The crisis of bourgeois economics

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Re: The crisis of bourgeois economics

Post by blindpig » Fri Jan 07, 2022 2:13 pm

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Capitalism is killing us! (Photo: Charles Hutchins / Wikimedia Commons)

Yet another contradiction of capitalism
Posted Jan 06, 2022 by Prabhat Patnaik

Originally published: Peoples Democracy (January 2, 2022 ) |

In the United States there are still four million persons who remain unemployed compared to before the pandemic; and yet the Biden administration’s attempt to stimulate the economy has already run into a crisis with the re-emergence of inflation not just in that country but elsewhere in the capitalist world as well. The Federal Reserve Board (the equivalent of the U.S. central bank) is planning soon to raise interest rates (that are currently close to zero), and even the fiscal expansion will be difficult to sustain in the face of inflation. All this will truncate the recovery that has been taking place. In other words, the ability of the State even in the leading capitalist country of the world, whose currency is “as good as gold” and which should therefore have no fears of any debilitating capital flight, to stimulate activity within its own borders, has become seriously constrained.

This is a new basic contradiction that has emerged in world capitalism and deserves serious attention. The prognostication of John Maynard Keynes, the most important bourgeois economist of the twentieth century, that even though capitalism in its spontaneity was a flawed system that kept large masses of workers unemployed, State intervention could fix this flaw, had already been negated by the globalisation of finance. Facing a nation-State, globalised finance had enfeebled that State sufficiently to prevent its intervention for overcoming the deficiency of aggregate demand. But the one State that still appeared to have the capacity to intervene was the U.S. State because its currency was considered even by globalised finance to be “as good as gold” and hence intervention by it would not trigger any serious exodus of finance. But now, it seems, even that prospect has vanished. Let us see why.

The reason why governments of other countries could not stimulate their economies adequately was because their fiscal policies were constrained by the condition imposed upon them by finance to restrict the fiscal deficits relative to GDP to a certain stipulated figure; their monetary policies on the other hand had to be tied to the monetary policy of the U.S.. Their interest rates for instance had to be sufficiently higher than the U.S. interest rate, for otherwise there would be serious financial outflows. Their hands, therefore, were tied, and this held even for advanced capitalist countries. The U.S., however, had a certain autonomy. Even if it ran a fiscal deficit exceeding that of other countries and even if it had close to zero interest rates, this would not trigger any serious financial outflows. The Biden administration proceeded on this assumption. There was however another fly in the ointment which has surfaced now.

Textbook economics tells us that low-interest rates stimulate private investment because they lower the cost of borrowing. This is certainly the case, but an even stronger route through which low-interest rates have operated of late has been through stimulating asset price bubbles. When the “dot-com bubble” in the U.S. collapsed at the beginning of this century, Fed Chairman Alan Greenspan lowered interest rates, which stimulated a new bubble, the housing bubble, in that country. This, by artificially boosting the wealth of many individuals, gave a boost to consumption expenditure, and also to investment in housing and other projects which ushered in a new boom.

The Fed’s low-interest-rate policy, in short, operated not just through its direct effect in lowering the cost of borrowing but also, significantly, by stimulating a speculative asset-price bubble, where a price of an asset rises many times more than its “true value”, i.e., what its discounted earnings over its life-time would warrant. This happens because while everyone expects the asset price to collapse eventually, those who hold the asset believe that it would rise for some more time. They hope to sell it within that time and pocket the capital gains. And this speculation-fuelled demand for the asset is aided if the interest rates are kept low.

But low-interest rates can encourage speculation not only in asset markets but also in commodity markets. And this is precisely what has been happening in the U.S., because after the collapse of the housing bubble speculators have become particularly chary of asset-market speculation. Speculation can arise not just in those goods which for one reason or another may be temporarily in short supply or where there may be temporary bottlenecks and whose prices, therefore, are expected to rise immediately; they would also arise in commodities where demand is inelastic (i.e., does not fall too much when prices rise) so that even if there are no supply bottlenecks, artificial scarcities can be profitably created. And demand becomes particularly inelastic when credit is easily available (for then people borrow to maintain demand).

Once such price increases occur, then the demand for wage increases follows, to compensate the workers for their real income losses owing to the price rise. Thus, a whole price-wage spiral can be started even when there are no major supply bottlenecks of any kind that threaten the boom. And once such an inflationary spiral has started, then the stimulation of the economy has perforce got to be halted, as is happening in the U.S. now.

Oil is an obvious candidate for such an artificial price-rise, and it is not surprising that petrol prices in the U.S. for November 2021 were higher than those for November 2020 by as much as 58 per cent, which was the highest for any month since 1980. The increase in 1980 had come when the second oil shock had happened; the current rise in oil prices however has occurred without there being any price-hikes administered by the OPEC countries. In fact, the U.S. administration has been considering using its own oil stock-pile to keep down oil prices.

Commodity speculation has generally been ignored in economic policy-making in advanced capitalist countries. It is taken for granted that low-interest rates would stimulate aggregate demand through causing asset price bubbles and possibly through directly raising investment by lowering borrowing costs; the fact that low-interest rates could also encourage commodity speculation so that the ensuing price-rise could lead to a lowering of aggregate demand instead of raising it has scarcely been recognised. And yet this is now emerging as the consequence of a low-interest rate policy, which would make any state intervention for raising the level of aggregate demand that much more difficult.

International finance capital objects to fiscal intervention by any government for stimulating demand, though it is more tolerant of intervention through monetary policy, for that works through the decisions of the capitalists and hence does not have the effect of delegitimising the system by bypassing the capitalists. But if monetary policy too becomes infructuous, even in the U.S., since it gives rise to inflation long before the system has run into any major supply-side bottlenecks, then the system is left with no instruments for reviving activity and overcoming mass unemployment.

Till now monetary policy was considered at worst to be a blunt instrument. When even with a close-to-zero interest rate there was not much revival of investment, many had argued that the interest rate should be pushed into the negative region; this would have been difficult to sustain in any case, since any financial system that charged negative interest rates to would-be investors, cannot keep on paying positive interest rates to the depositors. The latter rates too would have to be negative, in which case however there is no reason why anyone should deposit any money with any financial institutions instead of just holding cash.

But it turns out that quite apart from the ineffectiveness even of a near-zero interest rate in stimulating investment, it also has the effect of giving rise to inflation via commodity speculation. That basically leaves the capitalist system under the hegemony of global finance without any instrument for stimulating aggregate demand, even in the leading capitalist country.

The persistence of unemployment keeps the profile of real wages in the world economy almost stagnant, even as the profile of labour productivities rises internationally, raising the share of economic surplus in world output and thereby pushing the world economy into an even deeper crisis of over-production. If at the same time no instruments are available for raising the level of aggregate demand, i.e., for countering the crisis, then world capitalism gets doomed to a state of perennial mass unemployment, which can only undermine its political stability. The implications of such a state of affairs for economies like India are immense and profound.

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Re: The crisis of bourgeois economics

Post by blindpig » Fri Jan 14, 2022 4:49 pm

No letup in economic and social decline
Originally published: Dissident Voice by Shawgi Tell (January 11, 2022 ) | - Posted Jan 13, 2022

Economic and social conditions have been worsening for decades at home and abroad, especially in the context of the neoliberal antisocial offensive which was launched more than 40 years ago by the international financial oligarchy. But they have been getting even worse in recent years and over the past two years in particular.

Inequality, poverty, and debt, along with homelessness, unemployment, and under-employment are on the rise in an increasingly interconnected globe. It is no surprise that suicide, depression, illness, and anxiety persist at very high levels. There is an unbreakable connection between economic, social, and personal conditions. As economic and social conditions decline, so too do people’s mental, emotional, and physical well-being.

Below is a current snapshot of deteriorating economic and social conditions in the U.S. and elsewhere. The U.S. population currently stands at 332,403,650. The world population is 7,868,872,451.

Conditions in the U.S.

American student loan debt increased at a rate of 20 percent in the last ten years, leaving college graduates with hefty payments. The student loan debt in the US is a growing crisis with college graduates owing a collective $1.75 trillion in student loans. In 2021, there are 44.7 million Americans who have student loan debt averaging about $30,000 at the time of receiving their undergraduate degree.

The number of Americans living without homes, in shelters, or on the streets continues to rise at an alarming rate.

The $5 trillion in wealth now held by 745 billionaires is two-thirds more than the $3 trillion in wealth held by the bottom 50 percent of U.S. households estimated by the Federal Reserve Board.

The official poverty rate in 2020 was 11.4 percent, up 1.0 percentage point from 10.5 percent in 2019. This is the first increase in poverty after five consecutive annual declines. In 2020, there were 37.2 million people in poverty, approximately 3.3 million more than in 2019.

After the longest period in history without an increase, the federal minimum wage today is worth 21% less than 12 years ago—and 34% less than in 1968.

CEOs were paid 351 times as much as a typical worker in 2020.

[F]or seven months of 2021, workers have been quitting at near-record rates.
More than 4.5 million people voluntarily left their jobs in November [2021] the Labor Department said Tuesday. That was up from 4.2 million in October and was the most in the two decades that the government has been keeping track.

According to a report by UCLA’s Latino Policy & Politics Initiative, Latinas are leaving the workforce at higher rates than any other demographic. Between March 2020 and March 2021, the number of Latinas in the workforce dropped by 2.74%, meaning there are 336,000 fewer Latinas in the labor force

The adult women’s labor force participation rate remains blunted at 57.5%—well below pre-pandemic levels. In fact, it’s worse than pre-pandemic levels.

U.S. job openings jumped in October to the second-highest on record, underscoring the ongoing challenge for employers to find qualified workers for an unprecedented number of vacancies. The number of available positions rose to 11 million from an upwardly revised 10.6 million in September.

As of November [2021], 15.6 million workers in the US are still being affected by the pandemic’s economic downturn; 3.9 million US workers are out of the labor force due to COVID-19, 6.9 million workers are still unemployed, 2 million workers are still experiencing cuts to pay or work schedules due to COVID-19, and another 3 million workers are misclassified as employed or out of the labor force, according to the Economic Policy Institute.

About 2.2 million Americans remain long-term unemployed — about 1.1 million more than in February 2020, according to the U.S. Bureau of Labor Statistics.

In 2021, the Centers for Disease Control and Prevention estimated in November that more than 100,000 people died of drug overdoses in the first year of the COVID-19 pandemic, May 2020 to April 2021, with about three-quarters of those deaths involving opioids — a national record.
U.S. death rate soared 17 percent in 2020, final CDC mortality report concludes.

Life Insurance CEO Says Deaths Up 40% Among Those Aged 18-64.

Suicide rates increased 33% between 1999 and 2019, with a small decline in 2019. Suicide is the 10th leading cause of death in the United States. It was responsible for more than 47,500 deaths in 2019, which is about one death every 11 minutes. The number of people who think about or attempt suicide is even higher. In 2019, 12 million American adults seriously thought about suicide, 3.5 million planned a suicide attempt, and 1.4 million attempted suicide. Suicide affects all ages. It is the second leading cause of death for people ages 10-34, the fourth leading cause among people ages 35-44, and the fifth leading cause among people ages 45-54.

Alarming Anxiety & Depression Toll making All Time Record Highs Impacting 30% of all Americans.

[Depression] has been rising for well more than a decade in teens and hiked further during the pandemic. And after a pandemic-induced spike, depression symptoms now plague more than a quarter of U.S. adults. More than 13% of Americans were taking antidepressants before Covid hit and during the pandemic, prescriptions shot up 6%.
At least 12 major U.S. cities have broken annual homicide records in 2021.

Private health insurance coverage declined for working-age adults ages 19 to 64 from early 2019 to early 2021, when the nation experienced the COVID-19 pandemic.

In 2020, 4.3 million children under the age of 19 — 5.6% of all children — were without health coverage for the entire calendar year.

International Conditions
Even as tens of millions of people were being pushed into destitution, the ultra-rich became wealthier. Last year, billionaires enjoyed the highest boost to their share of wealth on record, according to the World Inequality Lab.

Global wealth inequality is even more pronounced than income inequality. The poorest half of the world’s population only possess 2 percent of the total wealth. In contrast, the wealthiest 10 percent own 76 percent of all wealth, with $771,300 (€550,900) on average.

The pandemic has pushed approximately 100 million people into extreme poverty, boosting the global total to 711 million in 2021.

More than half a billion people pushed or pushed further into extreme poverty due to health care costs.

World leaders urged to halt escalating hunger crisis as 17% more people expected to need life-saving aid in 2022.

33% of Arab world doesn’t have enough food: UN report. The Arab world witnessed a 91.1 per cent increase in hunger since 2000, affecting 141 million people.

The 60% of low-income countries the IMF says are now near or in debt distress compares with less than 30% as recently as 2015.

According to a recent Gallup poll, 63 percent of Lebanese would like to permanently leave the country in the face of worsening living conditions.

25% of households in Israel live in poverty. www.middleeastmonitor.com

Turkey’s annual inflation rate is expected to have hit 30.6% in December, according to a Reuters poll, breaching the 30% level for the first time since 2003 as prices rose due to record lira volatility.

Kazakhstan government resigns amid protests over rising fuel prices.

Pakistanis squeezed by inflation face more pain from tax hikes.

November saw inflation rise by 14.23 percent, building on a pattern of double-digit increases that have hit India for several months now. Fuel and energy prices rose nearly 40 percent last month. Urban unemployment–most of the better-paying jobs are in cities–has been moving up since September and is now above 9 percent.

Sri Lanka is facing a deepening financial and humanitarian crisis with fears it could go bankrupt in 2022 as inflation rises to record levels, food prices rocket and its coffers run dry.

Index shows South Africa’s economy is shrinking.

COVID-19 spike worsens Africa’s severe poverty, hunger woes.

Latin America’s biggest economy [Brazil] is seen remaining stuck in recession as it confronts double-digit price increases.

Japan admits overstating economic data for nearly a decade.

New Zealanders are feeling pessimistic about the economy, worried about rising interest rates and the prospect of new COVID-19 variants, Westpac’s latest consumer confidence data shows.

Canadians’ optimism towards their financial health and the economy at large reached its lowest point in more than a year during the final work week of 2021, according to Bloomberg and Nanos Research.

Polish Inflation to Rise Sharply in 2022, Central Bank Boss Says.

Inflation is at its highest level in the UK since 2011.

The Resolution Foundation predicts higher energy bills, stagnant wages and tax rises could leave [U.K.] households with a £1,200 a year hit to their incomes.

Air travel in and out of UK slumps by 71% in 2021 amid pandemic. Report from aviation analytics firm Cirium shows domestic flights were down by almost 60%.

Annual inflation in Spain rises 6.7% in December, the highest level in nearly three decades.

Germany’s Bundesbank lowers 2022 economic growth forecast.

OECD predicts Latvia to have the slowest economic growth among Baltic States.

| Shawgi Tell is author of the book Charter School Report Card | MR Online
Shawgi Tell is author of the book Charter School Report Card.

