (in Marxist terms). 

It would be a ‘wage subsidy’ to employers with those workers who get no top-up in income from social benefits under pressure to accept wages no higher than the ‘basic income’ which would be much lower than their average salary. As Raventos has noted, (in the American Journal of Economic Issues June 1996 with Catherine Kavanagh), “by partially separating income from work, the incentive of workers to fight against wage reductions is considerably reduced, thus making labour markets more flexible. This allows wages, and hence labor costs, to adjust more readily to changing economic conditions”.

Indeed, the danger is that the demand for a basic income would replace the demand for full employment or a job at a living wage.  For example, it has been worked out that, in the US, the current capitalist economy could afford only a national basic income of about $10,000 a year per adult. And that would replace everything else: the entire welfare state, including old age pensions disappears into that one $10,000 per adult payment.

The basic income demand is similar to the current idea among Keynesians and other leftist economists for increased public spending financed by ‘helicopter money’.  This policy means no fundamental reform of the economy but a just a cash handout to raise incomes and boost the capitalist economy.  Indeed, this is why the leftist Greek economist Yanis Varoufakis has viewed favourably the basic income idea.  A minimum equal income for everyone, Varoufakis tells us, is the most effective way to confront the deflationary trends that manifest capitalism’s inability to balance itself. Creating a minimum income that’s delinked from work, he argued, would increase effective demand without substantially increasing savings. The economy would grow again and would do so in a much more balanced way. The amount of the minimum income could become a simple, stand alone lever for the economic planners of the 21st century.

Here the basic income demand provides an answer to crises under capitalism without replacing the capitalist mode of production in the traditional Keynesian or post-Keynesian way, by ending ‘underconsumption’.  But what if underconsumption is not the cause of crises and there is a more fundamental contradiction within capitalism that a ‘basic income’ for all, gradually ratcheted up by government planners, cannot resolve?

Raventos retorts to this argument that “Some people complain that basic income won’t put an end to capitalism. Of course it won’t. Capitalism with a basic income would still be capitalism but a very different capitalism from the one we have now, just as the capitalism that came hot on the heels of the Second World War was substantially different from what came at the end of the seventies, the counter-reform we call neoliberalism. Capitalism is not one capitalism, just as “the market” is not just one market.” 

This answer opens up a whole bag of tricks by suggesting that we can have some form of non ‘neoliberal’, ‘fairer’ capitalism that would work for labour, as we apparently did for a brief decade or so after the second world war. But even if that were true, the ‘basic income’ demand stands little prospect of being adopted by pro-capitalist governments now in the middle of a Long Depression unless it actually reduced the value of labour power, not increased it.  And if a socialist worker government were to come to power in any major capitalist economy would the policy then be necessary when common ownership and planned production would be the agenda? 

As one writer put it: “The call for basic income in order to soften the effects of automation is hence not a call for greater economic justice. Our economy stays as it is; we simply extend the circle of those who are entitled to receive public benefits. If we want economic justice, then our starting point needs to be more radical.”

In his book, Why the Future is Workless, Tim Dunlop says that “the approach we should be taking is not to find ways that we can compete with machines – that is a losing battle – but to find ways in which wealth can be distributed other than through wages. This will almost certainly involve something like a universal basic income.” But is that the approach that we should take?  Is it to find ways to ‘redistribute’ wealth “other than through wages” or is it to control the production of that wealth so that it can be allocated towards social need not profit?

I have discussed in detail in previous posts what the impact of robots and AI would be for labour under capitalism. And from that, we can see an ambiguity in the basic income demand. It both aims to provide a demand for labour to fight for under capitalism to improve workers conditions as jobs disappear through automation and also wants basic income as a way of paying people in a ‘post-capitalist’ world of workless humans where all production is done by robots (but still with private owners of robots?).

And when we think of this ambiguity, we can see that the issue is really a question of ownership of the technology, not the level of incomes for workless humans.  With common ownership, the fruits of robot production can be democratically planned, including hours of work  for all.  Also, under a planned economy with common ownership of the means of production (robots), it would be possible to extend free goods and services (like a national health service, education, transport and communications) to basic necessities and beyond. So people would work fewer hours and get more free goods and services, not just be compensated for the loss of work with a ‘basic income’.

