The Interlocking Crises of the Latest Financial Crash

An interview with David McNally by Allen Ruff

David McNally is a critical historian of capitalism whose research is focused on issues of race, migration, gender, and social reproduction in the development of the global system. He is the author of Global Slump: The Economics and Politics of Crisis and Resistance, Monsters of the Market: Zombies, Vampires and Global Capitalism, among other titles. His most recent book is Blood and Money: War, Slavery, and the State, which was published this spring. McNally is also the editor of the new left wing journal Spectre. This interview originally aired on Thursday, June 25 on WORT FM’s A Public Affair, hosted by Allen Ruff, a member of Madison Area DSA and a longtime socialist activist and historian. You can listen to the interview in full here. This transcription has been edited for clarity and length.

Allen Ruff: Last year when I learned of your then forthcoming book Blood and Money we talked of having you on to discuss some of that longer history, but much has changed since. I would be totally remiss in having you on if we did not discuss the current moment and your take on how we got here. In recent months you’ve critically written on and spoken a great deal about the origins of the current crisis, especially in response to the notion that the coronavirus triggered the economic collapse. Touch upon that if you would: what was going on prior to the arrival of the virus and the factors that assured the spread and impact of the pandemic once it arrived.

David McNally: That’s a great way of setting up the conversation around these multiple and interlocking crises that you’ve mentioned, because central to my argument is that we entered a new historical period following the global financial crisis of 2008 and 2009, and really at the level of the economy itself, we’ve now entered the second deep recession, which I’ve described as a global slump. Much in the same way that we talked about the Great Depression as if it’s just a singular event, but of course there were so-called recoveries and then new collapses within the Great Depression, so that for instance from about 1933 we see a bit of an upswing and then another crash, I would argue that we were seeing the second crash of the period since 2008 as of the fall of last year [2019]. In other words: before the pandemic.

My argument is that in the fall of last year we entered the second big downturn of the post 2008 period, and you could see that with the interventions of the US Federal Reserve Bank, the Central Bank in the United States into money markets. They started making emergency interventions last October, long before a global pandemic. If you look at the Chinese and the German economies, they had turned down by about 10% each in terms of industrial output last fall, so we were going into a new recession before the pandemic hit.

What the pandemic has done is to massively accelerate that downturn. Rather than that downturn taking place over months and months gradually, we got that collapse with 20 million people in the United States being thrown out of work within a period of about four weeks. So that’s where the public health emergency of the pandemic then intertwined with a recession that was already happening, and I say deepened and accelerated it.

“My argument is that in the fall of last year we entered the second big downturn of the post 2008 period…What the pandemic has done is to massively accelerate that downturn. Rather than that downturn taking place over months and months gradually, we got that collapse with 20 million people in the United States being thrown out of work within a period of about four weeks.”

What that did, as we all know, is dramatically expose all of the class and racial and gender inequities in our society. It’s not a surprise that we get this anti-racist uprising against police violence in the United States in the midst of a pandemic whose class dimension, whose racial dimensions, and whose gender dimensions have been so foregrounded. We just need to talk about the immigrant workers who are on the front lines and meat packing plants, the African American workers who have been doing deliveries and working overtime and exposing themselves delivering packages, the women in the health care sector, in nursing in particular, all of whom has been putting their lives at risk. And so when you put the economic crisis and the public health crisis together in all of those social dimensions, it was not a shock in retrospect that the public execution of George Floyd ignited an uprising.

What we have to also recognize is that multiple crises have brought together, in a massively concentrated form, a whole series of underlying social conflicts and social tensions, all of which have worsened since 2008-2009, because as many of your listeners know, the period since the global financial crisis accelerated economic inequality in the United States and globally. The rich have gotten richer, the poor have gotten poorer and now the poor are starting to die in disproportionate numbers and get sick in disproportionate numbers, and then you see police executing an African American man in the street and see why he has become the trigger now for this new wave of social protest. So those are all the crises and the response to crises as utterly intertwined and interconnected.

AR: One factor that we haven’t touched on that gets glossed over quite quickly, certainly in the mainstream, is the contribution of the oil shocks, of the oil price war between Saudi Arabia and Russia and how that played into it.

