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Euphoria and the bursting bubble

Marxist Analysis · 2026-05-13

Core Argument

Roberts argues that the US economic "recovery" of 2005 is a mirage. The headline growth figures and stock market euphoria mask a fundamentally fragile expansion built on three unsustainable pillars: massive state spending (military Keynesianism), deep tax cuts for capital and the wealthy, and a historic credit bubble sustained by near-zero interest rates. Beneath the surface, manufacturing is collapsing, real wages are falling, and employment is shrinking. The apparent boom is actually a debt-fuelled illusion that will burst once the fiscal and monetary props are withdrawn — with the bursting of the housing bubble, the collapse of the dollar, and the political destruction of the Bush presidency following in short order.

Theoretical Grounding

The analysis draws on Marx's theory of the capitalist cycle, particularly the distinction between the appearance of prosperity and the reality of underlying contradictions. Roberts deploys a classical Marxist critique of Keynesian demand-management: state spending and credit expansion can postpone crisis but cannot resolve the fundamental problem of profitability. The article implicitly rests on the law of the tendency of the rate of profit to fall — US capital has restored profitability only by slashing labour costs (jobs, wages, benefits), not by productive investment. The result is a growing gap between fictitious capital (asset prices, housing) and the real economy of production and employment. The analysis also draws on Lenin's theory of imperialism: the dollar's role as world reserve currency allows the US to run chronic deficits and export inflation, but this privilege has limits, and the rise of Chinese and Asian manufacturing represents a competitive challenge to US capital that cannot be wished away.

Conjunctural Relevance

The article was written in July 2005, at the height of the US housing bubble. Roberts correctly identifies the key mechanisms that would produce the 2007-2008 financial crisis: subprime mortgage expansion, household debt saturation, the dollar's decline, and the inability of US manufacturers to compete with Chinese exports. He names specific forces — the Bush administration, the Federal Reserve under Greenspan, the Iraq War's fiscal drain — and provides concrete data: 2.6 million jobs lost since Bush took office, 43.6 million Americans without health insurance, manufacturing job losses for 38 consecutive months. The prediction that the bubble would burst "next year" (2006) was slightly early in timing but correct in direction: the housing market peaked in 2006 and the financial crisis erupted in 2007-2008. The article also anticipates the political consequence — Bush's defeat — which proved accurate in the 2006 midterms if not the 2004 presidential election.

Where the Argument Continues

Roberts' analysis of the credit bubble and fictitious capital is developed at greater length in his later work The Great Recession (2009) and in numerous subsequent articles on Marxist.com. The relationship between US imperial decline and the rise of Chinese manufacturing is a recurring theme in IDOM's coverage of the global economy, particularly in articles on the 2008 crash and the post-2008 "recovery." The critique of military Keynesianism connects to IDOM's broader analysis of the state's role in propping up capitalism, developed in articles on war spending and economic crisis. For the theoretical underpinning of the argument about profitability, readers should consult Roberts' The Long Depression (2016) and his ongoing blog The Next Recession.

Connections

  • Marx, Capital Volume III — the law of the tendency of the rate of profit to fall and the theory of credit and fictitious capital
  • Lenin, Imperialism, the Highest Stage of Capitalism — the role of finance capital and the export of capital
  • Baran and Sweezy, Monopoly Capital — the analysis of the absorption of surplus under monopoly capitalism, though Roberts would reject their underconsumptionist framework
  • Andrew Glyn, Capitalism Unleashed — a useful companion on the neoliberal period and the profitability crisis of the 1970s-80s
  • IDOM articles on the 2008 crash — the empirical working-out of the dynamics Roberts identifies here
  • Michael Roberts' blog The Next Recession — ongoing analysis of the global economy from a Marxist perspective

Key Quotes

  1. "The reality is that the economic growth that the US is now enjoying is an illusion. It is based on three things. The first is massive spending by the government... The free market has been replaced by Keynesian-style pump-priming of the capitalist economic cycle."

  2. "Spending and unemployment are hand in hand in a merry dance of economic death because Americans are not buying goods made in the US. The US now consumes nearly 90% of the world's capital, but produces less than half the manufactured items it consumes."

  3. "Sure, US companies have improved their profitability by cutting jobs and reducing benefits, but they cannot raise their prices because of huge competition from abroad. China and other Asian producers are riding through world trading markets like the Horses from the Apocalypse, destroying all before them."

  4. "But if you run a huge debt up with the rest of the world, the risk is that your creditors will start to demand more interest or they will stop taking your dollars. America is keeping interest rates down, so the fall guy is the dollar."

  5. "Bush is trying to help them out through tax cuts and letting the dollar slide in world markets. But there is little sign that American capitalists are prepared to keep their side of the bargain by raising investment and employing more unemployed."

  6. "When the tax cheques run out early next year and there are still no jobs, a great squeeking sound may be heard as the debt and housing bubble bursts, along with the dollar. It will be the sound that spells the end of this fake boom and the end of Bush's hopes for re-election."