Precision Crisis

let's get specific

The pandemic is causing an economic crisis, but we should be precise. When I see socialist analysis and others on the left say that the problem is capitalism, greed, our unjust system, or inequality I get frustrated. That’s like saying it’s raining because of the sky.

Of course rain falls from the sky, but what about precipitation cycles, gas pressure, meteorological patterns? Of course the crisis now is in capitalism. But what exactly is going on?

This frustration admittedly comes from a coping strategy I’ve developed for my anxiety in this moment. My partner is in her third trimester. We’re supposed to have a baby in this crisis and we’re just waiting. I’m being super careful about not going out, I shouldn’t do much else. Sitting at home is getting to me.

So I’ve been reading financial news and analysis, but through a marxist lens. I want to understand what’s happening with the dominant mode of production, with the struggle between the ruling class and working class, but in precise technical terms. I’m an education researcher by training, though my recent work has focused on funding and finance. I’m no expert but I’m giving it a go. Mostly because I’m nervous, but also because I’m looking for a new structure to emerge from the ashes of the old one and I want to know exactly what’s on fire.

So here’s how I’ve come to understand the crisis in the dominant mode of production.

Three Shocks

Just as the virus was spreading in China I read a summary of a research note by Zoltan Poszar, an analyst at Credit Suisse known for his detailed and enigmatic thinking, and accurate predictions. He had called it on the recent crisis in repurchase markets back in September. I went to him first.

The author of the summary—himself an analyst—admitted not understanding Poszar fully. (I tried to get to Poszar’s actual research but it’s behind a paywall at the Swiss bank.) What’s most important, the summary goes, is to understand that because the virus keeps people home, there will be a series of shocks in demand, supply, and finance.

Demand shock. People will consume less and use less, so there will be less demand for everything. That’s a demand shock.

Supply shock. Since people will be staying home from work (and demand for stuff will be lower), there will be less production of stuff, less work done. That’s a supply shock.

Finance shock. The two shocks hit everything from service to manufacturing to distribution. Since the entire flow of commodities will stop, trading on those commodities and their production/circulation will be affected. That’s a finance shock.

The three shocks make this crisis different than what happened in 2008. Whereas in 2008, billions of dollars dropped out of the financial system after Lehman Brothers went bankrupt—mostly due to instability caused by subprime mortgage debt—there was a particular kind of finance shock. It was a circulation problem.

Of course everyone was impacted by it. But once money got circulating again in the veins of the economy, things picked back up (for the ruling class). Banks got bailed out, we got sold out. Things moved on.

Deficit Agents

But this pandemic is causing a production crisis, not just a circulation crisis. In marxist terms, the relations of production are paused in almost every region of the economy. Because people can’t have their hands on the means of production (hands have germs), there’s less production.

That’s really different. The supply and demand shocks mean that it’s not just a circulation problem. You can’t just bailout the banks and get blood circulating in the system again. The problem is with the veins, to keep up the physiological metaphor. Blood spills out of them. They’re full of holes.

Poszar names this problem also. He says that, with the supply and demand shocks, firms become deficit agents.

Since people are staying home, consuming less and working less, businesses of all kinds can’t produce as much and can’t make as much money. There’s less coming in and less going out.

But it’s wrong to say the economy is ‘shutting down’, because those businesses still have costs. They have to pay for the means of production. They have to pay for labor. They have to pay rent. They have leases on machinery, land. They have contracts to maintain.

Rather than making stuff, putting it out into the world, and covering their costs, the firms run deficits. Rather than supply agents they become deficit agents. And all the sources of production leak. They go into debt. They go negative. Poszar uses the example of an airline:

Consider, for example, an Asian airline that stops having inflows due to reduced demand to fly to, from and across Asia. The initial positive impact on funding comes from the reduced demand for jet fuel – which is also mirrored in the reduced funding needs of commodity houses that would fund the sourcing and shipment of jet fuel for airlines – but the deficits accumulate over time from keeping pilots and cabin crews on payroll, paying the rent on parking spots and gates at hundreds of airports the world over, and servicing the debt that finances the fleet of aircrafts. The longer passengers don’t fly, the longer the planes are grounded, and the more the airline’s dollar deposits are depleted: the airline gradually becomes a deficit agent… Hotels are next…

The crisis is a production crisis because most firms become deficit agents like the airline. And since they’re all connected the impact is exponential. This is happening in every industry and moment of production: production, circulation, consumption, exchange. The relations of production pause, production stops, then you can’t pay for the means of production (even though they continue to cost money). These firms have recourse to bankruptcy and fiscal stimulus from governments, but it’s tough.

We could say too that it’s an exploitation crisis. The structure can’t do what it’s set up to do: exploit people, land, resources, money. But the crisis in exploitation means people don’t get paid. They get laid off. There’s historic unemployment, underemployment. And in the United States, where neoliberals have ravaged safety nets, it’s individuals in the working class that will feel the brunt of the crisis. We largely don’t have healthcare. We have credit card debt. We can’t pay the bills: rent, utilities, groceries. In an exploitation crisis, the working class becomes a deficit agent without recourse.

Monetary and fiscal policy

So what’s the response? It’s important to know ruling class language for this, which, to some degree, actually comes from Keynesianism (which went from insurgent economic theory to ruling class economic theory back to insurgent again). The important thing is that there’s a difference between monetary and fiscal policy.

Monetary policy means messing with money and credit: making sure there’s a good flow of cash and the fewest restrictions to that flow. The Federal Reserve is the main character here. They lowered their primary target interest rate to nearly zero, which means that it doesn’t cost anything to send money back and forth in certain key areas. They inject billions and billions and then trillions of dollars into markets that slump when capitalist pull their own cash out of them. Monetary policy also make sure borrowing and lending flows happen smoothly (if it doesn’t other parts of production can freeze or seize up).

Fiscal policy means taxing and then spending money: passing legislation that goes to programs, firms, and people. The government is the main character here. In 2008 that meant a big recovery package. In the summer of 2009 I did a road trip with a friend of mine to report for Slate on that recovery money. We saw weatherization projects in Texas, dredge boats in Louisiana, job training programs in Alabama, and state budget increases in Michigan. All of them funded by the federal government’s fiscal policy, which dictated both how taxes get collected and then how those taxes are spent.

So the precise question about this crisis is: what’s the right fiscal policy, and what’s the right monetary policy? I laid out some of the socialist approaches to this question yesterday. But now we can read those proposals and ask: do they adequately meet the exploitation crisis and deficit agent problem?

Being Precise

I think socialists should start getting curious about the guts and inner workings of the dominant mode of production. It’s in crisis right now. The pandemic is throwing it out of whack. Whatever structure emerges from the crisis will be built on the ashes of the old one, but those ashes have certain contours.

It’s important to speak the language of supply, demand, finance, deficit agent, interest rate, monetary policy, fiscal policy. That’s the ruling class language, I know, but we can use our insurgent concepts to think about them. The crisis is an exploitation crisis because the relations of production are paused. The cost of the means of production overflow the dominant mode of production’s ability to pay. The ruling class is faltering and the working class will hurt more.

But precision isn’t good for it’s own sake. Lenin said that you have to find the weakest link in the chain to break the shackles off. We should know how to find the weak links in the chain of our social structure. We should be able to survey the balance of forces in the mode of production precisely to discover the exact places of tension, torsion, and contradiction because, if we do, we’ll know better how to act and get the impact we want.

And for that, we have to be precise.