Explain Marx's conception of economic crises.
February 4, 2009 2:54 PM Subscribe
I'm trying to wrap my head around Marx's conception of Capitalist economic crises. He claims that these crises emerge every 7 years, and are caused by "the epidemic of overproduction." Is there any historical justification for this? (Especially in the modern era?)
I don't think you can blame the immediate economic crisis on the overproduction of housing. While housing was overproduced, it was the flow of cheap money that created the overproduction. Cheap credit and poor oversight are the main culprits, followed by wholesale unregulated behavior on the part of the CDO/CDS crowd.
That said, we have massive overcapacity in many things. There are too many PhDs -- in the humanities, it is so bad as to be a joke, but it is also true in the hard sciences, etc. There are too many sources for various goods (too many coffee shops, too many Lowes, too many Home Depots, too many malls -- prepare for the commercial real estate collapse which is coming soon). These, too, were driven in part by cheap money.
China has massive overcapacity in production, and is now experiencing job declines. And so on.
posted by rr at 3:22 PM on February 4, 2009 [1 favorite]
That said, we have massive overcapacity in many things. There are too many PhDs -- in the humanities, it is so bad as to be a joke, but it is also true in the hard sciences, etc. There are too many sources for various goods (too many coffee shops, too many Lowes, too many Home Depots, too many malls -- prepare for the commercial real estate collapse which is coming soon). These, too, were driven in part by cheap money.
China has massive overcapacity in production, and is now experiencing job declines. And so on.
posted by rr at 3:22 PM on February 4, 2009 [1 favorite]
Umm, no. There was no historical reason in Marx's time to believe this was true. There is no historical reason to believe it today. His concept of "overproduction" is that the capitalist class chronically produces more goods than the proletariat will naturally consume, and some method of coercion is needed to make them consume more in an attempt to close that gap, but this being inherently impossible, capitalism will experience a crisis of overproduction every seven years.
It should be completely obvious that Marx is talking out his ass here. Why should it be that the capitalist class (whatever the hell that is) inherently produces more than the proletariat (whoever the hell they are) can consume? Why does that gap always take seven years to produce a collapse? Why does the system reset after each cycle instead of spinning off in some different direction?
Just look at the economy of Europe in the 19th century. Do you see a pattern of "capitalist crises" every seven years? Do you see them at all? No. Sure, there were economic ups and downs, but they all seem to happen at more or less random intervals for more or less random reasons.
Marx's chief contribution is not his tools of economic analysis, which are downright squirrelly. He who thinks that the value of a good is bound up with the labor it took to produce it is completely incapable of producing any coherent, viable explanation for how we should calculate the value of anything. No, his contribution is his ideology, which continues to animate much of the modern Left.
posted by valkyryn at 3:36 PM on February 4, 2009 [6 favorites]
It should be completely obvious that Marx is talking out his ass here. Why should it be that the capitalist class (whatever the hell that is) inherently produces more than the proletariat (whoever the hell they are) can consume? Why does that gap always take seven years to produce a collapse? Why does the system reset after each cycle instead of spinning off in some different direction?
Just look at the economy of Europe in the 19th century. Do you see a pattern of "capitalist crises" every seven years? Do you see them at all? No. Sure, there were economic ups and downs, but they all seem to happen at more or less random intervals for more or less random reasons.
Marx's chief contribution is not his tools of economic analysis, which are downright squirrelly. He who thinks that the value of a good is bound up with the labor it took to produce it is completely incapable of producing any coherent, viable explanation for how we should calculate the value of anything. No, his contribution is his ideology, which continues to animate much of the modern Left.
posted by valkyryn at 3:36 PM on February 4, 2009 [6 favorites]
Which of Marx's writings are you talking about? I've never heard that seven year figure and I've read a bunch of his work, (although I've only really skimmed Capital)
My understanding is that the overproduction Marx spoke of was thought to occur naturally when increased productivity led to more goods being made than can be sold. From a Marxist standpoint this makes sense because capitalists cannot efficiently operate because they are each operating without coordination. The idea was that socialism was inherently better because everyone would be working off of the same plan. Needless to say, we have differnt views today.
