Roubini: ‘Karl Marx had it right’

Joseph Lazzaro writes:

There’s an old axiom that goes “wise is the person who appreciates candor almost as much as good news” and with that as a guide, place the forthcoming decidedly in the category of candor.

Economist Nouriel “Dr. Doom” Roubini, the New York University professor who four years ago accurately predicted the global financial crisis, said one of economist Karl Marx’s critiques of capitalism is playing itself out in the current global financial crisis.

Marx, among other theories, argued that capitalism had an internal contradiction that would cyclically lead to crises, and that, at minimum, would place pressure on the economic system.

Companies, Roubini said, are motivated to minimize costs, to save and stockpile cash, but this leads to less money in the hands of employees, which means they have less money to spend and flow back to companies.

Now, in current financial crisis, consumers, in addition to having less money to spend due to the above, are also motivated to minimize costs, to save and stockpile cash, magnifying the effect of less money flowing back to companies.

“Karl Marx had it right,” Roubini said in an interview with wsj.com. “At some point capitalism can self-destroy itself. That’s because you can not keep on shifting income from labor to capital without not having an excess capacity and a lack of aggregate demand. We thought that markets work. They are not working. What’s individually rational…is a self-destructive process.”

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6 thoughts on “Roubini: ‘Karl Marx had it right’

  1. EmmaZunz

    This under-consumption argument is not really very close at all to Marx’s theory, which had to do with capitalists trying to squeeze profit out of labour while gradually employing less and less of that very labour in proportion to capital expenditure.

    Marx’s theory of capitalist self-destruction was not based on under-consumption but on excessive mechanisation. A slightly later radical theorist who *did* argue for under-consumption, however, was the Brit, J. A. Hobson. in “Imperialism”.

  2. Colm O' Toole

    It think this is part of the two different areas that Marx and Engels wrote about. Roubini is citing Marx’s “flaws of capitalism” and Emma is making reference to Engels “self destruction of capitalism” describing the process where capitalism will fail.

    In “Capital” Marx did point to two FLAWS within capitalism namely surplus labour and its choatic nature.

    In “Socialism: Utopian and Scientfic” Engels describes the self destruction of capitalism.

    Of course most people should be able to see both the flaws of capitalism and the self destruction of capitalism that the two men propheised in todays economic crisis.

  3. pabelmont

    Nice that Marx may have been prescient, but we have today’s events staring us in the face, so that we don’t need Marx. Much (in western society) of social activity has been turned over to corporations, and they do us great harm. They either wreck the environment directly (privatizing profits and socializing costs, if you will) but also indirectly (finagling weakening of environmental regulations in the well-known “race to the bottom” across state lines and national boundaries). Monopolies (or close enough) are still being formed, showing that the natural effect of corporations is to grow, if they can, to concentrate power, and, when necessary, again, to finagle weakening of regulation, this time anti-trust regulation.

    When corporations “own” the government, as the USA’s marvelous — but dreadful — system of elections makes inevitable, government (as well as economic institutions) inevitably serves the interests (or “perceived interests” — note the corporate disdain for the future shown by its disdain for global warming) of corporations, not of “the people”.

    I do not see all this tragedy as “self destruction” of capitalism (or, at least, of corporations), but as consequences of the USA’s electoral system, which could, in principle at least, be repaired.

  4. Steve

    Despite all propaganda to the contrary it appears that neither capitalism nor marxism is all right or all wrong.

    Unfortunately marxists rarely have control of the media. And you can hardly say that any forms of communism ever truly followed the theories of Marx and Engels as they were hijacked by dictators or politburos.

    I forget who said it but I think this rings true also “inside every capitalist there is a monopolist trying to get out”

  5. delia ruhe

    That is hardly unusual: most really intelligent economists — i.e., economists whose vision is not confined solely to the narrow prism of economics — are well versed in Marxist theory. It was Marx who taught people how capital works, although you’d never get the ideologues to admit it.

    We are currently in shock therapy mode, which will complete this transformation from liberal democracy to corporate imperialism. The Super-Congress will deliver the big shock and (they hope) the final one. What happens in Europe is anyone’s guess. Unlike the US, whose leaders are crippled by ideology, Europe’s leaders are hampered by structural barriers. They, too, are in shock mode: the EU constitution they couldn’t get passed a few years back will need to be imposed on Europe now if they are gonna resolve their issues.

    Here’s an interesting article from Der Spiegel:

    http://www.spiegel.de/international/world/0,1518,779008,00.html

  6. DE Teodoru

    In 1989, as Ceausescu was being chased around in a chicken yard by a Romanian Army firing squad, I recalled what a Polish “Solidarity” spokeswan said to a bunch on bankers appearing with her on the McNeil?Lehrer Newshour: it was you American bankers who advised Gen. Wojciech Jaruzelski to suppress the strike because it was bad for “YOUR” business. She reminded them that it was– the WESTERN BANKERS– that had invested in Communism and had a vested interest in its maintaining order and production. MANUFACTURER’s HANOVER BANK loaned out to Romania FOUR times its total assets, all under (Reagan) US Gov guaranty+ 10% profit. This I learned while a student in Romania from a USAID sponsored talk by an American economist warning them to increase production.

    The Bush Era was as imperial as it can get. We are now hated both for our exploitation of others and our crooked triple A rating of our phony mortgage assets. Can we remember that we chased profits with abandon such that, in the words of Lenin, when it comes time to hang the capitalists they will be trying to outdo eachother to sell them the rope. I’m an anti-Communist taught by History: BE CAREFUL WHAT YOU WISH FOR.

    We Americans have been led by corrupt imbeciles in the pay of crooked fools. And so we sent out our National Guard as expeditionary forces in the interest of the bankers. But a rule of history is that stupid entrepreneurs beget stupid generals. But who cared since it “wasn’t my kid going to war.” As America ages it becomes clear that its older Teabaggers are exactly what Marx said they were. Our victory heralds our defeat.

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