Sunday, 9 November 2014

Republican Election Victory Is Bad News For The Economy

The election victory, for Republicans, in the mid-term elections, to the US House of Representatives and Senate, is bad news for the economy, in the US, and, therefore, in the rest of the world.  Although the US economy is now only the world's second largest economy, behind China, when measured on the basis of Purchasing Power Parity, and although the US economy is in relative global decline, it remains a huge economy, that mobilises trillions of dollars of capital, at home and abroad; whose population, despite a grotesque inequality of wealth and income continues to earn more, on average, than people elsewhere; and who spend correspondingly more, as a result; and whose currency continues to act as the global currency.

The reason the Republican victory is such bad news is easy to see. The US economy grew relatively quickly after 2009, as the credit crunch was addressed, by money printing and the effective nationalisation of the banks, but the real reason the economy itself recovered was that, like Britain, Brazil, China and other economies at the time, the US also engaged in fairly sizeable Keynesian fiscal stimulus. The effect of that, in terms of the normal “V” shaped recoveries, can be seen for the US, UK and EU, during that initial period.

By the end of 2009, hostility to bailing out the banks, in the US, had given rise to the “Occupy Movement”, as a rather formless, middle class movement, whose nature was typified by the fact that, like similar formless, middle class movements during the “Arab Spring”, it seemed to exist more in virtual reality, via social media, and mobile phone communication, than any kind of organised physical structure, that could develop, let alone act decisively to change anything. Its not surprising that both came and went, in a short period of time. In the Arab Spring, the amorphous nature of the middle class movement, led to the coming to power of one organised force, the Muslim Brotherhood to replace another – Mubarak and the military – only for the military to be begged to return by many of those that originally protested, calling for it to go.

In the US, the same hostility to bailing out the banks that created the Occupy Movement, also created an almost mirror image, in the form of the Tea Party, whose Libertarian, Austrian School outlook not only found bailing out the banks anathema, but the bailing out of anyone. The Tea Party, like the anarcho-capitalists of the US Libertarian Party, have never had any problem attacking big business, because, like their ideological mentors, Hayek, Mises, Rothbard etc. they are the representatives of small capital, for whom big capital is as much a threat as are organised workers, or the big state, which they see rightly as the agent and representative of that big capital.

The Republicans themselves, like the Tory party in Britain, and similar conservative parties across Europe, are the representatives of small capital, and all those whose ideological world view cannot rise above it. As Marx put it, in The Eighteenth Brumaire of Louis Bonaparte,

“Just as little must one imagine that the democratic representatives are indeed all shopkeepers or enthusiastic champions of shopkeepers. According to their education and their individual position they may be as far apart as heaven and earth. What makes them representatives of the petty bourgeoisie is the fact that in their minds they do not get beyond the limits which the latter do not get beyond in life, that they are consequently driven, theoretically, to the same problems and solutions to which material interest and social position drive the latter practically. This is, in general, the relationship between the political and literary representatives of a class and the class they represent.”

But, the establishment, within these conservative parties, must always attempt to act pragmatically. In the end, the leaders of these parties know that, however much they spout rhetoric, and even pass laws for the benefit of their core supporters, and voters, the reality is that it is the interests of big industrial capital that must be ultimately met, because it is that capital, which determines the future of economies, not the back street trader, or even the medium sized private enterprise. It is the interest of big industrial capital that the capitalist state addresses itself to, not the interests of small capital. When conservative governments push too far, in the direction of the interests of small capital, the capitalist state pushes back, where it threatens the interests of big capital, just as, when social democratic governments push too far in the interests of workers, it pushes back, where it damages the interests of big capital.

But, its for that reason, that such conservative parties are always prone to being poked and prodded from the organised forces to their right. Social democracy is a fusion of the interests of big industrial capital, and the interests of workers. Ultimately, there can be no reconciliation of those interests, but, in the short term, those interests are reconciled, every day, when workers go into work, and have to accept that, in order to sell their labour-power, capitalists have to be prepared to buy it, and they will only do so, if workers hand over a portion of their labour for free. Even when that basic contradiction breaks out in its most visible form, as a strike, it is resolved by a compromise of interests, with the workers maybe getting more money, but that only meaning a reduction in their exploitation, not an end to the exploitation itself. That basic historic compromise, struck between workers and big capital, is consolidated, and given structural form, in the shape of the labour movement bureaucracy, which manages those relations, and ideologically in the programmes of the workers' parties that arise out of it, and in the shape of the modern bourgeois social democratic state, and welfare state.