Don't be fooled, there were recessions in 19th Century Europe. Frankly, the late 19th Century was one long depression in Europe and America. They didn't call it the Long Depression for nothing. In America, the official length of that recession was 6 years, with some arguing it lasted from 1873-1897. In Europe it was known as the Grunderjahre. A second crash occured in 1893. The reasons were far from random and generally had to do with the impact of the "Second Industrial Revolution" (new technologies) and changes in the currency systems of all of the major economic powers. These still constitute some of the greatest economic dislocations in human history and certainly were not just "ups and downs." I'm not sure how much overproduction played into the causes of those economic problems however.
Marx's tools of economic analysis were pretty damn good for his day, which is to say they suck. As for his ideology continuing to animate much of the modern left, I can't think of a single Marxist party of any consequence or a single polticial theorist of any heft who follows Marxist ideology. Some purists would argue even 20th century Communism didn't follow Marxist ideology.
posted by Ironmouth at 4:33 PM on February 4, 2009 [3 favorites]
My understanding is that the overproduction Marx spoke of was thought to occur naturally when increased productivity led to more goods being made than can be sold. From a Marxist standpoint this makes sense because capitalists cannot efficiently operate because they are each operating without coordination. The idea was that socialism was inherently better because everyone would be working off of the same plan. Needless to say, we have differnt views today.
Don't be fooled, there were recessions in 19th Century Europe. Frankly, the late 19th Century was one long depression in Europe and America. They didn't call it the Long Depression for nothing. In America, the official length of that recession was 6 years, with some arguing it lasted from 1873-1897. In Europe it was known as the Grunderjahre. A second crash occured in 1893. The reasons were far from random and generally had to do with the impact of the "Second Industrial Revolution" (new technologies) and changes in the currency systems of all of the major economic powers. These still constitute some of the greatest economic dislocations in human history and certainly were not just "ups and downs." I'm not sure how much overproduction played into the causes of those economic problems however.
Marx's tools of economic analysis were pretty damn good for his day, which is to say they suck. As for his ideology continuing to animate much of the modern left, I can't think of a single Marxist party of any consequence or a single polticial theorist of any heft who follows Marxist ideology. Some purists would argue even 20th century Communism didn't follow Marxist ideology.
posted by Ironmouth at 4:33 PM on February 4, 2009 [3 favorites]
Which of Marx's writings are you talking about? I've never heard that seven year figure and I've read a bunch of his work, (although I've only really skimmed Capital)
I am having trouble with this too. I've read Marx quite a bit, and I thought I familiar with everything.
posted by Deep Dish at 5:03 PM on February 4, 2009
I am having trouble with this too. I've read Marx quite a bit, and I thought I familiar with everything.
posted by Deep Dish at 5:03 PM on February 4, 2009
I don't think you can blame the immediate economic crisis on the overproduction of housing
Disagree because a healthy chunk of consumer disposable incomes was coming from either housing construction, housing-related financial services (realtors, loan agents, officers, brokers, bankers), the wads of cold hard cash from cash-out refis, and also just refinancing from a higher to a lower rate w/o any cash-out.
The sum total of this was trillions of dollars of debt taken on since 2000.
Lending graph.
"the epidemic of overproduction."
Assuming Marx actually said this, then, yes, that's what the business cycle is all about. Existing capacity becomes constrained, expansion occurs, this increased production engenders further job creation via the velocity of money, but since the capitalist system en banc is still rather poorly self-regulated it seems to inevitably saturate its markets with stuff, requiring a recessionary period for consumers to recover.
Unfortunately a nasty feedback effect exists during this recessionary drawdown, since of course slackening production reduces incomes, putting further stress on the system until, eventually, some external event reestablishes some sort of equilibrium.
posted by troy at 6:11 PM on February 4, 2009
Disagree because a healthy chunk of consumer disposable incomes was coming from either housing construction, housing-related financial services (realtors, loan agents, officers, brokers, bankers), the wads of cold hard cash from cash-out refis, and also just refinancing from a higher to a lower rate w/o any cash-out.
The sum total of this was trillions of dollars of debt taken on since 2000.
Lending graph.
"the epidemic of overproduction."
Assuming Marx actually said this, then, yes, that's what the business cycle is all about. Existing capacity becomes constrained, expansion occurs, this increased production engenders further job creation via the velocity of money, but since the capitalist system en banc is still rather poorly self-regulated it seems to inevitably saturate its markets with stuff, requiring a recessionary period for consumers to recover.
