Book review - The Crash of 2016

In The Crash of 2016: The Plot to Destroy America and What We Can Do About It, author Thom Hartman lays out his case for why the US economy is heading for the cliff. According to Mr. Hartman's theory, major recessions come about every 80 years or so because that gives society enough time to forget what caused the last recession and so we repeat the cycle ad infinitum.

Every major recession has followed speculative bubbles and war. The speculative bubbles are caused by serious reductions in the top tax rates which leads to, what Mr. Hartman refers to as, "hot money." This hot money, having no place to go finds itself caught up in bubbles -- whether they be tulips, stocks or housing.

After the crash the top marginal tax rates are raised again, which cools off the hot money, and the economy starts humming along nicely. Until, that is, enough time has passed so that everyone forgets the tax cuts, the speculative bubbles and war and another crash occurs.

Mr. Hartman's theory of cycles is a popular theory to explain most historic phenomenon. So, while it's easy to explain and has a certain symmetry to it, the theory leaves a bit to be desired. And, to be fair to Mr. Hartman, the same applies to every other historian and theoretician who has tried to tie history to cycles.

Mr. Hartman's book also suffers from another common problem. Mr. Hartman is an unabashed progressive - and there's not a damn thing wrong with that. But he also harbors an undying faith and belief in capitalism. His mission is to try to restore our economic system to some mythological one in which this abstraction called the middle class brought about widespread prosperity.

This is the same line of thought that President Obama has espoused since he was chosen to run for president. Go back and listen to his campaign speeches and his pronouncements during his time in office. He constantly talks about programs that benefit the middle class - but he never mentions the working poor. Doing so would remind us all about the ways in which capitalism has, by design, left behind the vast majority of folks in the world.

His focus also renders him blind to the essential contradiction in capitalism. The system is designed to concentrate profits in fewer and fewer hands. As capitalism is dependent upon increased levels of consumption to keep the wheels turning, this overbearing march toward higher profits leaves those who produce the goods and services with less. So, while we pump out more and more product, fewer folks have the means to purchase them. It is this crisis of overproduction that brings about periodic recessions and market failures.