Archive for the ‘Quantitative Easing’ Category

Prospects for the Economy Under Trump

January 1, 2017

This article will come in two parts. This month, I examine policies of the Federal Reserve and Trump’s domestic policies. Next month, I will end this series with an examination of Trump’s global economic policies.

The Federal Reserve and Donald Trump

On December 14, 2016, the Federal Reserve Open Market Committee announced that it had finally decided to raise the federal funds rate—the rate that commercial banks, not the Fed itself, charge each other for overnight loans—by a quarter of one percent. Instead of targeting a rate of 0.25 to 0.50 percent like it did between December 2015 and December 2016, its new target is 0.50 to 0.75 percent.

Since Trump’s victory on November 8, long-term interest rates have risen sharply. This combined with the decision of the Fed to finally nudge up the fed funds rate indicates that the money market has tightened since Trump’s election. In the course of the industrial cycle, once the money market starts to tighten it is only a matter of time before recession arrives. The recession marks the end of one industrial cycle and the beginning of the next.

As it became increasingly likely that Trump could actually win the Republican nomination, the Fed put on hold its earlier plans to raise the fed funds rate multiple times in the course of 2016. The normal practice is for the Federal Reserve System to raise the fed funds rate repeatedly in the later stages of the industrial cycle. Indeed, this is central banking 101. These policies are designed to hold in check credit-fueled “over-trading” (overproduction), as well as stock market, land and primary-commodity speculation that can end in a crash with nasty consequences.

If the central bank resists raising interest rates too long by flooding the banking system with newly created currency, this leads sooner or later to a run on the currency, which is what happened in the 1970s. The result back then was stagflation and deep recessions with interest rates eventually rising into the double digits, which effectively wiped out the profit of enterprise—defined as the difference between the total profit and the rate of interest. At the end of the stagflation in the early 1980s came the explosion of credit, sometimes called “financialization,” the aftereffects of which are still with us today.

Under the present dollar-centered international monetary system, the repeated failure of the Federal Reserve System to push up interest rates would lead to the collapse of the U.S. dollar and the dollar system. The inevitable result would be a financial crash and thus the military and political crash of the U.S. world empire, which has held the capitalist world together since 1945.

In this cycle, however, the Federal Reserve waited more than eight years after the outbreak of the crisis in August 2007 before it began to push up the federal funds rate. The reason for the prolonged delay is that the current U.S. economic expansion, which began in 2009—representing the rising phase of the current industrial cycle—has been the slowest on record.

During this extraordinarily feeble expansion, the U.S. GDP has grown, with some fluctuations, at a rate of only about 2 percent a year. This performance contrasts sharply with the double-digit U.S. GDP rates of growth that occurred during the expansion of 1933-1937 and again after the severe but brief recession of 1937-1938 during the Great Depression. Far more than in the 1930s, the current era has been marked by “secular stagnation” in the U.S. as well as Europe and Japan.

Beginning with the panic that broke out with the failure of the giant Lehman Brothers investment bank in September 2008, the Federal Reserve engineered an explosion in the dollar-denominated monetary base designed to stave off a new super-crisis that could have been much worse than the one in 1929-1933. This effort succeeded in preventing the crisis from reaching the extremes the earlier super-crisis did in most countries—but not all. For example, the crisis/depression that began in the U.S. in 2007 has been far worse in Greece than the crisis of the 1930s was in that country. But even in countries where a full-scale repeat of the 1930s Depression was avoided, the post-crisis stagnation has been far more stubborn than anything seen in the 1930s.

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Can Trump Become the Next U.S. President?

March 27, 2016

In the “super-Tuesday” primaries held March 15, Donald Trump solidified his lead in the struggle for the Republican nomination for the U.S. presidency. He knocked right-wing Republican Senator Marco Rubio of Florida out of the race.

Rubio had been considered one the best hopes of the pro-Wall Street establishment Republicans in their increasingly desperate struggle to stop Trump. The only bright spot for the Republican leadership was that John Kasich, the establishment Republican governor of rust-belt state Ohio defeated Trump in that state’s primary.