Unfortunately a nasty feedback effect exists during this recessionary drawdown, since of course slackening production reduces incomes, putting further stress on the system until, eventually, some external event reestablishes some sort of equilibrium.
posted by troy at 6:11 PM on February 4, 2009
Best answer: googling for "epidemic of overproduction" finds this from the Socialist Worker" (from 2001, heh):
In these crises, Marx wrote, there occurs something that would have seemed absurd in the past--"the epidemic of overproduction." Absurdly, crisis occurs because "there is too much civilization, too much means of subsistence, too much industry, too much commerce."
Capitalism is an unplanned system in which goods are produced for the market and sold to turn a profit. If capitalists cannot sell their goods, and therefore turn a profit, then they will stop producing them and stop investing in the equipment necessary to make them.
Booms run their course when, in the frenzy of investment, capitalists suddenly realize that they have created more goods than the market can bear. The crisis is then worsened by the large amounts of debt used to finance the boom that now cannot be repaid, and when masses of laid-off workers stop buying goods.
The crisis is only overcome when some businesses go to the wall and they are bought up on the cheap by the survivors, and when wages and other costs are driven down low enough to restore profits. Capitalists then become confident that it's safe to invest again and "the same cycle of errors is pursued once more."
posted by troy at 6:18 PM on February 4, 2009 [2 favorites]
In these crises, Marx wrote, there occurs something that would have seemed absurd in the past--"the epidemic of overproduction." Absurdly, crisis occurs because "there is too much civilization, too much means of subsistence, too much industry, too much commerce."
Capitalism is an unplanned system in which goods are produced for the market and sold to turn a profit. If capitalists cannot sell their goods, and therefore turn a profit, then they will stop producing them and stop investing in the equipment necessary to make them.
Booms run their course when, in the frenzy of investment, capitalists suddenly realize that they have created more goods than the market can bear. The crisis is then worsened by the large amounts of debt used to finance the boom that now cannot be repaid, and when masses of laid-off workers stop buying goods.
The crisis is only overcome when some businesses go to the wall and they are bought up on the cheap by the survivors, and when wages and other costs are driven down low enough to restore profits. Capitalists then become confident that it's safe to invest again and "the same cycle of errors is pursued once more."
posted by troy at 6:18 PM on February 4, 2009 [2 favorites]
Best answer: I haven't read the book, but from what you're describing, yes, there is. This what economists call the Credit Cycle. The economic cycles we are always referring to fit this pattern to a greater or lesser degree. Essentially, they all come back to an overproduction of credit, which leads inexorably to an overproduction of goods, then a rapid disappearance of credit with all the related economic stresses that accompany that. We're basically going through a supersize global mega-version of that right now.
The US economy used to have these far more frequently in the 19th century. A lot of the practical work economists did in the 20th century was focused on reducing the frequency and depth of these cycles. The currently dominant paradigm is that the fed manipulates the money supply by changing the interest rates. When you hear on the news "The Fed is expected to cut the target rate by 25 basis points", that's basically the fed saying..."hmmm not enough credit in the system, lets loosen the money creation system a little bit and get more investment (and consequently, production of goods) flowing." Conversely, when they see things go the other way, the idea is that they tighten credit policy and reduce credit creation. If you want to read more about this school of thought, the Wikipedia page you want is probably called something like "Monetarism".
I don't know what valkyryn is talking about above: if you look at the US or the UK through that period (I don't know much about European economic history), you do see this pattern, particularly in the 19th century. Not every seven years, and as always, the devil is in the details. The UK for instance experienced a long depression in the agricultural part of its economy (which was the bulk of its economy) when its markets were flooded with cheap US wheat. So that distorts the cycle. If you read the book "Panics, Manias, and Crashes" you'll see a lot of these.
The big argument now is how the Fed should detect these conditions. Traditionally, they've used inflation (increase in the size of the money supply, so it seems logical) which they measure through a variety of proxies. So, years ago, Greenspan was like, "we can't look at asset price bubbles to find over-expansion of the credit cycle, its too hard to tell what's happening." Many people now believe that this was folly, and that the Fed's measures of inflation missed the massive growth of the so-called "Shadow Banking System", which essentially flooded the market with cheap money to by buying any kind of residential mortgage debt. So the way the Fed looks at these things will probably change in the next few years somewhat.
