The Last Straw — Austerity Hits Its Limits

“Personally, I’m all in favor of ‘everyone tightening their belts’ — as long as we are all wearing the same pants.”

–Mark Blyth, author of Austerity — The History of a Dangerous Idea

Why are millions of people around the world suddenly in the streets?

Mark Blyth, a Scottish Professor of Political Economy at Brown University, says that the neoliberal era is now collapsing into the neo-nationalist era. We see that with the rise of the reactionary right around the world, from Modi to Bolsonaro to Trump. That process of collapse, however, has not infiltrated neoliberal policy yet. Eeven as neoliberal philosophy is exsanguinating its last dribbles of legitimacy, neoliberal imperatives have actually been strengthened under reactionary governments. That reassertion of the prerogative of capital is now fanning the fires of popular rebellions, from Haiti to Chile, Lebanon to Catalan, Egypt to Iraq, Sudan to Bolivia, and Brazil to Ecuador. Even the US has experienced a strike wave.

What historical forces account for these uncoordinated yet simultaneous uprisings? For the answer, we need to review three key and related concepts from Marx: the tendency of the rate of profit to fall, the imperative of ceaseless expansion, and the problem of “realization.”

Falling profit

Profit, meaning return on investment, can fall for several reasons. Markets become saturated, materials become scarce, grids fail, and so on. But the tendency Marx theorized — which is being demonstrated before our eyes — is related to labor. If an enterprise produces commodity X, which requires a productive facility and inflows of materials, competing enterprises producing commodity X will require roughly the same overhead. That overhead, responding to market signals, tends to level out between enterprises. The profit, the surplus that can be creamed off the productive process, is based largely on the difference between workers’ productivity and their wages — what Marx called “surplus value.” Worker A produces $500-worth of product each day, adding $300-worth of value to the product, and is compensated at a rate of $100 a day. The surplus value is $200, of which the owner takes his or her cut after setting aside enough to recapitalize the process.

Neoliberalism moved this problem around by incrementally relocating production from higher wage regions and nations to regions and nations with the lowest wage floors. Fordism — the idea that the same people who make things turn around and buy them — which underpinned Keynesianism — the idea of stimulating demand to sustain “growth” — was abandoned for a new model.

Now core metropolitan nations are the main consumers of goods made by people working for slave wages in peripheral nations, meaning the capitalist class gets the increased surplus value yielded by lower wages, and core nations — themselves in a slower rate of decline — are mollified by cheaper goods. (“Ethical consumers,” those who can afford to do “ethical consumption,” might want all of us to boycott Walmart; but the majority of Walmart shoppers cannot afford “ethical consumption.” They can afford Walmart.)

I emphasize that profit is a temporal phenomenon in two respects. There’s the clock that measures productive output — increased line speeds or longer hours mean more profit; and there’s the calendar on re-capitalization. The owners/bosses borrow money on Day 1, which has to be paid back with interest by Day 100, e.g., and between 1–100, the owners hope to make enough money to pay overhead, make enough product to sell, sell the product, pay down some of the debt, peel off the profit, and borrow again where necessary. If any part of the cycle is disrupted, the whole thing is disrupted.

Ceaseless expansion (“growth”)

This process is impelled by “the iron law of competition,” so not only do capitalists have to expand to keep up, when one product hits an impasse — lack of inputs on one end or market saturation on the other — they have to expand “laterally” into the production of some other commodity.

This means there is an end-game, of course, but capital peers into the future only as far as a business cycle or three.

Competition winnows out to fewer and fewer winners, who become more integrated — that is, they begin to consolidate ownership over the whole process, from resource inputs to retail (vertical integration), and-or capture more product lines (horizontal integration)— leading to the concentration of capital.

Concentrated capital again hits its impasse, and yet again, regardless of the scale of the enterprise, the expansion imperative drives existing enterprises — now ever more monopolized — to commodify more and more persons, places, and things that were previously part of the commons or vernacular economies. Insurance, e.g., is the commodification of uncertainty. A beachfront property has effectively commodified “the view.”

Infinite growth is not possible in a finite world, so when all else fails, capital seeks money through rents and debt extraction . . . the stage we are living through right now.


The product cannot complete the cycle, however, if no one buys it and the profit is not realized — made real. Only one in four new businesses succeed, and the three failures are simply wasted capital heaped on the landfills. Realization is only accomplished when the product is sold. The problem is (1) to gain profit (surplus value) the owners have to pay as little as they can to workers, but (2) this same pool of workers, if they are cash-strapped, are unable or unwilling to spend unnecessarily (Fordism); or conversely — in our globalized era — debt extraction presses down heavily on spending in core nations (neoliberalism).

