Archive for the ‘Boom’ Category

Low-Wage Workers of the World, Unite!

June 29, 2014

On May 15, 2014, a worldwide strike of McDonald’s workers involved workers in at least 33 countries, both imperialist and oppressed.

While participation in the strike varied, and most workers who participated were out for only an hour or so, this was a historic event all the same. It points the way forward to a far more internationalist future for the workers’ movement. To understand why this is so, we have to examine long-term underlying economic changes making the low-wage movement both possible and necessary.

This post is part of a series that explores the evolution of imperialism and the world capitalist economy in the century that began with the events of August 1914—the start of World War I. Let’s go back, not a full century but rather half a century, to the year 1964. This is the mid-way point between 1914 and the present day.

In 1964, the postwar, post-Depression “Long Boom” (strictly speaking, a series of industrial cycles with strong booms and relatively mild recessions) was underway. Indeed, to all appearances the “boom” was gaining momentum. In 1964, the U.S. and world capitalist economy entered a cyclical boom following a period of stagnation—a pause in the long postwar expansion—that occurred in the wake of the global economic recession of 1957-58.

Over the next couple of years, the Long Boom picked up steam as it was fueled—in addition to purely cyclical forces—by U.S. federal government deficits created by the escalation of the Vietnam War (called the American war by our good friends in Vietnam), further increased by a huge regressive tax cut signed by President Lyndon Johnson in 1964, backed up by the Federal Reserve Board’s then expansionary policies.

This was the heyday of Keynesian economics, and even many Marxists were inclined to see the Long Boom as the new norm of capitalism thanks to the increasing intervention in the economy of the capitalist state. The Johnson administration boasted that the U.S. economy was so strong that the government could follow policies that would provide both “guns and butter.”

Despite these “good times,” it was becoming obvious, even to bourgeois economists, that due to the growth of automation in industrial production, the rate of growth of traditional factory jobs, though still rising in absolute terms in both the imperialist and oppressed capitalist countries, would absorb only a small part of the coming generations of young workers. This was especially true in the United States and Britain, where long-term economic growth was much lower than in Western Europe and Japan. Many social scientists and other observers expressed fears that a permanent crisis of mass unemployment was inevitable.

With few exceptions, however, professional economists insisted there was no danger of a crisis of permanent mass unemployment caused by automation. What was really happening, they claimed, and had been claiming since concerns about the long-term effects of automation on employment first arose in the 1950s, was a shift from an industrial economy where most jobs were “blue collar” jobs in factories, mining, construction, and agriculture to a “post-industrial” economy where most jobs would be white-collar salaried office jobs.

Computerization and the automation linked to it, the economists insisted, was actually creating more jobs than it was destroying. As the role of computers grew dramatically in coming years, economists assured us, huge numbers of highly skilled white-collar workers would be needed to write the software programs that would run on all those computers.

As a result, the traditional blue-collar working class would fade away over the next few decades to be replaced by the highly paid “middle-class” white-collar workforce. Since salaried white-collar workers have little interest in unions, unions were becoming obsolete and had little future. These unfolding developments—along with the “boom” that many viewed as permanent due to government policies inspired by the work of British economist John Maynard Keynes—represented the final refutation of Marx, the economists explained to their university students.

Instead of Marx’s predictions of a society increasingly polarized between a relatively few, extremely rich capitalists, on one hand, and a great mass of low-wage blue-collar workers, on the other, the “free enterprise system” was allegedly evolving toward a society that would be made up overwhelmingly of a high-salaried “middle class” without the extremes of wealth and poverty that had marked the early days of capitalism.

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Big Challenges Facing Janet Yellen

February 23, 2014

Yellen testifies

Janet Yellen gave her first report to the House Financial Services Committee since she became chairperson of the Federal Reserve Board in January. In the wake of the 2008 panic, her predecessor Ben Bernanke had indicated that “the Fed” would keep the federal funds rate—the interest rate commercial banks in the U.S. charge one another for overnight loans—at near zero until the unemployment rate, as calculated by the U.S. Labor Department, fell to 6.5 percent from over 10 percent near the bottom of the crisis in 2009.