I'm trying to be super-brief here, but basically, my answer is yes: the capitalist system is widely acknowledged to be subject to boom/bust cycles, which are to some extent characterized by overproduction. In fact, there was an argument advanced by some dudes that we would escape this cycle once firms managed better inventory control using Just-In-Time manufacturing (damping down overproduction). This naturally turned out to be bunk. A thing to look for in the credit cycle is the part of the cycle where people start arguing that this time its different, that some fundamental change has occurred which has freed us from the credit cycle ("Dow 40,000", Wired's "The Long Boom" feature). That basically means the end is near. Many people try to use timing this cycle as an investment thesis; they almost always lose money. It's incredibly difficult to get the timing right. Back on the inventory control idea, this is what Allende and his high-falutin' consulting team were trying to do with Cybersyn in Chile. Wikipedia that if you've never read about it, wild stuff. But they really believed if they could damp this production end of things through inventory monitoring, they'd smooth the cycles. They never really got a chance to find out, but I'll bet all my money they were wrong if you find a way to test it. Cartels almost never work.
Let me give you one more example, In the 19th. C., people used this a lot to try to justify "natural monopolies". These are industries where capitalism has trouble producing an efficient outcome, we still don't really know what to do about this. In the 19th century, the hot business was railroads. Let's say there's no railroad between new york and boston. Wow, what an opportunity. Ship baked beans from Boston to NYC, and pizza from NYC to Boston! Pretty soon you'll be swimming in a money bin, scrooge mcduck style, if you get this thing done. You raise money somehow, say you sell a bunch of stock, in total $100m worth. Then, you use the money you raised to build a railroad up the coast. Great. You're doing awesome. Every day you make a bundle on train fare for passengers and shipping, and you are paying your stockholders a fat dividend, and you're stock price is way up. However, I had the same idea. The thing is, there isn't actually demand for two whole sets of railroad tracks. Only so many trains need to be run a day, and that doesn't even use up one whole set of tracks. Now I've spent $100m too. So inadvertently, stock investors in the USA have invested $200m in railroad tracks, and fully half of them are worthless. What happens? Well, we get into a price war. We cut rates to try to steal business from the other, and eventually, one of us collapses. Great. Money's gone. All the money spent on one of those roads is gone, and there's just a bunch of useless iron sitting on the ground.
In the meantime, the dividends we were paying, and the stock price appreciation we enjoyed, enabled our stockholders to go out and spend money on other things: investing in more companies, paying for goods and services, driving up the price of limited-supply goods like NYC real estate. Now, they've both been beat up: half have nothing, as the road went bust. And the other half took huge hits from the price war's effect on the road's earnings. All that investment they were doing, all the steaks they were buying, that all dries up too.
What's worse is that now there's no competition for your road. That's basically what people call a "natural monopoly": creating one of the thing produces all the marginal value to society, creating two of the thing is useless and expensive, so its extremely cyclic and hard to keep competitive, unless its regulated. Most things in the US that fit this description are regulated: the power grid, the cable companies, the phone lines. Anyway, I only bring it up as an easy-to-follow extreme case of a capitalist economic crisis driven by overproduction. You can look at this as an overproduction of goods (in this case, rail capacity) or more fundamentally, as an overproduction of investment capital (the market should have made it uneconomic for $200m to chase an opportunity that only supports $100m of investment, but the price signals came at the wrong time).
Apols for the long-winded answer, hth.
posted by jeb at 6:20 PM on February 4, 2009 [11 favorites]
The US economy used to have these far more frequently in the 19th century. A lot of the practical work economists did in the 20th century was focused on reducing the frequency and depth of these cycles. The currently dominant paradigm is that the fed manipulates the money supply by changing the interest rates. When you hear on the news "The Fed is expected to cut the target rate by 25 basis points", that's basically the fed saying..."hmmm not enough credit in the system, lets loosen the money creation system a little bit and get more investment (and consequently, production of goods) flowing." Conversely, when they see things go the other way, the idea is that they tighten credit policy and reduce credit creation. If you want to read more about this school of thought, the Wikipedia page you want is probably called something like "Monetarism".