Warehouses empty for lack of resources or fill up for lack of demand. This is one reason military spending is a substitute for Keyenesian demand-production in the US; we can grow the “defense” budget indefinitely (an illusion, but one that’s worked for seventy years).

Obstacle course of accumulation

David Harvey says, “Capital doesn’t solve problems, it moves them around.”

When you look at this process over time and from above, it becomes apparent that capital is involuntarily driven to expansion by this tendency of the rate of profit to fall, though this tendency can be tactically attenuated for a time by shifting liabilities around. Each capitalist is constantly improvising to overcome obstacles to accumulation. Over time, however, the tendency asserts itself as a long-term “secular” trend so that bust follows boom follows bust. Crisis hits, capital responds with some new tactic to revive accumulation, then the crisis reappears in a different guise. Underneath it all is the constant race to plug the holes, as this tendency presses down like a lead weight on profit.

In the graph above, economist Michael Roberts has shown two ways of measuring rates of profit (historical costs [HC, or fixed assets] and current costs [CC, or replacement costs]), which track together if not identically. The “golden age” is the post-war boom is a slow fall, checked by massive new housing markets and military Keynesianism. The “profitability crisis” is a squeeze put on capital by labor militancy, which is checked by labor suppression. That nosedive in 1982 is the Mexican “currency crisis” during the Reagan years, preceded by a stagflation crisis — stagnation and inflation at the same time. These periodic crises require intervention from the state-finance nexus, and this slump marks the beginning of what we have come to know as neoliberalism, to which we’ll return in a moment.

In every capitalist economy, there are two mutually interacting sectors at the top of that economy — productive and financial.

There are two important ways — temporary but effective for a time — of gaining an increased return on investment: for productive capital that is the exploitation of new “commodity frontiers” (like logging an old growth forest, overthrowing Evo Morales to get at Bolivia’s lithium, seizing assets during war like Syrian oil fields, opening a new mine, commodifying the commons, etc.); and what Marx called “rent,” or collecting royalties, be they stock dividends, actual rent paid to landlords, or loans (debt extraction). A capitalist who extracts rents is called a rentier (pronounced Rahn-TYAY, damn French — don’t know how to pronounce stuff).

Wall Street is shorthand for the world’s dominant rentiers. Dominant among rentiers are banks, especially since the erosion of the Glass-Steagal Act that prohibited savings and loan institutions from engaging in speculation (financial gambling). The relation between productive capital and rentiers is financing — making loans to productive capital. This relation between finance capital and productive capital can be massively simplified as creditor and debtor.


The crisis of profitability caused by the “Mexican currency crisis” was resolved by massive conditional loans from the International Monetary Fund (IMF) to Mexico to bail out its central bank and ensure that Wall Street — Mexico’s creditor — was made whole.

The IMF is a post-war supra-national consortium of central banks, ruled by the US, originally constituted to coordinate stable currency exchange rates for development loans and international trade. After Nixon effectively abolished fixed currency exchange rates in the early 1970s, the IMF sought a new role. Reagan would focus that role on using un-payable debts as leverage to gain access by US capital to foreign home markets and increase what Peter Gowan called the Dollar-Wall Street Regime’s general rate of debt extraction (in US dollars!).

The Reagan-inaugurated IMF loan conditions were a combination of debt extraction from weak national economies and so-called “structural adjustment programs,” or SAPs. SAPs include the demonic trapezium of privatization, deregulation, labor suppression, and regressive taxation to ensure repayment of loans, as well as access to home markets to buy up privatized assets. This is always eventually accompanied by rising prices for the street.

The ideological clerks for neoliberalism gave this quadrilateral exploitation the name “austerity,” even though nothing they experienced at any point was even remotely “austere.” Belts were tightened, but not the belts of the rentiers. We aren’t all wearing the same pants.

The motive behind the International Monetary Fund’s loans to Mexico was/is to bail out central banks (which, in the case of Mexico was bailing out Wall Street to whom Mexico’s central bank owed its overwhelming debt). The banks were bailed out, and the bill was paid by the people — now indebted as a nation into perpetuity through “refinancing.” Austerity is the effective cause of the recent social explosions from Chile to Haiti to Sudan.

Functional for a time (there’s that temporal dimension again), neoliberalism stabilized profitability by increasing debt extraction. Remember around 2005–6, when you got three new credit card offers a day in the mail?

The credit bacchanalia, however, evolved into a series of asset bubbles — rentier investments in various assets (currencies, internet infrastructure, housing, etc.) accomplished under competitive pressure and speculative mania with huge sums of borrowed money, and bundled into financial packages that supposedly spread out the risk.

