The Great Financial Crisis: Causes and Consequences |  | Authors: John Bellamy Foster, Fred Magdoff
Publisher: Monthly Review Press
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Rating:  19 reviews
Sales Rank: 29768
Media: Paperback
Pages: 160
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Dimensions (in): 7.7 x 5.4 x 0.5
ISBN: 1583671846
Dewey Decimal Number: 330.90511
EAN: 9781583671849
ASIN: 1583671846
Publication Date: January 1, 2009
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Product Description
In the fall of 2008, the United States was plunged into a financial crisis more severe than any since the Great Depression. As banks collapsed and the state scrambled to organize one of the largest transfers of wealth in history, many—including economists and financial experts—were shocked by the speed at which events unfolded. In this new book, John Bellamy Foster and Fred Magdoff offer a bold analysis of the financial meltdown, how it developed, and the implications for the future. They examine the specifics of the housing bubble and the credit crunch as well as situate current events within a broader crisis of monopoly-finance capitalism—one that has been gestating for several decades. It is the "real" productive economyÂs tendency toward stagnation, they argue, that creates a need for capital to find ways to profitably invest its surplus. But rather than invest in socially useful projects that would benefit the vast majority, capital has constructed a financialized "casino" economy that neglects social needs and, as has become increasingly clear, is fatally unstable. Written over a two-year period immediately prior to the onset of the crisis, this timely and illuminating book is necessary reading for all those who wish to understand the current situation, how we got here, and where we are heading.
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Showing reviews 1-5 of 19
 Prescient June 25, 2009
Douglas Doepke (Claremont CA USA)
2 out of 2 found this review helpful
No need to repeat salient features pointed out by others, except to say the book is well worth the read. There is, however, an unmentioned point worth noting. The authors frequently allude to the "real economy", which they equate with the manufacturing sector. Intuitively, that makes sense since it's goods production that must satisfy our everyday material needs. The financial sector, on the other hand, is posited as dependent upon that "real" economy, to the extent that the financial sector cannot expand indefinitely without some corresponding degree of productive growth. That too makes intuitive sense since manufacture is a chief outlet for profitable financial investment. However, unless I missed something, the book simply posits that the financial sector cannot expand indefinitely apart from growth in the real economy. That may satisfy intuitively, but intuition does not rise to the level of persuasive proof. Yet, this dependent relation is a key assumption behind the authors' assessment of the current crisis.
Now it's probably not fair to require an anthology of Monthly Review articles to elucidate what's likely a pretty complex dependency theory. Nonetheless, some such confirmation is needed in order--I would think--to refute the monetarist approach, for one, to the meltdown. In the excellent Introduction, Hyman Minski is characterized as grappling with this issue by arguing that as the "lender of last resort", the government is in a race during binge periods to prop up financial bubbles before they collapse into a risky deflationary spiral. However, as an admitted lay-person, I see nothing in the book that demonstrates the impossibility of the government continuing this process indefinitely. Of course, the answer may lie with what happens in the real economy, depending on developments there. But even assuming no growth in the productive part, would an ever-expanding financial bubble be demonstrably impossible? Seems to me an important but unresolved consideration.
Anyway, the articles collected over a two-year period have proven remarkably prescient, and though the format leads to noticeable repetition, the work again shows how the best insights come from the margins and not from the mainstream.
Marxist analysis of the financial crisis in real-time June 23, 2009
Matt Vidal (London, UK)
2 out of 2 found this review helpful
Mainstream economic theory has always assumed that so-called free markets are self-regulating. In contrast, Marxist economics places the question of expanded reproduction at the center of analysis: how can a system based on competition, market anarchy and class struggle maintain stability and growth? In "The Great Financial Crisis," John Bellamy Foster & Fred Magdoff draw on a rich tradition of Marxist political economy to present a compelling analysis of the financial crisis that began in the fall of 2008 in the United State and continues to engulf the advanced capitalist economies in a deep, ongoing recession.
The analytical framework applied by the authors is a `stagnation-financialization' theory developed in the 1960s and `70s by American Marxist economists Paul Baran, Paul Sweezy and Harry Magdoff. Baran & Sweezy argued that the normal state of monopoly capitalism, which began at the end of the 19th century, is stagnation. In a mature economy with increasing productivity and an associated growing surplus, the capacity of the system far outpaces effective demand. With the opportunities for productive investment severely curtailed due to sufficient existing means of production (factories and equipment) and overcapacity, investment increasingly took the form of speculative finance. Thus began a trend toward debt buildup and increasingly serious financial bubbles.
The analysis begins with a capitalist contradiction. The economy depends on wage-based consumption to support growth and investment, but accumulation depends on keeping wages low. Despite decades of stagnating wages, however, overall consumption has continued a steady increase, made possible by growing consumer debt, primarily from home mortgages. Rising housing prices, along with the Fed's slashing of interest rates after the 2000 stock market crash, helped replace the stock market bubble with a housing market bubble. With an average of 81 percent of production capacity used over the last 30 years, financial capital increasingly turned from productive investment to speculation. With the increasing financialization of the economy, banks began to borrow to increase their speculative bets. Financial sector debt rose from 10 percent of total debt in the early 1970s to nearly a third by 2005. Through new financial instruments, including the securitization of mortgages, lending banks were able to transfer the risk of defaults, thus encouraging ever more questionable loans.