DM: Yes, and it’s a crucial element in the timing and configuration of the economic crisis because with the slump that began in China and Germany and the United States last fall, this was exerting growing downward pressure on oil prices, because you can’t have 10% less industrial production in China and not affect global demand for oil. So prices were faltering, they were starting to come down and this was becoming really a problem for oil-producing nations in the early part of this year, in January 2020.

At that point Saudi Arabia tried to get a deal among the oil-producing nations to deliberately cut back output. Everyone would agree they would cut [output] by so many million barrels of oil per day in order to get rid of the excess supply and help to stabilize prices and maybe even bring them back up, but Russia refused to play. Russia refused to go along with this because they see high prices, or higher prices for oil as essentially protecting big chunks of the US Energy industry. They recognize that a lot of the oil that is either coming out of our plants, say from the Permian Basin in Texas, that oil is not competitive price-wise, it’s costly to produce. And so the United States needs a monopolistic deal among the oil producers to keep prices high. Russia said no.

Saudi Arabia was so incensed by this because it meant the prices would keep falling. Saudi Arabia said “Fine, we’ll show you how we can play this game,” and the Saudis flooded the market with oil. Rather than cutting back, they boosted output. Well, they did that just as the economy was diving ever more deeply and then, the early stages of the impact of the COVID-19 pandemic, particularly in China. In other words, just as demand was starting to fall even more, they flooded the market, and the obvious thing then happened, which is that we got this dramatic oil price shock, where at some point you could literally be paid to take oil off the hands of producers in Texas or in Canada or what have you. In other words, prices turned negative for a few days in this crisis.

There we see how rivalries among different powers get exacerbated, they go at one another over things like production agreements and quotas and so on. They cannot cooperate because they’re locked into competition. That is a key element of all the ways in which irrationality of this system manifest itself in the intensification of rivalries.

Relatedly, this new phase of crisis is deepening conflict between the United States and China, through protectionist moves and so on. I think we’re going to see more of that, we’re going to see more of these rivalries between powers and that is going to drive down global trade, it’s going to make international exchange of goods and services more complicated, more difficult. Not to the same scale of protectionism say, that we saw during the Great Depression of the 1930s, but it is nevertheless going to be a factor in extending and deepening a slump, which is obviously going to continue for many years.

The nonsense coming from the White House that this is a v-shaped recession, i.e. sharply down and sharply back up, was revealed again today for the nonsense that it is when jobless figures for last week, new jobless claims were much, much higher than people expected. This is going to be a multi-year global slump, and the more they go at one another competitively with their rivalries, the more difficult they’re going to make the situation. But of course that’s in the nature of capitalism, that the thieves fall out when the going gets rough.

AR: David, I enjoyed reading your work because you take on very complex issues and you write in a wonderfully clear fashion so I wanted thank you for that. You do every once in a while turn a nice phrase, and one you turned that I want you to go into a little bit. You say that the pandemic is a virus in the social body as much as it is a natural biological problem. Talk about that, the deep roots in the social organization, the virulent social pathogens that we can identify.

DM: I consider that to be really a crucial part of any deep analysis of what we’re experiencing right now. What I mean by saying that it’s a virus in the social  body is that, it’s too easy to say that: “Well this is a natural phenomenon, a virus came along, who could have expected or predicted this and so of course no one was ready and the healthcare system is hurt and lives are lost.”

Well, the answer to all of that is that a lot of people in public health have been predicting a pandemic like this for decades. We dodged a few bullets, such as SARS a number of years ago, but they’ve been predicting it for some very, very simple reasons. Number one, the terrible processes of deforestation globally, where essentially what humanity does as it just cleared parts of the world’s forests is it bring human habitants and domesticated animals, including those we eat, into ever-greater proximity with so called wild animals, birds, creatures, that have not been domesticated, have not been brought fundamentally into human orbits. As you bring species closer together like that, pathogens, viruses, bacteria will more easily move from species that are used to them and have built up various kinds of immunities to others that never been exposed.