It didn’t work out that way. Speculation produces its own mania, like the great Tulip Bubble of 1637, when the rising price of tulips converted them into “assets” for resale at a higher price led buyers to pay the equivalent of ten years of craft wages for one flower. In 2006, housing prices in key regions were determined by this mania. These asset bubbles eventually collapse. By 2007–8, when the fall came, everyone was sharing the exposure . . . except the financial aristocracy itself, central bankers and their subsidiaries, who had the state indemnify their losses with bailouts because they were “too big to fail.”

The “assets” in the asset bubbles were mixed together with our pension funds, our IRAs, our household nest eggs. So we lost. The banks were rescued though. And those who had the new and improved neoliberal mortgages — poor communities and communities of color were hit a special brutality — were left to face foreclosure. Meaning the banks got the housing stock back, kept the money, and now rents back to many of the same people.

Moving problems around

These over-leveraged speculative investments fall when finally confronted with the reality that their truckloads of cash have an insufficient commodity basket to offset them, speculative frenzies convert into massive sell offs and bond/stock/derivatives prices plummet. Quantitative easing is the government hiding the money from market dynamics to hold off the inevitable — or, as they say, QE kicks the problem further down the road. The firms that have borrowed irresponsibly to feed their gambling habit — because they are “too big to fail” — are bailed out by the public when the value of the now highly-overpriced assets suddenly drops back to something approximating their actual non-speculative values. The US government printed money to make the loans to the speculators. The speculators used the loans to buy price-escalating assets. The assets lost their escalated values. The US government printed more money to pay the investors back for “their” losses. The bill went to the taxpayer, combined with the government buying up what would basically be junk bonds in any rational universe (“Quantitative Easing”) . . . and overseas investors holding US dollars just had to suck it up.

The US can get away with this because the US dollar is the world’s international currency, which is a longer and more complex story, but long-story-short it means the US can get away with printing money to make investors whole and export the resulting inflation to other nations. What we also export, via a supranational economic order, embodied in institutions like the World Bank and the International Monetary Fund is austerity. The demand by creditors to indebted nations to deregulate, suppress labor, privatize, and increases taxes on the masses while decreasing taxes for the rich. This has knock-on effects.

Economist Paul Adler identifies six forms social crisis resulting from neoliberalism/austerity: economic irrationality (increasing inequality, increasing insecurity, wealth concentration, waste, etc.), workplace disempowerment (union busting, casualization of the work force, etc.), government unresponsiveness (unless you are a big investor), environmental unsustainability, social disintegration (sharper racial, gender, regional divisions), and international conflict (in the competition for commodity frontiers, control of migration, resource wars, etc.). These are the terrible epiphenomena; but under them is the muddy current that threatens to drown us all: debt.

All debts are not equal. We, unlike Wall Street, are not indemnified by the state-financial nexus.

Debt and leverage

Investopedia: “Leverage is an investment strategy of using borrowed money — specifically, the use of various financial instruments or borrowed capital — to increase the potential return of an investment.”

Leverage is investor debt.

Credit/debt is the debtor’s liability and the creditor’s asset, on a one-to-one basis; but when this Janus-faced creature is generalized, this simple formula doesn’t explain how the asset can be paradoxical. The old joke goes, “If you owe the bank a hundred dollars, you have the problem.” If you owe the bank a million dollars, the bank has the problem.” The asset for the creditor depends on the debtor actually paying the creditor back. Now, to the meat of the matter with asset bubbles. The contagious expansion of speculative value on investment-assets (which are also owed debts) can create a situation where the debtor is forced to default. Now who has the problem?

Well, as it turns out, the bank who should have the problem, or the banks-in-general — remember the problem is now generalized — have managed through the state-finance nexus to shift the problem to the public.

Gradual inflation, resulting from increases in workers’ wages, among other things, is actually good for debtors. It cancels out some of the interest they have on debts. Creditors see this as exactly the opposite. Inflation is the enemy that cuts down the purchasing power of the money they receive through interest. If you want to know why the Fed and subsidiary financial institutions are so obsessed with interest rates, there you have it.

What is the state-finance nexus?

The Federal Reserve serves as a medieval institution in a capitalist economy for a reason. It can stand apart from the interests of particular capitalists and serve as the unaccountable vassal of the class as a whole, making decisions by decree with near total impunity. The interest rate has been its tool for revving up the economy when profit stagnates by lending cheap money at low interest rates, and by raising rates when employment is too high and competition for workers raises wages. The goal is always, “Keep inflation to a minimum.”

