Economic Meltdown: Causes and Consequences

Robert Brenner outlines the long-term causes of the present economic meltdown. Rather than understanding the current downturn as solely a function of financial malpractice and incompetence, he demonstrates that the economy has been growing slower in most of the major indices with each passing business cycle since the 1970s. In the last two cycles, asset bubbles inclined US consumers to take on more debt in order to spend and achieve limited GDP growth. The implications for the US and the global economy are also considered including the US current account deficit, trade imbalances, the rise of China and the East Asian economies as well as declining investment in the real economy and overcapacity in manufacturing worldwide. Gary Dymski makes the case that banks are much more responsible than borrowers for the subprime crisis that has since led to a financial crisis and economic decline in the rest of the economy. The subprime bubble had its origins in the “strategic reorientation” of banks in the neoliberal era. Deregulation allowed banks to change their profit centers from “interest margin to fee-based income”. The securitization of debt opened new possibilities to rake in higher fees. Banks targeted lower income and minorities because they could be sold products that increased bank income in the form of penalties, short maturities on loans, application fees and higher risk loans. In light of the collapse of the banks, Dymski suggests that banks can and should return to more stable and socially constructive practices. The accompanying audio files provide the complete recording of the two talks.