However, the Labor Department’s unemployment rate has fallen much faster than most economists expected and is now at “only” 6.6 percent. With the U.S. Labor Department reporting almost monthly declines, it is quite possible that the official unemployment rate will fall to or below 6.5 percent as early as next month’s report.

But there is a catch that the Fed is well aware of. The unexpectedly rapid fall in the official unemployment rate reflects the fact that millions of workers have given up looking for jobs. In effect, what began as a cyclical crisis of short-term mass unemployment has grown into a much more serious crisis of long-term unemployment. As far as the U.S. Labor Department is concerned, when it comes to calculating the unemployment rate these millions might just as well have vanished from the face of the earth.

In reality, the economic recovery from the 2007-09 “Great Recession” has been far weaker than the vast majority of economists had expected. Indeed, a strong case can be made that both in the U.S. and on a world scale—including imperialist countries, developing countries and the ex-socialist countries of the former Soviet Union and Eastern Europe, as well as oppressed countries still bearing the marks of their pre-capitalist past—the current recovery is the weakest in the history of capitalist industrial cycles.

The continued stagnation of the U.S. economy six and a half years since the outbreak of the last crisis has just been underlined by a series of weak reports on employment growth and industrial production. For example, according to the U.S. Federal Reserve Board, U.S. industrial production as a whole declined 0.3 percent in January, while manufacturing, the heart of industrial production, declined by 0.8 percent.

Yellen, as the serious-minded policymaker she undoubtedly is, is well aware of these facts. She told the House committee:”The unemployment rate is still well above levels that Federal Open Market Committee participants estimate is consistent with maximum sustainable employment. Those out of a job for more than six months continue to make up an unusually large fraction of the unemployed, and the number of people who are working part time but would prefer a full-time job remains very high.”

Over the last several months, the growth of employment, which serious economists consider far more meaningful than the the U.S. Labor Department’s “unemployment rate,” has been far below expectations.

Bad weather

Most Wall Street economists are sticking to the line that the recent string of weak figures on employment growth and industrial production reflect bad weather. The eastern U.S. has experienced extreme cold and frequent storms this winter, though the U.S. West has enjoyed unseasonable warmth and a lack of the usual Pacific storms, resulting in a serious drought in California. So it is possible that bad weather has put a kink in employment growth and industrial production.

But there is also concern—clearly shared by the new U.S. Fed chairperson, notwithstanding rosy capitalist optimism maintained by the cheerleaders that pass for economic writers of the Associated Press and Reuters—that the current global upswing in the industrial cycle has failed to gain anything like the momentum to be expected six years after the outbreak of the preceding crisis.

Two ruling-class approaches

This growing “secular stagnation”–lingering mass unemployment between recessions—has produced a growing split among capitalist economists and writers for the financial press. One school of thought is alarmed by continued high unemployment and underemployment. This school thinks that the government and Federal Reserve System—which, remember, functions not only as the central bank of the U.S. but also of the world under the current dollar-centered international monetary system—should continue to search for ways to improve the situation. Another school of thought, however, believes that all that has to be done is to declare the arrival of “full employment” and prosperity.

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The Fed Tapers as Yellen Prepares to Take Over, and the Unemployed Get Screwed Over

January 19, 2014

In what may be its last official action under Ben Bernanke’s leadership, the Federal Reserve announced in December that it would reduce its purchases of U.S. government bonds and mortgage-backed securities from $85 billion to $75 billion a month as of January 2014. This indicates that the Fed hopes to slow down the growth of the dollar monetary base during 2014 from the 39 percent that it grew in 2013.

Considering that before the 1970s the historical growth rates in the monetary base were 2 to 3 percent, and from the 1970s until the mid-2000s they were around 7 percent, a 39 percent rate of growth in the dollar monetary base is viewed by the Fed as unsustainable in the long run.

The bond market reacted to the announcement in the textbook way, with interest rates on the U.S. 10-year government bonds rising to around 3 percent. The last time interest rates on 10-year bonds were this high was just before the Fed put the U.S. housing market on “life support” in 2011.