However, Kasich has few delegates pledged to him. In normal circumstances, that would mean that he would have virtually no chance of winning the nomination for the presidency. He would simply be a “favorite son” candidate who would be expected to release his delegates to vote for the eventual winner. At most, Kasich might hope to win the vice-presidential nomination.

The super-Tuesday results barely keep alive the hopes of the Republican leadership that Trump might still be denied enough delegates to clinch the nomination before the Republican convention to be held this coming July in Cleveland, Ohio. If this proves to be the case, there remains the possibility a majority of delegates might be scraped together to nominate a more traditional Republican for president, but who that might be is anybody’s guess at this point.

The only other Republican besides Trump and Kasich still officially in the race is Texas Senator Ted Cruz. Cruz mixes extreme “neo-liberal” economics with an appeal to the religious fanaticism of the so-called Christian Right. His colleagues in Republican Party leading circles consider him personally obnoxious. They also fear that he is likely to lose big time in November to the presumed Democratic nominee, Wall Street darling Hillary Clinton, due to his neo-liberalism combined with his support of extreme sectarian Protestant Christian religious fundamentalism.

While it is possible that Trump has considerable support among the coupon clippers in the country club locker rooms—I don’t know, since I don’t personally move in these circles—serious political strategists of the U.S. ruling class, whether Democrat or Republican—what Marx called the “political bourgeoisie“—consider Trump completely unqualified to assume the U.S. presidency. This is not because they doubt Trump’s loyalty to the capitalist system. On the contrary, Trump is a multi-billionaire and therefore has a personal stake in the survival of capitalism greater than all but a handful of his fellow billionaires.

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Germany and the U.S. Empire (Pt. 4)

January 3, 2016

Right-wing election victories, the U.S. Federal Reserve System and the ghost of Adolf Hitler

Over the last few months, there have been a wave of alarming electoral gains by right-wing and far-right parties in a series of countries. These countries are as different as Argentina, Venezuela, Poland and France. In the United States, the racist, anti-immigrant, Islamophobic billionaire real-estate magnate and demagogue Donald Trump has emerged in the polls as the favorite candidate among Republican voters.

Not all recent elections have seen gains only by right-wing candidates. Forces on the left have won victories as well. Among these was the victory of the veteran left-wing anti-war activist Jeremy Corbyn, leader of Great Britain’s traditionally very pro-imperialist Labour Party. Parties of the left have won a majority in the recent elections in Portugal as well.

In the U.S., too, where it has been extremely weak if not altogether absent in electoral politics, the left has made inroads. In the Democratic Party, the “socialist” candidate Bernie Sanders is drawing the largest crowds. He is the first avowed “socialist” to stand any chance—even if still a long shot at this point—of actually winning the presidency in U.S. history. Nothing like this has ever occurred in U.S. politics, even during the Depression. U.S. politics is therefore not so much moving toward the right as becoming polarized between an increasingly extreme right and an emerging mass “socialist”—though not yet in the Marxist sense of the word—left.

Later in the new year, I will take a closer look at the evolution of U.S. politics that features both the rise of the Sanders “socialist” left and the Donald Trump far right in light of the long-term social and economic trends reshaping U.S. society and beginning to transform its politics.

Similar trends of gains by both the right and the left are visible in other countries as well. In the elections that have just been held in Spain, new parties of the left and the right made gains at the expense of the parties that have dominated post-Franco Spain.

So all is not doom and gloom on the electoral front for the left. But since this post examines the rise of Adolf Hitler to power in Germany during the 1930s Depression, and since we must know our enemies, I want to take a brief look at victories of parties that operate on the right wing of bourgeois politics and see if there is any common denominator that explains their wave of electoral victories.

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Germany and the U.S. Empire (Pt. 1)

October 11, 2015

The Volkswagen scandal

It has recently been revealed that the Volkswagen Corporation, the world’s largest automobile producer in terms of revenue in 2014, had installed software in its diesel vehicles designed to circumvent U.S. emissions standards.

