If there is going to be a recession - or an economic downturn - then what is the cause? If capitalism is a coherent and stable system of organizing the world, then surely it must be possible to identify reasons why things happen the way they do rather than just accept chaos and randomness. Economist Paul Krugman has, more than once, persuasively pointed out that economic crises are caused by a loss of consumer confidence and that this can lead to the contagion effect. That is, one sector of the economy suffers (e.g. travel agencies) and so they no longer support their customers (e.g. hotels) and the workers in those industries are laid off (retrenched) and so it continues.
While this is true, it does not explain in itself why confidence should suddenly decline, assuming again that this is not itself a purely random phenomenon. The governor of the Bank of England, Mervyn King, has recently intoned that the changed economic conditions currently applying result from the End of the Nice Decade. "Nice," in this context has nothing to do with pleasantness or congeniality but is an acronym for Non Inflationary Constant Expansion. The decade in question is generally thought to have ranged between 1992-2002, although estimates vary. However, since changes in the underlying economy take some time before they start to have visible effects for real-life people, it is only comparatively recently that effects such as the housing crisis, collapse of earnings for banks and emergent inflation have become visible. The Nice decade was unusual in that growth has nearly always been accompanied by inflation and, consequently, the benefits are not passed on to people because their earnings have not kept pace with increased costs. In truth, this continued throughout the Nice decade (most people are no better off in real terms now than they were at the end of the 1980s despite the enormous increases in income inequality).
What has changed and does appear to have been influential is the enormous increase in consumer borrowing - debt, that is. A cultural change appears to have swept over western and developing countries such that it is no longer considered imprudent to borrow now to obtain goods immediately. Instead, millions have allowed themselves to be encouraged to incur debt on high-cost instruments such as credit cards in order to obtain instant gratification. The borrowing has enabled money to continue circulating around the financial system and this, the circulation, is the critical factor. However, clearly there must be a limit to the amount of consumer debt that is possible for a stable system. And that stability is threatened by inflation, which erodes the value of those assets on whose behalf the money has been borrowed in the first place.
A Marxist perspective of the current situation would, presumably, be consistent with ongoing analysis of the nature of capitalism - that is contains the seeds of its own destruction, that the emergent contradictions within the system will alert people to the imminent revolution and that it is the falling profits and over-production that are the main symptoms by which the crisis can be identified. This does not seem to be the case here - rising food and oil prices are not the result of over-production, indeed quite the opposite as demand is increasing internationally. Profits may or may not fall in the case of individuals but even a cursory examination of the enormous bonuses and salaries paid to bankers, financiers and corporate executives suggests that the level of excess profit is at least remaining constant and probably increasing. Nevertheless, it is certainly true that untrammeled capitalism - that is, capitalism without proper regulation of markets - leads to a series of boom-and-bust crises. As ever, it is the vulnerable who suffer from such a system. Entrepreneurs encouraged to ignore the effects of bankruptcy and start new ventures represent one of the more buoyant aspects of capitalism; ill-educated workers who lose their jobs and face starvation or entry into unsafe activities as a result represent quite another. Economic downturns always indicate the need for effective, coherent government action, particularly with respect to protecting the vulnerable from forces beyond their control.