It seems likely that the latest move was made to smooth the transition from the Bernanke Fed to the Yellen Fed. Janet Yellen, the newly appointed, and confirmed, chair of the Federal Reserve Board of Governors, is considered a “dove.” That is, she is inclined to follow more expansionary monetary policies than Bernanke in order to push the economy in the direction of “full employment.” As defined by bourgeois economists, this is the optimal level of unemployment from the viewpoint of the capitalists – not unemployed workers. With this move, the money capitalists are “assured” that the Fed will be slowing the rate of growth of the U.S. monetary base despite the new Fed chief’s “dovish” views, while relieving Yellen of having to make a “tightening move” as soon as she takes office.

The gold market, as would be expected, dropped back towards the lows of June 2013, falling below $1,200 an ounce at times, while the yield on the 10-year bond rose to cross the 3 percent level on some days. This reflects increased expectations on the part of money capitalists that the rate of growth in the U.S. dollar monetary base will be slowing from now until the end of the current industrial cycle.

Though the prospect of a slowing growth rate in the monetary base and rising long-term interest rates is bearish for the stock market, all things remaining equal, stocks reacted bullishly to the Fed announcement. The stock market was relieved that a stronger tightening move was not announced. The Fed combined its announcement of a reduction in its purchasing of bond and mortgage-backed securities with assurances that it would keep short-term interest rates near zero for several more years, raising hopes on Wall Street that the current extremely weak recovery will finally be able to gain momentum. As a result, the stock market is still looking forward to the expected cyclical boom.

Long-term unemployed get screwed over

On December 26, Congress approved a measure, incorporated into the U.S. budget, that ended unemployment extensions beyond the six months that unemployment benefits usually last in the U.S., which added to Wall Street’s holiday cheer. During recessions, Congress and the U.S. government generally agree to extended unemployment benefits but end the extension when economic recovery takes hold. It has been six years since the recession began – 60 percent of a normal industrial cycle – and the Republicans and the bosses agreed that it was high time to end the unemployment extensions.

Some Democrats dependent on workers’ votes have said that they are for a further extension of emergency unemployment benefits. President Obama claims to oppose the end of the extended benefits but signed the budget agreement all the same. The budget agreement as it stands basically says to the unemployed, it is now time to take any job at any wage you can find. If you still can’t find a job, tough luck.

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Change of Guard at the Fed, the Specter of ‘Secular Stagnation,’ and Some Questions of Monetary Theory

December 22, 2013

Ben Bernanke will not seek a third term as chairperson of the Federal Reserve Board of Governors – “the Fed.” President Obama has nominated, and the U.S. Senate is expected to formally approve, economist Janet Yellen as his successor. The Federal Reserve Board is a government body that controls the operation of the U.S Federal Reserve System.

“The Fed” lies at the heart of the U.S. central banking system, which under the dollar standard is in effect the central bank of the entire world.

A professional central banker

Janet Yellen is currently vice-chairperson of the Federal Reserve Board. She has also served as an economics professor at the University of California at Berkeley and chaired President Bill Clinton’s Council of Economic advisers. She headed the Federal Reserve Bank of San Francisco from 2004 to 2010, one of the 12 Federal Reserve Banks within the Federal Reserve System. If there is such a thing as a professional central banker, Yellen is it.

Yellen will be the first woman to serve as head of the Federal Reserve Board and will hold the most powerful position within the U.S. government ever held by a woman. Yellen’s appointment therefore reflects gains for women’s equality that have been made since the modern women’s liberation movement began around 1969.

Like other social movements that emerged out of the 1960s radicalization, the modern women’s liberation movement began on the radical left. The very name of the movement was inspired by the name of the main resistance organization fighting U.S. imperialism in Vietnam – the National Liberation Front. However, as a veteran bourgeois economist and a long-time major policymaker in the U.S. government, Yellen would not be expected to have much sympathy for the 20th-century revolutions and movements that made her appointment even a remote possibility.

Significantly, Yellen was appointed only after Lawrence Summers, considered like Yellen a major (bourgeois) economist and said to be the favorite of the Obama administration to succeed Bernanke, announced his withdrawal from contention. Summers became notorious when as president of Harvard University he expressed the opinion that women are not well represented in engineering and the sciences because of mental limitations rooted in biology.

