Speculators have been hoping that inflation has peaked. Originally, they hoped, along with central banks, that inflation was “transitory”. In part, that is because they do not understand the cause of inflation, believing it to be nothing more than an imbalance of aggregate demand and supply, rather than being a monetary phenomena. In the US, Janet Yellen apologised for, last year, having got it wrong, whilst, Christine Lagarde has tried to justify the ECB getting it so wrong, by saying that “all forecasters of repute” had got it wrong, which should cause questions to be raised about whether they should have been held in such “repute” to begin with!
The central banks clung to the hope that inflation was transitory, because they did not want to have to tighten monetary policy, which has been the means of them inflating asset prices, for the last 35 years, and so protecting the paper wealth of the ruling class, which now owns all of its wealth in that form. And, the speculators hoped that that was the case, because, even before central banks had really got a tightening cycle under way, they were pushing the idea that, by the Autumn of this year, they would have to pause it, and perhaps even reverse it, as they did in 2019. On that basis, they hoped that various factors – continued lockdowns of some sort, restrictions on global trade, via sanctions etc., reductions in disposable income, as energy and food prices rose, whilst wages failed to match, and some small interest rate rises – would cause consumers to cut spending, creating a recession, so that workers would be laid off, and wage and interest rate pressures would abate.
The speculators and shareholders would love firms to be actually slowing down their capital accumulation, and particularly their hiring of additional workers. Its what has led Elon Musk to say that he has a “very bad feeling”, and wants to cut his workers by 10%. This is, of course, the same Musk who had a very good feeling about Bitcoin, putting billions of Dollars into it, and agreeing to accept it in payment for Tesla cars. That was before Bitcoin dropped from its high of $68,000 to just over $20,000, as it continues on its way down to its actual value of zero. The decision was as flaky as that of El Salvador, in also embracing Bitcoin, trumpeted and advocated by people like Max Keiser, and now presenting the country with a huge problem of how to cover its debts.
In fact, its likely that Musk will not cut his workers by 10%, for the same reason that other firms are not going to be cutting their workers, and instead continue to be unable to employ enough of them fast enough. That is because, despite all of the attempts to hold back economic activity, outlined above, the global economy continues to grow rapidly, as soon as it is released from the grip of artificial restrictions, and competition ensures that each firm must seek to grab a bit of the action, or else lose market share to its competitors. What Musk was really saying is that he has a really bad feeling about the fact that this shortage of workers is driving up wages, which, in turn, squeezes profits (which also grow, but at a slower pace than wages), and that, with demand continuing to rise (driven by increasing wages), requiring firms to continue to invest, whilst profits are squeezed, a growing part of that investment must come from profits, or borrowing, reducing the amount available as interest and dividends for shareholders, and causing interest rates to rise, which causes asset prices to fall.
What Musk is expressing is the fear of all speculators, as also voiced by central bankers and bourgeois politicians, that after 40 years of profit share growing at the expense of wage share, that relation has been reversed. The last time it appeared to be happening was 2007, and was quickly followed by the global financial crisis, which, in turn, was followed by governments introducing measures of fiscal austerity to slow economic growth, and cause recession, so as to increase unemployment and dampen wage growth. Now the speculators are again openly advocating the need for recession to achieve the same result.
In 2007/8, it was symbolised by the statement of Alistair Darling that workers should not seek wage rises to compensate for rapidly rising prices, as UK tanker drivers got a 14% pay increase after striking for just 2 days. Today, it is symbolised by the same calls from Bank of England Governor, Bailey, and by the attempts of Biden in the US, and his officials to prevent US Dockers at the Port of Los Angeles striking to get a pay increase to protect them against rapidly rising US inflation, that, last week, was seen to have spiked yet again, to a 40 year high of 8.6%, as against the predictions that it was going to fall from its previous level of 8.3%.
The US spike in inflation follows on from continuing rises in inflation in the UK, and in the EU. In fact, the US Month on Month increase in inflation of 1%, should send shudders down the spine of speculators and central bankers. The figure was 50% higher than the predicted increase of 0.7%, and more than three times the previous month's figure of 0.3%. If projected a year ahead, it means an inflation rate of more than 12%, and reflects the fact that US Producer Prices are already rising at 11% year on year. Even taking the average, for the last three months CPI, that would give inflation, a year from now, of more than 10%. There is little chance that inflation has peaked, and even less that, even if it had, it would be falling significantly any time soon, given that monetary tightening is only just getting under way, and is, so far, limited in scope. No wonder some like Jerry Siegel are suggesting the Fed should raise by a whole 100 basis points, at its next meeting, in order to show it is serious.
All of that undoubtedly impacts upon wages. Again, the speculators and their representatives in the media, are pointing to the fact that hourly wages are not keeping pace with price rises. They see that as a good thing, because they see it squeezing disposable income, as workers have to spend money on energy and food, leaving them with less money to spend on other commodities, thereby slowing the economy. But, again, they are wrong, as this amounts to another triumph of hope over reality. They expect the same weakness that faced workers over the last 40 years to persist. But, all the employment and vacancies data shows why it does not and cannot. There are 2 job vacancies for every unemployed worker in the US, but that doesn't tell the whole picture.
