Posts Tagged ‘central banker Ben Bernanke’

Some Observations on the Democratic and Republican Conventions

August 12, 2016

These observations are not meant to be exhaustive. To write an exhaustive analysis of the just-held conventions of the two ruling parties of U.S. capitalism would take up far too much space and take us too far afield from the main subject of the blog, the theory of capitalist crises. In this post, however, I will make some observations on how the economic decline of U.S. capitalism was reflected in the recently held conventions and provide some historical perspective.

Donald Trump becomes official GOP nominee

There were last-ditch attempts by anti-Trump neo-liberal right-wingers to deny Trump the nomination by freeing up the Republican delegates so they could “vote their conscience” and nominate a more acceptable—to Wall Street—Republican. Among those widely mentioned as alternatives were the union-busting Wisconsin Governor Scott Walker and Tea Party supporter Senator Ted Cruz of Texas. But pro-Trump forces handily defeated the “anybody but Trump” movement at the convention, and the New York billionaire racist and reality TV star was duly nominated to run for president of the United States.

Trump chose as his running mate Indiana Governor and Tea Party darling John Pence. This was seen as a gesture to the more traditional neo-liberal right wing of the party. The Tea Party faction strongly supports neo-liberal economics and is thus far more acceptable to Wall Street than is Trump with his pseudo-populist and protectionist demagoguery. The high point—if it can be called that—of the Republican convention was when Senator Ted Cruz addressed the convention delegates but failed to endorse Trump. When it became clear that Cruz was not going to endorse Trump, he was loudly booed.

Media polls taken after the Republican convention showed Trump for the first time with a modest but very real lead over Hillary Clinton. Though it is normal for the Republican and Democratic candidates to have a lead right after their respective conventions, Trump has been increasingly ridiculed in the media ever since it became likely that he would be the Republican nominee. After the Democratic convention, new polls showed Clinton had regained the lead, which indeed is in line with the normal pattern. But Clinton’s lead is not a commanding one, despite the non-stop and escalating anti-Trump propaganda campaign in the media.

One of the reasons Trump is doing as well as he is, despite the opposition of the traditional media, is his use of social media, especially Twitter. The polls show that a Trump upset victory is not yet beyond the range of possibility in November, especially if new scandals hit Hillary Clinton or there is a surprise financial crisis and recession.

As a result, the media campaign against Trump escalated, with articles appearing that suggest that Trump may actually be clinically insane. This goes far beyond the normal mudslinging that occurs during U.S. presidential elections. The Washington Post, one of the leading organs of U.S. imperialism, even ran a special editorial declaring that Trump is a threat to the republic and completely unacceptable as U.S. president.

Cruz is not the only leading Republican to refuse to endorse Trump. A significant section of the Republican leadership has as well, including both George Bush senior and junior. The failure of two ex-President Bushes to endorse Trump, considering the realities of the U.S. two-party system, is in effect a backhanded endorsement of his Democratic opponent, Hillary Clinton. The Koch brothers’ family of industrial capitalists, staunch Republicans with extreme right-wing neo-liberal views, have also refused to endorse Trump. This also amounts to a backhanded endorsement of Clinton.

The former billionaire Republican Mayor of New York Michael Bloomberg, who owns Bloomberg News, which covers the stock market and other financial markets, has not only endorsed Hillary Clinton but went so far as to speak at the Democratic convention. Even the ghosts of ultra-right Senator Barry Goldwater and Ronald Reagan were summoned up from the nether world to denounce Trump. Both Goldwater’s widow and Ronald Reagan’s son claimed that neither Goldwater nor Reagan would have supported Trump if they were alive.

The Democratic convention that officially nominated Hillary Clinton was held appropriately in a hall named after the giant Wells Fargo Bank, one of the most powerful banks in the U.S. Considering the large numbers of Republicans who are either openly endorsing her or giving her bi-partisan support if she wins in November, Clinton will not only be the first female president—itself a sign of social progress—but the most “bipartisan president” since George Washington.

It was also revealed just before the convention that William Kristol and George Wills, major Republican intellectuals, have dropped their registration in the Republican Party and have re-registered “independent.” This indicates that these major figures, not themselves “electoral politicians” but rather “opinion makers” and right-wing political thinkers for the U.S. ruling class, foresee a major reshuffling of the two-party system in the very near future. They are keeping their options open on which party they will identify with in coming years. Will they return to a “post-Trump” Republican Party, become supporters of the Democratic Party, or participate in creating a new right-wing party based on the neo-liberal” principles so dear to them?

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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 2)

June 21, 2015

Recently, I have been looking at Thomas Piketty’s book “Capital in the Twenty-First Century.” Piketty, a French bourgeois economist, created a sensation by pointing out that over the last 45 years a growing proportion of national income—wages plus surplus value in Marxist terms—has been going to profit at the expense of wages. Piketty is alarmed that if this trend isn’t reversed capitalism will be seriously destabilized.

The title of his book is, of course, inspired by Marx’s great work “Capital,” though it predictably rejects Marx’s anti-capitalist revolutionary conclusions. Naturally, I was interested in what Piketty had to say about Marx.

What I found striking was that Piketty did not understand Marx at all. The reason is that he views Marx through marginalist lenses. Essentially, Piketty treats Marx as a fellow marginalist. Marx’s theory of value and surplus value, so completely at odds with the marginalist theory of value and surplus value, is literally beyond Piketty’s comprehension.

In examining the current debate about “secular stagnation” among economists like Larry Summers and Ben Bernanke, we must never forget how deep the gulf between their economic theories and Marxism really is. This is true even when their terminology is similar. This month, I will contrast the theories of two economists of the 20th century, Joseph Schumpeter and John Maynard Keynes, regarding capitalist growth and stagnation. Both men were marginalists, even if not the most “orthodox” ones, and therefore had much more in common with each other than with Marx.

Next month, I will begin to contrast their views with Marx and the views I have been developing in this blog. (1) But before we reach the “Marxist mountains” we will have to slog through the plains of modern bourgeois economics. Only when we begin to ascend into the Marxist mountains will we be able to explore whether any of the ideas of Schumpeter can be integrated into Marxism. I have already dealt with Keynes quite extensively in this blog. (See, for example, six-part series beginning here.)

Joseph Schumpeter (1883-1950) was the most famous marginalist economist to deal with the question of technological changes, or “innovation,” under capitalism. Schumpeter was an Austrian economist in the sense he came from Austria, though he spent his last years in the United States as a professor at Harvard University. He was certainly influenced by the “Austrian economists” as well as other schools of post-classical bourgeois economics current in his day. Like the Austrian economists proper, Schumpeter preferred to communicate his ideas in natural language as opposed to mathematics.

Also like the Austrians, he was a hardcore supporter of capitalism, disliked “socialism”—proposals to reform capitalism in the interest of the workers—and was an opponent of the “Keynesian revolution” in bourgeois economic theory of the 1930s. He was what would be called today a “neo-liberal.” Like the Austrian economists proper, Schumpeter took a dim view of democracy, which he was convinced would inevitably lead to socialism. Yet he was a friend of Paul Sweezy and therefore had a certain influence on the Monthly Review school.

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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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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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