The Economic Situation (6/6)
When we look at the economic situation, now, as a consequence of the government imposed lockdowns, it has caused the worst slowdown in 300 years, but what does this actually amount to? This slowdown is not the result of an economic crisis, and certainly not a crisis of overproduction of capital. It is not the case that businesses were facing a profits squeeze, or losses, as a result of over accumulation of capital, and high wages squeezing profits, or lack of demand for their output, or that new high profit products cannot be developed aplenty, for which there would be more than sufficient demand. What they faced was a government imposed diktat to stop producing – at least in some instances – or, similarly for consumers to stop consuming, for example, stop going to bars, restaurants, gyms, hairdressers and so on. A closer example would be the effect of the US Civil War, and blockade of Confederate ports, preventing shipment of cotton to Lancashire that closed down UK textile production. What the economy is facing is a government imposed supply shock. The GDP figures have tanked for the simple reason that GDP is a measure of new value created, i.e. new labour undertaken by workers, and if workers are prevented from working then obviously new labour is not undertaken, and that new value is not created. But, that is not at all the same as a destruction of capital or capital value as occurs in a real crisis of overproduction. 
In most part, the physical capital is still in existence, and still operational, as soon as firms are allowed to restart. All of the fixed capital in shops, offices, factories and equipment is still there waiting to be simply restarted as, for example, happens after annual holidays. In most cases, circulating capital, where it was not already run down, prior to the lockdown, is still in existence, and waiting to be processed. In a crisis of overproduction, all of this capital value is destroyed, because it cannot produce a profit, if it is used, but that is not at all the case with most of this capital that has simply been mothballed for the last few months. Indeed, a lot of that capital never stopped being used, for example, in energy production and so on.
On the contrary, all the evidence is that, because the state acted as employer of last resort and printed money tokens to pay wages, whilst production was cut back, what we have is underproduction (a supply shock), and, as soon as consumers can begin to use all of this available liquidity, to buy the goods and services they have been deprived of, for the last few months, this monetary demand will exceed supply, causing market prices to rise, and so inflating short term money profits. The report published by the IFS shows the extent of underlying inflation, whilst we have anecdotal reports of hairdressers, for example, doubling their prices now they have reopened. And, as I reported last week, US Inflation has already spiked, and is even higher than these official figures. If even last month's official core CPI data is taken, then annualised it represents a rise of 7.5% in US inflation. But, the real figure is higher than that, and we have only just started to come out of the lockdowns, so that the sharp rise in monetary demand is still in the foothills of the mountain ahead. As monetary demand rises sharply, and money profits rise sharply with it, its unlikely that businesses where they can will not try to quickly ramp up their production, to avoid losing market share, and to harvest those money profits while they can, and that, in itself will cause shortages of supplies of materials and labour that will cause further cost and price spikes.
In short, this is not at all the same economic conditions as the 1920's or 1930's, and, although the efforts of states to suppress economic activity, and divert resources into financial and property speculation, have acted to dampen the long wave upswing, they have only, in effect, put it into hybernation, after 2010, and, to achieve that, they have had to destroy currencies, create financial absurdity with negative yielding assets, and so on, to an extent that their attempts to prevent the economic uptrend have simply created the conditions where an even larger financial crash than 2008, is now inevitable, because, as economies reopen, businesses need to borrow to finance their operations, following several months when their revenue streams had been cut off, and where the government has borrowed on an astronomical scale, and will need to borrow on an even larger scale to finance the bail-outs of strategic industries that have been damaged by the lockdown. This time, unlike 2008, there is no way out. But, the financial crash this implies is the prelude to a period of rapid economic upswing, during which real socialised capital will assert its inevitable dominance over fictitious-capital. It is those conditions, as in the 1890's, and 1950's that create the best conditions for progressive social-democracy, and the advance of workers' interests.
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