What is the matter with our economy? Keynesians say aggregate demand is insufficient and should be boosted by fiscal stimulus. Monetarists say monetary policy is too tight and we need an expansion. Debt deflationists say too much debt built up backed by inflated assets, and now that asset prices have fallen, we need to reduce debt as well. Austrians say easy credit led to bad investments that have to be shaken out, and that any attempt to soften the impact simply prolongs the pain. It is not necessary to choose between these theories; all may be seen as different ways of looking at the same thing. But they have another thing in common. All assume that the current economic downturn is not an isolated event -- the details of each crisis are unique of course, but all such crises follow the same general pattern and all have the same basic remedy. (This big disagreement is over what that remedy should be).
But there is another economic theory I learned in college, the radical economic theory of the Social Structure of Accumulation (SSA). The Social Structure of Accumulation is not specific technology, but a set of business organizations, labor relations, government regulations and services, banking structures and the like that form the social context in which technologies are used. This theory hold that industrial capitalism is inherently prone to crises, that such crises occur about once every 40 years, that each such crisis is unique, and the each such crisis means that the old SSA has worn out that that a new one must be adopted. It also holds that what goes wrong with each SSA is unique, and that any number of new SSA's are possible to replace the old one.
The class went on to describe such crises and their 40-year intervals. One took place during the bad depression of the 1890's. Another took place in the Great Depression of the 1930's. Another took place in the stagflation of the 1970's. In all cases, the economic crisis led to a political crisis and completing visions of what SSA should follow (the 1890's were the time of Williams Jennings Bryan, who was rejected; the 1930's saw serious Communist and fascist movements arise as possible alternatives) and one -- but not the only possible one -- wins out. Someone in the class, after hearing what causes each particular crisis, asked what caused such crises in general. The professor said, "Contradictions inherent in the system," not a very satisfactory answer. A better answer, I think, might be that just as the system outgrows old technologies, it outgrows old social forms. This no more proves the old social form was wrong than outgrowing a technology was wrong in its time. Its time has simply passed.
So, should I take this theory seriously? I will say this much for it; here we are, about 40 years out from the last crisis, and the next one has arrived right on schedule. If the theory of SSA is right, what matters is not whether we take a Keynesian, monetarist, debt deflation or Austrian approach; the important thing is what SSA we adopt.
And I will say this too, the Republicans have clearly taken the lead here. They propose that the problem with our economy is regulatory uncertainty, and that what we need to recover is a regulatory freeze, followed by massive rollback and huge tax cuts at the top. Less emphasized, they also appear to favor lower wages, less job-related benefits, much fewer government services, a more regressive tax system, and an economy and policy geared toward promoting the interests of the people at the top (job creators!) on the theory that what benefits them will benefit all. And what have Democrats offered as their alternative? Well, some expansion in access to health care and tighter banking regulations to prevent an recurrence, but otherwise not much. Occupy Wall Street clearly rejects the Republican view, but does not have much to offer as an alternative.
Whether SSA is valid makes a difference. Without it, people like me could take cold comfort in the though that even if the Republicans took power and implemented their apparent program of immediate, deep spending cuts, monetary tightening, and reducing the debt burden by stepping up foreclosures, the harm to the economy would cause equal harm to their political fortunes and thereby bring about a reversal. This would be so even if you believe (and I do) that Austrian squeezing out works, that once the economy hits its bottom, it will begin to recover. The Baltics and now Ireland are examples of successful bottoming-out and recovery, but the bottom has been painfully low and recovery can be painfully slow. Few countries have the patience for such things -- we certainly don't. But if the theory of SSA is true, then it doesn't matter. Any SSA, if successfully adopted, will work, including what the Republicans have to offer.
Just as I believe these different macroeconomic theories are best seen not as mutually exclusive explanations, but as different ways of looking at the same thing (even the the Austrian remedies are mutually exclusive from the others), perhaps standard macroeconomic theory and SSA can also be integrated. Paul Krugman has offered a possible answer by equating "structural reforms" in Greece with "microeconomic reforms." In other words, Keynesian, monetarist, debt deflation and Austrian theories of the business cycle are macroeconomics. The various business organizations, labor relations, government regulations and services, banking structures and the like that make up an SSA are microeconomics. The macro policies best suited to pulling an economy out of its immediate slump and the micro policies best suited to long-term growth are two separate issues. It is even possible for a single set of macro policies always to be the best for such a crisis* but micro policies to offer many alternatives, and to vary with unique circumstances. But this much is clear. Whoever offers the best short-term macroeconomic recovery in the short term will be best placed to bring about micro reforms over the long term. Time will tell.
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*By this I mean a single set of macro policies being best in the wake of all bursting of credit bubbles. Obviously an inflationary crisis, such as we had in the 1970's calls for entirely different policies.
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