Archive for the ‘Average Prosperity’ Category

Economic Stagnation, Mass Unemployment, Budget Deficits and the Industrial Cycle

February 17, 2013

A few months ago I had dinner with a some friends from the old days. One of them expressed the view that the current economic situation of prolonged economic stagnation, continuing mass unemployment, and falling real wages represented a fundamental change in the workings of the capitalist system. He asked what is behind this change? This a good question and is worth examining in a non-trivial way.

A month or so ago the media, which had been painting a picture of a steadily improving economy, was startled when the U.S. government announced that its first estimate showed that the fourth-quarter GDP declined at an annual rate of .01 percent. Though slight, this would be a decline nonetheless.

Those economists who make a business of guessing the U.S. government’s GDP estimate expected an annualized rate of growth of 1.5 percent for the fourth quarter (of 2012). This would represent a historically low rate of growth, but growth nonetheless.

The media has been working hard to create an impression of a recovery that is at last gaining momentum. Therefore, if we are to believe the capitalist press, a “new era” of lasting prosperity is on the way. This latest “new era” will be fully assured if only the Obama administration and both Democrats and Republicans can settle their differences on the need to bring the current deficit in the finances of the U.S. federal government under control.

This is to be done by some combination of “entitlement cuts” for the working and middle classes and very modest tax increases for the rich. With the tax question settled by the New Year’s Day agreement, the only question now is how deep the entitlement cuts will be, spending on the military and “national security” being largely untouchable.

Thrown somewhat off balance by the estimated fourth-quarter GDP decline, the economists, bourgeois journalists and Wall Street brokerage houses—ever eager to paint the U.S. economy in glowing terms in order to sell stocks to middle-class savers—explained that “special factors” were behind the slight fall in the estimated GDP, not a new recession.

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Behind the Austerity Drive

January 20, 2013

January 2013 marks the beginning of the sixth year since the last crisis began in August 2007 and the fifth year since the crisis reached its climax with the panic on Wall Street in September 2008. Compared to the stormy events of those years, recent weeks have been relatively quiet.

The European debt crisis has at least momentarily eased with the decision of the European Central Bank to expand the euro-denominated monetary base—though much of the European economy remains in the grip of recession with unemployment still rising. In the U.S., the economy remains sluggish as the leaders of the ruling class seek ways to accelerate growth in order to halt and reverse U.S. de-industrialization and prevent a serious social and political crisis.

This is therefore a good time to take a larger view of the current economic situation within the broader long-term evolution of the capitalist system. This month I will focus on the U.S. government deficits and the current austerity drive.

The U.S. federal government is now carrying a debt of over $16 trillion and is fast approaching the current legal maximum of $16.4 trillion. The financial situation of the federal government doesn’t affect only the United States but the entire world, since not only is the U.S. government the world’s biggest borrower, it is also the center of the entire world imperialist system.

Real versus manufactured crises

On New Year’s Day, just as I predicted last month, a last-minute agreement was reached between the Obama administration and the congressional Democrats and Republicans to avert mandatory tax hikes and spending cuts that would have withdrawn as much as $800 billion of purchasing power from the U.S. economy over the next year. If such a withdrawal of purchasing power had actually occurred, the U.S., and perhaps the world, economy would have been thrown into an artificial, government-induced recession that would have aborted the current global industrial cycle. Exactly because of this, there was virtually no chance this would actually happen. Far from seeking to induce a recession, the political leadership of the U.S. ruling class is attempting to accelerate the slow rate of growth of the U.S. economy.

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A Major Attack on Labor Rights in the U.S. as the Federal Reserve Makes Another Inflationary Move

December 23, 2012

December 11 brought news of a major new attack on basic labor rights in the United States. The following day, the Federal Reserve announced new inflationary measures designed to end the economic stagnation the U.S. economy has been mired in since the “Great Recession” bottomed out in July 2009.

The new attack on labor rights occurred when Michigan Governor Rick Snyder signed a so-called “right to work” bill in the state that is the home of the U.S. auto industry. Unlike the attacks in Wisconsin and some other U.S. states that targeted the labor rights of state employees, the Michigan legislation—though it affects state employees, with the police being a significant exception—is clearly aimed at Michigan’s highly unionized automobile industry.

So-called “right to work” laws in the U.S. have absolutely nothing to do with the right of workers to a job. The leaders of U.S. capitalism recognize no such right. Rather, under the Taft-Hartley Act of 1947, U.S. state governments can pass “right to work” laws that outlaw the union shop. Under a union shop, all workers are required to pay union dues after their probation period as new hires ends.

