Tottering towards 2024

Despite the economy ranking as the number one issue for US voters, the expected red wave failed to materialise. Michael Roberts examines the facts and figures

As readers know, Americans went to the polls last week to vote in the so-called midterms for the US Congress. With the final results still coming in, it seems that the Democrats have just about retained control of the Senate.

Perhaps it makes no difference who is calling the shots over the next two years, as neither the Democrats nor the Republicans have any useful policies to improve the lot of most Americans - particularly when it comes to the cost of living, better jobs, more investment in public services and infrastructure.

And let there be no doubt that it is the economy (stupid!) that matters for most of those who voted, more than any other issue. According to the polls, the economy and inflation were seen as the top issues by 51% of likely voters - much higher than the tortuous issue of abortion (15%), where the rights of women to choose have been emasculated by a rightwing Supreme Court and various Republican states. And the so-called conspiracy over vote-rigging that the Trumpist right reckons is the key issue was only important to just 9% of voters - followed by gun policy and immigration (both 7%). Climate change - the issue concerning the whole planet’s future - is most important to only 4% of voters.

And we can see why the economy and living standards are so dominant an issue. The economy is nearly always the leading issue, but with inflation rocketing up to over 8% a year and mortgage rates chasing after inflation, average real incomes (as in all the major economies) have been plummeting. Living standards for the average American have now been flat for nearly three years.


The so-called ‘misery index’ is often used as a gauge of the wellbeing (or not!) of households. It is arrived at through the simple addition of the official unemployment rate and the consumer price inflation rate. Today the ‘misery index’ is at its highest since the great recession of 2008-09, and before that, since the cost-of-living crisis of the 1970s and early 1980s. Interestingly, quite often (but not always) the incumbent administration loses the midterm elections when the misery index is high or rising fast (1958, 1974, 1982, 2010).

The prospect ahead for the US economy over the next two years up to the 2024 presidential election increasingly appears to be one of a new slump or contraction in national output in 2023 and a further fall in living standards for most Americans. Of course, while this decline in living standards applies to most Americans, the top 1% of income-earners are doing very nicely, thank you.

Indeed, inequality of income and wealth has never been so extreme in modern US history. The top 1% of American wealth holders now take 31.8% of all household wealth, compared with 23.5% in 1989, while the bottom 50% of wealth holders have just 2.8% - down from 3.7% in 1989. According to the Federal Reserve, inequality of household wealth in the US has never been higher than during and since the Covid slump.

It is true that US real gross domestic product increased at an annual rate of 2.6% in the third quarter (Q3) of 2022 - up from a decline of 0.5% in the second - so officially there is no ‘technical recession’ (ie, two consecutive quarters of contraction) … yet. But year-on-year (YOY) growth (compared to Q3 in 2021) was just 1.8%, the same as in Q2. And, excluding inventories and government, sales to domestic consumers rose only 0.1% on the quarter and slowed to 1.3% YOY. Most significant, looking ahead, the Purchasing Managers’ Index business activity indicator came in at 47.3 - which indicates the second fastest pace of contraction since the great recession.

The US Conference Board’s index of the US ‘top 10 leading indicators’ has had a 100% success rate in anticipating every recession over the last 40 or so years. And the indicators are now on the cusp of forecasting a new slump. US economic recovery since the pandemic slump year of 2020 still has not got back to pre-pandemic trend growth - and that was weak enough compared to pre-great recession. And next year the US economy will grow even more slowly (at best) - or, more likely, go into recession.

And the US economy is supposed to be the better performing of major economies - with the euro zone already in recession, Japan crawling along (as usual) and the UK heading for a deep, two-year slump, according to the Bank of England. In the drive to reduce inflation, the Federal Reserve continues to hike its interest policy rate, forcing up the cost of borrowing both for households and companies. And this is at a time when business debt by any measure is at its highest historically.

No wonder the incumbent Democrats seemed to be facing defeat in the midterms, despite the lunacy of the Trumpist Republicans. But the Republicans also have no answer to the long-term relative demise of the US capitalist economy.

Economic growth depends on two factors: more employment and more output per worker. And right now it is the latter that matters. But the productivity of labour is falling in the US. In Q3 2022 there was a -1.4% YOY fall, which means three consecutive quarters of such decline - the first such instance since the deep slump of 1982. So, even though wages are rising at only just over 3%, compared to US inflation of 8% plus, falling productivity is squeezing company profits as labour costs per unit of output have risen by over 6%.

The fall in productivity is a major factor in inflation, because production is not responding sufficiently to consumer and business demand. The productivity slump could only be reversed by a sharp increase in productive investment in new technology and in human skill training. But US business investment is in a long-term slowdown.


Government investment, even after the limited Biden infrastructure programme. is nowhere near enough to compensate for slowing capitalist-sector investment. Businesses do not invest productively unless the profitability of such investment is high and/or rising. And that has not been the case in the entire 21st century. Even the big media companies that have led the profit bonanza since Covid are now seeing a decrease in such profits. For most US companies the profitability on capital investment has been falling.

The only way to restore a sustained rise in profitability is through what Marx called the destruction of capital values - namely a major slump that clears out the weaker sections of the corporate sector and recreates a ‘reserve army of labour’, with unemployment rising by double digits. The Fed’s policy of increasing the cost of borrowing may well double the current unemployment rate over the next two years, but even that may not be enough to create new conditions for profitable investment.

So the US economy is likely to totter towards the 2024 presidential election, with the prospect of the return of Donald Trump.

Michael Roberts blogs at thenextrecession.wordpress.com