Peter Camejo's Long Wave

I don't know how many people have been following the various commentaries on Robert Brenner's NLR article "The Economics of Global Turbulence", which have appeared in Against the Current. John Bellamy Foster and David McNally have articles on Brenner in the latest Monthly Review . I recommend that everybody try to read as much of this material as possible, including a piece by Peter Camejo in the latest ATC. Camejo's article unfortunately is not on their webpage (, where a shorter version of the NLR article and various commentaries can be found. It is an extraordinary contribution to say the least. Camejo's position, which is the dialectical opposite of Brenner's pessimism, is that there currently is no stock market "bubble" and that, if anything, stocks are a reasonable investment and no risk at all.

Against the Current identifies Camejo as an "independent Marxist living in San Francisco," so one might conclude that his confidence in the stock market was arrived at after immersing himself in the Grundrisse for a year or so. It is unfortunate that ATC neglected to mention that Camejo is the founder and CEO of Progressive Assets Management, a brokerage house targeted to the wealthy liberal market. It is in his material interest for the stock market to do well, since his livelihood depends on it. This is not to say that he cynically patched together a bunch of apologetics, but rather that his economic situation almost inevitably would determine his political analysis despite his best intentions.

Having said that, we should now turn to some of his eye-opening arguments.

To begin with, he states that something is qualitatively different about this period of capitalist expansion, which maps to the bull market we have seen since the early 1980s. Namely, the silicon revolution has dramatically increased the productivity of labor. He writes, "We are living during the greatest technological revolution of all time, based on the microchip and other advanced technologies, and that will continue into the foreseeable future." This is just another way of stating that we are in a "long wave" based on computer technology. Many reputable Marxists, including Ernest Mandel, believe in such phenomenon. Speaking as somebody regarded by many as a disreputable Marxist, I view long waves as one step above astrology.

The problem with this theory is that it tends to abstract out more fundamental questions such as the ability of firms that depend on such technologies in their totality to stay viable as more and more workers are displaced by machines. It appears puzzling that an "independent Marxist" can let this classic contradiction in Marxist terms float by him without a comment.

As Harry Shutt points out in "The Trouble with Capitalism," a conspicuous feature of industrialised economies from the early 1980s has been "the tendency of established companies, in the service sector as well as manufacturing, to regard the application of cost-cutting new technology to their existing operations (without necessarily expanding capacity) as one of the most profitable ways reinvest their accumulating profits. This has effectively turned on its head one of the most sacred assumptions of post-war political economy, namely that increased investment has a positive impact on employment (a still cherished shibboleth of the British Labour Party and trade unions). At the same time the resulting process of corporate 'downsizing' reinforced a gathering tendency on the part of governments quietly to abandon their commitment to full employment as an overriding goal of public policy."

"The upshot of these tendencies has been a further increase in joblessness since the early 1980s, giving rise (particularly in Europe) to the phenomenon of 'jobless growth'. This has meant that, taking the 1974-1994 period as a whole, there has been negligible growth in the numbers of employed people in the countries of the European Union at a time when the level of economic activity (GDP) has expanded significantly, albeit at a much slower rate than in the 1950s and 1960s. Indeed in the most extreme case, that of Spain, employment actually fell by over 8 per cent over the period as a whole, at a time when the economy virtually doubled in size."

Since Camejo practically identifies the term crisis with yesterday's the performance of closing prices on the S&P 500, the unemployment rate hardly puts a damper on his breathless enthusiasm for the Great Technological Leap Forward.

Turning to another key question, Camejo describes the term "bubble" as inappropriate for the American stock market. One key indicator, the P/E ratio, appears consistent with the earnings expectations of American corporations. His methodology on this matter somewhat eludes me, so I will let him explain it himself:

"The rule of thumb on Wall Street is to multiply U.S. government interest rates by .76, invert the number and multiply by 100 to get a price-to-earnings ratio. If we do that with interest rates at 5% we get a 26 P/E. Estimates for 1999 earnings on Wall Street for the S&P 500 are over $50, which at a 26 P/E gives us an S&P of at least 1300, whereas the S&P 500, or about a 25% drop. A drop to 920 would only put us back to where the market dropped on October 8, 1998."

(If this makes your eyes glaze over, you should go through the experience of a Camejo sales pitch on indexed options, which I heard on a regular basis in the mid 1980s. "Louis, there's no way you can lose...")

The problem with something like a P/E ratio is that it is based on future earnings expectations. How in the world can one predict what that will look like in a year or two? It is odd that Camejo is so enamored of this rather dicey ratio, when he faults Brenner for predicting capitalist downturn. In either case, you are simply speculating. Perhaps a more reliable figure is dividend yield, the old-fashioned income generated by safe, conservative equities such as utility companies. They are favored in Personal Trusts and other white-shoe investment plans. As it turns out, dividend yields are at an all-time low and Microsoft, everybody's favorite stock, pays none. Those who want to put a positive go-go spin on all this claim that dividend yields--like pensions and social security--are a thing of the past.

Another interesting contrarian position found in Camejo's article is that Americans do save a lot, despite all reports to the contrary. He bases this on home ownership and designates a mortgage payment as a form of savings. A house is not a home in Camejo's world, but an investment. Based on this approach, "The fact is that U.S. citizens on the average have a larger 'savings' account than those of any other country, almost 40% higher than supersaver Japan." Somehow this does not square with my understanding of the post-WWII situation, when most American workers not only owned a house, but had a savings account as well. Beyond this, most employees of Fortune 500 companies also could look forward to cashing in on a company pension plan, which guaranteed a fixed income based on longevity. The fact that most Americans today own nothing but their house, and owe a greater percentage of income to consumer debts--a fact neglected by Camejo--seems expressive of a general downturn, despite the number of laptop computers seen in Starbucks or the number of people walking down the street with a cell phone glued to their ear.

Finally, Camejo believes that American companies can not be judged simply by book value, which is at an all-time low. Book value is the sum of the assets of a company, like buildings, machinery, land, cash on hand minus liabilities. Camejo has discovered a new asset that has never been considered before, namely the amount of labor time required to qualify an individual for employment. Microsoft, which has a very small book value compared to old-line manufacturing firms like GM, should have a much higher book value by this definition since it takes so long to train a computer programmer. The problem with this analysis is that it fails to take into account the highly speculative character of most high technology firms. The amount of training required for an average employee of some of the highly speculative Internet companies should also give them a very high book value, when in fact all they usually are is an office space with desks, telephones, personal computers, rubber trees, a water cooler and a coffee machine. Expresso in the more leading-edge companies, but that's about it.

I am not sure about Brenner's basic thesis and plan to read Foster and McNally this weekend. I generally have relied on Harry Shutt's excellent book from Zed Press and once again urge others to read it to get a handle on what's going on.

Louis Proyect