At periods, when capital is strong and vibrant, such as after WWII, that social democracy expands. In the social democratic parties, like the Labour Party in Britain, the SPD in Germany, or the Democrats in the US, it is reflected in measures of greater social expenditure, and welfare. The elements within those parties, that reflect more closely workers' interests, rather than the interests of big capital, may become stronger and push more in that direction, but its bound is always set by what is ultimately affordable for, and in the interests of big capital. The “Left” of these parties never, or rarely, pushes for what is really in the workers' interests, but only for an extension of those very elements of statism, and bargaining within the system, that ties the workers ideologically ever closer to capital.

During such periods, even the conservative parties are frequently drawn in that direction, because this becomes the centre ground, towards which the conservative establishment must also be drawn if it is not to lose substantial votes. This is the real reason that in mid term elections – for example to Congress between Presidential elections, and in local government elections and by-elections between General Elections – the phenomenon of giving the governing party a kicking occurs. Conservative governments always disappoint the purist elements of their core, who think they have not been conservative enough, and social democratic governments always disappoint their working-class voters, because unless the economy is booming, they can never make good on the hopes they create, without breaking the consensus of the compromise with big capital.

The basis of the Tea Party was created, not under Obama, but under Bush, because the conservative elements were already clamouring over the extent of the bail-outs he introduced. Long before 2008, Bush responded to the needs of big industrial capital, that was suffering under the pressure of rising private healthcare costs, by taking $750 billion of prescription costs off the books of private companies, and socialising it. Obama simply provided this purist conservatism with an identifiable hate figure, a single person upon whom they could heap all of their vengeance.

Unlike the Occupy Movement, the Tea Party was able to physically organise within the Republican Party, where many were already active, just as UKIP have done, in and around the Tory party.  In that sense, they are rather like the Muslim Brotherhood, which was able to use its disciplined organisation, and coherent ideology to seize power, as indeed has been the case with the jihadists in Libya, Syria etc. In fact, what the previous period has shown is that, although social media may be a useful tool, for discussion and ideas, may be good to organise a dance, or a flash mob, to bring together large amorphous masses of people quickly, it is limited beyond that, when it comes to effecting social change. It is limited, precisely because the mass brought together is large and amorphous, and, therefore, easily atomised and dissipated, particularly when it comes up against, a hard, sharp, disciplined force. 

That was also what the Tea Party was able to provide, inside the Republican Party. It took the core conservative ideas, that the Republicans are meant to stand for, and argued for them consistently, both inside and outside the electoral arena. It organised around that clear coherent ideology, and threatened the Republican establishment, throwing out, in a series of primaries, some of the party's elder statesmen, and thereby putting the same kind of fear of god into them, that UKIP, on a similar basis, is now doing to Cameron and the Tories. And, there is a lesson there too.

By the end of 2009, the Tea Party were having success, with this message of austerity, and Cameron, seeing that, switched tack to adopt it, which was a complete turn round on his previous position of mirroring Labour's spending pledges. The effect in 2010, was to put the skids under the UK economy, due to the dire messages put out by Cameron/Clegg, and Osborne/Cable/Laws. They no doubt believed that, by the time they came to have to implement some of those measures, the economy would have turned round, and they would be able to announce they didn't need to push them through. That certainly seems to have been the case, with some of the policies on the withdrawal of child tax credits, that affect the better off families, who form part of the natural voter base for the Tories. But, their scaremongering had already sent the economy into a downward spiral, and the very mention of austerity measures, in Osborne's first budget, was enough to send it into a recession that lasted more or less until this last year.

In the US, Obama managed to continue to push through measures of fiscal stimulus, but his ability to do so was increasingly limited. Not only did the Republicans, under pressure from the Tea Party, frustrate him in the House, as well as tying up huge amounts of political energy, in battles over Obamacare, as well as sending panic into the economy, repeatedly, over the Debt Ceiling, the Budget and the Sequester, but, where they had control over state legislatures, they acted to directly impose austerity measures of their own, undermining Federal fiscal stimulus measures. 