We know that it if you expose new populations to viruses or bacteria that they haven’t been in touch with before, that it is going to be an issue. And then you add in agribusiness and factory farming, and you then say: “Okay, we expose a species, say ducks, chickens, what have you, to a virus they’ve never encountered before, and then we pack them together into factory farms, where they’re literally rubbing up against one another.”

Well, of course these things spread like wildfire, and that’s why you get those massive culls, sometimes of millions of chickens when all of this happens. And you do so based on capitalist business imperative of minimizing costs and maximizing profits, and it means all the basic health and safety protections that ought to be there for the public are not there.

Well now add in the destruction of Public Health under neoliberal regimes around the world, the contraction of intensive care unit capacities, the lack of nurses and so on going into schools and poor communities… You’re creating the social conditions among humankind in which these diseases will spread, and spread dramatically. You can’t treat this as a purely natural phenomenon, when deforestation by humans, by businesses, is big part of the equation, where agribusiness and factory farming are a huge amount of the story.

Then you have populations who are immunocompromised; that have compromised immune systems due to poverty and racism. It has been documented for decades that the more compromised people’s immune systems are due to poor diet, enormous stress loads, inadequate housing – that a virus that an extremely robust human constitution can take will rip through the most vulnerable sections of the population. And so that’s a picture of a social virus. That’s a picture of a virus that can cut through animal and human populations with enormous rapidity because of the nature of the social system that will not invest in public health, one that will not protect meat packers on assembly lines and so on. Therefore, we need to see it, as you rightly quoted me, as a virus of the social body, a social pathology, and not just a natural one.

AR: I want to come back to what we started on earlier and that is how the effects of the pandemic are compounded by structures of racial inequality, domestic and global. You used the phrases as well “racially differentiated death regimes.”

DM: Yes, and that’s a phrase from the wonderful radical geographer and abolitionist Ruth Wilson Gilmore, from her book Golden Gulag. And Ruth Wilson Gilmore talks about differential vulnerability to premature death as at the heart of what racial oppression is and what it does to people. In other words, she’s really trying to drive home that racial oppression is about structural social relations. Of course it expresses itself in bigotry, but it is much more than that. It is a systemic social process, and we can measure it by the vulnerability of people to premature death.

Once you begin to think about that – in other words, how it is a fundamental challenge to life – its endurance and its longevity – then so much of what we’re experiencing makes sense. We know that African Americans have been contracting the disease and dying of it in demonstrably higher percentages than, say, whites in the population. Or the vulnerability to death at the hands of the police, for instance, which is what we’re protesting, whether the focus is on George Floyd or Breonna Taylor or Ahmaud Arbery, and so on. That is a direct manifestation of that vulnerability to premature death.

“It’s not such a big jump from seeing the racial inequalities around the pandemic to the racial inequalities around policing, because in both cases we’re talking about vulnerabilities to premature death.”

And I think that it’s not such a big jump from seeing the racial inequalities around the pandemic to the racial inequalities around policing, because in both cases we’re talking about vulnerabilities to premature death, and that is brought together and amplified by that vulnerability being exposed on multiple levels on a very large social scale. I mean there is a sense in which, if you are a young African-American in the United States today, you know that your life is more imperiled by the COVID-19 pandemic and by police violence than any other social group in the United States. That’s an amazing thing to say, and no wonder we have seen the explosion of social protest in the streets, because literally it is about life, and it’s about the ability to protect life, and it’s about the ability to have the opportunity to flourish in your life.

AR: Continuing on that line, the pandemic – it is a pandemic, that is, global – has also had a catastrophic impact on the Global South, largely due to pre-existing conditions. Talk about that a little bit, please.

DM: Right. I think this is very important, Allen.  Given how terrible the pandemic is in the United States, and given the numbers who have gotten sick and the numbers who have died, it’s easy to have an exclusive focus on just how terrible things are in the US. But when we talk, for instance, about public health systems that cannot handle the stress of the number of people needing medical care right now, well, then we need to wrap our minds around the fact that across the world today there are more than 50 Nations which are spending more to pay off their debts to Global Banks and lending institutions than they are on their Healthcare systems.

