Posts Tagged ‘unemployment’

The Crisis (Pt 3)

May 3, 2020

The king of commodities

On April 20 (2020), the May futures contract for the delivery of oil fell to a negative $37 per barrel. Since the 1970s, some have suggested that oil has replaced gold as the money commodity, reflected in the term petrodollars. We can now see that this idea is based on a misunderstanding. Oil as the commodity that stores energy as well as serving as a raw material is perhaps the king of commodities as far as its use value is concerned. However, this doesn’t mean that oil is the money commodity, which in terms of its use value measures the value of all other commodities.

What would happen if global production and circulation suddenly became paralyzed? We are now finding out. With production and transportation sharply curtailed around the globe, what is the use value of oil now? Marx explained in Chapter 3, Volume I of “Capital”: “Whenever there is a general and extensive disturbance of this mechanism [credit — SW], no matter what its cause, money becomes suddenly and immediately transformed, from its merely ideal shape of money of account, into hard cash. Profane commodities [such as oil — SW] can no longer replace it. The use-value of commodities becomes valueless, and their value vanishes in the presence of its own independent form. On the eve of the crisis, the bourgeois, with the self-sufficiency that springs from intoxicating prosperity, declares money to be a vain imagination. Commodities alone are money.”

Since oil has storage costs, the owners of May 2020 oil futures contracts were for a day willing to pay buyers to take it off their hands to free themselves of those costs. This shows that not oil but money is the king of commodities. In the words of Marx, the value of oil has vanished in the presence of its independent value form. Even Trump’s move to buy all the oil that the U.S. government can physically store has not prevented the oil price collapse.

When the value of a commodity as important as oil vanishes — though it isn’t only oil that is being affected — in the presence of its own value form, the credit system is thrown into crisis. Credit is based on the assumption of a given price structure. When commodities become unsalable or at least unsalable at the expected price, the credit system begins to break at a thousand and one places. For example, banks lend money to oil companies. If the oil companies can’t sell their oil at profitable prices, they will not be able to pay the banks. How will the banks pay their creditors, which include their depositors? And what about the pension funds loaded up with oil and bank stocks?

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The Crisis (Pt 1)

April 19, 2020

A personal note

In February, I was hit by a staph infection that had spread to the blood. This was the first serious illness of my adult life. Before this infection, I had been free of any illness more serious than the occasional cold or seasonal flu. I was really knocked off my feet and had to be hospitalized.

This was no fun. But no evil is without positive features. I got to see the medical system for the first time in my adult life from the inside. At least here on the West Coast, the medical system is staffed by a mix of many nationalities with a bias toward the Far East — the very group that President Trump with his racist attacks on the “Chinese virus” has made a target of his demagoguery. I was served by medical workers from France, the People’s Republic of China, Vietnam, the Philippines, and other nations.

Then as fate would have it in one those bizarre coincidences that life occasionally brings, the whole world was swept by the ghastly COVID-19 pandemic. Financial markets crashed and then much of the global economy was shut down including industrial production and world trade. Most importantly, employment entered a downward spiral. More than 10 million people in the U.S. have been forced to apply for unemployment insurance within two weeks, implying double-digit Depression levels of unemployment.

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Political and Economic Crises (Pt 8)

June 23, 2019

Trade war intensifies as U.S. and world economy slows

The last month has been characterized by a major escalation of the trade war with the People’s Republic of China. In another important but largely overlooked development, Trump also increased tariffs on imports from India, opening yet another front in the expanding trade war.

Trump threatened but did not impose tariffs on imports from Mexico if the Mexican government did not curb the flow of Central American immigrants through its territory to the U.S. This allowed Trump to “energize” members of his racist base concerned that the U.S. is ceasing to be a “white country.” The moves against Mexico illustrate the current phase of imperialism, and I will examine the Mexican situation more closely next month.

All this has occurred against the backdrop of a global economic slowdown. “Sales of new U.S. single-family homes,” Reuters reported, “fell from near an 11-1/2-year high in April as prices rebounded and manufacturing activity hit its lowest level in almost a decade in May, suggesting a sharp slowdown in economic growth was underway.”

