Wednesday, 28 December 2016

Predictions For 2017

At the end of last year, as I had done the previous year, I made ten predictions for the year ahead. Again, as I did last year, before setting out ten predictions for the coming year, its only right to look at how the predictions for this year worked out.

1. The prediction was that the material conditions favouring socialised productive-capital over fictitious capital were growing, and this would be reflected in a growing strength of social-democratic as against conservative forces. The underlying thesis has been proved correct.

Whether Clinton or Trump won in the US, the outcome was going to be that the need for an expansion of fiscal stimulus would impose itself. Moreover, Bernie Sanders came much closer to winning the Democratic nomination than anyone was predicting at the end of last year. He was able to bring into existence a large social-democratic movement, similar to that created behind Corbyn. Only the full force of the Democrats bureaucracy, mobilised behind Clinton prevented Sanders taking the nomination.

In Britain, Corbyn easily saw off a challenge from the old conservative/Blair-right wing of the party, despite their entrenched position in the PLP and party bureaucracy. The party continued to grow at the grass roots, strengthening this social-democratic wing against the conservative wing. The Tories also dropped austerity as their mantra, and committed themselves to a large-scale infrastructure programme and fiscal stimulus.

Across the globe, the centres of decision making, including within the central banks themselves, have recognised that monetary policy has run its course, and that fiscal policy must now be used to encourage economic growth, as a prerequisite for capital accumulation, which itself is the prerequisite for the payment of interest, so as to justify financial asset prices. The effect, as predicted, has been to see a sharp rise in interest rates. Not only has that been seen in the real market rates of interest, for example in relation to LIBOR, and other similar overnight lending rates across the globe, but it has also even been seen in the heavily manipulated sovereign bond yields. In August, I wrote a blog talking about UK 10 Year Bond Yields, being at 0.60%, and US 10 Year Treasuries being at 1.60%. Today, the UK 10 Year Gilt Yield has more than doubled to 1.40%, whilst the US 10 Year has risen by 50% from 1.60% to 2.60%.

A turn to fiscal expansion will cause bond yields to spike higher still, and the bond bubble to burst. For now, as is often the case, the decline in bond prices has seen the money move from bonds to shares, pushing stock markets higher. The prospect of fiscal expansion, and lucrative contracts for construction companies, and of rising demand to provide increased revenues and profits for all companies, has fuelled stock market rallies across the globe. That will be short-lived, as the increased revenues will be seen to come at the cost of even higher input costs, especially of rising wages, and a lower rate of surplus value, squeezing profits, and as higher interest rates, bring about lower capitalised prices of all financial assets and property.

We have not yet seen a visible growth of social-democratic political forces in France, Italy and Germany. Indeed, it might be argued that the potential for Le Pen to win the Presidency in France, like Trump's win in the US, and the vote for Brexit in the UK, represent the opposite. But, this only shows that such reflections of the underlying conditions are complex and contradictory, and not mechanistic. Trump won by a populist appeal to get the economy going via Keynesian fiscal stimulus, particularly an appeal to US workers in the rust belt. The Brexiteers promised to spend £350 million a week extra on the NHS, Le Pen proposes a large scale fiscal expansion. But, in fact, it is only social-democrats that could consistently undertake such a programme.

2. The second prediction was that global growth would be higher than predicted. That was the case, and the perennial predictions of some that the world would fall into another recession, or even a “Long Depression”, were once again proved to be false, and more down to wishful thinking than reality.

3. The prediction was that interest rates would rise faster than expected. Some were predicting that the rise in official rates undertaken by the Federal Reserve would have to be reversed. To that end, stock markets crashed in January, but when that did not result in the Federal Reserve reversing the increase, they began to climb higher, on the back of the idea that they had done at least enough to stave off any further rises in the official rates. But, as the year progressed, and the need for fiscal stimulus became ever more obvious, market rates continued to climb. That was especially the case, as employment levels across the globe continued to rise, and unemployment fell. That also meant that wages began to move higher.