While deteriorating economic, social, and personal conditions define many other countries and regions, the main question is why do such horrible problems persist in the 21st century? The scientific and technical revolution of the last 250 years has objectively enabled and empowered humankind to solve major problems and to meet the basic needs of all humans while improving the natural environment. There are a million creative ways to affirm the rights of all safely, sustainably, quickly, and on a constantly-improving basis. There is no reason for persistent and widespread instability, chaos, and insecurity. Living and working standards should be steadily rising everywhere in the 21st century, not continually declining for millions. Objectively, there is no shortage or scarcity of socially-produced wealth to meet the needs of all.

Under existing political-economic arrangements, however, systemic instabilities and crises will persist for the foreseeable future, ensuring continued anxiety and hardship for millions. The rich and their political representatives have repeatedly demonstrated that they are unable and unwilling to solve serious problems. They are out of touch and self-serving. As a result, the world is full of more chaos, anarchy, insecurity, and violence of all forms. The rich are concerned only with their narrow private interests no matter how damaging this is to the natural and social environment. They do not recognize the need for a self-reliant, diverse, and balanced economy controlled and directed by working people. They reject the human factor and social consciousness in all affairs.

It is not possible to overcome unresolved economic and social problems so long as the economy remains dominated by a handful of billionaires. It is impossible to invest socially-produced wealth in social programs and services so long as the workers who produce that wealth have no control over it. Every year, more and more of the wealth produced by workers fills the pockets of fewer and fewer billionaires, thereby exacerbating many problems. Wealth concentration has reached extremely absurd levels.

It is extremely difficult to bring about change that favors the people so long as the cartel political parties of the rich dominate politics and keep people out of power. Constantly begging and “pressuring” politicians to fulfill people’s most basic rights is humiliating, exhausting, and ineffective. It does not work. No major problems have been solved in years. More problems keep appearing no matter which party of the rich is in power. The obsolete two-party system stands more discredited with each passing year. Getting excited every 2-4 years about which candidate of the rich will win an election has not brought about deep and lasting changes that favor the people. It is no surprise that President Joe Biden’s approval rating keeps hitting new lows every few weeks. People want change that favors them, not more schemes to pay the rich in the name of “getting things done” or “serving the public.” “Building Back Better” should not mean tons more money for the rich and a few crumbs for the rest of us.

A fresh new alternative is needed that actually empowers the people themselves to direct all the affairs of society. New arrangements that unleash the human factor and enable people to practically implement pro-social changes are needed urgently. All the old institutions of liberal democracy and the so-called “social contract” disappeared long ago and cannot provide a way forward. They are part of an old obsolete world that continually blocks the affirmation of human rights. This law or that law from this mainstream party or that mainstream party is not going to save the day. The cartel parties of the rich became irrelevant long ago.

We are in an even more violent and chaotic environment today that is yearning for a new and modern alternative that affirms the rights of all and prevents any individuals, governments, or corporations from depriving people of their rights. People themselves must be the decision-makers so that the wealth of society is put in the service of society. Constantly paying the rich more while gutting social programs and enterprises is a recipe for greater tragedies.

https://mronline.org/2022/01/13/no-letu ... l-decline/

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Re: The crisis of bourgeois economics

Post by blindpig » Thu Jan 20, 2022 3:05 pm

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Once again austerity proponents tell it like it isn’t
Posted Jan 19, 2022 by Martin Hart-Landsberg

Originally published: Reports from the Economic Front (January 17, 2022 )

There appears to be growing consensus among economists and policy makers that inflation is now the main threat to the U.S. economy and the Federal Reserve Board needs to start ratcheting up interest rates to slow down economic activity. While these so-called inflation-hawks are quick to highlight the cost of higher prices, they rarely, if ever, mention the costs associated with the higher interest rate policy they recommend, costs that include higher unemployment and lower wages for working people.

The call for tightening monetary policy is often buttressed by claims that labor markets have now tightened to such an extent that continued expansion could set off a wage-price spiral. However, the rapid decline in the unemployment rate to historically low levels, a development often cited in support of this call for austerity, is far from the best indicator of labor market conditions. In fact, even leaving aside issues of job quality, the U.S. employment situation, as we see below, remains problematic. In short: the U.S. economy continues to operate in ways that fall far short of what workers need.

A turn to austerity to fight inflation is not what we need. Neither is a continuation of policies that simply continue the growth of our currently structured economy. Instead, we need new policies that can transform our economy with the aim of employing more people, working significantly shorter workweeks under conditions that are humane and fulfilling, for a living wage, producing and distributing the goods and services required to meet majority needs in socially and environmentally sustainable ways.

Weak job creation

It is important to recognize how limited the economic recovery has been in terms of job creation. As Elise Gould notes,

Most of the vital fiscal stimulus provided in 2021 has now faded while the labor market is still nearly 3.6 million jobs below pre-pandemic levels and is facing a shortfall in the range of 5 to 8 million jobs when taking into account population growth and/or pre-pandemic trends.

And while the unemployment rate has fallen to an impressively low 3.9 percent in December 2021, the labor force participation rate (which shows the percentage of the civilian noninstitutional population 16 years and older that is working or actively looking for work) tells a very different story. As we can see below, as of December 2021 the labor force participation stood at 61.9 percent, far below its early 2000’s peak of 67.3 percent.

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In other words, one reason that the unemployment rate has fallen so low, is that millions of workers have dropped out of the labor force and, as a result, no longer considered in the calculation of the unemployment rate. In fact, our labor force would have to be some 13 million larger to match that earlier peak.

There are those that say that the current labor force participation rate paints a misleadingly negative picture of the tightness of the labor market. Many point to the fact of record high quit rates, which they say shows that many workers are “voluntarily” choosing to leave the labor market. Leaving aside the fact that many of those who quit did so because of health concerns or a lack of childcare options, the focus on quit rates alone produces a one-side picture of current labor market dynamics.

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The media has focused on the high quits rate, but what’s often missing from that coverage is that workers who are quitting their jobs aren’t dropping out of the labor force, they are quitting to take other jobs. . . . Much attention throughout the recovery has been on accommodation and food services, which suffered the greatest losses in employment when the pandemic hit and is now experiencing record-high levels of quits. In November 2021, accommodation and food services recorded nearly a million quits (920,000). But—and here’s the part many commentators seem to be missing—hiring in accommodation and food services exceeded quits in November, coming in at over 1 million (1,079,000).

As the following figure shows, hires are now greater than quits in all sectors of the economy. What we appear to have is a high degree of labor market mobility, with workers leaving one job for another (hopefully better) one.

Another reason offered for why the low labor force participation should not be given too much weight in policy considerations is that it is said to be heavily influenced by Baby Boomer retirements. It is certainly true that the Baby Boomer generation has a lower labor force participation rate than that of younger cohorts. But, strikingly, and in contrast to that of younger cohorts, the labor force participation rate of those over 55 has actually grown since 2000, and quite rapidly for those over 65, as we can see in the figure below. In other words, Baby Boomers and even older workers have been moving back into, not out of, the labor force.

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The labor market experience of prime age workers

Perhaps the best way to appreciate the economy’s employment generating inadequacies is to look at the labor market experience of prime age workers, those between 25 and 54 years. As Jill Mislinski explains,

This cohort leaves out the employment volatility of the high-school and college years, the lower employment of the retirement years and also the age 55-64 decade when many in the workforce begin transitioning to retirement … for example, two-income households that downsize into one-income households.

The figure below shows the labor force participation rate for those 25-54 years. As noted in the inset box, some 3.3 million additional workers ages 25-54 would have to be employed to regain the labor force participation rate achieved around the turn of the century.

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The employment-to-population rate for this cohort is probably even more telling. While the labor force participation rate includes both employed and unemployed workers in its calculation, this rate includes only those employed. As the inset box notes, the current age 25-54 cohort would require an increase of 5 million employed workers to match its earlier peak rate.

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It is worth emphasizing that we are looking at prime age workers. It is hard to see how one could consider the U.S. labor market tight, meaning the economy is close to full employment, when millions of prime aged workers remain outside it. And it would take a very active imagination to believe that these workers have decided not to work because of their access to a generous government financed system of social support. The fact is that the low labor force participation rate and employment-to-population rate of this prime age cohort are indicators of just how poorly the U.S. economy is at generating acceptable employment opportunities. Policies designed to slow economic growth and, by extension increase unemployment, are clearly unwarranted.

Inflation dangers overstated

Many of the same people that point to the tightness of the labor market as a justification for their call to tighten monetary policy also overstate the dangers of inflation. The rate of inflation has indeed spiked. The year-over-year inflation rate from December 2020 to December 2021 hit 7.0 percent, the highest rate since June 1982. However, the monthly rate of inflation has begun to significantly slow—from 0.9 percent in October, to 0.8 percent in November, to only 0.5 percent in December.

Pandemic disruptions to the supply chain are the main cause of this recent spike in prices, something that is not unique to the United States. As Dean Baker describes,

We continue to see the supply chain crisis, aggravated by the shortage of semi-conductors, which has impeded car production. New car prices rose 1.0 percent in December and are up 11.8 percent over the last year. Used car prices rose 3.5 percent and have risen an incredible 37.3 percent over the last year. Together, these components accounted for almost 1.5 percentage points of the inflation we have seen over the last year.

The major auto manufacturers are getting around the chip shortage and ramping up production. Since the cost of producing cars has not hugely risen, we can expect most of the rise in new and used car prices to be reversed in the not distant future.

There is a similar story in the other components where supply chain issues have pushed up prices. Apparel prices, which have been trending downward for decades, rose 5.8 percent over the last year. The index for household supplies and furnishings, which includes everything from linen to major appliances, rose 7.4 percent over the last year.

There are reasons to believe that the rate of inflation has peaked and is now heading down as supply chain disruptions are (at least temporarily) overcome, and demand itself slows. In fact, the Federal Reserve forecasts that its personal consumption expenditure inflation index will rise by only 2.6 percent in 2022, sharply down from an expected 4.4 percent in 2021.

Moreover, as Baker also points out, financial investors seem to agree with the Federal Reserve’s forecast of slowing prices:

The interest rate on 10-year Treasury bonds is just over 1.7 percent. This is not consistent with an expectation that inflation will remain near 7.0 percent. The breakeven inflation rate between normal Treasury bonds and inflation-indexed bonds is less than 2.5 percent. Financial markets can be wrong (see stock and housing bubbles), but at the moment they don’t seem concerned about runaway inflation.

In sum, we need to continue pushing back against calls for monetary tightening, and redouble our efforts not just to maintain current fiscal and monetary policies, with their modest expansionary impact, but to demand a more aggressive set of changes in how and in whose interest our economy operates.

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Re: The crisis of bourgeois economics

Post by blindpig » Tue Feb 01, 2022 2:11 pm

READING THE ECONOMIC TEA LEAVES
Posted by Greg Godels | Jan 31, 2022

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BY GREG GODELS
January 16, 2022

Imagine a car careening around dark mountain roads during a rainstorm. The driver has no speedometer, but a set of brakes and plenty of power available at the accelerator. The passengers have both a need to get to their destination and an abiding concern for their own safety. They want to arrive promptly, but safely.

This story is a simple metaphor for the situation facing the US economy today. The dangerous roads represent the precarious state of the US economy still in disrepair in the aftermath of the 2007-9 systemic meltdown and suffering the devastation wreaked by the extra-systemic pandemic a decade or so later. The conjunction of these two unexpected disasters make the road ahead uncertain.

The lack of a speedometer represents the modern absence of any objective, material, universally accepted measure of value. In the past, the convention of measuring value by some rare metal like gold or silver would anchor the circulation of money and credit in something beyond the judgment or interests of central bankers or treasury officials who can set the “speed” of currency by fiat. But not today.

In the US, officials– our economic “drivers” –have been pressing hard on the accelerator: buying up US debt and mortgage debt so that their growth will not devalue existing assets. In fact, their actions have more than met the challenge of devaluation– asset deflation– left by the 2007-9 crisis; they are now pumping up financial, home, and other asset values to new, seemingly limitless heights.

The “drivers” have suppressed interest rates which makes the cost of borrowing virtually zero, allowing corporations to access easy money for mergers, acquisitions, and stock buy-backs, further swelling asset values without touching corporate earnings.

Finding that pressing the accelerator on dangerous roads has not resulted in a crash, the emboldened bankers and policymakers have been pushing even harder, producing inflated values of assets and profits, while debt remains fixed and with little associated costs. Ruling elites and corporate executives fully support and reward these policies.

Thus was created a policymaker’s utopia: a limitless stimulus to the capitalist economy with no associated danger. Ruling class policy makers drink the same magic elixir that many on the left have urged: Modern Monetary Theory (MMT), the notion that fiat currency (currency free of any basis in a common material standard) allows currency expansion without any necessarily negative consequences. But they have hitched it to the interests of wealth and power. While US economic czars will not admit it, they have quietly tossed out their faith in the infamous Phillips curve, the close relationship of government spending and inflation, budget balancing and fiscal restraint.

Once, when Keynesian demand-side economics was popular, many policy makers also took to hiding this once-universal consensus for political reasons. Just as many read Keynes as justifying welfare spending and public-sector investment, ruling-class apologists insisted that “pumping up” the economy (bourgeois economics floats on metaphors) would result in massive inflation and crisis, while contradictorily endorsing obscene military spending and massive corporate subsidies and bailouts to do their “pump priming”!

Similarly, today’s elite policymakers mask their commitment to MMT remedies behind bluster about budget deficits and pay-as-you-go: they urge austerity, while government and quasi-government institutions spend money like drunken sailors, scarfing up assets and locking them up on their balance sheets in order to evade a deflationary crisis and to promote the stock market’s wild ride.

The limitless utopia imagined by US policymakers resulted in the Federal Reserve accumulating $8.76 trillion in assets by December 29, 2021, nearly $6 trillion of which they acquired since 2013. Had the assets (Treasury securities and mortgage securities) remained in the marketplace, the value of ALL securities would have dropped dramatically and the yield necessary to entice buyers would have risen sharply, discouraging future borrowing and retarding economic growth.

Instead, the Federal Reserve engaged in a massive inflation of financial assets to fend off the deflationary pressures inherited from the 2007-9 catastrophe, presenting investors and bankers with the gift that kept on giving: perpetual asset inflation and an assurance that the Fed would always have their back.

But eventually, the driver of a speeding car or those steering the US economy run into a sharp curve in the road and realize that they must slow down.

For the US economy, that curve in the road is consumer inflation. It is a misconception to see inflation as only arising in 2021. The first signs of fast-rising consumer inflation were indeed in 2021, but artificially induced asset inflation had preceded this for nearly a decade. Indeed, it was this asset inflation in conjunction with the shock of a collapse in supply brought on by pandemic lockdown and an even more dramatic rebound in demand that spurred the consumer inflation that now plagues the US economy.

How the masters of the economic universe thought that they could perpetually spur financial asset inflation without inducing inflation in more mundane, real-world markets– autos, bacon, and eggs– is truly astounding and hubristic. Most of us have the sense to slow down for the curves in the road.

******

Inflation will be with us for a while. Despite their initial Pollyanna assurances of a temporary inflationary blip, most of our economic gurus have come around to acknowledge that inflation has considerable staying power. The December year-to-year consumer price index (CPI) accelerated to 7% from November’s 6.8%, with December’s CPI constituting the biggest increase since June 1982.

