Is Another Crisis Looming? | Jacobin
Profits are a particularly critical indicator of the state of a capitalist economy because they are generally understood to drive investment. Investment in turn has a determining effect on jobs, wages (to the extent that an increase in jobs increases workers’ bargaining power), and a growing tax base that can support social programs.
Why hoard money? Because the ‘80s. They’re building walls against takeover. In a flat market you not only need to scrape the barrel looking for profit opportunities you have to take care to not be cannibalized as an opportunity yourself.
That was the lesson of the ‘80s, that a privately held company might do better playing long ball than one chasing risky peaks, but publicly traded, it’d just get bought out by the whippersnappers with bubble money from a peak. Junk bonds, takeover sharks, “murders and executions”, etc.
Now traditionally the way to stop that was regulation, antitrust, etc, keep any entity from being too big itself. But the problem there was Japan. Japan was not only recovered from WWII and emerging as an export power, it was buying up big properties and assets in the U.S. and Europe. That’s the subtext behind Die Hard being set in “Nakatomi Plaza”. That’s the subtext behind a LOT of '80s-'90s pop culture: Japan Is Coming To Eat Us.
And part of that was they were in a ridiculous bubble themselves, and their economy was built around keiretsu, which… imagine a world with serious antitrust enforcement, then imagine the opposite. Like, active government trust enforcement.
And the regulated old money Postwar Consensus slow-n-steady US was vulnerable to that.
Now the countermove woulda been protectionism. People project all modern conservatism back onto Reagan but he was in big protectionist trade wars with Japan.
But the thing was that we were competing for the loyalty of the “developing world”. With the Soviets, with China, with South American “third way” socialism.
(Which potential depended on seizing and redistributing US capital’s assets, which is why we kept up the Cuba embargo so long, to make the point that even if cooling-off, acceptance and trade might be the best outcome of a non-iterated game, We Will Not Allow This To Be A Viable Option)
And our offer was “hey, do the democratic-capitalist industrialization thing and you can join us in Coca-Cola and Disney Present: Bluejeans World, it’ll be *great*.” But keiretsu-dominated Japan in the '80s was really the first non-Western country to pull it off, with chaebol-dominated Korea and similar Asian tigers waiting in the wings, and to slap them down too hard for uppity presumption would’ve been… awkward.
There’s a lot of stuff that made sense because Cold War and stuck around on inertia. And there were attempts to challenge that in the '90s!
Iraq War I was Saddam being all “Cold War’s over, now we can stop holding off WWIII with this outdated Yalta Conference balance of power and make borders make sense the old-fashioned way, with the strong eating the weak!”
(and Bush the Elder retorting “NATO Is Its Own Purpose”)
Ross Perot was “the Cold War is over, we can stop pretending to believe in free trade”. Pat Buchanan’s “culture war” intervention into the 1992 election was “the Cold War is over, we can stop pretending to believe in free trade AND multiculturalism”.
Now some of that’s finally crumbling. Cuba finally got regular, with TPP free trade’s lost its sheen, Bush the Younger - history is going to reevaluate that guy WAY upwards, and part will be the Bush Doctrine, finally biting the bullet and giving up on organizing the Islamic world around a plan for keeping British allies in ex-Ottoman lands.
Multiculturalism, eh.
Sooooo. Protectionism was out. So the defenses that evolved were, on the national level, allowing the consolidation of industry and finance into “national champions”, and trying to keep a low-level bubble going at all times. Greenspanism.
(Also keeping substantial portions of the economy shielded as “national defense”. If you look askance at China or Turkey’s military for being so involved in their national economies, consider
1. How much of the U.S. economy, particularly manufacturing and design, is arms exports or internal military spending
2. The margins on some of these contracts
3. The security clearances on some of these contracts
4. The wait time on non-military applications for clearance screening, especially in relation to the bidding, staffing, and subcontracting cycles on these contracts.
BONUS 5. The way American tribute from vassal states is funneled through these industries as exports and particularly continuing services and parts contracts.
[which are also a planned obsolescence killswitch when allies go rogue - why the Taliban still had their RPGs but not our Stingers]
THAT’S why Australia is spending so many billions on our jets now, why it was important that the UK buy Trident from us, because that’s how vassal/lord relations work - they kick in coin and a share of fighting men, we pledge protection.)
Where was I? On the firm level. On the firm level the big defense against takeover was to take on debt. Ideally, take on debt for stock buybacks that raise your valuation out of shark range, but importantly debt just dangerous enough that a steady workaday company could manage but these mayflies would face too much downside risk in a downswing.
So that kinda worked, I guess. The big thing now is that the financial regulations after the '07 crash actually worked, but their big moving part is “having promoted national champions, we will now make the holding of large amounts of risky debt by sizeable corporations as bothersome and expensive - in money and several colors of influence - as possible”.
Meanwhile junk bond raiders have grown up into private equity and hedge funds, and every one’s competing with sovereign wealth funds. Which at that point you are not only trying to outbid a guy who buys thousands of slaves to construct a palace for his harem, you are trying to outbid *all* those guys, while they are your government’s closest allies in their single biggest region of interest.