The recently announced national account figures for the September quarter saw Australia's GDP (Gross Domestic Product) shrink by 0.5 per cent. This is the result of a fall in business investment (of 9.7 percent in the last 12 months), a collapse in effective demand, reduction in government spending and the decline in the building industry.
The annual growth rate fell from 3.1 to 1.8 percent, this at a time when official interests rates are at an all time low of 1.5 percent. Australian capitalism's economic slump is the result of the long term price deterioration in the country's dependency on exporting commodities.
After the last official recession in 1991 the Australian economy has contracted three more times - in 2000 when the GST was introduced, the 2008 Global Financial Crisis (GFC) and the 2011 Queensland flood devastation. There is no end in sight for the current economic stagnation because investments by business continue to fall, creating a crisis of confidence in the stability of capitalism.
For Treasurer Morrison and business groups the solution is in the mantra of reducing company tax (from 30% to 25%) and government expenditure in the coming years. All this will achieve is a $50 billion tax reduction for corporations with no guarantee that this boost to their profits will revive investment and increase employment.
Contradicting this bourgeois economists then point out that household consumption has fallen since the beginning of this year in Australia and is the major worry for the faltering economy. Capitalist economies have depended on debt-driven household spending to power their growth. In the decade prior to the 2008 GFC household consumption grew 3.95 percent annually, then after the crash it fell to 2.5 percent.
The chances of the Turnball government turning around the budget deficit (currently at $40 billion) to a surplus, by 2021 are next to nil. The credit ratings agencies and finance capital are now threatening a down grade in Australia's triple A credit rating.
The day of reckoning demands that huge amounts of capital need to be destroyed
Eventually they will demand a day of reckoning and further austerity measures to be implemented of the severity that has been witnessed in Europe. Despite all the ingenious innovations and productive power of capitalism it has a feature that is its undoing: it suffers from recurring economic crises making it an inherently unstable system.
The world economy is experiencing a long depression due to what Marx explained is the falling rate of profit and a colossal rise in debt. Presently capital is incapable of returning profit rates and has the problem of excess capacity, consequently it cannot get out of this depression. There are essentially two choices for a recovery from the present depression, either through the wiping out of useless investments and assets through bankruptcies, closing down of plants etc to restore the rate of profit which will entail a massive rise in unemployment and misery for those unemployed or by the overthrow of the capitalist system and its replacement by a socialist mode of production (which does not suffer from chronic depressions) whose purpose is to fulfil people's needs.
The current depression which occurred with the GFC in 2008 was detonated by the massive growth of fictitious capital that ultimately disintegrated when the ratio of household prices to household incomes could not sustain real value expansion. However this detonation was not the cause, it was the symptom of the overall cause of the crisis which is the law of the tendency of the rate of profit to fall and accompanied by a crisis of overproduction.
In the history of modern capitalism there have been three depressions. It is important here to make the distinction between recurring recessions or slumps from depressions.
The first being the Long Depression of 1873-97, the second being the Great Depression of 1929-39, and now arguably the third of 2008-? These depressions all began with major slumps: 1873-6 slump started off the Long Depression; 1929-32 slump started off the Great Depression; and the 2008-9 for the current depression.
Depressions are the result of a combination of descending phases in the cycles of capitalism. Each depression occurs when the cycles of technological innovation have reached their completion and flooded the economy. It occurs when commodity prices and world production slide downwards, going from inflation to deflation. It occurs when the cycle of infrastructure investment and construction has declined. It occurs when the rate of profit falls together with excess capacity of production. The combination of these diverse cycles has a pattern of happening once every seventy years.
Each depression never recovers from the economic devastation it causes
Whilst in each of the 1873-97 Long Depression and the 1929-39 Great depression there were both economic decline and some growth, the recovery was never enough to nullify the devastation of the early slump, and further slumps ensued.
In all likelihood the world is in the early stages of a third depression. Predictions are that it will be a long depression and more difficult than a great depression.
As Marx said many years ago the problem of capital is with capital itself. Capitalism may well emerge out of its long depression, however the time of its approaching historical extinction is getting closer.