Motor vehicles of all types are increasingly controlled by computer software. Volkswagen engineers wrote subroutines in Volkswagen’s control software able to detect whether the vehicle was going through an emissions test or was in normal operation. If the software detected a test situation, the engines would strictly comply with the U.S. government’s Environmental Projection Agency guidelines and the vehicle would pass the test with flying colors. If the software determined the vehicle was in normal operation, the emissions restrictions would be ignored. In this way, buyers of the vehicle could enjoy the benefits of a more powerful vehicle apparently complying with the U.S. government’s emission standards while in practice ignoring them.

This was not a question of some accidental damage done by dangerous cost-cutting that is so common throughout capitalist production. The subroutines were not written “by mistake.” Even more than is the case in the U.S., the automotive industry is important for Germany’s industry-centered, export-oriented economy. Unlike the U.S. and Britain, Germany has largely avoided the process of “de-industrialization.” German automobiles are considered among the best in the world. The scandal is therefore a major blow not only to Volkswagen but to the German economy as a whole.

However, what is a loss for Germany is a boon for Germany’s competitors. If the Volkswagen “brand name” should be discredited, or if Volkswagen is forced to reduce its research and development expenditures on the next generation of automobiles because it has to pay costly fines, it could be permanently damaged. In the worst case, it might even go out of business. Rival automobile manufacturers, both present and aspiring ones, including those headquartered in Detroit—and Silicon Valley—are among those who would happily fill the market space vacated by Volkswagen’s demise.

What was the motive of the EPA, an arm of the U.S. government? As far as I know—and I won’t make any allegations I cannot prove—it was the best. Perhaps it wanted to protect the environment from the effects of releasing nitrous oxide, which causes acid rain, threatening countless lifeforms, both plant and animal, on the land and in the sea. Still, an attack on Germany’s export-oriented auto industry, whatever the motive, has the objective effect of undermining Germany’s economy as a whole. And it is also quite in line with Silicon Valley’s plans to invade the auto industry.

Above all, it is quite in accordance with the nature of competition between capitalist nation-states. An important function of a capitalist nation-state is to put its own capitalists in the best possible position relative to rivals headquartered in rival nation-states. A little less than 70 years ago—within the lifetime of many people still living—the efforts of the U.S. to curb Germany’s competitive threat to U.S. industry took the form of open shooting warfare that ended with the U.S. invasion and occupation of Germany. That occupation has never really ended.

Is it possible the U.S. government is using selective enforcement of the law to curb the same economic threat today? In order to explore this question, we should first start with the policies of the U.S. government that made Volkswagen’s crime possible in the first place.

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Capitalist Economists Debate ‘Secular Stagnation’ (Pt 4)

August 16, 2015

How gold production drives expansion of the market

Here I assume that gold bullion serves as money material unless I indicate otherwise.

In a previous post, I indicated that there cannot be an overproduction of gold in its role as money material. This has been more or less the received view among Marxist writers over the years.

However, in thinking about this question more carefully I think my earlier post was incorrect on this point. I was correct in stating that from the viewpoint of capitalists as a whole there cannot be “too much” gold as far as the realization of value of (non-gold) commodities is concerned. The more gold there is relative to the quantity of other commodities, everything else remaining equal, the easier it will be for industrial and commercial capitalists to sell their commodities at their prices of production and thus realize the surplus value contained in them in the form of profit.

But what is true for the non-gold producing capitalists is not true for the gold producing capitalists. Indeed, from the viewpoint of an individual industrial capitalist there can never be too much of the commodities produced by their suppliers. As a productive consumer, industrial capitalist A can hope for nothing better than that supplier industrial capitalist B overproduces as much as possible. When B overproduces, all other things remaining equal, A gets to pocket some of the surplus value contained in B’s commodities. But from B’s point of view, the overproduction of B’s commodity is an absolute disaster.

True, the (non)gold producing capitalists do not consume gold, insomuch as gold serves as money material as opposed to raw material. But it is absolutely essential for them that gold is produced in adequate quantities if the value, including the surplus value, contained in their commodities is to be realized.