Core producer-prices leaped a stunning 8.3%, the fastest on record, according to The Wall Street Journal, an ugly foretell of future consumer prices.

As I noted in late November, inflation is, ironically, itself like a virus, intensifying and spreading far and wide. Enterprises and institutions scramble to catch up to price increases with further price increases. Monopoly capitalism seizes on this opportunity to increase profit margins well beyond any catching-up level and driving inflation ever further. Small businesses and labor unions lag behind inflation, while the monopolies push it forward. It is the mega-firms, the giant monopolies, and not Labor or small business, that push the inflation spiral to greater and greater heights.

As they have in past inflationary periods, officialdom– awakened to the danger– are now set to “put the brakes” on the economy. Through raising interest rates and discontinuing buying securities, even selling off some locked in the Federal Reserve, they hope to slow down the economy. Of course, this “braking” will also slow down the tepid recovery from the earlier lockdown in response to the Covid pandemic.

Though clearly prescribed by the accelerating inflation, the slowdown could not come at a worse time. Nearly all of the retail and manufacturing figures for December 2021 were already trending down long before any Federal Reserve or Treasury braking was to occur. Total retail and food service sales dropped 1.9% from November, led by an 8.7% drop in online stores and 7% drop in department stores. Industrial production fell, with manufacturing down .3% from the previous month.

Fourth quarter 2021 reports also showed a significant drop in profits for two of the largest US banks, a departure from the unprecedented profit growth of the financial sector during the pandemic, an omen of pressure on profitability that will undoubtedly affect prices and interest rates.

******

What will inflation, higher interest rates, and slowing growth (In January, The World Bank revised its global growth estimate downward by roughly 25%) mean for 2022?

For some time, obscenely growing profits and nearly free money have generated an intense search for yield, as they did in the lead-up to the recession of 2000 and the 2007-9 crash. The growth of “blank check” companies, special-purpose acquisition companies (SPACs) and the surging of “unicorns” (privately-owned start-ups valued at over a billion dollars) places a lot of capital in a risky environment of slowing economic growth, rising costs, and higher financial costs. Even before the slowing economy and high inflation, start-ups were struggling. When investors, swollen with funds, seek out these dark, less regulated areas of economic activity in search of higher yields, trouble is often on the horizon. At the end of 2021, two thirds of initial public offerings (IPOs) traded below their opening price, according to The Wall Street Journal.

Rising interest rates may also endanger the mortgage/home-buying bubble, a phenomenon that has seen home prices soar at near-record paces, thanks to low-interest loans. Those pundits who derided the Chinese Communist Party’s pre-emptive strike on its own wildly anarchic residential construction boom may live to eat their words as the US home-buying spree unwinds.

With low union density, 2022 will likely see a loss in relative income of workers to inflation. A slowing economy and a squeeze on corporate profits will bring an increase in labor exploitation, more unemployment and more intense working conditions.

At best, we face a revisiting of the stagflation of the 1970s. At worst, a deflationary overshoot– a deep recession like the early years of the Reagan administration.

How will we respond?

https://mltoday.com/reading-the-economic-tea-leaves/
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Re: The crisis of bourgeois economics

Post by blindpig » Wed Feb 02, 2022 3:01 pm

In response to capitalist economic turmoil, war funding soars
January 30, 2022 Gary Wilson

Image
U.S. military convoy at the Polish-German border in Olszyna, Poland.

Wall Street and the stock market have been like a roller coaster.

On Jan. 24, stocks were falling, with the S&P 500 Index down 3.8%, the Dow Industrial Average down 2.7% and the Nasdaq Composite down 4.5%. The widespread sell-off for the Dow and the S&P 500 started on the second trading day in January; and for the Nasdaq in November. The Nasdaq is down nearly 20% from its high in November.

Early 2022 is now, officially, the worst-ever start in the history of the S&P 500, which goes back to 1929.

Part of the stock market volatility is that inflation keeps jumping upward, pushing wages to new lows. “Although average hourly wages rose 4.7% last year, overall wages fell 2.4% on average for all workers, when adjusted for inflation, according to the Labor Department,” the Jan. 22 Washington Post reported.

Cryptocurrency vaporized

Also part of the turmoil is the cryptocurrency crash. The dramatic sell-off in bitcoin and other cryptocurrencies has been even steeper than the stock market fall. Bitcoin lost more than 12% on Jan. 21, with Ethereum losing 15%.

The two largest cryptos now trade at 50% below from their all-time highs. As the Washington Post reported, “A two-month slide in the global cryptocurrency market has vaporized $1.4 trillion.” The losses are tremendous.

The capitalist economy was pushed into a steep downturn by the pandemic.

At the beginning of the global COVID-19 pandemic in March 2020, shutdowns swept the capitalist world economy in a frantic and failed attempt to bring the pandemic to a halt.

Much like what happens when a country goes into a war economy, normal capitalist production stopped. Industrial production in the U.S. suffered the most severe plunge on record.

The Federal Reserve reported on May 15, 2020, that its industrial production index tumbled a record 11.2% in April 2020. Manufacturing output also posted a record drop — 13.7% — as the production of cars, trucks and auto parts plummeted more than 70%.

Production of aerospace and other transportation products, metals and furniture fell around 20%. Output dropped 6.1% at mines and 0.9% at utilities. The implosion of the U.S. industrial sector was known, but the scale of the collapse was stunning.

Industry was running at 64.9% of capacity in April 2020, shattering the previous record low set in the Great Recession years of 2007-09. Factory capacity utilization also hit a record low of 61.1%.

Industrial production remained depressed throughout 2020.

This was not a capitalist crisis of overproduction, the usual boom and bust cycle of capitalism, but instead capitalist production crashed because of the shutdown to fight the pandemic.

The coronavirus depression

This sudden cutback in production threatened to cause a deeper crisis. That’s when the Federal Reserve central bank “expanded” the money supply, printing more money. That stalled a general collapse.

Congress distributed some of this newly-created money to the general population with stimulus checks. The IRS issued three stimulus checks, one in April 2020, a second in December 2020-January 2021, and the last one in March 2021.

In the initial $4 trillion “relief” package passed by Congress, $884 billion went to workers and their families; that is less than one-fifth of the money. The rest went to businesses, primarily major corporations like the airline industry that are part of the military-industrial complex, not just to producers of consumer goods and services.

One of the effects of the stimulus checks, however, was a surge in consumer spending. This surge meant the industrial and merchant capitalists had to rebuild inventories, as well as rebuild raw material supplies and parts. This created a demand for commodities throughout the capitalist world, which turned out to be highly inflationary.

Coming out of the coronavirus depression has been bumpy in the U.S. The shutdowns ended prematurely, with industry reopening without controlling the spread of the coronavirus. With each reopening there has been a new wave of COVID-19 infections, followed by temporary restrictions and mandates that have so far failed to bring an end to the pandemic in the U.S.

Putting business demands first has proven to be bad for public health. In China, using a broad, socialist public health system, the coronavirus is under control. China has not turned over its healthcare system to the pharmaceutical industry and therefore has not made vaccinations its only way to fight the coronavirus.

In fact, China has no vaccine mandate — everyone can get the vaccine and most do because they want to protect themselves and everyone around them.

China has taken a broad and vigorous approach to fighting COVID-19 that includes easy testing, physical distancing and full meal delivery to anyone requiring isolation, masks, good ventilation, and full contact tracing as well as vaccines.

Build back better?

As with any capitalist depression, the economic impact has been hardest on the working class.

The official unemployment rate reached 14.8% — or really 33.2% according to the Ludwig Institute — in April 2020 after industrial production was shut down. That was the highest since the Great Depression of the 1930s. In October 2021, reports indicated that almost 10% of adults in the U.S. reported that their households didn’t have enough to eat.

The unemployment figures given by the Labor Department and reported in the big business media don’t include part-time workers who want full-time jobs or so-called discouraged workers who have been unable to find a job. The true rate of unemployment right now is 23.3%, says the Ludwig Institute.

While there are misleading reports about “labor shortages” in the big business media, the jobs that aren’t being taken are at poverty-level wages and most often are dangerous to personal health and well-being, mainly from exposure to COVID-19.

To help revive the economy, President Joe Biden and the Democrats have proposed a set of legislative packages that together they call “Build Back Better,” at a projected cost of $2.2 trillion over 10 years. So far, they have been unable to enact any of this legislation, mainly because of two Democratic senators.

Sen. Joe Manchin (D-W.Va.) got a surge in donations from “corporations, business leaders and outside groups” including Verizon, Union Pacific, Wells Fargo as well as the Koch network, CNBC reported, to oppose Build Back Better.

The other is Sen. Kyrsten Sinema (D-Ariz.), who got contributions from over 50 billionaires, including several Trump supporters, to oppose Build Back Better.

Meanwhile the Democrats have been able to super-size the Pentagon’s budget to $768 billion for 2022. According to a projection by the Congressional Budget Office, military spending over the next decade will be about $8.5 trillion.

On Jan. 25, The Intercept reported that House Democrats are looking to bypass typical procedures and fast-track a vote on legislation that would send $500 million in military aid to Ukraine.

Why is Congress increasing military spending, when the alleged reason to block “Build Back Better” was because it was excessive?

The Pentagon buildup is a political manifestation of the capitalist economic drive to war caused by the need to subordinate other countries and peoples to the profit-making activities of U.S. big business.

The demands of imperialism are what’s driving Congress, determining what gets funded and what’s put aside.

Right now, the U.S. sees the confrontation with Russia as a way to cut Europe off from Russian gas — and force it to buy U.S.-controlled gas — as well as blocking the “Silk Road” overland trade with China. That’s why the Democrats can pass the biggest Pentagon budget increase ever but can’t manage to fund Build Back Better.

https://www.struggle-la-lucha.org/2022/ ... ing-soars/

*****************************************************

Top Weapons Companies Boast Ukraine-Russia Tensions Are a Boon for Business

In calls with investors, Raytheon and Lockheed Martin boasted that the worsening conflict is helping profits.
SARAH LAZARE JANUARY 27, 2022

Image
A Ukrainian Military Forces serviceman checks his weapon as he stands in a trench on the frontline near Zolote village, in the eastern Lugansk region, on January 21, 2022.
ANATOLII STEPANOV / AFP) (PHOTO BY ANATOLII STEPANOV/AFP VIA GETTY IMAGES

As the United States weighs more involvement in the growing conflict between Ukraine and Russia, some of the largest weapons companies in the world — Raytheon and Lockheed Martin — are openly telling their investors that tensions between the countries are good for business. And General Dynamics, meanwhile, is boasting about the past returns the company has seen as a result of such disputes.

The statements come as the U.S. government escalates arms shipments to Ukraine, among them the Javelin missiles that are a joint venture between Raytheon and Lockheed Martin. House Democrats, meanwhile, are trying to quickly push through a bill that would significantly increase U.S. military assistance to Ukraine, and impose new sanctions on Russia.

Anti-war campaigners warn that U.S. escalation, amid renewed tensions between Ukraine and Russia, could bring dire consequences, and spill into a much larger and more protracted war. ​“As we are shipping advanced weaponry to the Ukrainian military, the Biden administration has signaled that U.S. military advisors will continue to stay in the country,” Cavan Kharrazian, progressive foreign policy campaigner for the advocacy organization Demand Progress, tells In These Times. ​“Who will most likely set up and teach the Ukrainian army how to use these weapons systems? The U.S. military.”

Among those openly discussing the boon to profits is Raytheon CEO Greg Hayes. During a January 25 appearance on CNBC’s ​“Squawk on the Street,” he was asked, ​“Do we have anything that would make it so if you inserted 8,000 American soldiers into Ukraine, they can stop 103,000 Russian soldiers?”

In his reply, Hayes touted the role the company could play in arming U.S. allies. ​“Obviously we have some defensive weapons systems that we could supply which could be helpful, like the patriot missile system.” He went on to add, ​“We’ve got the technologies to help in these engagements, whether it’s patriot systems, some of the radar systems.”

Hayes suggested that Raytheon’s arms could offer a deterrent that helps prevent war. ​“So at the end of the day, we have a strong defense as a deterrent to try to prevent things like this from spinning out of control. So the hope is that we don’t end up with a hot war, and if we do, it will be costly on both sides.”

If it sounds like Hayes is using mounting tensions as an advertising opportunity for his company, this may not be far fetched. On a January 25 earnings call (which was noted on Twitter by Nick Cleveland-Stout of the Quincy Institute), Hayes included ​“tensions in Eastern Europe” among the factors that Raytheon stands to benefit from. He said: ​“We just have to look to last week where we saw the drone attack in the UAE, which have attacked some of their other facilities. And of course, the tensions in Eastern Europe, the tensions in the South China Sea, all of those things are putting pressure on some of the defense spending over there. So I fully expect we’re going to see some benefit from it.”

Raytheon isn’t alone in its projections. Among those noting the likely boost to profits is Jim Taiclet, the chairman, president and CEO of Lockheed Martin. In a January 25 earnings call, he told investors, ​“If you look at the evolving threat level and the approach that some countries are taking, including North Korea, Iran and through some of its proxies in Yemen and elsewhere, and especially Russia today, these days, and China, there’s renewed great power competition that does include national defense and threats to it.”

This ​“great power competition,” he suggested to investors, bodes more business for the company. Taiclet says, ​“And the history of the United States is when those environments evolve, that we do not sit by and just watch it happen. So I can’t talk to a number, but I do think, and I’m concerned personally that the threat is advancing, and we need to be able to meet it.”

The statements come from leaders of an industry that exerts tremendous influence in Washington, employing an average of 700 lobbyists per year over the past five years, or more than one lobbyist per member of Congress, according to Brown University’s Costs of War project.

Raytheon, Lockheed Martin and General Dynamics are also funders of the influential think tank, Center for Strategic and International Studies, which has been encouraging the United States to take immediate action, including militarily, in the event of a Russian invasion.

“Everyone in D.C. knows that weapons manufacturers are helping skew U.S. policy towards militarism, but they usually try to be less obvious,” Erik Sperling, executive director of Just Foreign Policy, an anti-war organization, told In These Times. ​“They are cashing in on tensions over Ukraine as the U.S. pours weapons into the region.”

General Dynamics, meanwhile, has noted that past tensions have increased demand for the company’s products. On a January 26 earnings call, the company was asked, ​“The Ukraine and everything going on with Russia has been in the headlines. What does that mean for your international Land Systems business, particularly in Eastern Europe?” CEO Phebe Novakovic replied, ​“Well, for some time now, the Eastern European demand for combat vehicles has been at elevated level.”

Novakovic declined, at least explicitly, to speculate about future profits: ​“But,” she continued, ​“I have to tell you that speculation about the considerable tension in Eastern Europe and any subsequent impact on budgets is just till advised given the high threat environment. So, we are hopeful for a peaceful resolution.”

While Boeing did not directly reference Ukraine and Russia, in a January 26 earnings call, Brian West, executive vice president and chief financial officer, said that support among both Republicans and Democrats for high levels of military spending are helping the company’s profits. ​“In the defense and space markets, we’re seeing stable demand,” West said. ​“We continue to monitor the federal budget process in the U.S. and see strong bipartisan support for national security, including Boeing products and services. While governments around the world remain focused on Covid-19, security spending remains a priority given global threats.”