This confirms what I wrote last month about the inventory buildup that helped boost the annualized GDP rate of growth to 3.2 percent, signaling a slowing, not accelerating, U.S. economy. The White House and much of the media — especially in the headlines — gave the misleading impression that the GDP report indicated that the U.S. economy was accelerating and the recession danger was fading away.

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Political and Economic Crises (Pt 4)

February 24, 2019

Trump and ‘Party of Order’ unite to declare war on Bolivarian Venezuela

On Jan. 23, after conferring with U.S. Vice President Mike Pence, Venezuelan right-wing politician Juan Guaidó declared himself “interim president” of Venezuela. The United States promptly recognized Guaidó as the “interim president.” Trump refused to rule out a military attack against Venezuela if the government of President Nicolas Maduro and the Venezuelan people resist the U.S. government’s appointment.

In a series of moves that included breaking diplomatic relations with the legitimate government, appointing a puppet government in its place, seizing state assets and handing them over to the puppet government, demanding that Venezuela’s military support the puppet, and threatening direct military action if the Venezuelan military refuses, “commander-in-chief” Donald Trump’s order amounts to a declaration of war against the government and people of oil-rich Venezuela.

As part of the war drive, Trump imposed a full-scale economic blockade against Venezuela. The assets of the state oil company held abroad, including its U.S branch Citgo, has been seized and handed over to the puppet Guaidó “government.” Venezuelan bank accounts have been frozen, including $1.2 billion in gold bullion held in the Bank of England.

Venezuela is one of a bloc of three large oil-producing countries, the other two being Iran and Russia, that is not under the control of the Empire. If Trump succeeds in his war against Venezuela, the pressure on Iran and Russia will increase. For the moment, the war against Venezuela is being fought with economic methods, but this could change at any moment.

Even if the war remains economic, this doesn’t change the fact that it is a war of aggression and, as such, a crime against humanity. By Feb. 6, the European countries of Austria, Belgium, Croatia, Czech Republic, Denmark, Estonia, Finland, France, Germany, Iceland, Latvia, Lithuania, Luxembourg, Macedonia, Netherlands, Poland, Portugal, Spain, Sweden, and the UK had recognized the U.S.-appointed “interim president.”

Latin American countries that resist the Empire continue to recognize the legal government of Venezuela. These include socialist Cuba – no surprise there – Bolivia Uruguay, Nicaragua, and the new nationalist government of Mexico, which came to power in January after many years of right-wing rule. On the other hand, Latin American countries ruled by right-wing governments belonging to the so-called Lima group announced that they recognize the Trump-appointed Guaidó as Venezuela’s “interim president.” Among the Latin American governments recognizing Guaidó is the new far-right government of President Jair Bolsonaro in Brazil.

Beyond Latin America, Israel also announced its support for the coup government. In contrast, Syria continues to recognize the Maduro government. Russia, China and Iran also continue to recognize Maduro as the sole legitimate president of Venezuela.

There is a general pattern here. Governments that are integrated into the U.S. empire quickly recognized the coup government and joined the U.S. declaration of war against Venezuela. All other governments recognize Maduro as head of the only legitimate government of Venezuela.

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The Current U.S. Economic Boom in Historical Perspective (Pt 2)

May 6, 2018

Trump’s attempts to reverse the decline of U.S. capitalism

In April 2018, the U.S. political world was shaken by the news that Paul Ryan, the Ayn Rand/Austrian school-inspired Republican speaker of the U.S. House of Representatives, would not be running for re-election in this year’s mid-term race. Ryan claimed he was retiring at the age of 48 from politics “to spend more time with my family.”

It is widely believed, however, that Ryan is retiring from Congress because he fears a humiliating defeat at the hands of his Democratic Party opponent, the construction worker, trade unionist, and “Berniecrat” Randy Bryce. Over the last year, many of Ryan’s constituents were no doubt shocked to learn that their handsome, genial congressperson wanted to take away their health insurance.

It seems likely that Ryan, who is believed to harbor presidential ambitions, plans to lie low, make lots of money in the private sector, and count on the public forgetting (with the assistance of the mass media) about his attempt to throw tens of millions of people off their health insurance. At a later day, Ryan will be poised to reenter electoral politics and ride a new Republican wave, perhaps all the way to the White House.

