The US is totemic of the problem facing western social-democracy, given the course it has taken. Biden, as a conservative social-democrat, has followed the same course that Clinton and Obama, and Bush pursued. Already, by the time of Bush, that policy of conservative social-democracy had run its course, because the era of falling interest rates and rising asset prices had ended. Long wave economic growth meant slowly rising wages that would increasingly cause demand to rise at a faster pace, meaning that gross output would rise faster than net output, i.e. profits would grow slower than output value, meaning that the demand for money-capital would grow faster than its supply, causing interest rates to rise. In turn that would cause the capitalised value of revenues, i.e. asset prices to fall – as witnessed by the 2008 global financial meltdown.
That failed policy, however, of conservative social-democracy, is the only one in town, for the ruling class, which is tied to the idea of needing to continually inflate those asset prices, as the source of its paper wealth, power and revenues (as it realises paper capital gains as its source of revenues). It is forced to continually undermine the real economy and its growth to that end, but even having done so, the fundamental mechanics of the economy, in a period of long wave expansion, forces its way through, causing growth to expand, interest rates to rise, and asset prices again to crash.
Social-democracy could respond, if progressive social-democracy, concerned with the interests of real industrial capital predominated, but it doesn't. The closest it has come to it, so far, is Corbyn in Britain, and Sanders/AOC in the US, along with groups like the Left Bloc in Portugal, Podemos in Spain, Syriza in Greece, but the fundamentally flawed politics of that progressive social democracy also fizzled out, at least for now. With progressive social democracy too weak to provide an alternative, and with conservative social-democracy bound to fail, that leaves only the forces of reaction able to step in to fill the vacuum, as Trump already did in the US, the Brexiters have done in Britain, and others of that ilk, threaten to do in Europe, and elsewhere.
Everywhere, that conservative social-democracy, inextricably tied to the ruling class, and its need to keep asset prices inflated, has failed, and will inevitably fail, because the material conditions that enabled it to thrive over the previous 40 years have gone for the foreseeable future, and at least for the next 20 years. Any attempt to continue with that course will fail, and simply lead to even bigger contradictions, manifest in alternate financial bubbles and crashes, though even that now seems to have reached its limits, with the next crash making 2008 look minor, and with the ability of central banks to respond now already exhausted. But, the contradictions also mean that a crash is inevitable and probably imminent, only currently deferred by the last gasps of lockdowns, and now, global fear generated by war, which has enabled the sensationalist media to replace the worn out COVID moral panic with another.
Because, for the ruling class, asset price inflation, fuelled by QE was the only show in town, and for that central banks had centre stage, printing endless quantities of money tokens, lock downs, as a means of restraining economic growth, holding down wages and interest rates, were always a short-term solution that was a double-edged sword. For all the reasons I have set out in numerous previous posts, it led to sharply rising inflation across the globe, and that inflation then acts both to increase capital accumulation, because monetary demand rises, leading to firms seeking to grab a piece of the increased market, and seek to do so before their own costs rise, giving them increased money profits, and to increase interest rates as a result of that increased demand for money-capital to fund accumulation, and because lenders seek to compensate for the fall in the future value of the money they lend today.
It raises the money prices of all the things that government buys, and the amounts it must pay in transfer payments (pensions, benefits, and so on), which means that the money it must borrow rises, causing interest rates on government debt to rise, which, in turn increases its costs, to finance its debt. Given the astronomical amounts borrowed to cover transfer payments during two years of lockdown, this mountain of debt means that interest rates are going to rise, and there is nothing central banks can do about it. Rising interest rates will cause a financial crash.