I don't know what valkyryn is talking about above: if you look at the US or the UK through that period (I don't know much about European economic history), you do see this pattern, particularly in the 19th century. Not every seven years, and as always, the devil is in the details. The UK for instance experienced a long depression in the agricultural part of its economy (which was the bulk of its economy) when its markets were flooded with cheap US wheat. So that distorts the cycle. If you read the book "Panics, Manias, and Crashes" you'll see a lot of these.
The big argument now is how the Fed should detect these conditions. Traditionally, they've used inflation (increase in the size of the money supply, so it seems logical) which they measure through a variety of proxies. So, years ago, Greenspan was like, "we can't look at asset price bubbles to find over-expansion of the credit cycle, its too hard to tell what's happening." Many people now believe that this was folly, and that the Fed's measures of inflation missed the massive growth of the so-called "Shadow Banking System", which essentially flooded the market with cheap money to by buying any kind of residential mortgage debt. So the way the Fed looks at these things will probably change in the next few years somewhat.
I'm trying to be super-brief here, but basically, my answer is yes: the capitalist system is widely acknowledged to be subject to boom/bust cycles, which are to some extent characterized by overproduction. In fact, there was an argument advanced by some dudes that we would escape this cycle once firms managed better inventory control using Just-In-Time manufacturing (damping down overproduction). This naturally turned out to be bunk. A thing to look for in the credit cycle is the part of the cycle where people start arguing that this time its different, that some fundamental change has occurred which has freed us from the credit cycle ("Dow 40,000", Wired's "The Long Boom" feature). That basically means the end is near. Many people try to use timing this cycle as an investment thesis; they almost always lose money. It's incredibly difficult to get the timing right. Back on the inventory control idea, this is what Allende and his high-falutin' consulting team were trying to do with Cybersyn in Chile. Wikipedia that if you've never read about it, wild stuff. But they really believed if they could damp this production end of things through inventory monitoring, they'd smooth the cycles. They never really got a chance to find out, but I'll bet all my money they were wrong if you find a way to test it. Cartels almost never work.
Let me give you one more example, In the 19th. C., people used this a lot to try to justify "natural monopolies". These are industries where capitalism has trouble producing an efficient outcome, we still don't really know what to do about this. In the 19th century, the hot business was railroads. Let's say there's no railroad between new york and boston. Wow, what an opportunity. Ship baked beans from Boston to NYC, and pizza from NYC to Boston! Pretty soon you'll be swimming in a money bin, scrooge mcduck style, if you get this thing done. You raise money somehow, say you sell a bunch of stock, in total $100m worth. Then, you use the money you raised to build a railroad up the coast. Great. You're doing awesome. Every day you make a bundle on train fare for passengers and shipping, and you are paying your stockholders a fat dividend, and you're stock price is way up. However, I had the same idea. The thing is, there isn't actually demand for two whole sets of railroad tracks. Only so many trains need to be run a day, and that doesn't even use up one whole set of tracks. Now I've spent $100m too. So inadvertently, stock investors in the USA have invested $200m in railroad tracks, and fully half of them are worthless. What happens? Well, we get into a price war. We cut rates to try to steal business from the other, and eventually, one of us collapses. Great. Money's gone. All the money spent on one of those roads is gone, and there's just a bunch of useless iron sitting on the ground.
In the meantime, the dividends we were paying, and the stock price appreciation we enjoyed, enabled our stockholders to go out and spend money on other things: investing in more companies, paying for goods and services, driving up the price of limited-supply goods like NYC real estate. Now, they've both been beat up: half have nothing, as the road went bust. And the other half took huge hits from the price war's effect on the road's earnings. All that investment they were doing, all the steaks they were buying, that all dries up too.
What's worse is that now there's no competition for your road. That's basically what people call a "natural monopoly": creating one of the thing produces all the marginal value to society, creating two of the thing is useless and expensive, so its extremely cyclic and hard to keep competitive, unless its regulated. Most things in the US that fit this description are regulated: the power grid, the cable companies, the phone lines. Anyway, I only bring it up as an easy-to-follow extreme case of a capitalist economic crisis driven by overproduction. You can look at this as an overproduction of goods (in this case, rail capacity) or more fundamentally, as an overproduction of investment capital (the market should have made it uneconomic for $200m to chase an opportunity that only supports $100m of investment, but the price signals came at the wrong time).
