It is in the nature of capitalist economies to go through periods of booms and busts. When there is high demand for a product or service, production and competition to provide them heats up to the point of creating a boom, and then demand is overwhelmed resulting in a bust. Also called bubbles and bursts.
During the slow down following a boom, small companies go out of business or are absorbed by larger ones, creating capital concentration that results in monopolies and the too-big-to-fail hazard. Only way out of this cycle has been external events such as wars.
1930s Depression
The twentieth century began with prolonged stagnation eventually resulting in the Great Depression of the 1930s, which would have occurred earlier if it wasn't for First World War.
The Great Depression was fought by a series of meassures taken by the Roosevelt administration such as regulating financial markets, revitalizing infrastructure, and massive employment creation through public works projects. But what finally resulted in full employment was the Second World War industrial effort.
The war estimulus of industries and the surge of the automobile and ancillary industries engendered the post-war period of sustained growth, punctuated by the Cold War--which was very hot in many countries--, Vietnam War, and numerous localized conflicts.
The rise of financial capitalism
Over the last 20 years we witnessed the outstanding growth of financial capitalism. In earlier times finace was subserveient of industry, generating credit for productive activities. But the growth of derivatives, complex financial instruments, and various forms of insurance are now several orders of magnitude the size of the physical economy. This has led to the unchecked power and influence of the financial sector, to the point that it owns most of the U.S. Congress.
Before it brings the world economy down with it, financial capital needs to be reined in. Glass-Steagall needs to be reinstated worldwide. Bad assets have to be recognized as such and insolvent enterprises put over bankruptcy reorganization. Speculative-predatory schemes dissolved and legitimate savings institutions guaranteed. Go into an international fixed currency exchange to control currency speculation. Allow legitimate commodity and futures hedging for productive activities and ban speculative hedging.
Massachusetts economy
The Massachusetts economy is one of the strongest in the country because it is highly diversified. Medicine, finance, higher education, high technology, and tourism constitute a strong base. None-the-less the state is not immune to the worldwide recession and has seen a sharp decline in tax receipts and faces a $3 billion budget gap for Fiscal Year 2011. As usual, the politicians' solution is cut social programs that protect the needy, when the real solution lies in taxing more the wealthy, and, same as at federal level, tax corporations that are getting away with trillions through loopholes.
Roosevelt's programs in steroids needed now
What can take the U.S. and the ailing developed countries out of the deep crisis they are in is to reinstate Roosevelt-era programs in all their vigor:
- Create massive employment through revitalization of decaying infrastructure.
- Make education free and accessible to all.
- Free health care for all. A sick population is unproductive. Investment in health and education have the biggest return of any investment.
- Create a National Homeowners Bank to guarantee home mortgages and assure that people don't loose their homes.
- Invest in research and development and implement existing technologies such as maglev train across the country.
- Abolish the Federal Reserve and make it part of the U.S. Treasury.
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