Traditionally, such laws have existed in the southern states, with their long history of slavery and post-slavery apartheid-type Jim Crow segregation laws. Ultimately, the “right to work” laws of these states, where unions have always been weak, can be seen as part of the heritage of slavery itself. However, the passage of such legislation in Michigan, a northern state that was never a slave state and was at the very center of the rise of the Congress of Industrial Organizations—CIO—is another matter altogether.

Michigan is the home of the United Automobile Workers, the most powerful industrial union created by the great strike movement of the 1930s. For the first time since the auto bosses were forced to recognize the UAW, the passage of this legislation opens up the real possibility that they are preparing to bust the UAW altogether.

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The September 2012 Unemployment Numbers and the ‘Surplus Population’

October 28, 2012

This post concentrates on the U.S. economy. However, the basic trends are the same in all imperialist countries.

On October 5, the U.S. Labor Department issued its monthly estimate of unemployment for September 2012. Much to the surprise of most observers, the figures showed a drop of unemployment from 8.1 to 7.8 percent. For the first time in 44 months, unemployment dropped below the psychologically significant level of 8 percent.

The reported drop in unemployment gave a much needed shot in the arm for the Obama reelection campaign, which had been reeling in the wake of the president’s poor performance in his first debate with Republican challenger Mitt Romney. As could be expected, Democrats were delighted by the unemployment report, which at first glance seemed to indicate that the lagging recovery from the 2007-09 “Great Recession” was finally gaining momentum.

Republicans, on the other hand, were disappointed, and some could hardly hide their anger. Jack Welch, the former head of the General Electric Company and a staunch Republican, infamous for his “downsizing” and layoffs when he was head of GE, even hinted that the unemployment report was deliberately falsified by the Obama administration to boost the president’s chances of reelection.

Is it possible that Welch is right? As we will see, of far greater importance is what the Labor Department’s rate of unemployment actually measures.

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World Trade and the False Theory of Comparative Advantage

September 18, 2011

Some introductory remarks

This reply and the one that will follow should be seen as a continuation of my reply criticizing the view of economist Dean Baker that the U.S. dollar is “overvalued” and his claim that the U.S. trade deficit could easily be corrected and the U.S. unemployment crisis eased by simply lowering the exchange rate of the U.S. dollar against other currencies.

I had originally planned to continue the discussion of world trade and currency exchange rates the following month but the contrived U.S. government debt crisis in August forced a change of plans.

Reader Mike has made some interesting remarks about world trade and the dollar system—the foundation of the American empire, which has dominated the world politically, militarily as well as economically since World War II. To understand the growing threat of a renewed crisis barely two years after the official end of the “Great Recession” of 2007-09, it is important to understand both world trade and the dollar system.

Discussing Baker’s arguments for a lower dollar, Mike wants to know if there is an objective basis for determining if currencies are “high” or “low” in relation to one another. Baker summarizes his argument as follows:

“The U.S. pattern of spending more than it takes in is due to the fact that the dollar is too high. In a system of floating exchange rates, like the one we have, the price of currencies is supposed to fluctuate to bring trade into balance. This means that the trade deficit is caused by the over-valued dollar and a decline in the dollar is the predictable result.”

The obvious problem with the view that the U.S. dollar is “overvalued” is that ever since the end of the Bretton Woods system 40 years ago, the exchange rate of the U.S. dollar has shown a secular tendency to decline against other currencies. If the dollar was “too high” in the sense that there is a correct level of exchange rates that would end the U.S. trade deficit, why hasn’t the secular fall in the dollar brought the U.S. trade account into balance?

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Are Marx and Keynes Compatible? Pt 5

January 16, 2011

Keynesian economists blame their failure on the trade unions

Keynesian economists in general—and some Marxists influenced by them—blame the failure of the Keynesian policies of the 1970s on the trade unions. Basing themselves on Keynes, they falsely blame the inflation of the 1970s not on the inflationary monetary policies of the central banks that were so strongly supported by Keynesian economists at the time but on the trade unions.

These economists claim that by achieving raises in money wages during the inflation, “over-strong” unions were responsible for the inflation of the 1970s. Supposedly, a “wage-price spiral” pushed money wages relentlessly higher forcing the central banks to periodically raise interest rates to prevent even worse inflation, which in turn led to the recessions and unemployment of the 1970s and early 1980s.