In a post-capitalist world (what I prefer to call ‘socialism’ rather than mincing around with ‘post-capitalism’), the aim would be to remove (gradually or quickly) the law of value (prices and wages) and move to a world of abundance (free goods and services and low hours of toil).  Indeed, that is what robots and automation now offer as a technical possibility.

The basic income demand is just too basic. As a reform for labour, it is not as good as the demand for a job for all who need it at a living wage; or reducing the working week while maintaining wages; or providing decent pensions.  And under socialism, it would be redundant.

The Marxist theory of economic crises in capitalism Pt 2

by Michael Roberts

In the first part of this double post, I dealt with whether Marx had a coherent theory of crises or not. I reckoned that Marx’s theory was based on his law of the tendency of the rate of profit to fall and that this law was realistic and coherent.  I also argued that Marx did not dispense with this law in his later works that some have claimed and it remains the best and most compelling theory of regular and recurrent economic crises in capitalism.  In this second part, I shall provide some empirical evidence from modern capitalist economies to support this view.  This completes what is really just a short essay on Marxist economic crisis theory – as I see it – with much left out.

Does Marx’s law fit the facts?
Some Marxist critics of Marx’s law of profitability reckon that the law cannot be empirically proven or refuted because official statistics cannot be used to show Marx’s law in operation.  But there are plenty of studies by Marxist economists that show otherwise.  The key tests of the validity of the law in modern capitalist economies would be to show whether 1) the rate of profit falls over time as the organic composition of capital rises; 2) the rate of profit rises when the organic composition falls or when the rate of surplus value rises faster than the organic composition of capital; 3) the rate of profit rises, if there is sharp fall in the organic composition of capital as in a slump.  These would be the empirical tests and there is plenty of empirical evidence for the US and world economy to show that the answer is yes to all these questions.

For example, Basu and Manolakos applied econometric analysis to the US economy between 1948 and 2007 and found that there was a secular tendency for the rate of profit to fall with a measurable decline of about 0.3 percent a year “after controlling for counter-tendencies.”  In my work on the US rate of profit, I also found an average decline of 0.4 percent a year through 2009. And here is a figure by G Carchedi for the rise in the organic composition of capital (OCC) in the industrial sector of the US since 1947 versus the average rate of profit (ARP).  It tells the same story.
US ARP and OCC (i.e. C/V)


There is a clear inverse correlation between a rising organic composition of capital and a falling rate of profit.

Can Marx’s law explain crises?
How does Marx’s law of profitability work as an explanation and forecast of slumps in capitalist economies?  The law leads to a clear causal connection to regular and recurrent crises (slumps).  It runs from falling profitability to falling profits to falling investment to falling employment and incomes.  A bottom is reached when there is sufficient destruction of capital values (the writing off technology, the bankruptcy of companies, a reduction in wage costs) to raise profits and then profitability.  Then rising profitability leads to rising investment again.  The cycle of boom recommences and the whole ‘crap’ starts again, to use Marx’s colourful phrase.  There is a cycle of profit alongside the long-term tendency for the rate of profit to fall.


The evidence of this causality between profit and investment is available.  Jose Tapia Granados, using regression analysis, finds that, over 251 quarters of US economic activity from 1947, profits started declining long before investment did and that pre-tax profits can explain 44% of all movement in investment, while there is no evidence that investment can explain any movement in profits.  I find a higher ‘Granger causality’ of 60% from annual changes in profit and investment (unpublished) and a correlation of 0.67 for the period since 2000.  And see this by G Carchedi (Carchedi Presentation).
In the period leading up to the Great Recession 2008-9, we can see the causality visually for US profits, investment and real GDP in the graphic below.  The mass of US corporate profit peaks in mid-2006, investment and GDP follows two years later.  Profits turn back up in late 2008 and investment follows one year later.

There are two basic regularities shown by the data: that a change in profits tends to be followed next year by a change in investment in the same direction; and that a change in investment is usually followed in a few years by changes in profits in the opposite direction.  Thus we have a cycle.  From these results, the “regularity” of the business cycle, and the fact that profitability stagnated in 2013 and declined in 2014 (and now the mass of profits in 2015) after growing between 2008 and 2012, it can be concluded with some confidence that a recession of the US economy, which will be also part of a world economic crisis like the Great Recession, will occur again in the next few years.