Imagine that. You have to divert more of your nation’s wealth to Banks based in New York or London, or to the International Monetary Fund or the World Bank, than you can invest in the healthcare of your population. And so every one of those societies, and more just exist on the edge of vulnerabilities the pandemic takes off. If you have a right-wing demagogic ruler or government in place like Brazil does under Bolsonaro, then you’re really in trouble, because Bolsonaro, like Trump, went around extolling the virtues of hydroxychloroquine and pretending that a pandemic didn’t exist and calling it a myth and a fantasy and so on. Now it is ripping through Brazilian society, and of course through the favelas, through the places where the poor live in substandard housing, in huge concentrations of poor people next to one another.

In Ecuador, one of the countries that has to spend more on foreign debts to bank than it does on healthcare, bodies were lying in the street sometimes for a week before anyone could even come and retrieve them. You’re talking about social regression on a really horrifying scale, and one of the things we need to realize is that this may be still early stages for many of these countries, not just the United State. As you know Doctor Fauci finally said earlier this week “Hey, stop talking about the second wave, we’re still in the first in the United States.” Well some of the countries that I’m describing, like say Brazil, have entered into pandemic later, so we haven’t even approached their peak points yet.

So one of the things that any of us who care about social and global justice need to put absolutely at the forefront right now is global debt relief. All debts to global banks and lending institution should be cancelled immediately. That is not enough, but it would be a huge step in beginning to address the pandemic. Then you have to talk about the proper sharing of medical resources, potential vaccines and so on, but why don’t we at least start with a cancellation of global debt as a declaration of human solidarity with everyone around the world who is threatened by this pandemic?

Caller: I’m seeing in the major media regularly, economists, [and] other commentators saying that our economy is much stronger than it was before the ‘08 crash; not to worry, you know, we’ll do fine and recover from this current economic downturn. And in the lead up to the ’08 crash a number of things were done by the Bush administration to disguise the true nature of the fragility, [the] instability of the economy, such as suspending the required quarterly reporting for the economic condition of publicly traded companies. I’m wondering if [McNally] has some observations about what they are doing now to disguise the true nature of the instability of the economy as it currently stands.

DM: I would really like to point out that that bluster that we’re getting in high places really is that. If we look at the “recovery” since about 2010, we passed through the deep slump of 2008-09 by sometime in 2010, it’s true we began to see a recovery. But that recovery has been statistically the weakest on record since the Second World War. The rate of overall growth of the US, Japanese, European economies and so on has been much much slower. [It] has been a so-called recovery only for profits, not for wages, and so you have working-class households that have not seen any improvement and often have seen a deterioration.

Many of your listeners will know the stats, for instance, which suggest over 40% of American households have less than $400 in reserve for any kind of household emergency. So they have not seen recovery. The other thing is, yes, it’s not concentrated in real estate, we’re not likely to see a financial collapse that is in a certain sense triggered by a meltdown in real estate markets but corporate debt is very high, at record levels in many quarters. And this is what has the Federal Reserve Bank so concerned and why there’s a debate happening among Central Bankers right now and others about so-called “zombie firms”. You see, we’ve been living in essentially an almost zero interest rate regime and it’s meant that 16-17% of all the business that exists in the United States are actually not profitable. They’ve just stayed alive because they can borrow money essentially for free. But they just take on more and more debt to stay alive and we do not really know at what point that becomes unsustainable.

What the Federal Reserve is really worried about when they deliberate amongst themselves and with economists from the World Bank and the International Monetary Fund, is what will happen if 20% of the companies, say, in the United States collapse due to this crisis. They weren’t viable before the crisis began. How do they survive for the next year, two years, three years of very low level demand? How do you keep bailing them out over and over?

I would argue that this economy is in truth more vulnerable than the economy of 2008 because it’s been through a decade of keeping alive zombie companies on life support at probably higher numbers than we’ve ever seen. So they’re going to have to try to figure out if they can just endlessly pump out money to keep such firms alive or whether they’re going to have to allow some level of a wave of bankruptcies. I think the latter is coming. I don’t know when, and I don’t know how deep they’ll let it get. But my assessment, having looked at all the data here, is that they’re in a hard place when it comes to a new wave of corporate bankruptcies, which would have big effects on financial markets because those companies are never going to pay back their debts. So I think we’re going to see bankruptcies, more bail outs by the banks, more bankruptcies more bailouts ,and so on.

