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Its still getting worse

Marxist Analysis · 2026-05-13

Core Argument

The central thesis is that the US economy has entered a recession that marks the definitive end of the long boom beginning in 1992, and that this downturn is structurally deeper and more dangerous than mainstream commentators recognise. The article claims that the apparent resilience of the US economy after the collapse of industrial production was an illusion sustained by an unprecedented credit bubble and speculative mania. Once that tide of fictitious capital recedes, the underlying crisis of profitability and productivity is exposed. The recession will not be V-shaped and short, as the optimists hope, but will instead spread globally, dragging down Japan, Europe, and Asia, and threatening a return of stagflation and protectionism.

Theoretical Grounding

The analysis is rooted in the Marxist theory of crisis, specifically the understanding that capitalist booms are inherently self-limiting because they rest on the extraction of surplus value, which faces recurrent barriers in the form of falling profitability and overaccumulation. The article draws a sharp distinction between the productive economy — where profits, investment, and productivity are in decline — and the sphere of circulation, where credit and speculation have temporarily masked the underlying rot. This is a direct application of Marx's distinction between real capital and fictitious capital: the stock market bubble, the property boom, and the explosion of household debt are presented not as signs of genuine growth but as a deferral of crisis through the expansion of credit, which ultimately makes the eventual crash worse.

The piece also engages critically with mainstream economics, particularly the "New Economy" thesis that information technology had abolished the business cycle. Roberts counters this by showing that productivity growth in the 1990s was actually lower than in earlier booms, and that the supposed revolution was a fraud — a bubble in investment that produced huge losses rather than sustainable profits. This is a Marxist critique of the ideology of "permanent boom," which treats the surface appearance of rising share prices and cheap credit as evidence of a transformed capitalism, while ignoring the underlying laws of motion that continue to operate.

Conjunctural Relevance

The article was written in July 2005, at a moment when the US economy had not yet been declared officially in recession but when industrial production had already fallen for eight consecutive months — a longer stretch than in the 1973-74, 1981-82, or 1990-91 slumps. The piece identifies the specific mechanisms of the conjuncture: the Federal Reserve's aggressive interest rate cuts, which had fuelled a consumer credit binge (consumer credit reaching 22% of personal income) and a property boom (house prices rising 8% in a year). It also notes the collapse of the hi-tech sector, with companies like Cisco, Lucent, and Nortel writing off over $100bn in worthless acquisitions.

Geopolitically, the article maps a world economy that is already faltering: Japan in recession, Germany slowing, Taiwan and Singapore in sharp decline, and only China growing through low-wage exports and state stimulus. It warns of rising protectionism, citing China's punitive tariffs on Japanese goods and the US-EU dispute over export subsidies. The dollar is beginning to slip, and the article identifies the central dilemma facing Greenspan: cutting rates further risks a dollar crisis and inflation, while holding rates risks deepening the investment collapse. This is a prescient anticipation of the stagflationary pressures that would later re-emerge.

Where the Argument Continues

This article is an early entry in Michael Roberts' long-running series of economic updates for In Defence of Marxism. The argument that the 1990s boom was a credit-fuelled bubble masking a deeper crisis of profitability is developed more systematically in Roberts' later work, particularly his book The Great Recession: A Marxist View (2009) and his subsequent analyses of the 2008 crash. The piece also connects to the broader Marxist debate on the tendency of the rate of profit to fall, which Roberts has spent decades defending and applying empirically. Readers should follow the trajectory of his quarterly economic analyses on marxist.com, which track the US and world economy through the 2008 crash, the subsequent "recovery," and the long stagnation that followed.

Connections

  • Marx, Capital Volume III — the distinction between real and fictitious capital, and the theory of crisis.
  • Michael Roberts, The Great Recession: A Marxist View — the full development of the argument that the 2008 crash was the product of a long-term decline in profitability.
  • Andrew Kliman, The Failure of Capitalist Production — a rigorous empirical defence of the law of the tendency of the rate of profit to fall, which underpins the theoretical framework of this article.
  • Ernest Mandel, Late Capitalism — the analysis of the long boom and its limits, and the role of credit in deferring crisis.
  • In Defence of Marxism, "The worst is yet to come" (May 2005) — the preceding article in this series, which this piece updates.

Key Quotes

  1. "The truth is that the long boom of the 1990s has not been as productive as some previous booms, all of which ended in a massive slump. The boom and bust cycle of capitalism is still alive and roaring, despite the soothing words of Mr Greenspan."

  2. "It's just that the underlying slowdown in profits and productivity have been hidden under a deluge of cheap credit and inflated share prices. Now that this tide of credit has ebbed, the rocks of capitalist crisis are being revealed underneath."

  3. "The size of this credit bubble and the extent of the expansion in speculative (fictitious) capital are unprecedented. This is a bigger bubble than the famous Tulip bubble of the 17th century or the South Sea bubble of the 18th century."

  4. "The US economy continues to live on borrowed time and borrowed money. US corporations and households have been spending about 6% of GDP more than they have in incomes. They have borrowed the difference, mainly from investors abroad."

  5. "If he stops cutting, then American investors and corporations will realize that the cost of investment is not going to fall any more and yet profits are diving. They will cut back on investment and jobs even more, while a falling dollar will start to drive up the cost of importing goods from abroad. Inflation will rear its ugly head."

  6. "Having failed to recognise a bubble as a bubble, Mr Greenspan, along with the US government and most American stock market 'experts', have failed to see a bust as a bust."