Summers was obliged to resign as president of Harvard, and his anti-woman remarks undoubtedly played a role in his failure to win enough support to be appointed Fed chairman. In addition, Summers attacked the African American Professor Cornell West for his work on Black culture and his alleged “grade inflation,” causing West to leave Harvard. This hardly made Summers popular in the African American community. His nomination would therefore have produced serious strains in the Democratic Coalition, so Summers was obliged to withdraw.

Ben Bernanke like Yellen is considered a distinguished (bourgeois) economist. He had devoted his professional life to exploring the causes of the Great Depression, much like Yellen has. Essentially, Bernanke attempted to prove that the Depression was caused by faulty policies of the Federal Reserve System and the government, and not by contradictions inherent in capitalist production – such as, for example, periodic crises of overproduction. Bernanke denied that overproduction was the cause of the Depression.

Like Milton Friedman, Bernanke blamed the Depression on the failure of the Federal Reserve System to prevent a contraction of money and credit. Bernanke put the emphasis on credit, while Friedman put the emphasis on the money supply. Blaming crises on currency and credit, according to Marx, is the most shallow and superficial crisis theory of all.

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Michael Heinrich’s ‘New Reading’ of Marx—A Critique, Pt 4

September 29, 2013

Heinrich on crises—some background

A century ago, a discussion occurred in the Second International about the “disproportionate production” theory of crisis. This theory holds that crises arise because of disproportions between the various branches of industry, especially between what Marx called Department I, which produces the means of production, and Department II, which produces the means of personal consumption.

This led to speculation on the part of some Social Democrats that the growing cartelization of industry would be able to limit and eventually eliminate the crisis-breeding disproportions. This could, these Social Democrats speculated, give birth to a crisis-free capitalism, at least in theory. The revisionist wing of the International, led by such figures as Eduard Bernstein—the original revisionist—put its hopes in just such a development.

Assuming a rising organic composition of capital, Department I will grow faster than Department II. The Ukrainian economist and moderate socialist Mikhail Tugan-Baranovsky (1865-1919), who was influenced by Marxism, claimed there was no limit to the ability of capitalism to develop the productive forces as long as the proper relationship between Department I and Department II is maintained. The more capitalist industry grew and the organic composition of capital rose the more the industrial capitalists would be selling to their fellow industrial capitalists and relatively less “wage-goods” to the workers.

Tugan-Baranovsky held that capitalism would therefore never break down economically. Socialism, if it came at all, would have to come because it is a morally superior system, not because it is an economic necessity. This put Tugan-Baranovsky sharply at odds with the “world-view Marxists” of the time, who stressed that socialism would replace capitalism because socialism becomes an economic necessity once a certain level of economic development is reached.

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Bitcoins and Monetary Reform in the Digital Age

June 9, 2013

Recently, there has been a rising wave of interest in a new Internet-based currency called bitcoins. In one sense, bitcoins are the latest attempt to improve capitalism through monetary reform. But unlike other monetary reform schemes, bitcoins are very 21st century, based as they are on modern computer technology and the Internet.

According to Wikipedia: “Bitcoin (BTC) is a cryptocurrency first described in a 2008 paper by pseudonymous developer Satoshi Nakamoto, who called it a peer-to-peer, electronic cash system. Bitcoin creation and transfer is based on an open source cryptographic protocol and is not managed by any central authority. Each bitcoin is subdivided down to eight decimal places, forming 100 million smaller units called satoshis. Bitcoins can be transferred through a computer or smartphone without an intermediate financial institution.”

A short history of monetary reform before the Internet

One monetary reform that was popular among small farmers and small businesspeople in the late 19th-century U.S. was bimetallism. The bimetallists proposed that the U.S. dollar be defined in terms not only of gold but also of silver, at a fixed ratio of 16 to 1. Under this proposed reform, the silver dollar coin would weigh 16 times as much as the gold dollar coin.

The supporters of bimetallism argued that this would, by sharply increasing the money supply, increase demand and thereby raise the prices of agricultural commodities. The increased demand would, the supporters of bimetallism argued, put unemployed workers back to work. In this way, the bimetallists hoped to unite the interests of workers, small farmers and small businesspeople against the rising power of the Wall Street banks.