Caller: My question is: is there a some possible tipping point when they are pumping unprecedented trillions of dollars into the economy where it could possibly set off a runaway inflation?

DM: It’s a really good question, and I’ll tell you I don’t think inflation is the biggest risk. I think a dollar crisis could eventually be. And I say that because they’re pumping tons of money into the economy, but inflation requires that, in addition to that money being pumped out there, that it circulates quickly. Economists like to call this the velocity of circulation; as an example, the number of times an imaginary $10 bill is used in the course of the year.

One of the things that has happened is that although the money supply keeps growing, the velocity of circulation, the amount of spending of that same $10 bill has been declining and so in that context I don’t even expect a big wave of inflation. But the problem for the United States Central Bank is how long can it just pump trillions of dollars into the banking system before investors start to hedge their bets, and begin to say “We’re getting doubtful about the capacity of the United States government to sustain these debt levels.” Now, we may not be there yet, but one of the really interesting things I’ve observed is if you look at publications like the Financial Times out of London and New York, they have an article every week or two basically saying “Are we heading for a dollar crisis?” and they’re pointing to a whole lot of signs of this.

I think the Federal Reserve Bankers in the US are aware of this discussion and so their problem is they need to keep bailing out to prevent a wave of bankruptcies and possible bank collapses, but they can’t do it infinitely. Sooner or later, if they just keep doing it over and over again, some will start to park more of their investments in Chinese Yuan or Euros or whatever it might be, than in dollars and all it will take is a meaningful shift to maybe not produce a full scale run on the dollar, but to begin to produce a decline in the dollar. And so that’s the unknown area right now where pumping all of this bailout money into the financial system could come up against a real obstacle because they do not want a collapse of the dollar and all the financial turmoil that that would create globally.

AR: I want to come back to another variable that we zoomed by and that is the other part of the crisis, the nature of the political and social system we’re in — the fragmented political character of the crisis of leadership, the failure of the two party system in this country.

DM: Right, and I think if we’re seeing anything in the social upheaval over the last four plus weeks in the streets, it is a dramatic expression of exactly what you’re saying. Millions of people have taken to the streets, and we need to always under score for ourselves the mass scale of what has happened. I mean we have no record of an upheaval like this sweeping through so many parts of the United States in such short order. It was over a week ago I saw the figure that 650 small towns had had Black Lives Matter protests. You can’t explain that, obviously, without in the first instance saying “Well this is a massive repudiation of the Trump administration.” Of course it is.

There’s no doubt about that, and it’s not an accident that Trump’s approval ratings have been falling all throughout the upheaval in the streets and that support for demonstration and protest against police violence is at record levels. I mean, you’re talking about that suggest anywhere from about 55% support at the low-end to 75% at the high end. So this is a massive rejection, obviously, of the Trump Administration, but similarly it’s a vote of no confidence in the Democratic party establishment.

I don’t think there’s any way around that observation. You do not see, say, “Elect Biden” signs all over the place at these protests. Instead you see much more radical demands like “Defund the Police,” and we could talk about that for quite some time because people who don’t understand the significance of that demand and the kinds of debates that are happening around defunding I think miss the radicalism of this.

So you’re right, it’s a repudiation of the mainstream party system, and at the same time it is a movement that is still so much in formation and in process that we just don’t know what kind of new mass social organizations could come out of it. We don’t at the moment, for instance, have the equivalent of the Southern Christian Leadership Conference or the Student Nonviolent Coordinating Committee or the Students for a Democratic Society that we had beginning in the 1950s and 1960s. These became organizational hubs; they built the infrastructure of a new left, and they were able then to provide the social context in which Black Panther Party for Self-Defense could emerge in Oakland and so on. At this point, no large-scale mass organization has come out of this struggle. And that’s going to be the challenge for those currently in the streets – the building of an organized radical left, an anti-racist, abolitionist and anti-capitalist new left. The same young people who, in Harvard University polls, say they identify more with socialism than capitalism are also the young people who are in the streets right now defending black lives and protesting police racism. Huge possibilities Allen, but at the same time the organization infrastructure is not yet there.