Marx sets out in Theories of Surplus Value, that as economies expand, the first things that happens in relation to the labour market is that existing workers are employed for longer, including part-time workers working full-time, as well as increased overtime working, then additional workers are employed from the latent reserves. That is one reason that wages in total expand, long before hourly wages rise. There are still lots of workers working part-time, and precariously whose positions can improve, as they are employed for longer hours, before hourly wage rates rise. As I have pointed out in previous posts, there has also been a lot of additional payments in bonuses, setting on payments, retention payments to try to get workers not to leave for another job, and so on. If all these things are taken into consideration, it already looks as though actual incomes are matching headline inflation rates, if not yet the real increases in living costs faced by workers, which are running at more than 10% a year.
But, as I have also set out before, we are not yet into the main part of the year when large scale organised labour begins to negotiate collectively the pay rises for the year ahead, and, here, the proposed strike by 25,000 dockworkers at the Port of Los Angeles is significant. Its so significant that Biden went there himself, on Friday, to give a speech about his commitment to fighting inflation, and has had his Transport Secretary, Pete Buttigieg, working behind the scenes both with the top union bureaucrats in the Longshoremen's union, and with the port boss, Gene Soroka, as well as local Democrat politicians to try to avoid the strike.
The interventions go back further than that, because, given the amount of trade with China that goes through these West Coast ports, particularly L.A. and Long Beach, after China initially opened up, following its first set of lockdowns, container traffic flooded across the Pacific, with around a hundred ships queued outside the Port of Los Angeles, waiting to be unloaded. The problems were not just in relation to the quantity of shipping, but problems obtaining enough containers in the right place, as well as shortages of labour, and then problems sending freight inland by train and lorry. The situation with the dockworkers is a good example of what was said above. To resolve these problems the first recourse was to just work the dockworkers harder and longer. As a result, the actual wages of dockworkers in L.A. can now be as much as $100,000, but trying to resolve these problems by simply working existing workers harder and longer is not a sustainable solution.
Biden and co. herald the reduction in the amount of ships waiting to be unloaded down to around 20 as a triumph, but, in part, it is explained by the fact that China has gone into repeated lockdowns, as its ruling class seek to prevent its economy overheating, causing interest rates to rise, and Chinese financial and property markets going into meltdown. As China opens up again, and as US demand rises, as its own economy expands, the pressure on the ports will increase again, and that cannot be solved by simply working dockers harder and longer, even if the dockers were prepared to put up with it, which the proposed strike shows they are not. The Port Authority says it has also introduced additional investment and technology, but the dockers refute much of what the bosses say, and the reality is that whilst bosses think they can get away with simply working workers hard and longer they will do so, rather than invest in new fixed capital. But, even if that were possible, its likely to be several years before it could be implemented on a scale to make much difference.
In the meantime, the dockers know they are in the driving seat, particularly as a lot of US war materiel goes out of these Pacific ports, as US imperialism steps up its economic war against China and Russia in the Pacific. The dockers know that they are in a position to demand much higher wages here and now, and that, instead of them having to work longer and harder, they are in a position to demand that the ports employ more of them.
The attitude of Biden and the Democrats is typical of social-democracy. It believes that workers and capital have a shared interest, rather than fundamentally contradictory interests. It believes that capitalism is eternal, and that the best that workers can expect is simply better living standards, which depends upon capital continuing to expand, which, in turn means that workers should not prevent that by demanding wages to impinge upon profits.
As Marx describes, if you accept the premise that capitalism is eternal, then its true that the best conditions for workers do depend upon capital expanding, which requires expanding profits, and so workers not impinging on those profits by demanding higher wages. But, as he also sets out, not only does that mean that workers, by that process, increasingly make themselves slaves of capital, but, even in the short-term, at various points, even if workers do not demand higher wages, competition between firms will push wages higher, and profits will be squeezed, capital will be overproduced, leading to crises, and the result will be sudden stoppages, with large numbers of workers being laid off and led into misery. It is why, workers cannot limit themselves to a vision only of life under capitalism, but have to begin to create a new form of society, in which they have control of the means of production.
That is not the view of conservative social-democrats like Biden, or of the trades union bureaucrats, who will try to stitch up the dockworkers if they get the chance, just as they will all other groups of workers. It is why, in the period ahead, as workers now feel more solid ground beneath their feet, as economies expand, they must begin to rebuild their own rank and file organisations, and by-pass the bureaucrats and officials.
In the period ahead, its not just the immediate interests of the dockers at stake. They must press ahead not only for increases in the basic hourly wage, but also for appropriate reductions in their working week, as an accompaniment to demands for increased hiring, and so on, as well as technology agreements over the introduction of any new machines and so on. That affects all those workers seeking employment, but it also feeds into the position of tens of thousands of other workers down the line in the distribution chain, of teamsters, railroad workers, workers in warehousing and so on. A big win for the dockers will mean that all these other workers will push through an open door in their own wage negotiations, followed soon after by workers in the big retail outlets and so on.
But, its also not just in the US that this is important. This would be the other side of the tunnel that opened up back in 1984-5, when Thatcher in Britain defeated the miners, and Reagan in the US defeated the air traffic controllers. A big win for US dockers will reverberate across the Pacific, as well as rolling Eastwards across North America, and across the Atlantic to Britain and Europe.
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