4. Following on from what has been said above, the prediction was that the prices of financial assets and property would fall sharply. In January, stock markets did fall sharply and then rose during the rest of the year. Bond prices have begun to fall significantly, as bond yields and other interest rates rise. Commercial property prices have been falling, notably by around 40% in London after the Brexit vote. The prices of very expensive houses in London have also been falling by similar amounts. The rise in interest rates in the US has also begun to affect housing demand, and property prices there. But, the main fall is yet to happen.

5. Predicted that inflation would be higher than expected. At the time, the main concern of economists and pundits was the spectre of deflation in Britain and Europe, and potentially in the US. It was one of the reasons given for maintaining very loose monetary policy (wrongly as the money printing was causing an inflation of asset prices and deflation of commodity prices). As predicted, inflation has risen more than expected, and continues to gather pace. The sharp falls in primary product prices caused by overproduction resulting from the earlier higher prices, came to an end, and prices of oil, iron ore, copper, foodstuffs etc. began to rise. Rising global employment and wages meant higher demand for wage goods, and with lots of liquidity sloshing around, and with productivity growth stagnant, market prices rose. In Britain that was exacerbated by the sharp fall in the pound following the Brexit vote. US core inflation is already at the required 2% level and rising. Inflation is rising across the EU, and in the UK, its estimated that the average Christmas dinner this year is about 20% more expensive than it was last year!

6. Predicted a continuation of the process of new commodities based around new technology, including gene and biotechnology etc. That has again been proved correct, and is reflected in the growing number of books and articles about the role of this technology.

7. Not only has this prediction been proved correct, but we have seen a growth in further alternatives such as Uber, and other sharing systems.

8. Predicted that Labour would do much better in the local elections than was predicted. Remember at the time that Corbyn had only just been elected leader, and the PLP were doing everything they could to undermine him. As predicted, Labour did at least as well as they had done in their previous best year, under Miliband, they also won parliamentary by-elections, extending their majorities, as forecast in Labour seats, and also won Mayoral elections.

9. Has proved correct, but its full impact is yet to be seen. As the Government party in Scotland, the SNP have pushed through Tory austerity, in their budget, when they had the opportunity to have used their tax raising powers to oppose it.

10. The prediction here has been fully born out. ISIS defeated in Syria, but more entrenched in Libya; the Kurds have asserted their separate interests; that caused fractures in NATO and the continuation of the break-up of Iraq; as Russia secures the existing Syrian regime in power, and the West has to accept it”.

Now on to the predictions for the year ahead.

  1. As the material conditions continue to impose themselves, the political meat grinder will rein in Trump, Brexit and right-wing populism across the EU. Real economic and political power resides in cities, and the larger urban conurbations.

    In the US, the Mayors of these large cities have already come out to say they will resist any attempts to implement Trump's policies on immigration etc. In order to push through his policies for fiscal expansion and infrastructure spending, Trump will probably have to rely on support from Democrats against the opposition of Tea Party and fiscally conservative Republicans.

    Brexit is already being put through the political meat grinder, including through the courts. Tories on the pro-EU/Social democratic wing of the party are already lining up with Liberals and Labour to restrict the ability of the Tory right to impose a damaging hard Brexit. Germany and France will have an increasing interest in proposing a large fiscal expansion, and infrastructure programme. Both large economies need to see off the right-wing populists in their own countries, and the danger of the EU fragmenting. Both large economies need to prevent a meltdown of the Italian economy, and Germany in particular, needs the EU economy to grow faster, so as to provide a growing market for its manufactured exports.

  2. The EU fights back. The EU is a political project, driven by economic realities and necessities. The reality is that global capitalism long since outgrew the fetters of the nation state. As I wrote more than thirty years ago, if it could, capital would forge a global state, providing a level playing field for all capital to operate within, on the basis of a single market, single currency and common laws and regulations, and a single fiscal and monetary framework.