In the remaining four chapters, Foster & Magdoff trace the relations between persistent stagnation in the real economy and the growth of the financial economy. They argue that we have entered a new phase, monopoly-finance capitalism, in which financialization provides a set of tools to help monopoly capitalism--prone to stagnation due to chronic overcapacity and lack of effective demand--reproduce itself. The financial economy has provided an outlet for the concentrated surplus of corporate and individual wealth, but the financial system has become increasingly complex and leveraged. The growth of new and increasingly esoteric financial instruments provided a way to expand money capital. But no matter how much the financial sector expanded, it could not overcome the stagnation of the production sector.
Foster & Magdoff provide a detailed, insightful analysis of the financial crisis. Their book has many benefits, chief among them a real-time analysis of the unfolding of this world-historical event using a clear and systematic theoretical framework. In addition, Foster & Magdoff provide extensive data to back up their arguments about financialization, and an excellent survey of the mainstream discourse surrounding the build-up and outbreak of the crisis.
Gets high recommendation for succinctly explaining what is so hard to explain June 16, 2009
Midwest Book Review (Oregon, WI USA)
1 out of 1 found this review helpful
How did the country get into this mess anyway? "The Great Financial Crisis: Causes and Consequences" hopes to draw a road map and time line of the current financial crisis, explaining how America has reached this point of desperation. Although written over the past few years, John Bellamy Foster & Fred Magdoff's work is timely and will be of much interest for many readers who are trying to make sense of the current debacle. "The Great Financial Crisis" gets high recommendation for succinctly explaining what is so hard to explain.
 ultimately unpersuasive May 27, 2009
balyzu (Princeton, NJ)
2 out of 5 found this review helpful
The positive reviews by the pioneer of World systems analysis Immanuel Wallerstein, as well as American political economists Robert Pollin and Robin Hahnel were the main reason why I decided to check out this book. Unfortunately, it failed to live up to my high expectations. To put it in banal terms, it is not bad, but it is not good either.
On the one hand, it exposes the reader to a range of important indicators that are helpful in understanding the recent economic developments (the change in the level of debt relative to GDP owed by households, industrial firms, financial firms, and the government; the share of total profits in the US economy that go to financial firms; the volume of financial transactions that point to their speculative and volatile nature; the distribution of income, etc.). Moreover, it provides a good glimpse of existing intellectual thought on these recent developments (the neoliberal orthodoxy, the left-liberal "financialization" thesis promoted by American Post Keynesian Thomas Palley and others, the "stagnation" thesis advocated by Marxist theorists of the Monopoly Capital tradition, etc.).
On the other hand, the prose is extremely repetitive, most probably because the majority of the book was pulled from the Monthly Review articles. The authors' defense of the Monopoly Capital tradition is not helped by the incessant repetition of essentially the same references to Sweezy and Magdoff, who held that mature capitalist economies are prone to "stagnation". The theory of "vanishing investment opportunities", famously disparaged by Schumpeter is here treated almost as an axiom. Alternative reasoning, such as "crowding out" of productive investments by financial speculation which is very profitable in the short term, or the possibility that the stagnation of the neoliberal era chiefly flows from the politically driven changes to the income distribution, are either dismissed in a cursory manner or overlooked. The policy prescriptions are likewise confused and ambiguous: "socialism". No, thanks, I would much rather prefer something insightful.
This book is not useless. However, its analysis is ultimately unpersuasive and its policy prescriptions unworthy of note. If you are interested in sensible unorthodox analysis, I would recommend looking into what figures like Thomas Palley, Dean Baker, and James Galbraith have to say about the neoliberal era and the recent debacle.
 Useful account of capitalism's decline and fall May 26, 2009
William Podmore (London United Kingdom)
2 out of 2 found this review helpful
This is a very useful study, composed of essays published in the American journal Monthly Review from May 2006 to April 2008, with an introduction and a last chapter written in December 2008. It covers the USA's household debt bubble, the wider boom of debt and speculation, the emergence of monopoly-finance capitalism, the financialisation of capital, the crisis' onset in 2007, and the financial bust of 2008.
The authors show how finance capital has been taking more and more surplus value from the real productive economy. This led not to growth but to more debt: in the USA, $4.5 trillion in 1980, $51 trillion in 2007.
Ben Bernanke, head of the Federal Reserve Bank, said at the peak of the housing bubble, "these price increases largely reflect strong economic fundamentals." As a mad monetarist he sees the crisis as solely monetary and the solution as monetary - print more money. But life is proving that printing money means more hoarding by the rich, not new loans and investment.
In 1965, financial profit was 15 per cent of all US domestic profits, and manufacturing 50 per cent; by 2005, finance took 40 per cent, industry just 15 per cent. The financial sector has outgrown its base in the real economy. No government now has enough money to act as lender of last resort. War spending dragged the USA out of the 1930s slump, but now even larger war spending (doubled since 1995) can't prevent a slump. As Keynes wrote, "the position is serious when enterprise becomes the bubble on a whirlpool of speculation."
The authors write, "increasing inequality in income and wealth can be expected to create the age-old conundrum of capitalism: an accumulation (savings-and-investment) process that depends on keeping wages down while ultimately relying on wage-based consumption to support economic growth and investment."
They quote the great American economist Hyman Minsky who concluded, "Capitalism is a flawed system in that, if its development is not constrained, it will lead to periodic deep depressions and the perpetuation of poverty." But restraints on the financial markets are impossible (under capitalism) because the markets burst through all regulation. So capitalism does always lead to deep depressions and mass poverty.
Stagnation and financial busts, not growth and full employment, are capitalism's norm. Its inherent laws cause its absolute decline.
Showing reviews 1-5 of 19
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