Creating further problems in the movement of money, and creating fear and loathing amongst international lenders, means that huge debtor countries like the US and UK are going to have a hard time of it, in the months ahead, and that spells severe problems for conservative social-democracy in those countries. Germany is less affected by that, but the EU, as a whole, never resolved the issues of its Eurozone Debt Crisis from 2010, simply papering over the cracks by itself resorting to QE, and stuffing its financial institutions with worthless paper, as an alternative to capital. And, that means that conservative social-democracy is in trouble across the EU too. Its problems are further increased as a result of the policies pursued by its competitors in the US and UK, which, in addition to creating disruption on its Southern borders, has now increased disruption on its Eastern borders, and seeks to break its economic relations with Russia and China, including the supply of the energy that the EU requires, making it dependent on US oil and gas, or that supplied by its clients in the Gulf. The US is not just involved in a global chess game against Russia and China, it is also attempting to weaken its EU competition too.
John Authers, in his Bloomberg Newsletter provided the following stark view of that, based upon a chart from George Saravalos of Deutsche Bank, It shows that in the last week or so, the EU has suffered its worst deterioration in its terms of trade in history. As Authers puts it,
"The adverse move in the eurozone’s terms of trade proves to be a 20-standard deviation event. In other words, it’s so statistically improbable that it boils down to a high-falutin’ technical way of saying that it can’t happen. Meanwhile, the sparsely populated commodity producers — Australia, Norway and Canada — have enjoyed an improvement in their terms of trade that is almost as implausible:"
And, part of that contradiction is the fact that, following Brexit, and this political subordination to the US, conservative social democracy in Britain, has shifted further to the Right, and is even abandoning conservative democracy itself, as it has moved into the camp of reactionary English nationalism, witnessed, not just by Johnson, but also by the total capitulation of Starmer to the forces of Blue Labour, in search of the votes of reactionary petty-bourgeois, and the lumpen proletariat. Brown, Cameron, Miliband had no answers for conservative social-democracy to give, but at least the answers they did give, tended towards the solutions of progressive social-democracy in terms of an orientation to the EU.
The conservative social democrats, today, have changed their gaze 180˚ towards the past, to the interests of the petty-bourgeoisie, and nationalism. They will also inevitably fail in that regard too, because they will demoralise and disorganise the forces of the labour movement, whilst the petty-bourgeoisie, seeing history moving in their direction, will simply press on harder, and look to the real representatives of reaction as its champions. In the US, the appalling efforts of Biden, and the Democrats has already done that, and opened the door to Trump that should have been firmly closed by now. The US state, might do what the Democrats fail to do, and put Trump in the dock as a prelude to jail, but that may simply allow someone worse to take his place. The Popular Frontist strategy of the social-democrats is simply creating the conditions for fascism once more, just as it did in the 1920's and 1930's. The only difference is that it is doing so, today, against the interests of the ruling class, meaning that to defeat it, that ruling class will also have to rely on its state to put down the fascists, and will have to resort to bureaucratic, Bonapartist measures to do so.
The other contradiction created is that, just as lockdowns, aimed at limiting economic growth, created inflation, and rising costs, so the economic war now being waged by the West against Russia, and with China also in its sights, is also creating higher costs, which, with the vast oceans of liquidity in circulation, is giving already high inflation a further upward twist. Oil and gas prices were rising rapidly, but, now, the economic war against Russia has pushed them much higher still, with Brent up at $128 a barrel, and some traders seeing it rise to $200. Unlike the 1970's, that is not going to act to depress global economic activity, but it will increase all costs, and with excess liquidity already in the system, those costs will pass through into higher prices, wages, and give the price-wage spiral another kick higher.
The increased cost of gas for Europe has already been mentioned, and this means it is going higher still, which will seriously undermine EU competitiveness compared to the US. That is one reason the US has been so desperate to force Germany to cancel the Nordstream 2 gas pipeline. According to the FT, European wholesale gas price have risen from €16 per megawatt hour a year ago, to €335 per meagawatt hour, and UK gas prices have risen by 1,000%!