The state-finance nexus is centered on the central bank — the Federal Reserve for the US — and this nexus was forged in the US by war. The American Civil War, in particular, was in many respect the first “modern” war, relying on mass production of food, uniforms, weapons, and equipment for logistical support, the telegraph as the first rapid communications grid, the railroads for transportation, the first aerial reconnaissance (balloons), the heightened lethality of rifled weapons, and the availability of sufficient finance capital to keep up with the war’s escalating demands. Many historians also see the Civil War as the impetus for the more generalized industrialization of the US that took off in the latter nineteenth century.

War is extremely profitable.

“The rise of capitalism,” writes David Harvey, “was associated with the rise of a distinctly capitalist form of state power — the ‘fiscal-military state’ is how economic historians of the eighteenth century now like to characterize it.”

This fiscal-military state lay in wait for the Civil War to massively expand the power and wealth of industrialists and bankers. This system crashed spectacularly in 1929, and the reformed state-finance nexus built itself back through war — profiting from materials as well as foreign loans — followed in the post-war era by something approximating today’s system, wherein the Fed can fine tune the economy using interest rates. There was one problem with this system. It failed repeatedly ever since the late 1970s, and the failures are grouping closer together in time. Interest rates have been at historic lows since 2008, and yet the rate of profit is still stagnant, and inflation marches on even with stagnant wages.

Exponential growth in a finite world

Productive capital in contemporary life, driven by both the generalized imperative of approximately three percent compound growth per annum and environmental limits, is running headlong into a capital absorption problem. Investment is always reinvestment, but as resources are used up and overproduction leads to warehouses full of stillborn commodities, leads the capitalist to ask, “Where can I put this money to continue to accumulate?”

Capital, like liberalism itself, is intolerant of restraint. It runs into an impasse in the productive sector, then it has to figure a way around this restraint . . . this obstacle created by simultaneous lack of demand from people who have insufficient funds and the finity of “natural resources.” How can we solve both problems at once?

The answer was, extend lots of credit. Flood consumers with hot-deals on credit cards, and they will resume consumption, raising our profits, then we can extract the interest from all that credit as rentiers. It’s a two for one deal.

Debt extraction has been the new commodity frontier since the early 1980s, in concert with Reaganesque “wage repression” designed to break the power of labor. Debt extraction is a great way to further discipline labor — a project at the heart of neoliberalism. People who are up to their necks in debt make for really obedient, even sycophantic, employees. Their families are on the line. When their obedience hits its limits, we have a social crisis transformed into a political crisis.

What caused the collapse of the political center?

Economic irrationality (increasing inequality, increasing insecurity, wealth concentration, waste, etc.), workplace disempowerment (union busting, casualization of the work force, etc.), government unresponsiveness (unless you are a big investor), environmental unsustainability, social disintegration (sharper racial, gender, regional divisions), and international conflict (resource wars, migration, etc.). Remember those austerity knock-on effects?

The political center is a little like what we used to call “the peacetime Army.” It exists, but its contingent as hell.

Let’s make this personal for a moment. Chances are you, like me, have worked at one time or another for an autocratic boss who is at the same time a perfect idiot. Or you’ve worked for a boss who’s just plain hateful. Or you’ve worked for a regular boss, but the work you do or did was so shitty, so exhausting, so mind-numbing, or so dangerous, that you could never reconcile it with the measly paycheck you got. You and I both know that these were/are days where you are on a slow boil of resentment and anger. People who go home angry can take it out on others there (because we can’t take it out on the mean boss), and those family members lives by turn become an emotion minefield, which leads them to adopt the slow boil, too. This emotional instability combines with economic precarity, adding chronic anxiety to the problem. Then the slow boil starts to pick up and the liquid starts slopping over the edge of the pot.

That period when you could put up with one boss for forty hours a week but you felt fairly secure allowed you to reconcile yourself to the worst parts of that forty-hours on the job and feel compensated by the comforts and reassurances of a safe and flourishing home. That was the peacetime Army.

Debt, chronic insecurity, low-paying jobs you can lose on a whim . . . that’s the war. Peacetime is over. The center has disappeared, because that political “center” was always an affective phenomenon — an emotionally positive and inertial response to tolerable immediate conditions. When things become intolerable, people get pissed off.

When people are angry and insecure, they aim their wrath at someone — not always the appropriate someone. Left “populism” aims at the ruling class. Right “populism” has its wrath redirected by the con-artists of capital onto scapegoat populations . . . and right populism — it must be said — has the added advantage of mobilizing one of the most potent affective weapons of all, the fascist form of masculinity. (Male sexual insecurity is the rocket fuel of fascism.)

There is still a political center in the US, albeit draining away fast. It’s mostly concentrated among the older cohorts, and within ten years, time will attrit that fraction and the conditions that have brought us this far will worsen substantially.

