Facing up to stagnation
The latest US figures are indicative of a continuing problem, writes Yassamine Mather
After all the hype about economic recovery in the United States, quarterly data relating to the rate of growth, deficit and productivity are ringing alarm bells throughout the world.
In March 2015, the US recorded its biggest monthly trade deficit since the 2008 global financial crisis, fuelling concerns that the economic contraction in the first three months of the year might signal more serious problems. The deficit recorded for goods and services rose to $51.4 billion, which was up 41% compared to the $35.9 billion recorded only a month earlier. Exports rose by less than one percent, while imports grew 7.7% on the back of increased consumer demand for cars and mobile phones. According to the Financial Times,
Labour productivity fell an annual 1.9% in the first three months of the year, while unit labour costs rose sharply, official figures showed on Wednesday. The output per hour figures came as the country’s gross domestic product barely grew during the quarter, even as it added an average of nearly 200,000 jobs a month ... the figures confirm a longer-run trend of slowing productivity that is alarming policy-makers and complicating Federal Reserve decision-making.1
Figures released by the US treasury show the rate of growth from the first quarter of this year to be 0.2%, dashing any hopes of a rise in interest rates. In fact interest rates have barely moved above zero for more than six years, emphasising the fact that this has been the weakest recovery from recession in the last 50 years. And the problems are not limited to the US. According to the Office of National Statistics, the rate of growth fell to 0.3% in the UK - the slowest quarterly growth for two years.
Last week predictions by the International Monetary Fund that China’s growth would not exceed 6% by 2017, following news of another fall in the country’s rate of growth to 7% in the first quarter of 2015, will also affect the US and world economy.2 What is more, the awaited economic miracle of emerging markets is not materialising. Countries in Latin America, Africa and elsewhere are especially dependent on commodities production and they have been falling one by one into recession, or at best stagnation - an inevitable consequence of global underconsumption.
The US administration and sections of the media have blamed cold weather for the poor figures. However, with the exception of the construction industry it is difficult to see how the weather played such a crucial role. The reality is that retail sales, business investment and housing development have all been weak, pointing to a slowdown. The fact that the growth in consumer spending dropped to 1.9% in the first quarter, down from 4.4% in late 2014 and the weakest for a year, is a far more significant contributor. The fall in the price of crude oil has also affected investment in the US oil and gas sector, and impacted on banks involved in major loans to the oil sector.
Another important contributing factor has been the decline in the export of US goods, mainly manufactured products - a consequence of a sharp rise in the dollar since autumn 2014. Now that there is no possibility of an interest rate rise, it is likely the US treasury will try to bring down the value of the dollar. The problem is that most major economies are playing a similar game, with monetary injections or quantitative easing leading to ‘competitive devaluations’ of various currencies. But, far from solving any country’s economic problem, this only serves to delay the inevitable crisis. A cheaper dollar can only help for a short time before unofficial, undeclared European or Chinese devaluation of their respective currencies negates it. The world economy is contracting and finance capital’s solutions are making the situation worse.
Throughout the recent election campaign, Labour faced accusations that it created the economic crisis of 2008 - the Conservative argument that Labour’s ‘irresponsible’ economic public expenditure programme led to debt and crisis has been repeated ad nauseam by the mass media. This lie was scarcely challenged by the “pro-business” Labour leadership, which employed defensive arguments and promised to stick to Tory austerity policies, albeit with a lighter touch. Economists of the right and left agree that the economic crisis of 2008, which threatened the large financial institutions with collapse, was prevented by the bailout by governments. Following the crisis the policies of Gordon Brown were no different from those of Republican president, George W Bush.
There are fundamental reasons why capitalism in general and US capitalism in particular seems incapable of emerging from stagnation. The turn to finance capital, in the 1970s, was primarily aimed at weakening the working class in advanced capitalist countries - reducing public-sector costs through privatisation, the introduction of an internal market and the contracting out of government services and activities. All this was accompanied by the imposition of IMF/World Bank market conditions on all loans to the ‘third world’ - a policy that has had devastating consequences in the countries of the periphery.
Finance capital’s short-termist nature means it is necessarily unproductive, parasitic and therefore dependent on value from the productive sector. Ismael Hossein Zadeh sums up the situation as follows:
A recent report by the Federal Reserve Bank shows that, while aggregate national wealth in the US rose by $1.49 trillion during the first quarter of 2014, the real economy (as measured by GDP) actually contracted by one percent - according to the department of commerce, the decline in GDP was actually 2.9% ... In a similar report, the Financial Times recently noted that household wealth as a whole is up 43% since the depths of the economic slump in 2008, despite the slow or non-existent recovery in the labour market and an actual decline in median household income, down 7.6% since 2008.3
In other words, the financial sector has benefited from an unprecedented rate of growth, while all other sectors continue to face the possibility of stagnation. Even before the collapse of the price of oil and the subsequent crisis in banks associated with toxic loans to the oil sector, a shift of income away from the working class and the growth of real returns to the capitalist class had created the basis for another crisis. The levels of unemployment and underemployment are constantly rising. In the ‘third world’, this has become a serious problem, leading to mass migration even at the risk of losing one’s life. In the ‘first world’, every attempt is made to hide the real figures, through the use of terms such as ‘economically inactive’ - the true number of unemployed is distorted, as e-contracts, temporary and at times unpaid work in endless ‘job creation’ schemes hide the severity of the problem.
While 25 million Americans are unemployed or working only part-time when they want and need full-time jobs, corporate America has a cash hoard of more than $2 trillion, which it refuses to invest in new production. Instead it is happy to pay interest for saving accounts, as well as using capital in speculative trade and stock buybacks - all profitable activities in the short term.
In fact the Dow Jones and the US stock market is doing well. However, the majority of the population are worse off, as real income has dropped thanks to declining or stagnant wages. For 70% of the workforce, inflation-adjusted hourly wages are still lower than they were in 2007. According to economic editor John Whitefoot,
If you’re rich, 2015 will probably be another year of celebratory wealth creation. If, on the other hand, you’re not, 2015 will feel an awful lot like 2014, 2013, 2012, 2011, 2010 and 2009. Wall Street and the US government will tell you the economy is doing well, but it won’t feel like it. In fact, according to a national survey, 70% of Americans believe the US economy is permanently damaged, while 84% do not believe the economy has improved since the recession ended in 2009.4
It is this level of inequality at a time of stagnation that worries the more far-sighted sections of capital, be it in articles in the financial journals or the attention given to Thomas Piketty’s book, Capital in the 21st century.
In fact Piketty’s concerns about the problems caused by inequality and the danger it represents for the future of capitalism have been picked up by sections of the capitalist class. Piketty deals with inequality of wealth rather than capital and this determines that his solutions are reformist. That is why the book has supporters amongst those who want to save capitalism.
Of course they are right to say that the levels of austerity and inequality we are facing have reduced the basic power of consumption, producing stagnation, and as a result of that capitalism is in trouble. The problem is that, because result is confused with cause, they have no solution to the current economic chaos. Inequality is a consequence of capitalist exploitation, a consequence of extracting surplus value. It cannot be dealt with unless one addresses the root cause.
1. Financial Times May 6 2015.
2. In December 2014 China officially became the world’s largest economy in terms of goods and services, overtaking the United States, which had held the position since 1872. According to the IMF, the Chinese economy was worth $17.6 trillion compared with $17.4 trillion for the USA. However, the same year was also marked by China’s weakest rate of growth in 24 years - it fell from 7.7 % in 2013 to 7.4%. Clearly its economic position should be judged in relation to its population of 1.36 billion.