But Kharrazian warns, ​“While it may not be profitable for arms manufacturers, engagement in good-faith, realistic diplomacy is what will benefit the region as a whole and mitigate unnecessary and potentially catastrophic conflict.”

https://inthesetimes.com/article/ukrain ... s-industry

Between fossil fuels and killing machines the Biden regime shows it truly has it's finger on the pulse of capitalist necessity and acts accordingly.
"There is great chaos under heaven; the situation is excellent."

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Re: The crisis of bourgeois economics

Post by blindpig » Thu Feb 03, 2022 3:15 pm

Historicizing Inflation and Price Controls with Andrew Elrod
Posted Feb 02, 2022 by Maxximilian Seijo

Transcript

The following was transcribed by Richard Farrell and has been lightly edited for clarity.

Maxximilian Seijo: Andrew Elrod, welcome to Money on the Left.

Andrew Elrod: Hi, great to be here.

Maxximilian Seijo: So for our listeners who probably don’t know that much about you yet, could you spare a moment to talk a little bit about your personal and professional background?

Andrew Elrod: For sure. I was a teaching assistant and graduate student in the Department of History at UC Santa Barbara for six years. I just finished this summer and filed a dissertation on the history of wage and price controls in the United States from World War II to The Volcker Shock, so sort of in the middle half of the 20th century. I do some public writing related to that, but I’ve also recently taken up a position in the research department of a labor union in Los Angeles–the city where I live–so I’m kind of in a moment of transition. But I like to think there’s a thread keeping my interests between the two jobs together.

Maxximilian Seijo: Cool. For listeners who might know where I am institutionally, you’ll notice that Andrew and I did or are doing our PhDs at the same institution. So there are some heterodox spaces around, perhaps, where you don’t expect them to be. Part of the reason why we wanted to bring you on the show, and why we wanted to have this conversation via Money on the Left, is that inflation and prices are all themes and buzzwords that are really present for us today. We live in an era of 7% CPI measured inflation. We can problematize that measure if we want to, but in relation to this, you recently published a piece with Equitable Growth titled, “Austerity policies in the United States caused ‘stagflation’ in the 1970s and would do so again today.” To begin unpacking this piece, why don’t you start by discussing what the conventional wisdom for dealing with inflation, or this so-called economic problem, is today. Mainly, maybe you can touch on some themes of excess demand, or the demand driven story about inflation. What is it? Who is espousing this story and why? Why do most mainstream economists believe that to be the narrative?

Andrew Elrod: Sure. Well, just to begin with, you opened by saying we’re in an era of 7% inflation–it’s only been a year. Between 1968 and 1979 or so, the annual inflation rate was up between 5 and 12%. That’s twelve years. And that’s remembered as a bad time in history, but we’ve yet to see exactly what’s going to happen today. We are about a year into a new inflationary environment, but whether it’s going to be an era, I think, is kind of open at the moment. But, of course, that’s why it’s in the news. Everybody’s afraid of that. So to answer your question about the conventional wisdom, so to speak, around macroeconomic management, the historical answer is that, since the Depression, but especially since World War II, global economic thought has centered around the ideas that came to be associated with John Maynard Keynes–that there is such a thing as a full employment level of spending, or a full employment level of demand, and that that demand can be manipulated by national governments. This is the set of underlying assumptions that the whole macroeconomics discipline was founded on.

Before the 30s and 40s, there was no such thing as macroeconomics. There was classical political economy. There was a neoclassical school at the end of the 19th century, but macroeconomics is really a 20th century development. And it’s related to a variety of things, including the Depression itself. The intellectual problem of how societies could pull themselves out of the Great Depression was certainly one impetus. Then, there are also developments in statistics. I think Adam Tooze is probably one of the best examples of a historian who’s shown that the concepts themselves, such as the level of demand, depend on governments setting up accounting systems to measure things ‘out there,’ like expenditures by households and firms, and integrating them into a comprehensive system of accounts that you can use as an instrument for doing things that we now call macroeconomic analysis. So the conventional wisdom is a simplified Keynesianism, or what some people might have once called, ‘bastard Keynesianism,’ which holds that raising or lowering the level of demand in a national economy depends on fiscal and monetary policy.

The division between those two things is itself, I argue, a historically specific development, particularly in the United States during the time of McCarthy. But the idea is that the level of spending, the amount of money people have to realize their wants, is something that the government can control through taxes and its own budget, or taxing and spending, which is fiscal policy. The credit system, or central bank policies–often, for much of the 20th century, regulations over how much the private member banks under the government’s central bank, or who have to borrow from the government’s central bank, regulations about what they can do, what they can lend, how much they can lend, for what purposes they can lend, that credit realm is the other traditional instrument–is monetary policy.

So today, a lot of the debate departs from the point of view that there’s too much demand, or people have too much money in their pockets and businesses are investing too much. This is a problem because prices are rising. Demand is above supply causing prices to rise. And the solution to this problem of wanting prices to stop rising is to take money out of people’s pockets to reduce demand, either through reducing spending, and you see this very heavily in an opportunistic and kind of right wing ideological way around the expanded Coronavirus emergency relief measures, like the enhanced unemployment benefits. Joe Manchin, for example, as a Democrat does this and gets in front of the Senate and says social spending is causing inflation, or giving low income, working class people money is causing them to spend more than the American economy is capable of supplying them. That’s causing prices to go up so we can’t have any more of that. And that would be a fiscal contraction.

Interestingly enough, no one is talking today about raising taxes, although that would also be a kind of orthodox fiscal contraction, or anti-inflationary, tool. But then, the other thing that’s really in the news, and in part because it doesn’t rely on Congress, is contractionary monetary policy with the intention of restricting demand. The idea there is that, if you can raise interest rates, then investors are going to, well, first of all, borrow less to make real investments. There’s going to be fewer apartment buildings going up, fewer new warehouses going up, and the cost of credit, which is a crucial component of running a business, is going to go up. So you can slow investment down that way. And the understated, or sometimes unstated, but universally acknowledged, effect of that is to increase unemployment. So part of the reason that I think that writers say there’s such a controversy right now over the idea of the Federal Reserve raising interest rates, is because the effect is going to be to throw people out of work. And there’s still a lot of people who don’t have jobs. So that’s kind of a survey of the inflation dilemma right now as I’m sure you and your listeners know.

Maxximilian Seijo: In what you’re describing, perhaps we could boil it down into a phrase of the economy ‘overheating,’ right, in that conceptual sense. I think you do a great job of looking backward towards the intellectual and conceptual dynamics that produce the composite environment for coming to that conclusion. As you say in your piece that I referenced with the last question, this conventional narrative is itself preoccupied with a subset of an era, of the time in which you describe macroeconomic economics as coming into fruition or to the fore, which is the 1970s. So as we investigate this conventional wisdom, can you tell us a little bit about what the policy debates of the 1970s were, and particularly, as they related to things like inflation or pricing? On the way, the listeners, I think, would enjoy hearing a little bit about the Marilyn Monroe lyric that references JFK’s particular pricing management schemes?

Andrew Elrod: Yeah, the 1970s are a very interesting time, and really, I think, the time when what we think of today as the popular handbook for how to handle inflation was written, because there was a big twelve year debate about what to do. Before 1979, there was a much more sophisticated understanding of what caused prices to rise, or more generally, price determination. It had grown out of the 1920s, sort of the pre-macro era, when price theory itself was not monopolized by ideologues, but instead was an open subfield where growth of the large vertically integrated manufacturing corporation, branded products, and a world in which price competition appeared increasingly to be vanishing from consumer life had to be reckoned with. So there’s this intellectual tradition that dates back to before the war, but it survives after the war. In the mainstream of economic thought, and certainly applied economic thought, where the administrators and politicians’ staff who make the laws that govern the economy and enforce them within that mainstream occupy, there was an understanding that prices in particular markets rose for particular reasons.

There was the very recent memory of World War II, and again during the Korean War, of economy-wide wage and price controls and periods of emergency when Congress granted the president the powers to impose ceilings, dollars and cents ceilings, on particular commodities. Also, surviving after the Korean War, was a knowledge of the government itself as an actor in the marketplace, a large procurer, a huge customer, and a customer whose own purchasing decisions could have an effect in shaping markets. So this is the world in which John F. Kennedy is elected, assassinated, LBJ takes over, and then the Vietnam war happens. This is the world that we think of as the 1970s beginning. So by the time you get to the middle of the 1960s, the beginning of the escalation of the US occupation of South Vietnam, and the bombings of the Vietnam War, there is a fairly elaborate and sophisticated understanding of how to manage the economy. It’s very different from today where salaried pundits will write about the importance of reducing demand and the worries of an ‘overheating’ economy. That phrase itself ‘overheating’ became popularized during the Vietnam War.

Now, just to answer your specific question about Marilyn Monroe, John F. Kennedy, and everything else, the Kennedy administration enters office during a recession. There is a long recessionary period. Technically, it’s two business cycles, from 1957 to 1961, in which the major employment centers have hundreds of thousands of unemployed workers. The auto industry in Detroit in the late 1950s was a hard place, because if you’re an auto worker, you can’t get enough work for the whole year. There was a sustained stagnation in American manufacturing at the end of the 1950s. So this is the environment in which John F. Kennedy runs his notable campaign slogan, “Get America Moving Again.” So he runs on this program of growth. We’re gonna grow the American economy, we’re going to put people to work, we’re going to build factories, we’re going to build houses, and we’re gonna build missiles–it’s a high Cold War period. But the problem with that is that, during both the World War II mobilization, the great thing that finally pulled the country out of the Depression, and during the Korean War, which was itself also a massive expansion of industrial capacity, there had been inflation.

So Kennedy comes into office with this problem of promising growth, but not wanting to cause inflation to happen. The solution that his advisors come to is what are called wage and price guidelines, which is a loose set of non-binding, voluntary guidelines for companies and workers, particularly labor unions, to use in negotiating wages and prices. For the biggest companies, they don’t have to negotiate with anyone; they just set their prices. But it was a set of guidelines for corporate managers and union leaders to consult in making the decisions that govern economic life. So the administration finds itself in a strange, hostile environment with big business, because voluntary price guidelines, as much as the administration had bent over backwards to warn everyone that they’re not going to assuage fears, that they’re not going to impose price controls–they have voluntary guidelines–as much as they do that, the organized businesses in America and the business press says this is de facto price controls. Kennedy is a crypto-communist. Only loony people would say that back then, but the reaction was very hostile.

In fact, by 1962, US steel, which had been the biggest corporation in America, made a point of publicly violating the price guidelines. The company had been meeting with the White House regularly. There had been big labor negotiations in 1961. Labor negotiations are traditionally a time for large employers to raise prices so they can have precautionary funds to pay any wage increase they’re forced to pay. Throughout this period, Roger Blough, the chairman of US Steel, had never indicated that he was going to violate the price guidelines. But in the spring of 1962, after labor negotiations were done, he came to the White House with a memo that said, “These are our new price schedules.” And it’s immediately clear what’s going on for the JFK administration. The President explodes and then there’s an emergency weekend, a three-four day emergency where the Department of Defense and the President’s advisors hold these press conferences saying this is un-American and unpatriotic.

There is a famous anecdote, which if you read any history of the Kennedy administration, this is when the President says, “My father always told me that all businessmen are sons of bitches.” That’s actually printed in Fortune or one of the business magazines. The result is that US Steel rescinds the price increase. They enforce the guidelines. It’s very difficult because they can’t just go to the court. It’s not a law. But what they do is they say they’ll issue a preferred contract, a procurement contract, for steel products at a lower price. I think Kaiser steel, the West Coast steel company, takes it and now business is going on at the lower price. And US Steel, if they don’t want to lose market share, then they’re going to have to meet that. So they rescind the price increase and that becomes a legendary moment of the early Kennedy administration. And it sets up the later 1960s in a really interesting way, where you can see why businessmen, especially anti-communist businessmen, themselves come to oppose Johnson and see the Democratic Party, which had been their instrument, as somehow betraying them. It sets up the greater rightward shift in American political culture.

But, because that was such a high profile scandal, at Kennedy’s birthday in May, they have, famously, Marilyn Monroe come out on stage and do a number in a sequined dress. And it’s very glamorous, but the lyrics to the song she sings are…

Marilyn Monroe:

Happy birthday to you,

Happy birthday to you,

Happy birthday, Mr. President,

Happy birthday to you.

Thank you, Mr. President,

For all the things you’ve done,

The battles that you’ve won,

The way you deal with US Steel,

And our problems by the ton.

We thank you so much.

Andrew Elrod: “Happy Birthday, Mr. President, for all the things you’ve done, the battles that you’ve won, the way you deal with US Steel, and our problems by the ton. We thank you so much.” What is that about? It’s about the fact that the President was willing to call one of the biggest businessmen in the country to the White House and denounce him for profiteering. And that was celebrated. Everybody remembers Marilyn Monroe’s “Happy Birthday, Mr. President,” but nobody remembers what it’s about. So that’s that anecdote.

Maxximilian Seijo: Yeah, that’s such a fascinating story. It makes me think of so many different things and how it reverberates into what we can think about as politically possible relation to pricing in general. Maybe we can come back to that, but I want to start to dig in a little bit. Coming out of that particular moment, there’s a shift in the way that pricing is dealt with. So in your piece, you argue that, throughout this history, the shift to austerity as opposed to these wage price guidelines, perhaps as a microcosm of a larger shift with more complex variables, was not only right wing or reactionary, but was actually not helpful for combating price increases. You even say that this austerity exacerbated the inflationary pressures in a complicated way with this change in price management policy. So could you explain how those dynamics work themselves out?

Andrew Elrod: Yeah, I mean, one fact that we all have to acknowledge is that there are centers of concentrated power in many markets. Not every market, but there are companies, and many writers argue all companies do this, who set their prices after making certain decisions about the preferred rate of return they want, the target profits, the expected volume of sales, all things that that may or may not happen, and that prices are then administered after the fact. So you end up selling and making as much as the market will take at whatever price you set, but you’re setting the price. That analytic distinction in business management is something that many models of price determination do not take into account. They assume that everyone is always receiving a price, that businesses will always be adjusting their prices in real time, but many large companies post their prices at the beginning of the year, and then they post them again when they change them next year. So that’s the starting point for thinking about it.

Now, what’s going on in the 1960s is an intense battle between organized labor and the core industries, including construction. Construction is a little different in that each city will have its big construction firms. One big trend in the business history of the 1970s is the growth of these national construction companies. There is a battle between organized labor, which these unions had been built up maybe a generation before in the Depression, during World War II, and had gone through maybe four or five contract cycles during the 1950s. By now they have a seasoned leadership who know what collective bargaining is and they understand what the real purchasing power of the wages they win are. You have this union leadership now confronting a corporate sector that can raise prices on its own, because of the growth financed by the Vietnam War. So you have an inflationary environment in which companies are raising prices because they can and because unions are then raising wages and forcing up costs.