And Marx’s law of the tendency of the rate of profit to fall makes an even more fundamental prediction: that the capitalist mode of production will not be eternal, that it is transitory in the history of human social organisation. The law of the tendency predicts that, over time, there will be a fall in the rate of profit globally, delivering more crises of a devastating character. Work has been done by modern Marxist analysis that confirms that the world rate of profit has fallen over the last 150 years.  See the graph below (data from Esteban Maito and ‘doctored’ by me).


Maito’s data for the 19^th century have recently been questioned (DUMENIL-LEVY on MAITO), but in a recent work using different sources and countries, I find a similar trend for the post-1945 period globally (Revisiting a world rate of profit June 2015).  And earlier groundbreaking work by Minqi Li and colleagues, as well as by Dave Zachariah, show a similar trend.

As Maito concludes: “The tendency of the rate of profit to fall and its empirical confirmation highlights the historically limited nature of capitalist production. If the rate of profit measures the vitality of the capitalist system, the logical conclusion is that it is getting closer to its endpoint.  There are many ways that capital can attempt to overcome crises and regenerate constantly. Periodic crises are specific to the capitalist mode of production and allow, ultimately, a partial recovery of profitability. This is a characteristic aspect of capital and the cyclical nature of the capitalist economy. But the periodic nature of these crises has not stopped the downward trend of the rate of profit over the long term.  So the arguments claiming that there is an inexhaustible capacity of capital to restore the rate of profit and its own vitality and which therefore considers the capitalist mode of production as a natural and a-historical phenomenon, are refuted by the empirical evidence.”

So the law predicts that, as the organic composition of capital rises globally, the rate of profit will fall despite counteracting factors and despite successive crises (which temporarily help to restore profitability).  This shows that capital as a mode of production and social relations is transient.  Capitalism has not always been here and it has ultimate limits, namely capital itself.  It has a ‘use-by-date’.  That is the essence of the law of profitability for Marx.

Alternative theories
This is not to deny other factors in capitalist crises.  The role of credit is an important part of Marxist crisis theory and indeed, as the tendency of the rate of profit to fall engenders countertendencies, one of increasing importance is the expansion of credit and the switching of surplus value into investment in fictitious capital rather than productive capital to raise profitability temporarily, but with eventually disastrous consequences, as The Great Recession shows (The Great Recession; Debt matters).

Alternative theories of crisis like underconsumption, or the lack of effective demand, are taken from theories from the reactionary Thomas Malthus and the radical Sismondi in the early 19th century and then taken up by Keynes in the 1930s and by modern inequality theorists like Stiglitz  and post-Keynesian economists.  But lack of demand and rising inequality cannot explain the regularity of crises or predict the next one.  These theories do not have strong empirical backing either (Does inequality causes crises).

Professor Heinrich, after concluding that Marx did not have a theory of crisis and dropped the law of profitability, does offer a vague one of his own: namely capital accumulates and produces more means of production blindly.  This gets out of line with consumption demand from workers.  So a ‘gap’ develops that has to be filled by credit, but somehow this cannot hold up things indefinitely and production then collapses.  Well, it is a sort of a theory, but pretty much the same as the underconsumption (overproduction) theory that Heinrich himself dismisses and Marx dismissed 150 years ago.  It seems way less convincing or empirically supported that Marx’s own theory of crisis based on the law of profitability.

No other theory, whether from mainstream economics or from heterodox economics, can explain recurrent and regular crises and offer a clear objective foundation for the transience of the capitalist system.

Why not Marx’s law of profitability?
Finally, why do Professor Heinrich and others like Professors David Harvey, Dumenil and Levy and many other Marxist economists, want to dish Marx’s law of profitability as a theory of crises?

Obviously, they think it is wrong.  But all these alternative theories have one thing in common.  They suggest a way out of crises within the capitalist system. If it’s due to underconsumption, then spend more by government; if it’s due to rising inequality; then correct that with taxation; if it’s too much credit or instability in the financial sector, then regulate it.  None of these leads to policies or actions to replace the capitalist mode of production at all but merely to correct or improve it.  They lead to reformist strategies i.e. there no need to replace the capitalist mode of production with common ownership of the means of production and democratically controlled planning for need (socialism).
Then socialism becomes a moral issue to end poverty and inequality not an objective necessity if human society is to achieve freedom from toil.  That’s a reformist view, but not Marx’s.  Actually even these small changes that preserve capitalism might still require revolutionary action in the face of fierce opposition by capital – so why stop at reform?