This continues the Peace Train column of Jan. 20, which considered the nature of neoliberal capitalism. Here I discuss the contradictions of neoliberal capitalism. A systemic contradiction (as opposed to a logical contradiction) is a relationship that eventually causes the system of which it is part to malfunction and perhaps break down. A systemic contradiction typically generates forces that push the system in opposite directions. All historical forms of capitalism have had major systemic contradictions. These contradictions are important because they cause economic and/or political crises, which sometimes spawn a different form of capitalism or an entirely new economic system.
Under all forms of capitalism, the rate of profit usually grows more rapidly than the overall economic product (i.e. gross domestic product or national income). This means that increase in capitalist wealth usually exceeds the rise in average income, a process which augments economic inequality and motivates class conflict. Thomas Piketty, author of "Capital in the Twenty-First Century," calls this relationship "the central contradiction of capitalism." The market obsession of neoliberal capitalism aggravates this basic tendency. It does so by accelerating the earnings of corporate executives, stagnating the salaries of middle-class people and depressing the real value of working-class wages.
Such economic inequality on steroids inevitably creates a problem of demand. With most incomes stagnating in real value, how can effective demand absorb the ever-growing quantity of marketed commodities? Neo-liberal capitalism addresses this demand problem by encouraging debt. Debt levels (both personal and institutional) increase precipitously under the neo-liberal system. The consequent ubiquity of debt renders the total structure highly vulnerable to economic shocks. In 2008, the unexpected collapse of the U.S. housing bubble destabilized the entire global neoliberal economic system.
A closely related contradiction of neoliberal capitalism concerns the accelerated expansion of the financial sector stimulated by rampant economic deregulation. Deregulated finance offers quick and massive but highly uncertain profits. It therefore attracts increasing flows of capital while generating potentially lucrative but inherently risky economic actions. In its voracious pursuit of profit, finance capital issues copious complex and difficult-to-evaluate monetary instruments such as collateralized debt obligations and credit default swaps. These become seriously toxic during an economic crisis. The hypertrophy of the finance sector also induces repeated asset bubbles (like the stock market bubble of 1995-2000 or the lethal housing bubble mentioned above) that inevitably collapse, causing economic chaos and enormous human hardship.
Asset bubbles, among other things, engender unrealistic expectations about the future. Such ill-founded expectations frequently motivate excessive expansion of productive capacity. Comparing the era of neoliberal capitalism (about 1980 to the present) to the prior era of regulated capitalism shows that the former exhibits a persistent tendency to underutilize productive capacity (because such capacity has expanded too much). Indeed, excessive productive capacity expansion constitutes yet another contradiction of neoliberal capitalism.
The Rocky Mountain Peace and Justice Center's "Peace Train" runs every Friday in the Colorado Daily.