Apols for the long-winded answer, hth.
posted by jeb at 6:20 PM on February 4, 2009 [11 favorites]
If you are interested in how this relates to the current crisis, and the mainstream way of thinking about this is to describe this type of situation as an overproduction of credit, there's a good explanation on the blog Interfluidity. Allow me to quote from the last paragraph:
Ultimately, a financial system has to find productive projects for the private parties to invest in. The government can invest directly, can delegate investment to the best and the brightest, can saturate the public's demand for money until private parties try to find other means of storing wealth. But it's what real human beings do with real resources that ultimately matters. Our financial system didn't fail because it was overlevered. It failed because it was uncreative: It could not conjure up worthwhile things to do with the capital it was asked to invest, and instead of owning up to that, it pretended that poor projects were good.posted by jeb at 6:25 PM on February 4, 2009 [1 favorite]
Smith, Marx, Kondratieff and Keynes: Their Intellectual Life Spans, the Convergence of their Theories based upon the Long Wave Hypothesis and the Internet .
posted by elmono at 6:34 PM on February 4, 2009
posted by elmono at 6:34 PM on February 4, 2009
It's wrong on the face of it, humanity is too big to somehow unknowingly ebb and flow in 7 year cycles.
posted by gjc at 7:09 PM on February 4, 2009
posted by gjc at 7:09 PM on February 4, 2009
an amusing aside: cf. stereolab's song Ping Pong.
And: "seven years" is a figure plucked out of who's ass, exactly?
posted by funkbrain at 7:47 PM on February 4, 2009 [1 favorite]
And: "seven years" is a figure plucked out of who's ass, exactly?
posted by funkbrain at 7:47 PM on February 4, 2009 [1 favorite]
I'm not an economist but I am a system engineer, and I can tell you that some kinds of systems are inherently unstable.
In the giddy early years of system analysis (late 19th and early 20th century) it was an article of faith that all natural systems settled into an equilibrium. Now we know it isn't true, and even absent variable stimuli, some natural systems ring constantly. Capitalism seems to suffer from this.
Though the final answer certainly isn't in yet on this, the historical evidence is that the only way to prevent boom-bust cycles is to stabilize the system so that it continuously run at "bust" levels. That was the effective result of Socialist "central planning" in the Soviet Union and, well, everywhere else it's ever been tried. No one has ever figured out how to stabilize the system to run at "boom" levels.
But busts aren't necessarily caused by overproduction. There can seem to be overproduction at the beginning of the bust phase of the cycle, but that's probably because of planning latency in the manufacturing system. Which is to say that overproduction is caused by the bust, not the other way around.
In other words, even if Marx was right about the correlation, there's a high likelihood that he's got cause and effect backwards.
posted by Class Goat at 8:35 PM on February 4, 2009 [1 favorite]
In the giddy early years of system analysis (late 19th and early 20th century) it was an article of faith that all natural systems settled into an equilibrium. Now we know it isn't true, and even absent variable stimuli, some natural systems ring constantly. Capitalism seems to suffer from this.
Though the final answer certainly isn't in yet on this, the historical evidence is that the only way to prevent boom-bust cycles is to stabilize the system so that it continuously run at "bust" levels. That was the effective result of Socialist "central planning" in the Soviet Union and, well, everywhere else it's ever been tried. No one has ever figured out how to stabilize the system to run at "boom" levels.
But busts aren't necessarily caused by overproduction. There can seem to be overproduction at the beginning of the bust phase of the cycle, but that's probably because of planning latency in the manufacturing system. Which is to say that overproduction is caused by the bust, not the other way around.
In other words, even if Marx was right about the correlation, there's a high likelihood that he's got cause and effect backwards.
posted by Class Goat at 8:35 PM on February 4, 2009 [1 favorite]
(What I shoulda said...)