This is what had been known as a wage-price spiral. In the 1940s, there was a lot of writing about how we arrest the wage-price spiral and how we interrupt the wage-price spiral. And people still use that language, but by the end of the 1960s, that’s what the guidelines were intended to do. If you say the guideline is a 3% increase, then you can’t bargain for a 7% wage increase, because that’s outside of the guidelines. Between 1960 and 1966, the biggest unions of organized labor all adhered to the guidelines out of a sort of political loyalty to the reform project of the Kennedy administration and the Great Society. There had been a sort of political coalition. But by the end of the 1960s, once you do get 3-4% inflation, the guidelines don’t work on labor, for one, and they had never really worked effectively on business, beginning in 1966-67.

So Nixon gets into office in 1969 having campaigned on repealing the guidelines. And that’s a situation where things really decisively change, because during 1969 and 1970, you take the guidelines off and the inflation that had been around 4% in 1968 goes up to 5-6% by 1970. So what we think of today as stagflation is really something that comes into consciousness, or sort of crystallizes, for journalists in 1969-1970. Now, there’s two other parts to this that you should understand, which relate to conventional macroeconomics, or fiscal monetary expansion and contraction. In 1966, once the guidelines broke down, the Johnson administration moves towards fiscal contraction. Historians don’t write about this. The characterization most people get of the Johnson administration, the Vietnam War, certainly something you would hear in an undergraduate lecture, is that, well, the problem with the inflation of the 1960s is that the Johnson administration didn’t raise taxes. That is like an historiographic truth at this point. And it’s wrong. It’s completely wrong.

In November of 1966, Congress repeals a 10% investment credit that was a de facto corporation tax increase. In 1967, things slowed down. Inflation slows down. There is a mini recession. Arthur Okun, one of the members of the President’s Council of Economic Advisers, wrote a book about the Johnson period of political economy and prosperity in which he says 1967 was a “mini recession.” So in that situation, with the guidelines, maybe not everyone is following them, but you have a sort of general contraction, and then the guidelines are an instrument for the government to try to slow things down. And it was viciously fought. That’s the other thing you have to understand. 1967 is the year of the Detroit riot. 1967 is the year of the Newark riot. All of the cities which had been perpetually underfunded are now facing even tighter purse strings from Washington. So you get a precursor of what Nixon actually does in 1967 in the mini recession. But the difference is that, between 1967 and 1969, Nixon lets off the guidelines.

There was a huge explosion in 1969 of wage and price increases because businesses are confronting smaller markets. From a businessman’s perspective, well, you can recoup lost sales volume with higher prices. That makes sense. And from a union’s perspective, it’s survival, because now you’re living in inflation. So the real consumption power of organized workers is being eroded by inflation. So you have to keep money wages going up. That 1969 moment, I think, is really under-appreciated in the economic history of the period, which is usually narrated as, well, the Vietnam War spending kicked off, Johnson didn’t raise taxes, inflation began, and then it lasted until 1979. When, in fact, the story is a lot more nuanced than that. Nixon campaigns, not only on repealing the guidelines, because businessmen hate the guidelines, businessmen see it as a hidden project of price control, which, maybe it was. Nixon campaigns on repealing them as well as on shrinking government spending, or on the excesses of the welfare state, and famously, public universities, but in all sorts of other ways as well. There’s an interesting moment where you see the Republican Party business consensus actually consider expansions to a welfare state.

But anyway, Nixon’s response when he gets into office in 1969 was to cut government spending. His advisors are Herbert Stein, whose book, The Fiscal Revolution, had just come out. He was celebrated as the preeminent expert on fiscal policy and whose own career kind of helped to crystallize the idea of such a thing as fiscal policy as a distinct area of expertise. They advise to cut government spending. So Nixon arrives in 1969. There is the tax increase leftover from the Johnson administration, which they extend. They don’t continue the kind of ambitious social policy expansions of the Johnson administration, and understandably, because that’s what we think of as modern Republican Party ideas, which are being formed at this moment. In addition to fiscal contraction, they get rid of the guidelines. Then, the result is that inflation intensifies. And inflation intensifies as unemployment starts growing. So by the summer of 1970, the unemployment rate is way up and the Republicans lose big time in the midterm elections. And that sort of sets up the avalanching spiral of corruption that is revealed in Watergate.

But it all stems from this summer and fall of 1970 moment, where the administration realizes, “Oh, if we pursue the Orthodox anti-inflation policy here of reducing government spending, raising interest rates, and maybe even raising taxes,” and often it’s like consumption taxes, like raising a sales tax on refrigerators or something, “but if we do all of that, we’re gonna lose the election. Not only are we going to lose the election, but we’re going to intensify the social conflict that has been erupting since the end of the Johnson administration.” 1970 is the sort of height of the anti-Vietnam movement. There’s the National Guard killings at Kent State and the student uprising in Santa Barbara, so there’s a real national chaos in 1970, which austerity only exacerbates. Then, the rest of the next four years you can kind of see emerge out of this problem, which the ruling class solutions are incapable of solving. So Nixon has to sort of improvise.

Maximilian Seijo: I want to hold up here because I think this is really, really important. There are a few theoretical insights that maybe can be pulled from this tale that you’ve told here, the story of this history, as it relates to economic causality. Then, I want to push slightly into The Volcker Shocks and talk about the oil supply shocks as well, because that’s a central part of the narrative. But I think for our listeners, it’s important to say here, that the wage-price spiral, which for any listeners who’ve done an undergrad in economics, such as me, you hear all about this all the time. This is the problem of the last 50 years of macro policy. And it is the problem because of the things that you laid out, Andrew. What’s interesting about your history here is that it inserts price management through guidelines and through price controls, in maybe a larger sense, causally, in a way that almost comes before the chaos of the wage-price spiral.

So the foreclosure of price management, as a policy tool, is what sets the stage for the evacuation of the essential politics, that is, the politics of this situation. So it becomes a purely economic dynamic in the wake, or in the vacuum of, that political evacuation. I wanted to say that because I think that’s a fundamentally crucial thing for us to carry to today in this conversation for talking about the inflation of our moment. And in doing so, I want to push you back into the history. People talk about The Volcker Shock all the time. And, of course, the oil supply and the OPEC embargoes are rich in our consciousness when we’re thinking about this era. What effects did these things have on this wage-price environment?

Andrew Elrod: I think the sort of philosophical distinction between economics and politics that you’re drawing our attention to here is indispensable for understanding what happens during the Nixon administration. And maybe one way of putting it is that the politics of price control had been very clear before Nixon. The federal government had imposed price controls in moments of emergency to protect working class incomes. It was the condition for the successful mobilization of World War II to keep people working in those war factories. You had to have affordable food and you had to have affordable rent. There was a dramatic expansion of rent control during World War II, and similarly, during the Korean War. It was that legacy that motivated the Kennedy experiments in voluntary price control.

But, at the same time, the Washington, Cambridge, Massachusetts, and New York axis came to accept certain perspectives of, frankly, corporate managers. So you end up with a voluntary system. The politics of intervening in price decisions, what otherwise would be private price decisions out of a question of political and civil rights, were protecting working class incomes. There’s a real class politics to it. You make a good point in saying, once price controls were abandoned, politics were evacuated from economic management. But there’s a moment in the history, I would say, that we’re not acknowledging, which is the politics of the Nixon price controls, which when imposed, the Democratic Congress sort of goads Nixon into authorizing this two years in a row.

Then, finally, Nixon does it when he sets up the Cost of Living Council, which is the supervising body under the Secretary of the Treasury for administering the wage and price controls and the mandatory legal price ceilings. He does it in a way that is much more permissive to profit increases than to wage increases. So the politics of the Nixon price controls reverse the class dynamic in the price control apparatus. It becomes an instrument of the ruling class. If you read the radical economists writing about the Nixon price controls, they’re all very explicit about this point. This is a program designed to further immiserate the working class, to pad corporate profits, and to reestablish the commanding position of American corporations in the global economy. They have a real conspiratorial critique and it’s not wrong.

But that’s the view and it’s bolstered by the record of, famously, Arnold Weber, who had been one of the members of the Pay Board. I think he was the commissioner of the Pay Board, which is the wage setting body of the price control program. He told the newspapers, “The goal here is to zap labor. That’s what we’re doing here. We have to get these organized labor unions that are fighting back against inflation across the economy. We have to zap labor.” So that’s where the politics of price control are reversed. And I truly do think that that experience for boomers taught boomers a lesson. It’s dressed up today in all of these formal economic arguments about why price controls don’t work. But I do think there’s a deeper cultural and political memory of the fact that the last time we used price controls it was to hurt the working class. It was an instrument in the class war from above.

So people don’t trust the federal government. And, of course, this is all exacerbated by the fact that during the price control regime, the community to reelect the President is taking all these illegal campaign bribes from the Fortune 500 companies and using them to break into the Democratic Party offices in Watergate and steal Daniel Ellsberg’s psychiatric files, and the plethora of underhanded campaign strategies that became known as “rat fucking.” That’s happening under the price control regime. So this is setting up the popular perceptions, or whatever you want to call it, the American public’s understanding of what goes on under federal power. Your question was about the oil price shocks and The Volcker Shock later in the decade, but I think to understand what’s going on after October 1973 when the Yom Kippur War begins in Palestine and OPEC decides to quadruple the price of oil as a protest, you have to understand what happens from there forward. You have to begin to unpack all of the baggage that had been built up to that moment.

Maximilian Seijo: So this context, I think, is really important. And one of the things I took away from your piece was that the oil shocks, while, as you said, quadrupled the price of oil overnight, these underlying dynamics are often obscured in the memory by that shock of the price at the pump–that you can look up and see going up so rapidly. And not necessarily to get too lost in the weeds, but I wanted to hear you talk about that dynamic, because that’s certainly what I took away from your piece.

Andrew Elrod: This is another important point, I think, that needs to be made in economic history, or in places in economic history where real revision needs to happen. Like the 1967 mini recession that is never taught. The inflation of the Nixon administration begins before the controls. And the pressure on food prices and oil prices begins before the oil shock. This is crucial, because the history is really mistold when it’s explained as, “Oh, the American people knew how to run the American economy.” The experts were in charge, and then there was this unforeseeable, external event that really threw a wrench in the machine. But it’s not true. There had been all sorts of problems in the two years before the oil shock, which, in some ways, allowed us to better weather the oil shock. And one example of this is energy. The price of petroleum, raw crude petroleum out of the ground, and then the refinery price, the price of gasoline, those are all controlled. And that system of controls is the customer of the oil price increase that comes later. As bad as it was, the domestic price of oil didn’t quadruple in 1974. Now, there’s a lot to say about all of that.

Maxximilian Seijo: Yeah, I think we can leave the listeners a bit wanting on some of that. I think that’s a really fascinating point, and actually very much reverses the conventional wisdom that we always hear, which is, of course, like you said, that an external effect threw a wrench in our well functioning–maybe there was some pressure building up–machine.

Andrew Elrod: Before you ask again, there are two points about the pre-OPEC controlled period, I think, to flesh out the story. Raw agricultural commodities, like bushels of corn and wheat, were left outside of the Nixon controls. Since the Great Depression, one of the big things the New Deal does is it brings agriculture completely under federal management. So every year the US Department of Agriculture–really twice a year, because you have multiple planting periods–through the 50s and 60s, determined the preferred planned acreage in the allotment that each farm company–or farmer, there are still some family farms–would plant. The annual supply of raw agricultural commodities was the policy variable they were manipulating. It was a completely planned system.

And in 1972, the high period of Nixon control, even though it’s an instrument against the unions, it did stabilize the economy. Nixon wins reelection in a huge landslide in 1972. During that period, the State Department under Henry Kissinger pivots to détente with China and USSR. Part of the global strategy for people like Henry Kissinger is to restore diplomatic ties with the Soviets and China. And part of that is the grain deal. So we have these huge shipments of like 10-20% of the US agricultural output being sent abroad. As this was becoming known to the price commission, the Cost of Living Council, they became very concerned about the supply of wheat and corn in 1972.

And if you read the record, they publish books with retrospectives with the Brookings Institution, but also just in the newspaper record. They go to the White House and say, “You have to expand plantings, you have to expand supply, if you’re going to ship all of this food to other countries. You have to expand supply at home, otherwise, food prices are going to go up.” So the price of food at the processor and the retail level is controlled, but the price of raw agricultural commodities is not. And, as you know, the simplest economic model would show you the price goes up, or demand exceeds the planned supply. So I think that’s a planning error that should be acknowledged. Now, the second point is about oil.

The record of the oil industry during the Nixon administration is often used as an example of the failure of controls, because prices were controlled in August 1971. There was a freeze, and then they moved into a controls program at the end 1971 into 1972. That’s when the shortages begin. You have gas lines before OPEC. For both the economist and the businessman, his argument is that companies won’t produce at a loss if you control their prices. That it’s too close to cost. There’s no incentive to produce. Nobody’s gonna produce at a loss. That is something that happened in the petroleum industry. But today, there’s a second lesson we can learn from this, because it was seen as a huge failure to have gasoline and petroleum production decline in the 1970s. But today, that wouldn’t be seen as such a terrible thing. In fact, today, the problem of how to reduce petroleum extraction is like a huge problem. There are whole institutes devoted to this, but we have an example of when we actually did it.

Maxximilian Seijo: Credit history really can be cruel sometimes. As we’re sort of coming more to the end of this, there’s something I wanted to ask you about, which is something perhaps more present in my discipline, which is critical humanities. From the more art side and a theoretical approach, there is this narrative around the Marxist analytic of labor and capital as this historical antagonism. Normally, how the story of this era that you’re describing gets told is that this two sided antagonism is tempered through the New Deal, through the war, and then there’s the mid-century period, you could call it some sort of new social contract, where this antagonism is set aside, and we have this prosperity that’s dependent upon external accumulation. But this can’t last, right? There’s a falling rate of return on this social contract. Ultimately, steam builds up, and forgive the mixed metaphors, and the top pops off, and this antagonism comes into its natural state again as a purely economic antagonism.

What I’ve learned from you is that, there are aspects of this story that rhyme with the truth, and certainly the stakeholders, whether they’re regional or corporate, are fighting other stakeholders in what we might call the working class or the unions. This is certainly happening. There are certainly conflicts there. But to me, what your story does is it really nuances and brings this ambivalence around the politics of conflict and antagonism to the fore and perhaps shows these levers of mediation that structure these dynamics. So it’s not that, as you say, the 1970s happens, then there is a pop, and then we’re in this natural state of conflict and it spirals out of control. Those dynamics are in some sense constitutive of things that happen in the world. But there are also political decisions and intellectual debates that really structure the way these conflicts play themselves out. I guess that’s less a question and more of a statement, but I would be curious to hear what you have to say about those not absolutely distinct, but still different stories for narrating this era.