Anti-austerity and the US

In Spain, Ireland, Greece, Portugal, and UK, protest movements called themselves “anti-austerity” movements. In other places, protesting the same austerity-trapezoid, they just call themselves “anti-neoliberal.”

The US is not Lebanon or Chile, et al. We haven’t reached that point yet generally . . . the breaking points start among fractions, until capital’s vampiric need for more blood drives it to previously untapped sources. The US was always last in line for this.

The US anti-austerity movement right now is the Sanders campaign. Not because elections trump all, but because the particular circumstances in the US concealed the growing strength of this movement since 2008, then Occupy Wall Street, and the Sanders campaign provided the mission-focus, the infrastructure, and the specificity of demands that were like a fertile soil in which the US anti-austerity movement could grow. It is only now that — through observation of the sharpened struggle between right and left and against capitalist states around the world — the social democratic movement that has flourished and grown within the Sanders campaign is becoming aware of its own inherently internationalist character, aware that we are the current US anti-austerity movement.

Anti-austerity is not anti-capitalism. A riot because of rising gas prices can sometimes be quelled by halting the price-hike, but the structure simple moves the problem elsewhere without changing its character. Nonetheless, anti-austerity is a wide open gate through which anti-capitalist politics can enter en masse.

That’s why all this carping from the sectarian left about how imperfect Sanders is makes zero sense . . . it’s not about how well Sanders’ candidacy conforms to our checklists of propositions and litmus tests, or whether or not we “like” Bernie Sanders. Talk about confusing the instrumental and expressive aspects of a movement! (1) These elections will happen. (2) This election will be extremely consequential. (3) We are on a timeline with climate change and the accumulation crisis. (4) One of the following will be the Democratic candidate (and no third party will prevail): Biden, Sanders, Warren. (5) There are real differences between all three. (6) The presidency is a very powerful position in its own right.

The Sanders campaign is the massification of this nascent US anti-austerity movement. Sectarians still cavalierly slot everything Sanders into a box marked “Bourgeois Electoralism,” a complete mischaracterization which blinds them to the fact that the Sanders campaign is providing a very large and ever more well-organized practical framework for the rapid expansion and consolidation of a US anti-austerity movement. Those people aren’t going away on November 4, 2020; and they’ve already begun making inroads into both elected offices (at many levels), networked local organizing, and media.

New kind of movement

Elections are not basketball games in the context of movements. When the clock stops, the game continues off the court. An election is just one tactical field among many. The winners and losers of that particular game are just a portion of the post-election ontology. Accept and move on. One nanosecond after the results are posted, the movement shifts onto new tactical fields, orienting on the new situation (election-win or election-lose) to determine next actions. The many facets of this movement, now consolidated through an electoral focus, will continue to contest and squeeze capital on every other front (including later elections). This didn’t start with Sanders 2016, it started with Occupy Wall Street.

What’s promising about this movement is its survival of 2016, its various works behind the scenes on issues and in local elections in the interim, and its resuscitation for 2020. As an old counter-insurgency solider with a military that has been handed serial defeats by “insurgents,” and who is an admirer of his former foes, this looks like it has the makings of just that — a relentless, shape-shifting force that surges and retreats, again and again, as the water gets higher each time. Capitalism has begun to break down along the edges, like a soil without cover, subject to our many little erosions — we fill the abandoned spaces, seep into fissures, exploit cracks . . . but the main thing is relentlessness. It’s not a linear win and lose situation. There is no one tactic, one institution, one method that works. There is only tactical agility and will — that critical intangible that keeps us focused on breaking the hold of capital wherever and however we can. Means we internalize the prime directive: never stop, just redirect. We can play that game, too.

The tipping point of capitalism is almost visible now, as we cling to the last branches of a habitable earth on the one hand, as the next asset bubbles form and the central banks judder along on their last legs, and as we are on the cusp of what appears to be a worldwide struggle between the forces of reaction and compassion.

The doors that might lead at least to an attenuation of the worst effects are closing a little each day. This election in the US matters, not just to us, but to the world. There are two major international movements afoot in the world — anti-austerity and the climate movement. Both are — whether participants know it or not — inherently anti-imperial and anti-capitalist, with significant overlaps between them. And again, the four issues that unite the most of us are privatization, deregulation, labor suppression, and regressive taxation. These are the entryways of a movement into a more explicitly anti-capitalist politics.

PS — If it’s too big to fail, it’s too big to bail.

Author of the books “Hideous Dream,” “Full Spectrum Disorder,” “Borderline,” “Mammon’s Ecology,” and “Tough Gynes.”