However, in reality it was the trade unions that found themselves increasingly on the defensive as both inflation and unemployment rose during the 1970s and into the early 1980s. What the Keynesian economists call the “wage-price spiral” of the 1970s was really a “price-wage spiral.” The unions were only reacting to the ongoing inflation in their attempts to maintain—not entirely successfully—the living standards of their members.

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Are Marx and Keynes Compatible? Pt 3

December 12, 2010

In the October 2010 edition of Monthly Review, John Bellamy Foster wrote that John Maynard Keynes demonstrated that ”the economy did not automatically [emphasis added—SW] equilibrate at full employment.” (“Notes from the Editors”)

Here Foster does not in any way distinguish his own views from those of Keynes. He seems to assume that Marx as well held the view that while capitalism does not automatically equilibrate at full employment it can be made to do so if the government and the monetary authorities follow policies designed to achieve full employment. This was indeed Keynes’s opinion. But did Marx agree? Is it really possible to achieve full employment under the capitalist system?

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The Greek Workers Show the Way

May 23, 2010

A reader wants to know how the crisis that has developed in European and world financial markets will affect the current economic and political situation.

In the first week of May, renewed panic hit world financial markets. This time the crisis was centered in Europe and the European government debt market. The immediate cause of the crisis was the fear that the government of Greece would not be able to meet payments on its bonds that were coming due later in the month.

The resulting panic drove the interest rate on Greek government bonds well into the double digits, while stock markets plunged around the world. The crisis began to spread from the bonds of Greece to the bonds of other weaker European powers such as Portugal, Spain and Ireland.

Both Washington and the European governments fear that a major new contraction in credit could set in that would end the weak economic recovery that has been visible since the middle of last year, and renew the worldwide economic downturn—perhaps transforming the “Great Recession” into Great Depression II.

After a round of frantic emergency meetings over the weekend of May 8-9, the European Union, the International Monetary Fund and the U.S. Federal Reserve announced a round of emergency measures to raise almost a trillion dollars aimed at propping up the global credit system and bailing out the holders of Greek government debt—not the Greek people—while preventing the collapse of the euro.

The situation was so grave that French President Nicolas Sarkozy canceled a scheduled visit to Moscow to celebrate the surrender 65 years ago of Nazi Germany. During the frantic meetings, German Finance Minister Wolfgang Schauble collapsed and had to be hospitalized.

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Why Prices Rise Above Labor Values During a Boom

January 3, 2010

Nikolas wants a clearer explanation of exactly what causes commodity prices to rise above their labor values during the upswing in the industrial cycle. In order to fully grasp the nature of the capitalist industrial cycle, it is important to understand why this is so.

In my answer to Nikolas, I want to emphasize that I am discussing changes in prices in terms of money material, or gold. I am not interested here in price changes that represent changes in the value of paper money in terms of real money—gold. I am also assuming for purposes of simplification a single ideal industrial cycle and ignore the question of long waves or long cycles in prices, since these do not affect the basic argument I am making.

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Historical Materialism and the Inevitable End of Capitalism

November 8, 2009

Unlike idealist schools of history, the historical materialism of Marx and Engels sees both the origins of human life and the succession of economic and political forms that have marked the course of human history as rooted in the origins and transformations of human material production.

Unlike other animals, who are collectors of their means of subsistence, humans are producers who make and use tools to modify raw materials provided by nature.  Our ape ancestors over millions of years of both biological and social evolution were gradually humanized as they shifted from merely collecting foodstuffs and began to modify foodstuffs and other raw materials with the aid of tools.

Over the last ten thousand years, human society has evolved from classless primary communism—called hunting and gathering societies by academic anthropologists—to various forms of society divided into ruling non-working classes and direct producers who work for and are exploited by the ruling classes.

The successive ruling classes of history have ruled through a special organization called the state. According to historical materialism, the transition from classless and stateless primary communism to the various early forms of class rule through state organizations took place because of the development of new forces of production—particularly the development of animal husbandry and agriculture—that were no longer compatible with the traditional classless clan-tribal mode of social and economic organization.

In turn, the early class societies themselves were transformed as the instruments of production grew in power. Eventually, the forces of production grew to a point that they required the capitalist mode of production with its world market, free competition and wage labor. Unlike the earlier forms of class rule, capitalist society by its very nature is not local but engulfs the entire globe. It destroys any other form of human society that stands in its way.

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