AR: It’s the classic historical question: the organizational question. Our original plan was to talk about your new book, Blood and Money but the current moment could not be ignored. In the minutes remaining, give our listeners some brief sense what it’s about and why they should be looking at it.

DM: Right, well in its own way it’s become a timely book because the central argument of Blood and Money: War, Slavery, and the State is that we don’t understand money and its social power if we accept the myth that is simply emerged as a neutral instrument for bartering exchange between individuals. That it was just a nice little technology to facilitate trade. I argue instead that from its inception, full-fledged money has been a technology of power and domination, that it has been a means for commanding the bodies and lives of others, beginning with, of course, the buying and selling of slaves in the Ancient World. I then argue that from there it developed into a full-fledged instrument of war finance. And so, the formulation “blood and money” is really meant to take our historical understanding of money away from these idyllic stories of two people meeting and exchanging clock for corn, and instead saying “No, money, from its inception as a technology of domination and power, was about dominating human beings and their lives and the history of money is literally drenched in blood.” And then I track it through the transatlantic slave trade, through the role of money in various wars, and how it changed and developed as an instrument of war finance. And so I try to offer what we might call a counter history of money, and of course when we now see the economy being quote-unquote “reopened” and putting human life at risk once again, I think that nexus of blood money is enormously on display right now before our eyes.

AR: David, what else? I mean, we have so much we can toss around. One thing we didn’t get to, of course, breezed by it very quickly is the fact that the US is no longer the top dog on the planet, that its being challenged and that enters into it of course.

DM: It does enter into it, and you know when we talked about the rivalries over oil, we were already into a lot of those questions right there. The Saudis, essentially working at the US behest, couldn’t bring the Russians into line, for instance. And that is a symptom of global order that is becoming, let me put it this way, incrementally more multipolar. I don’t want to suggest that the United States has a full-fledged economic and military rival in the world today. It does not. But it is the case that other states are prepared to challenge it to a greater degree than we would have seen some decades ago.

The push back by the Russians, the conflicts with China, which has, of course, become the other primary center of capital accumulation in the world, the development of rudimentary instruments of regional assertion by China — all of this is symptomatic of a world that could be in transition. Now, of course, conflicts could restore a degree of US domination and supremacy for a considerable period of time, but right now the system is more fractured, as you say. It’s less unified under the leadership of the United States. It’s more multipolar in a kind of emergent way and that, of course, means it’s more unstable. You may not like the domination a single imperial power, I certainly don’t, but that can sometimes establish a greater degree of unity among the ruling classes than the United States, and particularly the United States under the Trump Administration, can right now. And so, it is a more fragmented, volatile world racked by more rivalries, and while the US is the top dog, there are others barking at its heels, and that could have really significant consequences in a historical sense as we move forward.

AR: David McNally, we have just a couple minutes left and we haven’t even touched on one of the biggies, and that is the climate crisis, global climate change, and how the pandemic is, of course, a reflection of that but it’s so much deeperand so much larger.

DM: It is Allen, and I think one of the things it’d be really interesting to explore is the ecological sensibility of so many of the young people that are in the streets fighting police racism right now, because, for them, I think the ecological crisis is a symptom of what’s wrong with their world. I don’t think they’ve forgotten it at all and I think as they stand up to power, as they fight back, as they force the prosecution of people who have executed African Americans in the streets; as they forced cuts to the police budgets, as they force Confederate monuments to come down, they’re discovering a power that they may also, in the months and years ahead, exercise on the ecological field. After all, we’re just coming out of a period of global climate strikes and if and when the pandemic eases or maybe even before then, don’t be surprised if the global climate strikes also come back, link more and more to things like BLM; to defunding the police being linked to investing in sustainable energy, and so on. So I think you’re right, it is a dimension of all of this and young people in the streets are by no means oblivious to that.

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