But, its not just oil and gas prices that the economic war against Russia is pushing higher. Russia, is today also a large producer and exporter of grain. Grain prices, like the prices of all other foodstuffs and primary products were already again on a tear, as the ending of lockdowns was sending global growth and demand for inputs up sharply again. Grain prices have doubled. Last week, the London Metals Exchange suspended trading in Nickel, because its price had doubled in a matter hours. Its price has now trebled! Across all primary product markets, including food, prices are soaring, as a combination of the world economy opening up again following government imposed lockdowns, along with vast oceans of liquidity provides by central banks creates a perfect inflationary storm.
This is not the 1970's, when the quadrupling of oil prices came at a time when the world was facing a period of long wave crises. Then, the rise in wage share that started in 1960 had reached a level where profit share was squeezed to the extent of causing a crisis of overproduction of capital. The rise in the oil price, at a time when oil constituted a much larger proportion of costs, was enough to send the world into a period of further crisis followed by stagnation. But, it could not have done that had it not been for the fact that those conditions were already dictated by the stage of the long wave cycle itself. Today, instead, we have a condition of the long wave in which profits remain high, employment is growing rapidly, but, as in the 1960's, there still remain large reserves for capital to draw on so as to increase the social working day, and so increase absolute surplus value production.
Consequently, economies will absorb the higher costs of oil, and other raw materials, and continue to grow rapidly, despite the best efforts of governments and central banks to slow it down, so as to keep asset prices inflated. The 700,000 new jobs in the US has been mentioned, and the UK also grew by 0.8% in January, equal to more than 10% increase if continued in the year ahead. Continued economic growth, absorbing and embedding these higher costs, in conditions of excess liquidity, means rising inflation in the year ahead, requiring central banks to act to raise policy rates and tighten policy, which means asset prices are going to crash, in the not too distant future, absent some other unforeseen eventuality.
Conservative social-democrats in the US/UK, and in the EU have no answers for the coming crash in asset prices, and they have no answer to the rapidly rising inflation that is the direct consequence of their policies of QE, together with the added effects of the damage they caused by the implementation of lockdowns. They have responded by rushing headlong to the Right to try to stop the growth in the votes of the reactionary nationalists. Social democrats and Stalinists did the same thing in the 1920's and 30's in Germany, but all that did was to legitimise the reactionary nationalist arguments of the Nazis, and disorganise their own forces.
The same will happen today, and already is happening, as seen in the renewed support for Trump et al. US inflation is already well into double digits, if measured accurately, and is headed sharply higher. Much the same is true in the UK, and increasingly the EU. The first response to it is going to be electorates blaming incumbent governments for it, meaning the Democrats are going to get slammed in the mid-term elections. Macron is also likely to be hit by the same effects. It is also hitting Johnson's poll ratings, as he, also, faces opposition from his Right. That is benefitting Starmer, but, given his sovereigntist, English nationalist position, and the contradictions it entails, that is not likely to last.
The only saviour is the organised and advanced working class itself. The underlying mechanisms of the economy, and the long wave uptrend remain in place. The ending of lockdowns, will see a snap back response, which is only currently being restrained by the use of war fever to cause fear and anxiety. Once Russia secures the DPR/LPR, and the war ends, that will have been just a temporary distraction, just as was the damp squib of Omicron. With employment already at high levels (US non-farm payrolls increased by nearly 700,000 in February, nearly double the estimate, and more than 4 times what is required to absorb additions to the workforce), and workers' organisation starting to be rebuilt, with already an upsurge in industrial action, workers will respond to high levels of inflation, and the potential to get higher wages to compensate, by more of them joining unions, by increased levels of labour movement activity. Much as happened in the 1960's, and 70's, when an advanced section of the working-class moved ahead quickly via the unions, even as the Labour Party remained mired in right-wing careerism and routinism, so today, the class struggle will simply by pass Starmer and his reactionary, English nationalist cronies. The same applies to Biden and the Democrats.
It is the working-class, and in particular its advanced section that provides the only hope for social-democracy in the period ahead, and its from that basis that the labour movement as a whole will need to be rebuilt.
No comments:
Post a Comment