    It can't, for all the reasons that meant that forging those things out of the separate states of the US required a Civil War, and led to repeated European wars between states, and now has prevented a rational framework being established in the EU. Global capitalism – imperialism, the most dynamic phase of capitalism – has progressed from being a system of states, however, to being a system of regional economic and political blocs, and a series of para state global bodies, e.g. IMF, World Bank, WTO etc.

    The EU, and these global para-state bodies were expressions, in the post-war period, of the dominance of big socialised capital, and of the development of the social-democratic state as the political expression of its needs and interests. The rise of conservatism and nationalism, in the last thirty years, represents a reflection of the temporary, conjunctural weakening of that socialised capital, as part of the long-wave cycle, and an assertion of the interests of the owners of fictitious capital – shares, bonds, property – whose political representatives the conservatives are and have always been.

    An economic reality, as Marx sets out in Capital, is that ultimately productive-capital dominates, and merchant capital and money-capital are subordinated to it, as is landed property, because it is productive-capital which produces the surplus value, on which these other revenues depend. As this productive-capital is now dominated by big socialised capital, its interests, and the need for a large, social-democratic state, to defend them, forms the base-line, and it is then only a matter of to what extent, at any moment, within the long wave, conservative forces can restrict or inhibit the role of the state, in fulfilling that function, or utilise it to defend their own specific immediate interests as against those of the socialised industrial capital.

    For example, they have used the state, via the central banks, to keep the prices of that fictitious capital astronomically inflated. But, the economic reality ultimately asserts itself. Even the central bankers and representatives of the speculators realise that monetary policy has run its course in being able to keep asset prices inflated. Only an expansion of capital, and rise in the production of surplus value can provide a basis for future payments of interest and rent.

    The long wave conjuncture has shifted. The EU will now be forced to press ahead with the rational development of political structures required to meet the needs of its economic base. That means consolidating the Eurozone, and speeding up the integration of other EU currencies within it; firming up the Banking Union, which will also involve a rationalisation of European banks into a much smaller number of big banks, and as the UK pulls away, Frankfurt will become the rational financial centre of Europe; the development of an EU Debt Management Office, and move to the issuing of EU Bonds, rather than sovereign bonds issued by individual states.

    With a continuation of the migrant crisis, the EU will have to set up a unified border force as the precursor to a European Army. But, it will also be led to use fiscal policy to stimulate the economies of the Southern periphery, and to return to the policy of establishing an economic relationship with the states of the Middle East and North Africa that border the Southern shores of the Mediterranean. Expect that new arrangements will be established with newly entrenched Bonapartist regimes in those states of MENA.

  3. UKIP disintegrates. The much hyped threat to Labour from UKIP will be shown to be a pipe-dream. The 30% of the population that hold bigoted views (which surveys show overlap on a range of issues from the EU, immigration, feminism, homosexuality and the environment) are more motivated than the other 70% of the population to vote, when the issue is restricted to these themes, but less motivated to vote solely on that basis, in more general elections. So, for example, Remainers have been more motivated to turn out to vote for pro-Remain candidates in by-elections than have Leavers to turn out to vote for pro-Leave candidates. That reflects the fact that these issues are still lower priorities for voters than issues such as jobs, wages, public services and so on. It also reflects the fact that Remainers are more aware of the threat to jobs, etc. from Brexit than that Brexiteers are confident that Brexit might improve those conditions.

    UKIP, to the extent they are not just closet racists and fruitcakes, are just right-wing Tories. A look at the policies of UKIP's new leader, Paul Nuttall, a former right-wing Tory himself, shows that on these wider issues, they have no policies attractive to workers. Farage was the glue that held these mavericks together. Nuttall's nutters are heading for oblivion.

