by Michael Roberts
Readers of this blog will know that from its very beginning over five years ago, I have argued, ad nauseam,
that after the end of the Great Recession in mid-2009, the world
capitalist economy entered what I have called a long depression, see
What I meant by this was that the trajectory of the world real GDP
growth and investment took what I described as a square-root shape. A
relatively high trend growth rate was interrupted by a sharp drop, then a
sharpish recovery before growth resumed but this time at a much lower
level than before.
Schematically, it would look like this – and in reality.
This view, that capitalism is in a Long Depression, will be the main
message of my upcoming book to be published (I hope) this summer.
However, there are many voices who do not agree that world capitalism
is in a downward phase or wave or in a depression. Some, indeed, reckon
that capitalism is in an upward wave of growth and investment and there
has been no ‘stagnation’ or depression. I won’t deal with these
arguments in this post. Instead, I shall add to the data supporting my
view that the trajectory of depression is still in place.
As I write, the world’s leading central bankers and economists are in
Washington for semi-annual meeting of the International Monetary Fund
and World Bank. And in its latest World Economic Outlook report (http://www.imf.org/external/pubs/ft/weo/2015/01/index.htm),
IMF economists explain that the global economy continues to crawl along
at well below the post-war average trend growth rate, with little sign
The IMF argues that the ‘potential output’ of the world economy is
growing more slowly than before. In the advanced countries, the decline
began in the early 2000s; in emerging economies, after 2009. The concern
is that the world economy is now characterised by chronic weak
investment, low real and nominal interest rates, credit bubbles and
unmanageable debt. Christine Lagarde, head of the IMF, described the
world’s current economic performance as “just not good enough”.
The IMF expects real GDP growth in the advanced capitalist economies
to pick up from 1.8% in 2014 to 2.4% this year. It needs to see that
acceleration to achieve its forecast of world growth at 3.5% this year
because growth in emerging markets, particularly in China and Russia, is
slowing or even falling, so that growth there will be only 4.3% in 2015
down from 5% in 2013.
There are other forecasts and indexes less followed than that of the
IMF that also show that the world economy is still crawling along. The
global economy is mired in a “stop and go” recovery “at risk of stalling again”,
according to the latest Brookings Institution-Financial Times tracking
index. This ‘Tiger index’ shows measures of real activity, financial
markets and investor confidence compared with their historical averages
in the global economy and within each country. The Tiger index graph for
global growth looks like the ‘square-root’ trajectory that I forecast
back in 2009 for the world economy during and after the Great Recession.
Even more telling is the annual report of the World Trade
Organisation just out. Global trade is poised for at least two more
years of disappointing growth, according to the WTO. The WTO reckons
world trade will grow just 3.3% this year, below the rate of world GDP
growth expected by the IMF. It’s bad news whenever trade grows more
slowly than GDP because it means the economies cannot get out a
depression (Greece) or slow growth by exporting as external demand is
even weaker than domestic demand.
You see, for at least three decades before the 2008 financial crisis,
in the era of ‘globalisation’, world trade regularly grew at twice the
rate of the world GDP. With last year’s growth of 2.8%, global trade has
now expanded at, or below, the rate of the broader global economy for
three straight years.
Roberto Azevedo, WTO director-general, blamed disappointing trade
growth in recent years on the sluggish recovery from the financial
crisis. He also warned that economic growth around the world remained “fragile” and vulnerable to geopolitical tensions.
And then there is the high frequency measure of the US economy
provided by the Atlanta Federal Reserve Bank. Its latest estimate is
that the US economy has slowed to just a 0.2% annual rate as of 14
April. The apparent significant slowdown in the first quarter (blamed by
the mainstream on a ‘bad winter’) is now carrying into the second
quarter of 2015.
So 2015 has not made a good start in meeting the forecasts of the IMF
for faster US growth of over 3% this year – by the way, the IMF has
made such a forecast and got it wrong for the last four years.
Now Chris Dillon runs an excellent and interesting blog called,
Stumbling and mumbling. In a recent post, he argued that economists
could not be expected to forecast anything, only to try and explain what
is happening in the here and now, http:// .
He went on to point out, as I have just done above, that the IMF and
the other leading official institutes had miserably failed to forecast
the Great Recession or the subsequent slow recovery, being perennially
optimistic about how things would pan out.
But Dillon reckoned that heterodox economists were little better in
their forecasting, although he was wrong to say that Steve Keen did not
forecast a credit crunch for the US economy in 2007-8 (see my paper, The causes of the Great Recession).
Like so many others, Dillon reckons the Great Recession was just a
financial crisis caused by the collapse of the banks, which is really a
description of the crash not an explanation. But he then put out a
challenge: “Many of macro’s critics are begging the question: they
are assuming that the economy could be predictable, if only we had a
good enough theory. I doubt this. Now, this is just a hypothesis –
albeit one consistent with lots of evidence. If you want to show I’m
wrong, point me to some forecaster who foresaw both the recession of
2008-09 and the growth either side thereof. Or, failing that, show me
forecasts for future years which successfully predict both growth and
Well, as the quantum physicist, Niels Bohr once said, “Prediction can be very difficult, especially if it is about the future”. But I might be able to take up that challenge by Dillon. This is what I said back in 2005 in my book, The Great Recession, eventually published in 2009. “There
has not been such a coincidence of cycles since 1991. And this time
(unlike 1991), it will be accompanied by the downwave in profitability
within the downwave in Kondratiev prices cycle. It is all at the bottom
of the hill in 2009-2010! That suggests we can expect a very severe
economic slump of a degree not seen since 1980-2 or more”.
As for the second part of Dillon’s challenge (how would the world
economy grow after the end of the Great Recession?), then readers can
consider what I predicted five years ago and mentioned at the start of
this post (and for that matter also in my book, The Great Recession,
back in 2009). So far, that prediction – for a long depression – has
broadly worked out. In addition. I have argued in many posts that this
depression will end but probably not before another severe economic
slump, which is likely to begin within the next 12-18 months and last
for a similar period through to 2018 or so. That’s a prediction.
And I think part of any scientific analysis is to make such forecasts
or predictions to test a theory and its real outcomes. It is not good
enough to just explain in hindsight (see my posts,
For that matter, Marx himself made predictions arising from his
theoretical analysis. He did not have sufficient data to make accurate
predictions about oncoming slumps and recoveries, although he
continually tried to find such data to do so. But his law of the
tendency of the rate of profit to fall does make a fundamental
prediction: that the capitalist mode of production will not be eternal,
that it is transitory in the history of human social organisation,
because it has a use-by date. The law of the tendency predicts that over
time there will be an actual fall in the rate of profit globally,
delivering more crises of a devastating character. And what work has
been done by modern Marxist analysis confirms that the world rate of
profit has fallen over the last 150 years (see Maito, Esteban – The historical transience of capital. The downward tren in the rate of profit since XIX century and Long-Term Movement of the Profit Rate in the Capitalist World-Economy).
Obviously, sucking a forecast out of the air is no better than
choosing a number in a lottery. A forecast is only as good as the theory
behind it. I reckon Marx’s theory of crisis provides the best
explanation of the Great Recession in 2008-9 and also allows us to
discern the stage through which capitalism is going and where it is
going. So I based my forecasts back in 2005, in 2009, and now, on that
theory and the law of profitability (as developed by others and me).
But, as Engels often said: the proof of the goodness of a pudding is in