A basic flaw in this proposal was that while at one time the ratio of 16 to 1 more or less reflected the actual relative labor values of gold and silver bullion, by the late 19th century the value of silver was falling sharply relative to the value of gold. Given a choice of using either silver or gold coins at this ratio, people would have chosen to pay off their debts in cheap silver—which is why bimetallism was so popular among highly indebted small farmers and businesspeople—while using the cheap silver dollars to purchase and hoard the more valuable gold dollars. This effect is known as “Gresham’s Law,” named after the early British economist Sir Thomas Gresham (1519-1579).

Under Gresham’s Law, cheap silver dollars would have driven gold dollars out of circulation, leaving the silver dollar as the standard dollar. This would have had the effect of devaluing the U.S. dollar from the value of the gold dollar down to the value of the silver dollar. Fearing that supporters of bimetallism would win the upper hand in the U.S. government during the 1890s, foreign capitalist investors began to cash in their U.S. dollars for gold leading to a series of runs on the U.S. Treasury’s gold reserve as well as the gold reserves of U.S. commercial banks.

A wave of bank runs and an associated stock market crash that occurred in the northern hemisphere spring of 1893 has gone down in history as the “panic of 1893.” This panic was followed by a prolonged period of depression, mass unemployment and plunging commodity prices. This was the exact opposite of what supporters of bimetallism desired.

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Monetary crisis in Cyprus and the ghost of 1931

April 14, 2013

In recent weeks, a financial, banking-monetary and political crisis erupted on the small Mediterranean island country of Cyprus. Here I am interested in examining only one aspect of this complex crisis, the banking and monetary aspect.

The Cyprus banking crisis was largely caused by the fact that Cypriot banks invested heavily in Greek government bonds. Government bonds appeared to be a safe investment in a period of crisis-depression. But then these bonds fell sharply in value due to Greece’s partial default in 2012—the so-called “haircut” that the holders of Greek government bonds were forced to take in order to avoid a full-scale default. The Cyprus banking and financial crisis is therefore an extension of the Greek crisis. However, in Cyprus the banking crisis went one stage beyond what has occurred so far in either the U.S. or Europe.

The European Union, the European Central Bank and the IMF imposed an agreement on Cyprus that involved massive losses for the owners of large bank deposits, over 100,000 euros. Mass protests by workers in Cyprus forced the European Union and the European Central Bank to retreat from their original plans to have small depositors take losses as well.

Since the late 19th century, central banks, like the Bank of England, have gone out of their way when they wind up the affairs of failing banks to do so in ways that preserve the currency value of bank deposits for their owners. The officials charged with regulating the banks prefer instead to wipe out the stockholders and sometimes the bondholders.

Why are the central banks and other governmental regulatory organs—like the U.S. Federal Deposit Insurance Agency, which was created under the New Deal in hopes of avoiding bank runs in the United States—so eager to preserve the value of bank deposits, even at the expense of bank stockholders and bondholders?

The reason is that if the owners of deposits fear that they could lose their money, they will attempt to convert their deposits into hard cash all at once, causing a run on the banks. Under the present monetary system, “hard cash” is state-created legal-tender token money. Whenever depositors of a bank en mass attempt to convert their bank deposits into cash, the reserves of the banks are drained. Unless the “run” is quickly halted, the bank fails.

A bank facing a run in a last-ditch attempt to avoid failure calls in all loans it possibly can, sells off its assets such as government bonds in order to raise cash to meet its depositors’ demands, and halts additional loans to preserve cash. Therefore, if there is a general run on the banks, the result is a drying up of loan money capital, creating a massive contraction in demand. This causes commodities to pile up unsold in warehouses, which results in a sharp contraction of production and employment. Soaring unemployment can then lead to a severe social crisis.

This is exactly the situation that now confronts the people of Cyprus. University of Cyprus political scientist Antonis Ellinas, according to Menelaos Hadjicostis of CNBC and AP, “predicted that unemployment, currently at 15 percent, will ‘probably go through the roof’ over the next few years.” With official unemployment in Cyprus already at a Depression-level 15 percent, what will the unemployment rate be “when it goes through the roof”? Throughout the Eurozone as a whole, official unemployment now stands at 12 percent.

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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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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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