Even if gold bullion played no role whatsoever as raw material, a certain level of gold production would still be necessary for capitalist expanded reproduction to proceed. And capitalism can only exist as expanded reproduction.

How much gold capitalism needs—with the development of the credit system, banking, clearing houses, and so on being given—depends on the level and vigor of expanded reproduction at a particular time. The greater the possibilities of exploiting wage labor and the higher the rate of surplus value and the potential rate of profit in value terms, the higher the level of gold production must be if the process of expanded capitalist production is to proceed unchecked.

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Capitalist Economists Debate ‘Secular Stagnation’ (Pt 3)

July 19, 2015

Secular stagnation and the Greek crisis

Many on the left have expressed acute disappointment that the Syriza government has agreed to accept more “austerity” in the wake of the No! vote of the Greek people. We must remember that the Syriza government is not a revolutionary socialist government—a dictatorship of the proletariat—and a socialist revolution is not, or rather is not yet, unfolding in Greece or anywhere else in Europe at the moment. The logic of the class struggle does point in the direction of a European socialist revolution, but we are not yet there. This blog will not attempt to lay out strategy and tactics for Greek revolutionaries during the present acute crisis.

Instead, I am interested in another question: Why is the “troika” so unreasonable in its dealings with the Syriza government? The government leaders have made it clear that they are determined to remain within the European Union and the Eurozone. Their program has always been quite modest—an end to the relentless austerity that has led to a depression worse in terms of both the unemployment rate and duration than the early 1930s super-crisis was in the United States or in Germany.

The super-crisis proper of the early 1930s lasted “only” three and a half years in the U.S. and Germany. The Greek crisis has lasted six years. A brief rise in the Greek GDP late last year had already given way to renewed recession before the crisis that shut down the Greek banking system for two weeks. The agreement between Syriza and the troika for still more austerity in exchange for loans that will enable the gradual reopening of the Greek banks threatens to further prolong the Greek slump.

It has been almost 50 years since the May-June 1968 General Strike in France. The French government of the day, headed by General Charles de Gaulle, largely conceded the economic demands of the strikers in order for the ruling class to hold on to power. The French government was prepared to do this through civil war if necessary. De Gaulle’s willingness to wage civil war to uphold capitalist rule combined with a willingness to make concessions in the economic sphere prevented a prolonged social and political crisis in France in 1968 of the type that is now unfolding in Greece. Why isn’t the troika, the de Gaulle of today, following the same policy for Greece that worked so well for de Gaulle and the French capitalists in 1968?

Last week, in a special post on Greece, I explained that behind the hard-line policies pursued by the troika lies the current “tightening” phase of the U.S. Federal Reserve Board monetary policy. This tightening phase is, in turn, rooted in the extraordinary policy of “quantitative easing” that the Fed followed in response to the near collapse of the U.S. banking system in the fall of 2008. But they could not continue this policy indefinitely without incurring a fatal crisis of the dollar system sooner or later.

As the quantity of U.S, dollars has begun to grow relatively more scarce than in the years of quantitative easing, there have been a few shocks—for example, the recent Chinese stock market panic. But for now, the crisis in Greece is the most dramatic. So in order to understand the deep roots of the Greek crisis and the troika response to it, we have to understand the causes of the crisis of 2008 and the quantitative easing it led to. The “Great Recession” itself was embedded in a more chronic problem of prolonged slowing economic growth that economist Larry Summers calls “secular stagnation.”

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Capitalist Economists Debate ‘Secular Stagnation’

May 24, 2015

A debate has broken out between economist Larry Summers (1954- ), who fears that the U.S. and world capitalist economies are stuck in an era of “secular stagnation” with no end in sight, and blogger Ben Bernanke (1953- ). Blogger Bernanke is, no less, the Ben Bernanke who headed the U.S. Federal Reserve Board between 2006 and 2014. Bernanke claims that the U.S. and world economies are simply dealing with lingering aftereffects of the 2007-2009 “Great Recession,” which broke out while he was head of the Federal Reserve System.