Andrew Elrod: Well, I think the notion of the era of consensus is something that has to be understood in the context of an intensely pressurized organized conflict. There’s a very important article on the 1959 steel strike. In the steel industry, the White House gets involved every time. So three historians, Gabriel Winant, Kristoffer Smemo, and Samir Sonti wrote this great article, critical historical study, about the 1959 steel strike in which they make the larger historiographic intervention that the era of consensus can only be understood as a moment of stalemate and deadlock in a highly organized conflict that had been bequeathed by the experience of the Depression and the organization of the working class that accompanied it. So, as someone who’s influenced by their work, I think the larger roadmap you laid out about interpreting the history of capitalism in the 20th century is useful, but it can be even more useful if we understand the conditions that created the so-called stability, and the political divisions that existed then, which would grow to lead to what is everywhere described as the unraveling, the shattering, or the end of the consensus. You can see it all in embryo, to mix my own metaphors, in the 1950s. You can see it there already.

As a final example of this, with the fiscal contraction that the LBJ administration pursues in 1967, the Vietnam war is going on so it’s not that total government spending is falling, but they want to take spending out of the civilian economy. This is coming at the height of the Civil Rights Movement. So the whole question of what are we going to do about the Black ghetto in the cities, that’s a situation in which you have the left wing of the Democratic Party saying openly, if you want to take money out of the economy, you have to raise taxes on wealthy people. You have to raise corporation taxes. Part of the reason that the tax increase that takes so long to come is this political division about the composition of government spending and who it’s going to go to. You have many high wage white union workers who, in this period, do turn to the right, frankly, out of the racist perception that there’s something unfair going on with the government budget. That’s a really good example of where the detailed institutional history lens helps with the broader conceptual distinction between conflict and consensus, where the organized conflict that produces so-called consensus is beginning to disorganize, and opportunities open for both the ruling class and workers, or the left and the right, or however you want to frame it, but opportunities do open in those periods as well.

Maxximilian Seijo: I think, then, for the last question I want to ask, to this consensus and to these actors who today are arguing in favor of austerity as a solution to the inflation that we’ve seen over the last year, or since the dynamics of the COVID pandemic have started playing out, what would you say to them, in short? And I can even make it a particular person. What would you say to Jason Furman who is arguing that we need a certain type of reduction of demand and that’s the solution?

Andrew Elrod: What are you doing? I can’t imagine ever having an opportunity to talk to that person, but I would say what are you doing? Why is it so important to use your professional expertise and the weight of all of your credentials in this way? Is it more about your profession? Are you truly acting as a good faith historical actor? That’s probably too provocative, I wouldn’t say that. But I think that the class politics of the government budget need to be understood as something more than an abstract full employment level of demand, and that the private sector has really failed to give Americans, people living in the United States, an adequate, basic standard. There are growing tent cities in every city. There’s a generation of people burdened with student debt. People fear the healthcare system–the place that’s supposed to keep you alive. So questions about the government budget should also be considered with this in mind. And if you’re being guided by macroeconomics, that’s a handy instrument to avoid these real questions.

Maxximilian Seijo: I appreciate both the psychoanalytically tinged answer and the straightforward, historically-minded answer. I think they’re both important and two aspects of what we’re contesting today, and where we definitely share a lot of political grounds. So I just wanted to say, Andrew, thanks so much for coming on the show. I really enjoyed this conversation and hope to talk more again soon.

Andrew Elrod: My pleasure. Let’s be in touch.

https://mronline.org/2022/02/02/histori ... rew-elrod/
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Re: The crisis of bourgeois economics

Post by blindpig » Sat Feb 05, 2022 2:39 pm

Federal Job Fakery Hits Peak Balderdash

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Celebrate because the Epocalypse is here!

The White House warned us the payrolls print would be low due to Omicron. Bank economists ranged from low to sub-basement negative numbers for today’s expected payroll print. Then the number came out massive beyond belief … and self-contradictory beyond belief as well.

467,000 jobs added to the economy in January — four times higher than what economists expected on average and even double the highest guess by economists, many of whom had joined the White House in expecting a negative print!

Bond yields busted through a ceiling that had held in place for two years because wages were also reported as being way up (+0.7% MoM / +5.7% YoY) — a one-two combination punch when combined with the soaring employment numbers, meaning inflation should still face considerable upward pressure, forcing the Fed to stay on track with tapering and then tightening.

Stocks bounced all over the place — up then down then way up then way down (as of 11:15 AM EST).
Facebook/Meta, however, managed (so far today) to actually deepen the all-out biggest plunge in market value for any company on the face of the earth in the entirety of market history! It crashed an absolutely breathtaking 26% yesterday and is still falling this morning! (Gee, you would think changing to a snazzier, trans-metrosexual name would have helped more.) After such a spectacular crash, one would also have thought the market would catch its balance, realizing that perhaps it had overreacted, and correct what it might perceive as an overreaction, but NO. Instead, it is taking Faceplant down further into the dirt it deserves.

Think about the baloney level in a market that ever raised Zuckerberg’s chubby boy Face up so high above the business the company would actually be reporting in the first place? There is no way a company can lose, at the moment of this writing, almost 28% percent of its entire value, accumulated over YEARS, in just 24 hours, except that all of that excess value was obscene speculative hot air (as believed here) in the first place.

Such built-in abject nonsense is why the stock market is going to crash spectacularly as I’ve said, given Facebook was one of the market’s top-five generals. As I noted here ever so briefly again after yesterday’s market rise, the blow-off top was already clearly here even though some people have such dim eyes they cannot see it to save their sorry souls to where they are still asking when will the market rise to a blow-off top. Unbelievable.

Fantasy value gets knocked out when the economy goes into recession, so reality finally starts to sink in, and the market prices back down to reality. Reality always trumps economic denial in the end, but it may take awhile. The total testosterone crowd can keep things up for awhile, but sooner or later fatigue sets in. Investors are forced to look over the edge of the precipice and see they are on a thin shelf overhanging NOTHING. They suddenly realize it wasn’t that the top was too far away to see. They couldn’t see it because they were standing on it, still ridiculously thinking a top should be something they have to look up to find. It was the bottom that they couldn’t see! They even miss the point every single time that this is exactly how all blow-off tops formed in the past and were experienced by those who got taken in by them because they were still looking up when the only way forward was down on all sides.

Fortunately, people seem to have somewhat seen through Amazon’s blaze of numbers that came in after the market closed yesterday, sending Amazon up 20% in futures overnight. That, too, I thought was completely the euphoric response of blow-off insanity. (Of course, who knows if the smidgeon of restored sanity will hold through the day.) What I saw yesterday afternoon was good headline numbers and some really lousy numbers below the hood that I commented on at Zero Hedge, but cooler heads seem to have gained a little sanity about that this morning, bringing Bezos’ 20% rocket ride halfway back toward earth at one point. Looks like his rocket ship might not singlehandedly save the NASDAQ from Faceplant after all. But who knows? Stupidity is still being priced in everywhere from one day to another. Overall, though, this bear-market rally appears to have hit a snag.

How do you explain the soaring payroll numbers in light of your recession prediction, Dave?

First, note that the actual payroll numbers FELL OFF A CLIFF! I’m putting reality in large bold print there because most financial reporters will probably miss that entirely. That’s right: the real count — the unadjusted numbers — actually FELL by 2.8 million! Whoa!

The numbers on the left in the graph below are the actual total numbers that came in as reported in December (blue) and now January (red). You can see January’s actual numbers dropped 2.8 million from December’s. The numbers on the right are the official reported totals as adjusted by the BLS:

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Zero Hedge

You can see, December’s total payroll (numbers in thousands) got adjusted way down (blue bar on the left side of the graph compared to blue bar on the right) while January got seasonally adjusted way up (red bar on the left to red bar on the right), resulting in an apparent rise from December to January in the final adjusted numbers of +467,000 jobs. That means the entire unexpectedly large job gain happened due to absolutely massive seasonal adjustments created by the BLS that turned a jaw-dropping plunge into a nice, healthy rise.

To add to the confusion, the BLS reports that December’s original adjusted month-on-month change from November just got revised at the end of the year from rising 199K (as originally reported) over November’s adjusted total to rising 510K, while November’s month-on-month rise from October also got revised up from 249K to 647K!

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Zero Hedge

So, everything is suddenly roses for the economy and in line with the Fed’s need to tighten harder based purely on adjustments and revisions. Of course, we have to remember that presidents oversee the BLS, so ….

Thus, the huge gains in payrolls came entirely from seasonal adjustments plus these end-of-the-year revisions. The revisions floated the past five months of the year way, WAY up by more than 800K jobs while months before that, which no one cares about any more, were adjusted down by even more than that, making room for the shift on the recent end.

I’ve asked in years past with end-of-year revisions this size, why do we trust any of the adjusted numbers because up can be turned into down with just the revisions to the formerly seasonally adjusted numbers. Then greater finalized revisions to the adjusted numbers usually come in after March. And those revised adjusted numbers typically get another final revision a year later. There seems to be a lot of room for goal seeking in so many highly adjusted, then revised and then re-revised numbers. And that’s why I routinely call it the Bureau of Lying Statistics or just the BS Dept. for short.

The official number of unemployed people bumped up a fraction (0.1 percentage point) from December to January at 6.5-million, but 6.5-million is a decline of 3.7-million year-on-year, though it is still 800,000 higher than it was just before the pandemic hit the US. In addition, the number of people who are not counted as “unemployed” but who want a job remains locked at 5.7-million. These are the people who dropped off the official unemployment rolls because their benefits expired or because they didn’t fulfill their duty of looking for a job in the last four weeks. That number is only down by 1.3 million from a year ago, and remains 700,000 higher than just before the pandemic.

How does it happen, though, with all those whose upward revisions and adjustments in the January payroll number, the unemployment rate ROSE, too, even if just a tiny fraction? How do you get a rising unemployment rate and rising total number of unemployed people in the face of significantly RISING payrolls??? That further indicates to me the rising payroll numbers don’t add up, given the entire rise was due to adjustments and would have been a massive plunge without those adjustments, and one would normally expect a drop in payrolls would coincide with a rise in the total number of unemployed on benefits because they had a job and are now looking for work.

What the heck?

This is a “what the heck” number that really makes me wonder more than any other time (and I’ve always wondered) just how rigged these jobs numbers always are by these seasonal adjustments. Several years ago I reported on how the December jobs number was up month-on-month something like half a million after seasonal adjustments, even though the raw number had dropped month-on-month by about half a million. The massive trend-changing adjustment, the BLS reported, was necessary due to the month being unseasonably cold so the Bureau of Lying Statistics had to adjust their reported number up to compensate for the unusually cold weather. When the next December was unseasonably warm, the raw number again fell by about half a million, but the BLS adjusted number was again an improvement by about half a million, and the BS Dept. claimed they needed to adjust their reported number up to compensate for the unseasonably warm weather.

Apparently, there is only one precise degree point at which job reports do not have to be adjusted up and no temperature at which they can ever be adjusted down until revised down months after anyone cares. I’ve always wondered, why do we adjust for weather at all? The weather is what it is; if it impacts jobs, it impacts jobs. If it impacts the economy, that is just economic reality. Just add a footnote that jobs may have gone up or down x amount because of extreme weather since that purported cause is nothing more than a guess anyway.

Why EVER even give a grain of salt to these numbers when the source of the numbers admits their “adjusted” numbers were so drastically off throughout the previous half year that they had to revise the last five months up by an average of 163,000 jobs each month? That revision is the same size as the total actual growth economists were expecting on average for this month. If you were that far off for that many months WHY DOES ANYONE EVER EVER LISTEN TO A WORD YOU HAVE TO SAY? It is as if the weather person forecast thunderstorms with massive winds and pouring rains every day for half a year, and every day was sunny with a nice breeze.

Does anyone wonder how there can be historically significant improvements in the number of jobs on payroll and in the labor-participation rate, yet unemployment RISES??? There is nothing even REMOTELY believable about these numbers.

So, what the heck?

Do you suppose the financial media is going to show evidence of a single living brain cell and grill the sources of this information to death, as they should? Heck no! They’ll just muse about what it means like they always do, as if numbers like this mean anything other than error, when they should be taking the BLS to the mat over how it can possibly be so completely wrong based on its own revisions and over how the numbers do not even appear to add up logically! Instead, the sleepful, watchless financial media will probably slumber right through this upset and report the numbers as if they are all facts without evidence of a thought in their heads.

I had planned to write part two of “The Everything Bubble Bust” for my patrons today, and maybe I’ll still get to that; but sometimes the nonsense just flies up out of nowhere like a malfunctioning retractible barrier that you run smack into. It is particularly hard to sit quiet when the supposed experts just regurgitate it all year after year as if “the BLS said it, so it must be accurate,” even though the BLS routinely shows us via its revisions it is almost never even close to accurate!

https://thegreatrecession.info/blog/fed ... alderdash/

More and more it seems that any pronouncement from our government which is actually important is bullshit and propaganda.
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Re: The crisis of bourgeois economics

Post by blindpig » Mon Feb 14, 2022 3:11 pm

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Why capitalist governments worry more about inflation than unemployment?
Posted Feb 13, 2022 by Prabhat Patnaik

Originally published: Peoples Democracy (February 13, 2022 ) |

Capitalist governments invariably seek to control inflation by enlarging unemployment. This has nothing to do with any belief in a stable “trade-off” between the two, namely in a stable curve that links the two. Even those who attribute inflation to other causes, such as excessive money supply (“too much money chasing too few goods”) and find the solution to it in monetary stringency, are in effect seeking to control it through larger unemployment, since monetary stringency causes larger unemployment.

This raises many questions. The first question is: why is this so? Why do governments not maintain high levels of employment while adopting other measures against inflation such as direct price-controls, supplemented, if there are shortages, by rationing? The answer is that capitalists do not want too much direct interference by the government in the economy, for that undermines the social legitimacy of the system by raising the question in people’s minds: what good is a system if it needs so much direct interference by the government to rectify its ills?

The second question is this: since unemployment too is against the interests of the capitalists, as it means a smaller production of surplus value (because of fewer employed workers), why do capitalist governments show greater concern about inflation, even to the point of enforcing greater unemployment in order to combat it? It is not as if the anti-inflationary weapon of unemployment is used only at very high rates of inflation; in fact it is applied even at low or moderate rates of inflation. In the United States despite millions more still remaining unemployed compared to before the pandemic, interest rates are being raised just because the inflation rate in December has reached 7 per cent; the fact that this is the highest rate witnessed in any month since 1982, only underscores how keen successive US governments have been to control inflation over the last 40 years.

Tony Blair during his prime ministership of Britain had even declared the Tories’ inflation target of “below 2.5 per cent” as not being sufficiently low. His implicit suggestion was that no matter how high the unemployment rate required to achieve near-zero inflation may be, the country should pay that price, which was a total reversal of the earlier Labour Party target of full employment.

Even when the inflation rate is relatively low, the slightest rise in it makes governments jump into action and start raising unemployment to counter it; they are in short more concerned about inflation than about unemployment. The question is why?

The reason, given by Blair and a host of right-wing economists, is that such low inflation eventually brings about faster growth and hence higher and more durable employment in the long-run. But this is just an ideological assertion: higher unemployment through a restrictive fiscal and monetary policy, which invariably results in higher unutilised capacity, discourages private investment and hence lowers the time-profile of employment. In fact, Blair’s assertion is on a par with the claim that employment is raised in the long run by giving tax concessions to capitalists to boost their post-tax profits, while taxing workers to restrict the fiscal deficit. Quite apart from their theoretical vacuity, there is not an iota of evidence to support either proposition.