But how could there be another Republican wave in the aftermath of the ever-growing debacle of the Trump presidency and the self-exposure of the Republican Party on the health insurance issue? To assume that a Republican comeback is impossible, would be to ignore the lessons of the last great “progressive” victory in U.S. politics—the election in November 2008 that brought into the White House the first African-American president, combined with solid Democratic majorities in both houses of Congress. However, at the end of Obama’s triumph lurked the racist Donald Trump, backed by Republican majorities in both the Senate and the House.

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Three Books on Marxist Political Economy (Pt 6)

May 21, 2017

Shaikh’s theory of money

Shaikh deals with money in two chapters—one near the beginning of “Capitalism” and one near the end. The first is Chapter 5, “Exchange, Money, and Price.” The other is Chapter 15, “Modern Money and Inflation.” In this post, I will concentrate on Shaikh’s presentation in Chapter 5. In Chapter 15, Shaikh deals with what he terms “modern money.” I will deal with his presentation in this chapter when I deal with Shaikh’s theory of inflation crises that is developed in the last part of “Capitalism.”

In Chapter 5, Shaikh lists three functions of money—considerably fewer than Marx does. The three functions, according to Shaikh, are (1) money as a medium of pricing (p. 183), (2) money as a medium of circulation, and (3) money as a medium of safety. Shaikh deals with money’s function as a means of payment under its role as a means of circulation. The problem with doing this is that money’s role as a means of payment is by no means identical to its role as a means of circulation and should have been dealt with separately.

Anybody who has studied seriously the first three chapters of “Capital” Volume I will be struck by how radically improvised Shaikh’s presentation here is compared to that of Marx. It is in the first three chapters of “Capital” that Marx develops his theory of value, exchange value as the necessary form of value, and money as the highest form of exchange value. He does this before he deals with capital. Indeed, Marx had to, since the commodity and its independent value form, money, is absolutely vital to Marx’s whole analysis of capital.

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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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Three Books on Marxist Political Economy (Pt. 2)

November 6, 2016

Profit of enterprise and monopoly profit

As we saw last month, Marx’s prices of production are not identical to the marginal cost = equilibrium prices of “orthodox” bourgeois microeconomics. The biggest difference is that prices of production include not only the cost price and interest on capital but also the profit of enterprise. Modern bourgeois microeconomic orthodoxy holds that in “general equilibrium” any profit in excess of interest will be eliminated by “perfect competition.”

In contrast, Marx—and the classical economists before him—did not believe that competition had any tendency to eliminate the profit of enterprise. Instead, they believed that in addition to interest, there is an additional profit of enterprise that is appropriated by the commercial and industrial capitalists. Profit of enterprise is defined as total profit minus interest. The profit of enterprise must not be confused with monopoly profits. The only monopoly necessary for the profit of enterprise is the monopoly of the means of production by the capitalist class.

True monopoly profits do exist. But within the classical-Marxist tradition, monopoly profit is an addition to the profit of enterprise. Anwar Shaikh affirms that monopoly profits exist but he has little to say about them in his “Capitalism.” Instead, Shaikh is interested in “real competition,” which quickly eliminates any profit beyond the profit of enterprise.

Shaikh’s failure to analyze monopoly profit is in full accord with his rejection of the Monthly Review and heterodox post-Keynesian schools, which often treat any profit, or at least any profit beyond interest, as monopoly profit.

Shaikh’s lumping together of these two quite different theories of a monopoly capitalist stage—the Hilferding-Lenin and the “Monopoly Capital” theories—is in my opinion a legitimate criticism of Shaikh’s “Capitalism” and his “fundamentalist school” in general. In “Monopoly Capital,” Paul Baran and Paul Sweezy were quite clear that they were not simply repeating or writing yet another popularization of the Hilferding-Lenin theory of monopoly capitalism. They found that theory inadequate and developed another, quite different theory of monopoly capitalism.

I believe that Shaikh is correct in seeing the influence of the Leon Walras-inspired theory of perfect competition in “Monopoly Capital” and other theories of modern capitalism influenced or inspired by Baran and Sweezy’s “Monopoly Capital.”