It should be a warning to all those who want to introduce some kind of federal system into the UK, of what can happen with such systems, so as to frustrate the general will of the people, and the actions of the central government.  Its why Marxists favour a single central state as against a federal state.  In fact, the limitations of the US system of government, which will now become apparent, as a Republican dominated Senate and House, faces a Democrat President, should also be a warning against any such division of powers, such as would arise from Miliband's proposal for an elected Senate in Britain, which would be in an even stronger constitutional position to frustrate the measures of an elected government.

The kinds of measures, only seen previously when introduced by Republican dominated state governments, can now be expected to be proposed in Congress, leaving Obama with only the ability to veto their bills, and no power to get any proposals of his own enacted. In the last year, the US economy has recovered from the pain inflicted on it by repeated political crises, over the debt ceiling etc. Despite a terrible first quarter, due to bad weather, each quarter has seen sharply rising growth, unemployment is falling, employment is rising and capacity utilisation is also rising.

As I suggested a while ago, the normal three year cycle was due to kick in, in 2014 Q3, and it has. Europe has slowed down further, facing renewed recession, in part, also made worse by the austerity measures, imposed on the periphery, China's economy continues to grow at a rapid pace, but even it has slowed. The British Ponzi economy, floating on a see of household debt, Payment Protection Insurance repayments, and government bribes, to get people to buy massively over priced houses, has also, as I predicted, slowed sharply from 0.9% to 0.7%, and I expect that in the revised figures this will be reduced further, to perhaps 0.5%, based on more recent survey data.

The three year cycle will affect the US economy too, and now, with the added hurdle of Republicans, trying to force through the same kind of illiterate economic policy, of austerity, that has failed in the UK and Europe, the slowdown could be intensified, and that will have a very bad effect on global growth, in the next year, as well as bolstering the economic legitimacy of people like Osborne.  In 2010, Tea Party loonies were seen as a handicap in the elections.  The Party establishment acted to bring them into check, rather as happened in the Tory Party when "the bastards" were subdued, and the Tory Party took on a softer mantle, under Cameron.  But, that façade could not be maintained, in the Tory Party, and it will not be maintained in the Republican Party either.

What this shows is the failure of social democracy. As I've pointed out before, in the 1980's, people like Thatcher and Reagan, did not win elections because, somehow, big capital needed them in power, having lost faith in social-democratic parties. They came to power rather because workers had lost faith in social democratic parties. They either didn't vote, or worse voted for conservative parties themselves. They did so, because in changed economic times, the social democratic parties could not offer them what lies at the heart of the compromise between labour and big industrial capital, a steadily rising standard of living and security. 

The same thing lies behind Labour's problems in Scotland. The turnout, in the US elections, this time, reached an all-time low, of just 33.9%, compared to 40.9%, in 2010, and 42%, in 1982. The turnout of younger age groups was even lower, at closer to 23%. Obama has failed to deliver the goods, as most of us expected. Miliband and Labour, together with the leaders of other social democratic parties, across Europe, are making the same mistake.

For years, the economic orthodoxy was Monetarism, and every politician was afraid to even mutter the name of Keynes. He was briefly rehabilitated in 2008, before being shuffled away, back into a cupboard. That left all the weight, of intervention, on the shoulders of monetary policy. That huge injection of liquidity did nothing to stimulate economic activity, as it met the usual response of pushing on a string. At the same time, it sent bubbles soaring into the stratosphere, waiting to burst with a loud bang in property, stock and bond markets.

Yet, the timidity of social democratic politicians, like Miliband, Hollande, and co. is almost unfathomable. Even conservative politicians like Christine Lagarde, now turned ideologue and bureaucrat, in the international state apparatus, have come out to say that monetary policy cannot take the strain alone, and governments, and the EU need to borrow money, under current conditions of low interest rates, to finance fiscal expansion and infrastructure spending.  After all, large companies have been taking advantage of those low interest rates to borrow and buy back their own stock, to pump up share prices, just as central banks have been doing the same to pump up bond prices. Why not then use these very low rates to borrow to spend money on infrastructure, and other forms of actual wealth, rather than in simply inflating the prices of fictitious capital? Similar messages for fiscal stimulus, in addition to monetary stimulus, have been made by Mario Draghi and other international state bureaucrats.

