The history of the United States is rather exceptional. This is the only country that has always lived under the aegis of capitalism. No slavery as the organizing principle, nor feudal lords in their castles. Just the anxious eye of capital. Maybe this is why, more than in other country, the most important source of political legitimacy resides in the ability of the power elite to maintain high living standards. And when the system that allows for this is in trouble, the power elite needs to renovate its source of political legitimacy.
This sometimes has implied the redefinition of the social compact, as in the Thirties, when Roosevelt’s New Deal established a new foundation for income distribution and for labor relations. The American right never forgave that affront and was always ready to revert that social pact. The favorable conjuncture presented itself in the Seventies and Eighties.
Paul Volcker decided to get rid of inflation once and for all, increasing interest rates spectacularly and bringing about a recession and a global debt crisis. Reagan continued with his offensive against labor unions (beginning with his firing of the Air Controllers Union), marking the beginning of the dismantlement of the labor unions in the US. The interesting point here, of course, is that the growth of real wages started to stagnate in those years.
How was aggregate demand sustained after those years? The answer is easy credit. Pretty soon abundant credit was available for mortgages, automobiles, electrical appliances, college education, travel and everyday consumption. Credit cards became the equivalent of a national identity document. As the share of wages in the national product started to contract, household indebtedness expanded in order to compensate for stagnating incomes.
This kept the economy going, although it also led to a series of bubbles, from the high tech asset bubble of the late Nineties, to the current crisis. As Brenner points out, those crises were the dress rehearsal of the current debacle. The detonator of today’s crisis is of course this dangerous idea that houses could provide equity and thus serve as a booster to households in their quest for the “American dream”.
So, although uncontrolled speculation (with all its innovations in the financial markets) and deregulation appear to be the source of the current crisis, they are the last link of a long chain of transmission that starts with stagnant wages.
In turn, the beginning of this period is marked by the contraction in profit rates and a steady decline in the vitality of the advanced capitalist economies. Brenner provides a good in-depth analysis of this, as well as the paper on “The Crisis of Neoliberalism and U.S. Hegemony” by Dumenil and Levy. These analyses point out in one direction: firms have been able to avoid an even deeper decline in profitability only by resorting to a generalized contraction in wages. This means that the economy of the most advanced capitalist country in the world has had to reduce the purchasing power of the working class in order to sustain profitability. And living standards have been maintained through greater indebtedness in a process that has proven to be unsustainable.
The thirty-year long process was also accompanied by the gradual dismantlement of the manufacturing sector in the US. Today, the US economy is failing to generate enough jobs and one of the possible causes for this is that the manufacturing sector accounts for no more than 10% of total employment. The important point here is that manufacturing has a higher employment multiplier than other sectors but this advantage is now rather weak in the US economy.
As the signs of “recovery” fade away, the debate over austerity versus fiscal stimulus rages. But that debate is over the wrong issue. Yes, it is true that resorting to fiscal austerity in the middle of a crisis is dangerous. But this should not obscure the fact that the “normality” to which many believe the US should return is a failed model. There are monumental forces inherent to the regime of capital accumulation in the US in need for change. Nobody in the ruling elite appears to be concerned about this, the real issue.
The forecast is not encouraging. The US economy may lapse into a long period of stagnation. So we return to the initial question. If political legitimacy has been attained through ever-increasing mass consumption, what happens if this is not possible? What will happen when the American people discover that the US is just a country like any other? Will the ruling elite start looking for scapegoats?