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The U.S. Elections and the Decline of Empire

February 28, 2016

I showed in the series of posts on Germany that extreme class contradictions brought that country close to a workers’ revolution. The failure to achieve this revolution led to the dictatorship of Adolf Hitler and his Nazi Party. Hitler, backed by German monopoly capital, then attempted through war to transform Germany into a second version of the United States. For example, Poland and the nations of the Soviet Union were to be transformed into Germany’s version of the “American West.”

The fuhrer and the German imperialists he represented also attempted to destroy the class consciousness of the German working class. Their attempt to transform Germany into a second version of the United States failed, however, and after the war (West) Germany was absorbed into the U.S. world empire. With the help of “the Empire,” Germany finally gained the markets and access to cheap raw materials it so desperately needed.

So German imperialism got something out of World War II after all, finally emerging from the intolerable conditions that its imperialist rivals had imposed on it after World War I. As a result, the prolonged social crisis gripping German capitalism was overcome.

While German capitalist politics became increasingly “Americanized” after World War II, U.S. politics are showing signs of becoming “Germanized.” We should not, of course, exaggerate the “Germanization” of U.S. politics. It is neither 1918, 1923 nor 1933 in the United States. But the surprising response to “socialist” Bernie Sanders in the Democratic Party, combined with the gains made by far-right demagogue Donald Trump in the Republican Party—a man who some have compared to Adolf Hitler—represents something new in American politics.

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Germany and the U.S. Empire (Pt. 5)

January 31, 2016

On January 30, 1933, German President Paul von Hindenburg appointed Adolf Hitler Reich chancellor, the most powerful office in the government. But there were only two other Nazis in the cabinet. In terms of cabinet members, traditional reactionaries such as Franz Von Papen (1879-1969)—the vice-chancellor—and the arch reactionary media baron and Nationalist Party leader Alfred Hugenburg (1865-1951) dominated the government.

Hugenburg was the Rupert Murdock of Germany. Leaving aside the Nazis, Alfred Hugenburg’s Nationalist Party was considered Germany’s most right wing, representing the large landowners. Hugenburg held the Ministry of Economics and Food, a ministry of considerable interest to Germany’s large landowners.

The Communist movement at first believed Hugenburg, not Hitler, was the dominant member of the new government. Not only were Nazis a small minority in the cabinet but the Prussian landowner and militarist Paul von Hindenburg (1847-1934) still occupied the presidency and had the power to appoint and dismiss the chancellor.

The view that Hitler was not the real power in the cabinet, however, ignored several crucial facts. One was that the two Nazi ministers besides Hitler gave the Nazis control over the bulk of Germany’s police forces. The Ministry of the Interior was awarded to Nazi Wilhelm Frick (1877-1946), a lawyer and policeman by profession. The other Nazi, Herman Goering (1893-1946), held the post of minister without portfolio and, more importantly, served as acting minister of the interior for the State of Prussia. This gave Goering effective control of Germany’s police force, including its political branch—the “red squad” in U.S. terminology. The Prussian red squad was soon given a new name—State Secret Police, or Gestapo for short.

Even more importantly, the Nazis were not just another bourgeois political party, only further to the right. They were a combat organization with a huge SA militia, whose membership numbered in the millions—compared to only 100,000 for the official German military, the maximum allowed under the Treaty of Versailles. Members were recruited mostly from Germany’s desperate middle-class youth, who had few prospects in Depression-bound Germany. The SA was organized to wage civil war against all wings of the workers’ movement—especially the Communists but also the Social Democratic Party, the trade unions, cooperatives, youth groups, and so on, in the streets of Germany.

Imagine if Donald Trump today commanded a private army of tens of millions of mostly middle-class youths, dwarfing in size both the regular army and all police forces of the U.S. Imagine further that this militia was fanatically loyal to Trump’s person. Further imagine that this private army was waging violent war in the streets against the trade unions, all African American organizations, Mexican-American organizations, immigrant rights groups, and Muslim and Arab organizations. This is what a full-fledged, Nazi-like mass fascist movement would look like in the early 21st-century U.S.

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