This is a problem similar to that referred to by Marx in the quote earlier. It is clear that after a period of thirty years when monetarism was the orthodoxy, a great deal of intellectual inertia sets in. The media stands ready to jump on any politician that mentions additional borrowing or spending, and given that all the main parties now simply follow public opinion rather than try to shape it, any such comment by Miliband would make him an even greater target for the media than they have already made him. Yet, its clear, from the experience after 2010, and of the US, that monetary policy cannot stimulate economic activity. Quite the contrary, by fuelling speculative bubbles it does the exact opposite diverting financial resources away from productive activity, and by pushing up the cost of housing and pensions, also increases the value of labour-power, and reduces the rate of profit. Its also clear, during that period, that the economies that largely avoided the prolonged recession, experienced in the UK and EU periphery, were those that, at the least, avoided austerity measures, and better still, like the US, implemented fiscal expansion.

Lagarde is right, the global economy can stand increased borrowing and fiscal intervention given the current low interest rates. Not only can it stand it, but the interests of big industrial capital actually demand it, to rebuild frayed infrastructure, to rebuild confidence and aggregate demand, and help to liquidate accumulated debt via growth. What is standing in the way is the timidity of social democratic politicians.  Time and again, that timidity displayed by the democrats in the US, Labour in the UK, Hollande in France and so on, has not won them plaudits from the media, still less votes from the petit-bourgeoisie, it has simply lost them votes from workers, and those sections of the middle class suffering from austerity, and the squeeze on their living standards caused by rising property prices, costs of funding their pensions, and so on, whilst their wages remain flat.

That is not to say that these social democratic solutions are good for all time. They are not, and nor do they change the fundamental contradiction between the interests of workers and capital, which can only be resolved by replacing the ownership of the means of production by a tiny minority, with direct ownership by the vast majority. But, in the meantime, capital is going through a period of boom, when masses of accumulated surplus value exists that could be invested, and where there are many new areas of productive activity that could be developed, using that accumulated capital. Nearly all business surveys, in every advanced economy, indicate that the main concern of businesses, preventing them investing, is uncertainty about the state of future demand.

To the extent that measures are proposed or adopted that bring that about, we should support them. But, the election of Republicans in the US makes that more unlikely.  After WWII, the horror of war, following the horror of Depression, created more fertile grounds for Keynes' ideas to be taken up.  It was the ideas of balanced budgets and austerity, which, at that time, were discredited.  That is why, despite Britain's Debt to GDP ratio standing at 250%, or nearly four times what it is today, and with interest rates then already higher than now, the British government engaged in a massive programme of borrowing and spending to create the welfare state, to rebuild infrastructure, and to recapitalise core British industries that private capitalists had allowed to rot.  Instead of leading to the kind of economic collapse, the Liberal-Tories warn of, it led to a faster period of growth than the UK had seen for 100 years.

But, today, it is the memory of the failure of Keynesian policy, in the 1970's, and the rise of stagflation, that is remembered.  That is why those policies have not been taken up, despite the fact that current conditions are more like the 1950's or early 1960's than those of the 1970's and 80's.  In addition, in the intervening period, in the US and UK, the power of interest bearing capital, which makes profits from speculation, has grown, whilst the power of big industrial capital has weakened, as large chunks of it have been invested elsewhere in the globe.  It is not the job of Marxists to advocate solutions to resolve the inevitable problems of capitalism.  It is our job to point out that neither Keynesianism nor Monetarism can ultimately provide such solutions, and that only workers taking over the means of production themselves, by establishing worker-owned co-operatives, as part of an international co-operative federation, can begin to address those problems seriously.

However, it is also our responsibility to support whatever measures, in the meantime, offer workers a better chance of organising, of developing their own economic and social position etc.  Its in that regard we oppose measures of austerity, and support measures of fiscal expansion.

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