1. Economic Crisis: a Long-Wave Perspective
Lecture by
Persefoni Tsaliki
Department of Economics
Aristotle University of Thessaloniki
Perspectives on the Euro(crisis)
Sharing Perspectives Foundation
October 2013

2. Economic Cycles and Crisis
All economic variables fluctuate through the years:
Long-run perspective of a variable → growth theory
Short-run perspective of a variable → theory of economic cycles
The long-run tendency of a variable functions as its center of gravity
Economic Crisis → interruption of the reproduction of the economy
The Great depression in 1930s → questions on market mechanism
Keynes → state intervention
The Golden Age of Accumulation (post-war period – early 1970s) → triumph of Keynesian economics
The Silent Crisis of the 1970s-1980s gave rise to reconsider Keynesian economics
The New Golden Age of Accumulation → Neoliberal economics
The First Crisis of the Millennium → ?????

3. Fluctuations in Economics
Regular fluctuations → pattern → internal forces → laws of motion
Neoclassical: any deviation is temporary and is caused by exogenous forces
Keynesian: deviations may be serious and through enhancement in effective demand the state can play a vital role
New-newclassical: deviations are ephemeral and caused by state intervention. A ‘free’ market brings the economy back to equilibrium
Classical/Marxian: fluctuations are regular and are caused by the way the capitalist mode of production functions. That is, it is in its nature to face fluctuations

4. Categories of Economic Fluctuations
Schumpeter (1935, p. 15) defines the following categories:
Kitchin or inventory or business cycle (3-5 years).
Jouglar or investment cycle (7-11 years)
Kuznets or construction cycle (15-25 years)
Kondratieff or long waves (45-55 years)
Ideal presentation of a Long Wave

5. Interpretations of Long Waves
Orthodox economists
→ denial of Long-Wave perspective of economies
→ exceptions (Schumpeter, Rostow, Maddison, Forester and Samuelson)
Schumpeter
→ mass introduction of innovations
→ the role of entrepreneur
→ the ‘black’ future of capitalism
Social Structure of Accumulation
→ introduction of new institutions
→ contracts between various social groups
Classical/Marxian (Smith, Ricardo, Marx)
→ movement in fundamentals, such as rate of profit

6. Economic Crisis interruption of the normal reproduction of the economy
Theoretical approaches to economic crisis
Self-regulated system
Neoclassical → invisible hand → no crisis
Keynesian → visible hand of state → no crisis
Incapable for its continuous self expansion
Exogenously: Under consumption (Luxemburg, Lenin, Sweezy)
→ increase in productive capacity and decrease in incomes → fall in effective demand → need for external markets (imperialism) → lack of them leads to crisis
→ focus on consumption
Endogenously: Inner nature of capitalism (Smith, Ricardo, Marx)
→ long-run falling rate of profit
Profit squeeze
Rise in organic composition of capital - mechanization

7. Long-Run Falling Rate of Profit The most important law of political economy (Marx)
Rise in organic composition of capital – mechanization
Capital is a self expanding value – Accumulation
Competition:
Against workers
Against other capitals
Profit Rate in the long-run falls:
π = Π / Κ
Profit squeeze
- Rise in wage share leads to falling profitability
mechanization

8. Mechanization of Production Process (Greece 1960-2012)

9. Net Real Operating Surplus and Investment (Greece 1960-2012)

10. Productivity and Real Wage Products (Greece 1960-2013)

11. Long-Run Falling Rate of Profit (Greece 1960-2014)

12. Prerequisites to overcome the crisis:
Conclusions
Economic crisis is a stylized and systemic element of capitalist reproduction
Long wave approach is vindicated by historical data
Prerequisites to overcome the crisis:
Rise in Profitability
Increase profits
Devalue capital invested
Innovations
Mergers and acquisitions
Privatization of state enterprises
War

13. bibliography
Bowles S., Gordon D. and T. Weiskopf. (1983) Beyond the Wasteland: A Democratic Alternative to Economic Decline . Garden City, NY: Doubleday.
Glyn A. and B. Sutcliffe. (1972). British Capitalism, Workers and the Profit Squeeze. London: Penguin Books.
Klein N. (2007). The Shock Doctrine: The Rise of Disaster Capitalism. New York: Metropolitan Books/Henry Holt and Company.
Shaikh A. (1978). An Introduction to the History of Crisis Theories. U.S. Capitalism in Crisis, U.R.P.E., New York
Shaikh A. (1989). The Current Economic Crisis: Causes and Implications. Detroit, MI: Against the Current Pamphlet.
Shaikh A. (1999). “Explaining the Global Economic Crisis: A Critique of Brenner,” Historical Materialism, 5.
Tsoulfidis L. (2010). Competing Schools of Economic Thought. Springer

14. Thank you for your time and attention