  4. This will be a decisive year for Corbyn and his supporters. The specific conditions of the Copeland By-Election may again mean its not that instructive. More significant will be how Corbyn and co. respond to the triggering of Article 50, in March, the rising tide of calls for tighter immigration controls, and limits on free movement, and how Labour does in local elections. So far, those around Corbyn, more than Corbyn himself, have been vacillating, either making outright retreats or else answering questions with evasive responses that both appear weak, and confusing, and remind people of the old politics. Corbyn and his supporters need to provide a strong, clear, unequivocal message, in the next few weeks and months of support for workers in defending their pay and conditions, whether those workers are employed at Sports Direct or at Southern Rail; no concession on free movement; no support for a Brexit that restricts free movement, or threatens other workers' rights and benefits (which effectively means opposition to Brexit itself).

    Its time for Corbyn and his supporters to turn the ideas about building a social movement into action. We should see regular large rallies and demonstrations, joining with other European workers and organisations for the defence and advancement of workers' rights and interests, across Europe. We should join with these other forces to demand action by the EU to end austerity and introduce stimulative investment, particularly in the peripheral economies, to cut unemployment and spur growth, whilst demanding no more bail-outs for the banks.

    Labour should mobilise its half million members, and its resources, to physically support every strike, every community action against austerity etc. If Corbyn and his supporters do that, Labour's standing in the polls will rise, as voters see a credible answer being provided. If not, Labour will become irrelevant; its membership will evaporate, and Tory reaction will triumph.

  5. As happened in similar conditions, in the mid 1960's, inflation will spike sharply higher. As interest rates rise, the price of financial assets, land and property will fall sharply. Money will flow out of those things quickly, as no one will want to be left holding a rapidly depreciating asset, and for those assets that are illiquid, such as property and junk bonds, this crash will be more pronounced as everyone rushes for the exit.

    Whether the money flows into the purchase and circulation of commodities for personal consumption (revenue) or the purchase of commodities for productive purposes (capital) the result will be that the money demand for these commodities will rise, causing market prices to rise.

    The sharp rise in demand for commodities, and of commodity prices, will lead to an increase in investment, initially in circulating capital (materials and labour-power), as existing fixed capital is used more intensively, driving up capacity utilisation rates. This causes a further rise in demand for these commodities, pushing market prices higher again, which also leads to wages rising, to compensate. The astronomical amounts of liquidity pumped into the system by central banks, facilitates the sharp spike in this commodity price inflation, just as previously it caused asset price hyper-inflation.

  6. The three-year cyclical slow-down sets in again, in the fourth quarter of 2017, but, for the reasons set out in 5), it will be manifest in relative rather than absolute terms, i.e. growth in general will be strengthening, whilst the period Q4 2017 – Q4 2018 will be just slower than this quickening trend. Specific economies, such as the UK, may suffer greater effects, because of particular conditions, such as Brexit.
  7. Fillon wins the French Presidency, but the Socialist Party splits, leading to a realignment. A Corbynite movement develops within it, attracting sections of the French Left to it.
  8. Merkel wins again, but the SPD increases its relative position, as the AFL takes some votes away from other right-wing parties. Germany is already at full-employment, largely due to the boost to domestic demand that the influx of migrants has given to the economy. German wages are rising as a result. There is a strong incentive for German capital to consolidate its position in the EU, as the UK withdraws, by investing in productive capacity in lower cost EU countries. Expect companies like BMW, Siemens etc. to relocate production from Britain into Ireland, Spain, Portugal, Italy etc.
  9. Within days of Trump's inauguration, China flexes its muscles by starting to sell some of its huge holdings of US sovereign and corporate bonds.
  10. Trump's cosying up to Putin, and coolness to NATO, strengthens the incentive for the EU to also look to its own greater economic ties to Russia, and its own defence and strategic interests, particularly as it tries to create a more stabilised economic buffer zone around its periphery.

    The EU will have greater success in establishing a modus vivendi with Russia, with which it has far greater economic ties, than will the US. That leads to a fit of pique on Trump's part, and a rupture between him and Putin. Putin will lose no sleep over it, as Russia's economy starts to grow on the back of increased trade and investment from the EU and China.

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