A second reason adduced relates to the welfare of the class of workers, that workers are more comfortable with unemployment than with even low or moderate rates of inflation. Capitalist governments however scarcely bother about the welfare of workers; besides, it is not even clear that workers are more concerned with inflation that unemployment. The threat of unemployment, hanging like a Damocles sword over their heads, generates among workers an immense insecurity that cannot be overestimated.

Some liberal economists however have advanced this argument. The well- known economist John Hicks, for instance, has tried to explain capitalist governments’ privileging of inflation-control over the reduction of unemployment (of which the Thatcher government in Britain was a major example), in terms of the preference of ordinary people (namely workers). But such explanations are too forced, even in their theoretical presumptions, to be convincing.

The capitalist governments’ greater concern with inflation rather than unemployment reflects in fact the hegemony of finance in contemporary capitalism. The wealth in capitalist economies is held overwhelmingly in the form of financial assets these days, and even though financial assets represent claims on physical assets, the movements in the prices of financial assets are quite unrelated to, and non-synchronous with, the inflation in prices of goods and services. Inflation in goods prices therefore immediately, in the first instance, reduces the real value of financial assets. This is so even when the rate of increase in the prices of financial assets exceeds over time the rate of inflation in prices of goods and services. Finance capital is invariably opposed therefore to inflation in the prices of goods and services and wants such inflation to be kept under strict control; and this is what capitalist governments seek to achieve.

Increasing unemployment to control inflation thus demonstrates clearly and blatantly the subservience of capitalist governments’ policy to the interests of the hegemonic class. And it is not surprising that successive British governments from Thatcher to Blair, because of Britain’s ambition to keep London as the financial capital of Europe, have been most vocal about keeping the rate of inflation as low as possible.

But the question may be raised: with greater unemployment the scale of surplus value produced in the economy would be correspondingly less, and since all segments of capital derive their incomes from the surplus value produced in an economy (ignoring what accrues from abroad), a lower magnitude of produced surplus value would also lower the incomes accruing to finance; then why should finance not be as concerned with unemployment as it is with inflation?

The answer lies in the fact that the disjunction between the real and the financial sectors is carried to an unprecedented degree in capitalist economies in the era of hegemony of finance capital. The fact that while the real economies are saddled with mass unemployment and stagnation ever since the collapse of the housing bubble in the United States, even as stock markets around the world are doing well, is a reflection of this disjunction. This in turn is sustained by the fact that the bonanza for finance is not confined only to the surplus value that is produced in an economy.

The stock market is a place where it is not enterprise but speculation that flourishes, and the guiding motive is not so much income from the surplus value produced in an enterprise but the capital gains that can accrue from buying a financial asset today for sale at a higher price tomorrow. But then it would be asked: where does this gain that accrues from selling at a higher price tomorrow the financial asset bought today, come from? If it does not correspond to any produced surplus value then it must be fictitious, in which case one person’s gain must be another person’s loss. Even if a whole lot of persons gain from a chain of sales, somebody ultimately must lose an immense amount to counterbalance the gains of all these persons.

This certainly happens, but there are at least three ways that such losses of those who get caught when the market collapses, are socialised, i.e., do not remain confined only to the circle of stock market participants; and in such a case the participants as a whole gain. One is through the fact that the purchase of a financial asset is not necessarily financed out of the pockets of the buyer, but by borrowing; the collapse of the market therefore leads to numerous persons, who had directly or indirectly loaned to the purchaser of the financial asset, getting defrauded. The second is through the government coming to the rescue of the financial institutions through which such loans had been arranged, by using tax payers’ money; in this case the losses of the holders of financial assets when the market collapses, are borne by the ordinary tax-payer. The third is when such government support comes not from tax revenue but from selling government assets, in which case the market is sustained through the addition of new assets.

All these are instances of what Marx had called primitive accumulation of capital. The source of the bonanza in the first two cases is the squeezing of a mass of ordinary people to enrich the financial oligarchy, which is a clear case of primitive accumulation; and in the third case it is the appearance and commoditisation of new assets that puts wealth in private hands.

In other words, quite apart from the produced surplus value, there is an additional source of income for the financial oligarchy that comes from primitive accumulation of capital. For this reason unemployment is less important from the point of view of this oligarchy than inflation; and this is duly reflected in government policy which privileges the latter over the former.

https://mronline.org/2022/02/13/why-cap ... mployment/
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Re: The crisis of bourgeois economics

Post by blindpig » Sat Feb 19, 2022 2:38 pm

THE REAL ADVERSARIES OF THE US ARE ITS EUROPEAN ALLIES AND OTHER PARTNERS
michael hudson

Feb 17, 2022 , 7:10 a.m.

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From left to right: Boris Johnson, Joe Biden, Angela Merkel and Emmanuel Macron (Photo: File)

THE UNITED STATES SEEKS TO KEEP THEM AWAY FROM TRADING WITH CHINA AND RUSSIA

The Iron Curtain of the 1940s and 1950s was apparently designed to isolate Russia from Western Europe, to keep out communist ideology and military penetration. The current sanctions regime is directed inward, to prevent NATO and other US Western allies from opening up more trade and investment with Russia and China.

The goal is not so much to isolate Russia and China as to keep these allies firmly within America's own economic orbit. Allies must forgo the benefits of importing Russian gas and Chinese products, buying LNG and other US exports at much higher prices, accompanied by more US weapons.

The sanctions that US diplomats are insisting their allies impose against trade with Russia and China are ostensibly aimed at deterring a military buildup. But that buildup may not really be Russia's and China's main concern. They have much more to gain by offering mutual economic benefits to the West. So the underlying question is whether Europe will find its advantage in substituting Russian and Chinese supplies for US exports and the associated mutual economic links.

What concerns US diplomats is that Germany, other NATO nations, and countries along the Belt and Road route understand the gains to be made by opening up peaceful trade and investment. If there is no Russian or Chinese plan to invade or bomb them, what need is there for NATO? What need is there for rich allies of the United States to buy so much military material? And if there is no inherently adversarial relationship, why do foreign countries have to sacrifice their own commercial and financial interests by relying exclusively on US exporters and investors?

These are the concerns that have led French Prime Minister Macron to invoke the ghost of Charles de Gaulle and urge Europe to move away from what he calls NATO's "brainless" Cold War and break with pro-US trade deals that they are imposing increasing costs on Europe while denying it potential gains from trade with Eurasia. Even Germany is resisting freeze demands for next March by dispensing with Russian gas.

Instead of an actual military threat from Russia and China, the problem for US strategists is the absence of such a threat. Every country has realized that the world has reached a point where no industrial economy has the manpower and political ability to mobilize a standing army of the size that would be needed to invade or even fight a major battle with a major adversary. That political cost makes it unprofitable for Russia to retaliate against NATO adventurism that is trying to incite a military response on its western border. Ukraine is not worth taking over.

The growing pressure of the United States on its allies threatens to push them out of their orbit. For more than 75 years they had few practical alternatives to US hegemony. But that is changing now. The United States no longer has the monetary power and seemingly chronic balance-of-payments and trade surpluses that allowed it to craft the world's trade and investment rules in 1944-45. The threat to US dominance is that China, Russia, and the heartland of Mackinder's Eurasia World Island are offering better trade and investment opportunities than the United States is offering with its increasingly desperate demand for sacrifices from the United States. its NATO and other allies.

The most blatant example is the push by the United States to block Germany from authorizing the Nord Stream 2 gas pipeline to obtain Russian gas for the arrival of the cold. Angela Merkel has agreed with Donald Trump to spend $1 billion to build a new LNG port to become more reliant on high-priced US LNG. (The plan was canceled after US and German elections changed both leaders.) But Germany has no other way to heat many of its homes and office buildings (or to supply its fertilizer companies) than with Russian gas.

The only way left for US diplomats to block European purchases is to goad Russia into a military response and then claim that retaliation for this response outweighs any purely national economic interest. As Under Secretary of State for Political Affairs Victoria Nuland explained at a State Department press briefing on January 27 : "If Russia invades Ukraine, one way or another, Nord Stream 2 will not move forward." The problem is creating a suitably offensive incident and presenting Russia as the aggressor.

Nuland put who dictated the policies of NATO members succinctly in 2014: "Fuck the EU." He said this while telling the US ambassador to Ukraine that the State Department was backing the stooge Arseniy Yatsenyuk as Ukrainian prime minister (impeached after two years over a corruption scandal), and that US political agencies were backing the bloody massacre. of Maidan that ushered in what is now eight years of civil war. The result devastated Ukraine in much the same way that US violence in Syria, Iraq and Afghanistan did. This is not a policy of world peace or democracy that European voters support.

Trade sanctions imposed by the United States on its NATO allies span the entire trade spectrum. Austere Lithuania has given up its market for cheeses and farm products in Russia, and is blocking its state railway from transporting potash from Belarus to the Baltic port of Klaipeda. The majority owner of the port complainedthat "Lithuania will lose hundreds of millions of dollars for stopping Belarusian exports through Klaipeda", and "could face legal claims worth 15 billion dollars for broken contracts". Lithuania has even acceded to the US request to recognize Taiwan, causing China to refuse to import German or other products that include Lithuanian-made components.

Europe is going to impose sanctions at the cost of rising energy and agriculture prices, prioritizing imports from the United States and forgoing Russian, Belarusian and other ties outside the dollar zone. As Sergei Lavrov put it : "When the United States thinks that something is in its interests, it can betray those with whom it was friendly, with whom it cooperated and who served its positions throughout the world."

US SANCTIONS ON ITS ALLIES HURT THEIR ECONOMIES, NOT THOSE OF RUSSIA AND CHINA
What seems ironic is that those sanctions against Russia and China have ended up helping them instead of hurting them. But the main objective was neither to harm nor to help the Russian and Chinese economies. After all, it is an axiom that sanctions force the affected countries to become more self-sufficient. Deprived of Lithuanian cheese, Russian producers have produced their own and no longer need to import it from the Baltic countries. America's underlying economic rivalry is intended to keep European countries and their Asian allies in their own increasingly protected economic orbit. Germany, Lithuania and other allies are being told to impose sanctions directed against their own economic well-being by not trading with countries outside the orbit of the US dollar.


Aside from the actual threat of war resulting from US bellicosity, the cost to US allies of giving in to US trade and investment demands is becoming so high as to be politically unaffordable. For nearly a century there has been no choice but to accept trade and investment rules that favor the US economy as a price for US financial and trade support and even military security. But now an alternative threatens to emerge, one that offers the benefits of China's "Belt and Road" initiative and Russia's desire for foreign investment to help it modernize its industrial organization, as it seemed promised thirty years ago, in 1991. .

Since the closing years of World War II, US diplomacy has aimed to lock in Britain, France, and especially the defeated Germany and Japan, to become economic and military dependencies of the United States. As I documented in Super-Imperialism, American diplomats dissolved the British Empire and absorbed its sterling zone through the onerous conditions imposed first by the Lend-Lease and then by the Anglo-American Loan Agreement of 1946. The terms of the latter were binding. Great Britain to renounce its Imperial Preference policy and to unblock the sterling balances that India and other colonies had accumulated from their wartime commodity exports,

Britain has vowed not to recover its pre-war markets by devaluing the British pound. US diplomats then created the IMF and the World Bank under conditions that promoted US export markets and deterred competition from Britain and other former rivals. The debates in the House of Lords and the House of Commons showed that British politicians recognized that they were being relegated to a subservient economic position, but felt that they had no alternative. And once they surrendered, US diplomats were given free rein to confront the rest of Europe.

Financial power has enabled the United States to continue to dominate Western diplomacy despite being forced off gold in 1971 by the balance-of-payments costs of its military spending abroad. For the past half century, foreign countries have held their international monetary reserves in US dollars, primarily in US Treasury securities, US bank accounts, and other financial investments in the US economy. The Treasury bill standard requires foreign central banks to finance the US balance of payments deficit, and the budget deficit of the national government along the way.

The United States does not need this recycling to create money. The government can simply print money, as the MMT has shown. But the United States does need this recycling of dollars by foreign central banks to balance its international payments and support the dollar exchange rate. If the dollar were to decline, foreign countries would find it much easier to pay international dollar debts in their own currencies. US import prices would rise, and US investors would find it more expensive to buy foreign assets. And foreigners would lose money on US stocks and bonds denominated in their own currencies, and abandon them. Central banks, in particular, they would suffer losses on the dollar Treasury bonds they hold in their monetary reserves, and they would be interested in getting out of the dollar. Thus, both the US balance of payments and the US exchange rate are threatened by belligerence and US military spending around the world, but its diplomats try to stabilize the situation by raising the military threat to crisis levels.

US efforts to keep its European and East Asian protectorates locked within their own sphere of influence are threatened by the emergence of China and Russia independently of the US, while the US economy is deindustrializing as a result of their own deliberate political decisions. The industrial dynamic that made the United States so dominant from the late 19th century to the 1970s has given way to an evangelizing neoliberal financialization. That is why US diplomats have to shake hands with their allies to block their economic relations with post-Soviet Russia and socialist China, whose growth is outpacing that of the United States and whose trade agreements offer more opportunities for mutual benefit.

At stake is how long the United States can prevent its allies from taking advantage of China's economic growth. Will Germany, France and other NATO countries seek prosperity for themselves rather than let the dollar standard and US trade preferences siphon off their economic surplus?

OIL DIPLOMACY AND AMERICA'S DREAM FOR POST-SOVIET RUSSIA

The expectation of Gorbachev and other Russian officials in 1991 was that their economy would turn to the West to reorganize along the lines that had made the economies of the United States, Germany, and other countries so prosperous. The mutual expectation in Russia and Western Europe was that German, French, and other investors would restructure the post-Soviet economy along more efficient lines.

That was not the US plan. When Senator John McCain called Russia "a gas station with atomic bombs," that was America's dream of what they wanted Russia to be: that Russian gas companies become controlled by American shareholders, beginning with the planned purchase of Yukos, as agreed with Mikhail Khordokovsky. The last thing American strategists wanted to see was a prosperous, resurrected Russia. US advisers sought to privatize Russia's natural resources and other non-industrial assets, handing them over to kleptocrats who could "cash in" the value of what they had privatized only by selling it to US and foreign investors for foreign currency.

In a way, the United States has become its own version of a gas station with atomic bombs (and arms exports). US oil diplomacy aims to control the global oil trade so that its huge profits go to the major US oil companies. It was to keep Iranian oil in the hands of British Petroleum that the CIA's Kermit Roosevelt worked with British Petroleum's Anglo-Persian Oil Company to overthrow Iran's elected leader, Mohamed Mossadegh, in 1954 when he tried to nationalize the company after decade after decade it refused to make its promised contributions to the economy. After installing the Shah, whose democracy was based on a ferocious police state, Iran once again threatened to act as the owner of its own oil resources. So he faced US-sponsored sanctions again, which are still in place today. The goal of such sanctions is to keep the global oil trade firmly under US control, because oil is energy and energy is the key to productivity and real GDP.

