To say that President Obama will face daunting challenges is stating the obvious. What is less obvious, however, is that these challenges also represent opportunities for change in favor of peace and economic security for all.
The dire economic circumstances and the urgent need for change have placed both the moral force and the potential power of the American people on the side of a radical reformer in a progressive direction. Even the U.S. ruling class, badly shaken by the failure of the trickle-down economics, and driven by the desire to save capitalism from itself, is now open to the idea of extensive economic changes. So, the question, once again, is what kind of changes?
There are strong indications that, in the absence of sustained and overwhelming pressure from below, President Obama will not initiate reforms beyond the restructuring schemes of the ruling plutocracy—schemes that are dictated primarily by the needs of market profitability, or capitalist survival. This is clearly reflected in his choice of economic advisors and his wholehearted support for the Bush administration’s criminally fraudulent bailout scheme of the Wall Street financial gamblers.
Evidence shows that momentous historical changes often take place during or as a result of deep social and economic crises. These include not only transformative socioeconomic revolutions such as the great French revolution of 1789 or the Soviet Revolution of 1917, but also some of the major reforms in the United States, such as the New Deal reforms of the 1930s or the “supply-side” restructuring policies of the 1980s.
An essential characteristic of capitalism is that it grows in an erratic, contradictory, and cyclical pattern. Alternating periods of boom and bust are rather well established in the history of advanced capitalist economies. Economists make a distinction between the short-term or "usual" business cycles, ranging from a few to several years, and the longer industrial cycles of a few to several decades known as long waves or "Kondratieffs," after the Russian statistician who systematically chronicled such historical developments.
The U.S. economy has since the mid 19th century experienced a number of such long cycles: the 1848-97 cycle (consisting of 1848-73 expansion, 1873-97 contraction), the1897-1937 cycle (1897-1929 expansion, 1929-37 contraction), and the 1948-1982 cycle (1948-73 expansion, 1973-82 contraction). The fourth long cycle, which began in 1983 and continued to expand until 2000, is now in decline .
Mainstream theories attribute the alternating periods of boom and bust in the long economic cycles to the metaphorical "invisible hand" of the market mechanism: both upturns and downturns are automatically brought about by purely endogenous, “self-correcting powers” of the market system. While this may be true for the change or turn from expansion to decline, the reverse is not true; that is, the turn from long waves of contraction to those of expansion is not automatic—it requires government intervention.
During periods of expansion and prosperity, champions of laissez-faire economic doctrine tirelessly flaunt the magic and the blessings of the “invisible hand” of the market mechanism. Accordingly, and just as tirelessly, they warn governments against any intervention in economic affairs.
But when long expansive cycles turn into long depressive cycles that make the market system vulnerable to social turmoil, business and government leaders dispel all pretensions of deferring the management of the economy to Adam Smith's "invisible hand" and, instead, rush to the rescue of the system with all kinds of reforms and restructuring schemes.
These include not only domestic measures of legal, economic, political and institutional restructuring, but (at times) also foreign policies designed to facilitate or capture new markets and investment opportunities abroad. The fate of the capitalist system is integrally intertwined with its ability to weather the challenges posed by such "menacing" long periods of crisis.
Long periods of crises can be menacing to the established order because the outcome of the underlying crisis-management strategies, of institutional overhauls, and of class struggles are neither pre-determined nor predictable. Economic, socio-political and institutional changes in response to long periods of crises, at times, develop in relatively autonomous, random, and uncontrollable ways that could place the capitalist system at fateful cross-roads, including the road to socialism and the road to war and fascism.
Diehard fanatics of laissez-faire doctrine aside, “far-sighted” capitalist establishment understands the gravity of such ominous long periods of crisis. And that is why, depending on the concrete circumstances of the crisis period (especially the degree of the pressure from the grassroots, or lack thereof), their restructuring policies can be vastly different—ranging, for example, from the New Deal economics of the 1930s to the trickle-down Reaganomics of the 1980s.
A brief comparison and/or contrast of the forces behind the New Deal economics of the 1930s with those behind the neoliberal “trickle-down” economics of the 1980s can be helpful to an understanding of why, left alone (i.e. in the absence of a sustained and effective pressure from below), the changes that will be initiated by the Obama administration will be more favorable to the kleptocracy than the overwhelming majority of the American people.
It is obvious that the sheer severity of the current crisis has already forced a “job creation” stimulus package of public works projects on the agenda of the Obama administration. The question is how the projected investment in the long neglected infrastructure will be carried out.
Will it be directly financed and supervised by the federal, state and local governments, including strict guidelines, rigorous reviews of projects, public oversight, streamlining of the processes, and competitive bidding—similar to FDR’s Works Progress Administration of the 1930s? Or, will it be the kind of the wasteful outsourcing and crony contracting that has become the hallmark of “rebuilding” New Orleans, or Iraq?1. The Great Depression of the 1930s and the New Deal Economics
The economic crash of 1929 and the ensuing long depression resulted from a complex set of factors. A discussion of those factors is beyond the scope and focus of this study. Whatever its causes, the fact remains that the depression made living conditions for the overwhelming majority of people extremely difficult.