In effect, Bernanke is saying that there is nothing fundamentally wrong with capitalism and that healthy growth and “low unemployment and inflation” will return once the lingering aftereffects of the crisis are fully shaken off. Bernanke is, however, alarmed by the rapid growth of German exports and the growing share of the world market going to German industry.

Last year, we “celebrated” the 100th anniversary of the outbreak of World War I. Bernanke’s concerns show that the economic fault lines that led to both World War I and II have not disappeared. Instead, they have been joined by new ones as more countries have become industrialized. And the prolonged period of slow growth—and in some countries virtually no growth—that has followed the Great Recession is once again sharpening them. Competition both among individual capitalists and between capitalist countries is much sharper when world markets are growing slowly. World War I itself broke out when the early 20th-century “boom” was running out of steam, while World War II broke out after a decade of the Depression.

The debate between Summers and Bernanke on secular stagnation has been joined by other eminent U.S. economists such as Joseph Stiglitz (1943- ) and Brad DeLong (1960- ). Summers, Stiglitz and DeLong are Keynesian-leaning economists, while Bernanke, a Republican, leans more in the direction of “neoliberalism,” though like most U.S. policymakers, he is thoroughly pragmatic.

The debate began with Summers’ speech to the IMF’s Fourteenth Annual Research Conference in Honor of Stanley Fisher. Summers noted that the panic of 2008 was “an event that in the fall of 2008 and winter of 2009 … appeared, by most of the statistics—GDP, industrial production, employment, world trade, the stock market—worse than the fall of 1929 and the winter of 1930. …”

At the very least, this was a major defeat for “stabilization policies” that were supposed to iron out the capitalist industrial cycle and abolish panics. But the problem extends far beyond the 2008 panic itself.

“… in the four years since financial normalization,” Summers observed, “the share of adults who are working has not increased at all and GDP has fallen further and further behind potential, as we would have defined it in the fall of 2009.”

The highly misleading unemployment rate calculated by the U.S. Department of Labor notwithstanding, there has been a massive growth in long-term unemployment in the U.S. in the wake of the crisis, as shown by the declining percentage of the U.S. population actually working.

In the days before the “Keynesian revolution” in the 1930s, the “classical” neoclassical marginalist economists, whose theories still form the bedrock of the economics taught in U.S. universities, were willing to concede that some “outside shock” to the economic system (for example, a major policy blunder by the central bank or a major harvest failure) might occasionally create a severe recession and considerable amount of “involuntary unemployment.” But these learned economists insisted that since a “free market economy” naturally tends toward an equilibrium with full employment of both workers and machines, the capitalist system should quickly return to “full employment” if a severe recession occurs.

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Russia, Oil, the ‘Strong Dollar’ and the Economic Conjuncture

January 11, 2015

A major feature of the current global economic conjuncture is the financial-economic crisis that has hit Russia.

On Dec. 16, 2014, the central bank of the Russian Federation raised its benchmark interest rate to 17 percent from 10.5 percent. This is a far cry from the zero to .25 percent the U.S. Federal Reserve System maintains for its key interest rate, the federal funds rate. During 2014, the Russian ruble fell 45 percent against the U.S. dollar, while the Russian central bank sold some $80 billion of its foreign reserves in an attempt to halt the fall.

By raising its benchmark interest rate to 17 percent, the Russian central bank hopes to stem the bleeding of its reserves while checking the ruble’s decline. The catch is that such a dramatic and sudden rise in interest rates is almost certain to plunge the Russian economy into recession in 2015, with rising unemployment. As demand contracts within the home market, Russian businesses will be forced to sell more of their national production on the world market and import less of the production of other countries, causing a decline in Russia’s standard of living. Eventually, the balance of trade will swing back in Russia’s favor but on the backs of the Russian working class and other Russian working people.