In cases where foreign governments, such as Saudi Arabia and neighboring Arab petro-states, have taken control, revenues from their oil exports must be deposited in US financial markets to support the exchange rate of the dollar and the euro. financial dominance of the United States. When oil prices quadrupled in 1973-74 (in response to the quadrupling of US grain export prices), the US State Department laid down the law and told Saudi Arabia that it could charge whatever it wanted. for its oil (thereby raising the price umbrella for US oil producers), but that it had to pay for it.

The second way to recycle revenues from oil exports was to buy US arms exports, and Saudi Arabia became one of the military-industrial complex's biggest customers. In reality, US arms production is not primarily military in character. As the world is now seeing in the ruckus over Ukraine, the United States does not have a fighting army. What you have is what used to be called a "dining army". US arms production employs labor and produces weaponry as a kind of prestige commodity for governments to show off, not for actual fighting. Like most luxury goods, the profit margin is very high. That is the essence of high fashion and style, after all.


Sometimes, of course, military force is used. In Iraq, first George W. Bush and then Barack Obama used the military to seize the country's oil reserves, along with those of Syria and Libya. Control of world oil has been the mainstay of the US balance of payments. Despite the global push to curb global warming, US officials continue to see oil as the key to US economic supremacy. That is why the US military continues to refuse to obey Iraq's orders to leave its country, keeping its troops in control of Iraqi oil, and why it agreed with the French to destroy Libya and continues to have troops in Syria's oil fields. . closer to home,

Along with oil and food exports, arms exports support the financing of US military spending at its 750 overseas bases. But without a permanent enemy constantly threatening at the gates, NATO's existence crumbles. What need would countries have to buy submarines, aircraft carriers, planes, tanks, missiles and other weapons?

As the United States has deindustrialized, its trade and balance of payments deficits have become increasingly problematic. It needs arms export sales to help reduce its growing trade deficit and also to subsidize its commercial aircraft and related civilian sectors. The challenge is how to maintain its prosperity and global dominance as it deindustrializes while economic growth advances in China and now even Russia.

The United States has lost its industrial cost advantage due to the sharp rise in the cost of living and doing business in its financialized post-industrial rentier economy. Furthermore, as Seymour Melman explained in the 1970s, Pentagon capitalism is based on cost-plus contracts: The more military equipment costs, the more profit its manufacturers receive. So America's guns are oversized - hence the $500 toilet seats instead of a $50 model. After all, the main attraction of luxury products, including military equipment, is their high price.

This is against the background of America's fury at its failure to seize Russia's oil resources - and at seeing Russia also liberalize itself militarily to create its own arms exports, which are now often better and much less expensive than the United States. Not only does its oil sales rival that of US LNG, but Russia keeps its oil export revenues at home to finance its reindustrialization, in order to rebuild the economy that was destroyed by "shock therapy." sponsored by the United States in the 1990s.

The line of least resistance for the US strategy to maintain control of the world's oil supply while maintaining its luxury arms export market through NATO is to cry wolf and insist that Russia is about to invade Ukraine. , as if Russia had something to gain from a quagmire war over Europe's poorest and least productive economy. The winter of 2021-22 has seen a long US attempt to goad NATO and Russia into a fight, to no avail.

AMERICA DREAMS OF A NEOLIBERALIZED CHINA AS A US CORPORATE AFFILIATE

The United States has deindustrialized as a deliberate policy of cutting production costs, as its manufacturing companies have sought cheap labor abroad, notably China. This change was not a rivalry with China, but was seen as a mutual benefit. American banks and investors were expected to secure control and profits from the Chinese industry as it became commercialized. The rivalry was between American business and labor, and the weapon of class warfare was offshoring and, in the process, cutting government social spending.


Similar to Russia's quest for oil, arms, and agricultural trade independent of US control, China's offensive is to keep the benefits of its industrialization at home, retain state ownership of major corporations, and, above all, keep creating money and the Bank of China as a public utility to finance its own capital formation instead of letting US banks and brokerage houses provide its financing and siphon off its surplus in the form of interest, dividends and management fees.The only saving grace for corporate planners in the United States has been China's role in deterring rising wages in the United States by providing a cheap source of labor that allows American manufacturers to offshore and outsource their production. production.

The Democratic Party's class war against union labor began in the Carter Administration and was greatly accelerated when Bill Clinton opened the southern border with NAFTA. A chain of maquiladoras was established along the border to supply low-priced artisan labor. This became such a successful corporate profit center that Clinton pushed to admit China to the World Trade Organization in December 2001, the last month of his administration. The dream was for it to become a profit center for American investors, producing for American companies and financing their capital investment (as well as housing and government spending,

Walmart, Apple and many other American companies set up production facilities in China, which necessarily involved the transfer of technology and the creation of an efficient infrastructure for export trade. Goldman Sachs led the financial foray and helped China's stock market soar. All this was what the United States had urged.

Where did America's neoliberal dream of the Cold War go wrong? To begin with, China did not follow the World Bank's policy of directing governments to borrow in dollars to hire US engineering firms to handle export infrastructure. It industrialized much as the United States and Germany did in the late 19th century: through heavy public investment in infrastructure to cover basic needs at subsidized prices or for free, from healthcare and education to transportation and communications , in order to minimize the cost of living that entrepreneurs and exporters had to pay. And what is more important,

THE DEMANDS OF THE UNITED STATES ARE REMOVING ITS ALLIES FROM THE COMMERCIAL AND MONETARY ORBIT OF THE DOLLAR-NATO

As in a classic Greek tragedy, America's foreign policy is bringing about precisely the outcome it most fears. By overreacting to their own NATO allies, US diplomats are provoking Kissinger's nightmare scenario by bringing Russia and China together. While America's allies are told to bear the costs of American sanctions, Russia and China benefit by being forced to diversify and wean their own economies from dependence on American suppliers of food and other basic necessities. Above all, these two countries are creating their own de-dollarized banking clearing and credit systems, and holding their international monetary reserves in the form of gold,

This de-dollarization provides an alternative to the US's unipolar ability to obtain free foreign credit through the US Treasury bond standard for world currency reserves. As foreign countries and their central banks de-dollarize, what will support the dollar? Without the free line of credit provided by central banks that automatically recycles US foreign military spending and other spending abroad back into the US economy (with minimal return), how can the US balance its international payments against its deindustrialization?

The United States cannot simply reverse its deindustrialization and dependence on Chinese and other Asian labor by returning production to the United States. It has built into its economy too high a rent overload for its labor force to compete internationally, given the budgetary demands of the American wage earner to pay for the high and rising costs of housing and education, debt service and health insurance, and for privatized infrastructure services.

The only way for the United States to sustain its international financial equilibrium is by setting monopoly prices on its exports of arms, proprietary pharmaceuticals, and information technology, and by buying control of the most lucrative and potentially dangerous sectors of production. extractors of income abroad; in other words, by spreading neoliberal economic policy around the world in ways that force other countries to rely on US loans and investments.

That is not a way for national economies to grow. The alternative to the neoliberal doctrine is China's growth policies that follow the same basic industrial logic by which Britain, the United States, Germany, and France rose to industrial power during their own industrial takeoffs with strong government support and government programs. social spending.

The United States has abandoned this traditional industrial policy since the 1980s. It is imposing on its own economy the neoliberal policies that deindustrialized Pinochet Chile, Thatcherite Britain, and the post-industrial former Soviet republics, the Baltics, and the Ukraine since 1991. Its prosperity , highly polarized and leveraged by debt, is based on the inflation of real estate prices and values ​​and the privatization of infrastructure.

This neoliberalism has been a path to becoming a failed economy and indeed a failed state, forced to suffer from debt deflation, rising house prices and rents as housing rates fall owner occupancy, as well as the exorbitant medical and other costs resulting from the privatization of what other countries provide free or at subsidized prices as human rights: health care, education, health insurance and pensions.

The success of China's industrial policy, with a mixed economy and state control of the monetary and credit system, has led US strategists to fear that the economies of Western Europe and Asia will find their advantage in further integration with China and Russia. . The United States seems to have no other response to this global rapprochement with China and Russia than economic sanctions and military belligerence. Such a New Cold War stance is expensive, and other countries are reluctant to bear the cost of a conflict that is of no benefit to them and that, in fact, threatens to destabilize their own economic growth and political independence.

Without subsidy from these countries, especially as China, Russia, and their neighbors de-dollarize their economies, how can the United States sustain the balance-of-payments costs of its military spending abroad? Cutting that spending, and indeed regaining industrial self-sufficiency and competitive economic power, would require a transformation of American policy. That change seems unlikely, but without it, how long will America's post-industrial rentier economy be able to force other countries to provide it with economic wealth (literally, an inflow) that it no longer produces at home?

https://misionverdad.com/traducciones/l ... ros-socios

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Imperialism and monopoly are the end results of capitalism though I think we might add climate change and environmental crash to the list.
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Re: The crisis of bourgeois economics

Post by blindpig » Tue Feb 22, 2022 2:16 pm

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An unimaginable contrast
Posted Feb 21, 2022 by Prabhat Patnaik

Originally published: Peoples Democracy (February 20, 2022 ) |

MUCH has been written about the immense increase in economic inequality that has occurred of late and various startling figures have been provided by bodies like Oxfam, which has just come out with a report titled Inequality Kills. This shows that the wealth of the 10 richest men has doubled since the pandemic began while the incomes of 99 per cent of the population of the world are lower today than before the pandemic. A mere 0.027 per cent of the world’s population is estimated to have owned a combined wealth of $45 trillion in 2020 which is more than 15 times the current Gross Domestic Product of India.

Some have even claimed that the contemporary world is characterised by the highest level of economic inequality ever witnessed in human history (MR Online, Feb 12). This claim is by no means implausible. Since every social system needs production, and since producers have to be given some minimum level of subsistence, there is a floor to what even the poorest must have access to, no matter how low the level of their labour productivity; and this is true even of earlier social systems. On the other hand the share of economic surplus, which is the difference between labour productivity and the wage rate of the productive workers, can keep rising as labour productivity rises with the development of productive forces. As capitalism has witnessed the highest level of development of productive forces to date, it should come as no surprise if economic inequality under capitalism in the sense of the share of economic surplus in output is higher today than at any earlier time.

The obvious argument against this view would be that with the development of the productive forces there would also be an increase in the real wage rate of the productive workers, so that the share of economic surplus, and hence the level of inequality that typically is an off-shoot of it, need not increase under capitalism compared to earlier modes of production. But if we see capitalism in its international setting where it causes deindustrialisation in its periphery and hence builds up massive labour reserves that keep real wages pretty close to a subsistence level despite the substantial increase in labour productivity, then it follows that inequality defined in terms of the share of surplus in the world as a whole would be much higher under capitalism than under earlier modes of production, precisely because of the greater development of the productive forces it ushers in compared to earlier modes.

But even as inequality in this sense is greater today than at any other time in human history because of the capitalist mode, barely three decades ago there existed societies where inequality was lower than ever before in human history. I refer of course to the Soviet Union and the other socialist countries of Eastern Europe. After the collapse of socialism in those countries, it has become fashionable to talk of them as being effectively no different in this respect from the capitalist countries, with an “apparatchik” that lived off the surplus exactly as capitalists do. But this attempt at obliterating the differences between the two social systems with regard to inequality, is a dishonest ideological manoeuvre, which is factually incorrect; on the contrary, the contrast between the two systems in terms of inequality is simply unimaginable.

Max Lawson of Oxfam quotes Branko Milanovic, an economist of Yugoslav origin, to show that inequality in Eastern European economies (though he uses a different measure from what I have used above) was far less at that time compared to West Germany, France or Denmark, not to mention the U.S. where of course it was much greater. And this lower inequality according to Milanovic was because of at least three factors. The first was the massive expropriation of private, especially feudal, property after the Bolshevik Revolution, and its distribution among the peasants; similar land redistribution was carried out in many other Eastern European countries after the war. The second was the fact that everybody had access to free education and healthcare. Every student received not only free education but also a stipend to study, and since there were no private colleges and universities, all received the same education and had the same opportunities for advance open to them; there was no question of some students, from a so-called “affluent” background being better placed compared to other students. And the third factor was guaranteed employment; everyone was assured of a job, there being no question of some remaining unemployed and constituting a reserve army of labour as occurs under capitalism.

These factors however, though important, do not fully explain the greater equality under socialism. They have to be supplemented by the very logic of the socialist system that prevented any increase in inequality. The economy’s being forever at full employment gave the former socialist economies a dynamic that was fundamentally different from that of capitalism. Under capitalism income distribution is determined separately and independently, through bargaining between the workers and the capitalists, in which the workers are handicapped by the existence of the reserve army: the greater the relative size of the reserve army, the lower is the wage share that the workers can obtain through their bargaining.

These independently given shares of workers and capitalists in output are the reason why there are crises of over-production in capitalism. If the relative share of workers, that is, their real wage divided by labour productivity, is, say half, and the total production capacity of the economy is 100, then 50 would come to the workers and 50 to the capitalists if full capacity output is produced. The workers more or less consume what comes to them; but if capitalists’ consumption (including the consumption of their “hangers-on”) and investment, which are decided upon independently, add up to only 40, then only 40 of the surplus will be “realised”, and, since the share of surplus is half, workers will get 40 and not 50, and the “realised” total output will be 80. This means that 20 of producible output will remain unproduced, and if labour productivity is, say, 1, then 20 more workers will be unemployed over and above those who would have been unemployed anyway if 100 had been produced.

In a socialist economy however if the sum of investment and consumption by state personnel including managers (there are no capitalists and hence no capitalists’ consumption) is 40, then the output will still remain at 100, namely at its full capacity level and the extra amount will simply be given to the workers. The workers’ share will be adjusted upwards, so that they get 60 through a fall in prices relative to money wages. The workers’ share in other words, instead of being given independently, is itself flexible, always adjusting so as to realise the full capacity output.

Thus while a capitalist economy has unemployment in the event of insufficient aggregate demand, a socialist economy never has insufficient aggregate demand because the share of wages always adjusts to offset any such possibility. The share of economic surplus in output therefore can rise secularly, and correspondingly the share of wages in output can fall secularly, only if the ratio of investment to output rises secularly. But even in such a case since there are no private capitalists owning the means of production, this entire rise in economic surplus comes to the State and there is no increase in income or wealth inequality among individuals.

Thus the very logic of the functioning of the socialist system was such that it ruled out any over-production crises, any unemployment and any tendency towards growing income or wealth inequality among individuals. What is more, the transition to such a remarkably egalitarian system from an earlier system marked by massive inequality, occurred within a very short span of time. As one of Lawson’s interlocutors puts it: “You had situations where parents were illiterate, and their sons became university professors”.

Some people believe that one cannot have creativity in a society characterised by substantial equality, for such equality undermines incentive. But this is a flawed argument for two obvious reasons. First, it is myopic in believing that the mainsprings of creative endeavour lie only in monetary incentives. In other words, this argument justifies a bourgeois order by making assumptions about human nature that limit it only to what one witnesses within a bourgeois order. And second, it does not reckon with the massive loss of creativity (quite apart from the human costs involved) that is entailed when the mass of the population is kept uneducated, unemployed, in poor health, and nutritionally deprived.

https://mronline.org/2022/02/21/an-unim ... -contrast/
"There is great chaos under heaven; the situation is excellent."

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