As to the oscillation of capitalist systems, it seems to be a strange attractor.
posted by Class Goat at 8:48 PM on February 4, 2009
As to the oscillation of capitalist systems, it seems to be a strange attractor.
posted by Class Goat at 8:48 PM on February 4, 2009
I have never read Marx (really should, but the words are too long), but as jeb has said above the nineteenth century did see repeated boom and bust cycles - panics and crashes and stuff - usually referred to as the business cycle, as troy had also noted above. (I'm just commenting to add the wikipedia link)
Boom and busts did come in earlier periods (big bust in the 1620s, very bad for the woollen industries in some parts of England), but I think this cycle of boom and bust on a shorter timescale is associated with the nineteenth century, and with rapid growth. But as for causes - if they knew those, then they would do something to stop it.
posted by jb at 9:24 PM on February 4, 2009
Boom and busts did come in earlier periods (big bust in the 1620s, very bad for the woollen industries in some parts of England), but I think this cycle of boom and bust on a shorter timescale is associated with the nineteenth century, and with rapid growth. But as for causes - if they knew those, then they would do something to stop it.
posted by jb at 9:24 PM on February 4, 2009
troy writes
I don't see Marx's seven-year crashes in there either, but not all of the crashes would have been in real estate.
posted by fantabulous timewaster at 10:25 PM on February 4, 2009
[A] healthy chunk of consumer disposable incomes was coming from either housing construction, housing-related financial services (realtors, loan agents, officers, brokers, bankers), the wads of cold hard cash from cash-out refis, and also just refinancing from a higher to a lower rate w/o any cash-out.I don't buy this. That chart shows that the total value of loans outstanding roughly doubled from 2000 to 2009, just like every other decade in the dataset.
The sum total of this was trillions of dollars of debt taken on since 2000.
Lending graph.
I don't see Marx's seven-year crashes in there either, but not all of the crashes would have been in real estate.
posted by fantabulous timewaster at 10:25 PM on February 4, 2009
That chart shows that the total value of loans outstanding roughly doubled from 2000 to 2009, just like every other decade in the dataset.
Good point, but I think wages were flat, if that, this decade, so we took on a lot of debt without being able to pay it back compared to last century's repeated wage/inflation spirals.
The Federal Flow of Funds report says households had a balance sheet assets of $31T in 2003 and peaked at $45T in Q307. Debts were $13T in 2003 and have risen steadily this decade and now stand $20T in Q308, up about a trillion from Q307 even though assets have fallen $4T.
Mortgage debt was $8.7T at the end of 2003 and by the end of 2006, when the party was ending, had risen to $12.4. I don't know exactly where all this money came from (ie the mix between money supply inflation and recirculation of existing dollars from our trading partners into eg. the GSEs), but as we all should know now consumer spending and hence the overall economy was being amply supported by these unsustainable debt binge, almost $4T in 3 years.
Perhaps this chart diagrams the process of debt overextension.
posted by troy at 11:04 PM on February 4, 2009
Good point, but I think wages were flat, if that, this decade, so we took on a lot of debt without being able to pay it back compared to last century's repeated wage/inflation spirals.
The Federal Flow of Funds report says households had a balance sheet assets of $31T in 2003 and peaked at $45T in Q307. Debts were $13T in 2003 and have risen steadily this decade and now stand $20T in Q308, up about a trillion from Q307 even though assets have fallen $4T.
Mortgage debt was $8.7T at the end of 2003 and by the end of 2006, when the party was ending, had risen to $12.4. I don't know exactly where all this money came from (ie the mix between money supply inflation and recirculation of existing dollars from our trading partners into eg. the GSEs), but as we all should know now consumer spending and hence the overall economy was being amply supported by these unsustainable debt binge, almost $4T in 3 years.
Perhaps this chart diagrams the process of debt overextension.
posted by troy at 11:04 PM on February 4, 2009
Perhaps this chart diagrams the process of debt overextension.It does, but it doesn't connect it to real estate.
I'm not trying to say I disagree with your conclusion. But what you've presented here doesn't obviously connect the credit mess to anything extraordinary in the brick-and-mortar world. (I'd be curious to hash that connection out, but perhaps not in this thread. Send me some mail if you like.)
posted by fantabulous timewaster at 8:19 AM on February 5, 2009
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the crash of the tech bubble (more or less 7 years ago) to the over production of tech stocks/small web companies
I'd have to be paying more attention to think further back but there was the stock market crash in the early 80's and you could kind of fill in from there. there have been auto, airline and real estate crisis in between, but I'd be had pressed to expand on any details at the moment.
Its been a while since i read Marx, but the basic idea is that a industry or company would produce more supply than there would be demand and then loose out the investment made in achieving growth.
posted by jeffe at 3:14 PM on February 4, 2009