The current financial-economic crisis in Russia is made worse by the sanctions the U.S. and its West European satellites have imposed on Russia. These sanctions are in response to Russia’s defensive move in the Crimean Peninsula. Responding to widespread demands within Crimea in the wake of the seizure of power by far-right anti-Russian forces in Kiev in February 2014, Russia agreed to allow Crimea to rejoin the Russia Federation. The crisis in Ukraine, which at times reached the level of civil war during 2014, resulted from the U.S.-supported neo-liberal/fascist coup after months of right-wing demonstrations in Kiev.

The coup government has severely restricted civil liberties in Ukraine, forcing Ukrainian working-class parties underground while re-orienting the Ukrainian economy towards Western Europe. In addition, Ukraine has all but in name joined NATO, the main military wing of the U.S. imperialist world empire. Kiev hopes to make its NATO membership official at the earliest possible date.

Rising tension between the U.S. empire and Russia

The move by the U.S. empire to draw Ukraine into its military and economic domain has increased tension between Russia and the U.S. to its highest level since the restoration of capitalism in Russia a quarter of a century ago.

The imperialist media and certain people on the left have pictured present-day Russia as a virtual “second coming” of Nazi Germany. Russia, it is claimed, attacked Ukraine without provocation. As a result, a resurgent Russia is now threatening virtually all the countries of eastern and central Europe and ultimately “the West” itself. Unless something is done to check Putin’s “aggression,” it is claimed by imperialist propagandists, there is a danger of all of Europe falling under the Kremlin’s domination.

Other people on the left have drawn a quite different conclusion. They argue that far from a resurgent Russian imperialism, the U.S. and its European satellites have launched a new “cold war” against Russia.

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World War I—Its Causes and Consequences (Pt 4)

October 19, 2014

Could it happen again?

This August marked the 100th anniversary of the outbreak of World War I. Could it happen again? Before exploring this question, I should review how the world has changed since those European summer days of a century ago.

I have already examined in this blog the changes in imperialism—the underlying cause of the “Great War”—over the last hundred years. But before I explore the question of whether something like the Great War could happen again, I should briefly summarize these changes.

The main powers in Europe

At the start of 1914, there were a number of independent imperialist “powers,” as they were called, that were in economic, political and, as events were soon to demonstrate, military competition with one another. In Europe, the main powers were Britain, Germany, France, Russia and Austria.

Britain had been for the preceding century—since the defeat of Napoleon—the most powerful country in the world. Britain’s military power was largely naval. As the British chauvinists put it, Britannia ruled the waves. It was naval power that held the English empire—“where the sun never set”—together. In turn, British naval power was made possible by its highly advanced—for the time—industry.

France, which had been Britain’s primary rival in the world war that followed the French Revolution, was a significant imperialist power in its own right. It had a large empire in Africa, Indochina and elsewhere. Its industrialization, however, had always lagged behind that of Great Britain.

As a result, large amounts of idle money capital tended to pile up in France compared to the situation in the more dynamic capitalist countries. Since the French capitalists converted a relatively smaller amount of their money capital into industrial capital, a relatively larger amount was converted into loan capital—finance capital. Much of this capital was loaned abroad, especially in Russia.

By the beginning of the 20th century, however, France was no longer Britain’s most important rival within Europe. Germany, due to its rapid industrialization, had replaced France in that role. In Germany, capitalist production based on the latest technology was developing fast. Because its industrialization had come later than Britain or France’s—Germany wasn’t even unified as a country until the 1870s—Germany had relatively few colonies.

However, unlike the case in France and increasingly Britain, the German capitalists tended to quickly convert the money capital that passed through their hands into productive capital—both constant and variable. Therefore, finance capital developed somewhat differently in Germany than it did in Britain and France. In Germany, there was a need to mobilize every spare penny and place it in the hands of the industrial capitalists. As a result, Germany’s banking system was ultra-modern, with both commercial and investment banking centralized in a small number of huge “universal banks.”

This stood in contrast to the older British and to a large extent even the U.S. pattern, where commercial and investment banking were conducted by separate companies. The biggest of the German universal banks was the Deutsch Bank, which remains to this day Germany’s most powerful bank.

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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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