The U.S. Economic Crisis Fundamental Causes and Possible Solutions

This paper argues that the fundamental cause of the current economic crisis in the U.S. economy was a significant long-term decline in the rate of profit from the 1950s to the 1970s. Capitalists responded to this profitability crisis by attempting to restore their rate of profit by a variety of strategies, including wages and benefit cuts, inflation, speed-up on the job, and globalization. These strategies have largely restored the rate of profit, but have resulted in stagnant real wages for workers for decades. As a result, household indebtedness has increased to unprecedented levels and must be substantially reduced in order to make a sustainable recovery possible. In addition, increasing indebtedness in the financial sector has greatly increased the instability of the financial system, and this financial indebtedness must also be reduced significantly. In the event of another banking crisis, bankrupt banks should be nationalized and operated in the public interest.