A Profound Economic Crisis?

Britain's new Prime Minister, Rishi Rich, in his opening address, talked about Britain facing a profound economic crisis. Of course, any such crisis is one entirely of the Brexitories making, including from his own actions over the last two years, during the idiotic lockdowns.  He was responsible for handing out large amounts of paper tokens, printed by the Bank of England, and pretending that they were money. And, of course, the Brexitories, alongside the ruling class, and other speculators, have been pushing this line about economic crisis for some time, as they try to frighten workers not to push for wages to cover inflation, and as they try to dissuade businesses from expanding, causing interest rates to rise, and so financial markets, and asset prices in general, to, once again, crash. But, is it true that Britain faces such a profound economic crisis, as against simply a crash in these asset prices, assets which are, overwhelmingly, just the property of the very, very rich?

The answer to the question is essentially no. However, that does not mean that government policies and actions, along with those of the Bank of England, may not cause such an economic crisis. A large part of the economic slowdown in Britain and the EU is down to the massive rise in energy prices. That meant that businesses had to tie-up capital to cover these higher prices for the energy they use, capital that otherwise would have been used for consumption by capitalists, or for capital accumulation and expansion of businesses. It also meant that consumers had to spend money to cover energy bills, leaving them short of money to spend on other consumption goods and services, so that firms, engaged in the provision of them, faced slowing demand, and were led to, then, slow down their own expansion.

But, firstly, those massive rises in energy prices are a direct result of NATO's boycott of cheap Russian oil and gas. They have been caused by the fact that Germany, under pressure from US imperialism, blocked the opening of the Nordstream2 gas pipeline which would have brought large quantities of cheap Russian gas into Europe. In addition, the EU introduced policies to boycott Russian oil and gas exports, which again massively increased the cost of oil and gas coming into the EU.

As the EU supported the sanctions again Russia, including exclusion from the SWIFT international payments system, Russia was left requiring payment for oil and gas to be made in Roubles, and the EU refused to do so, meaning that, as existing contracts expired, those supplies of gas also ended. So, this significant cause of economic slowdown, in Britain and Europe, is one that flows directly from British and EU policy, and could be ended, tomorrow, by simply reversing those decisions. At least it could mostly be reversed other than for the fact that the US has blown up both the Nordstream 1 and 2 pipelines to prevent the EU accessing cheap Russian gas!

But, of course, as Russian oil and gas imports were blocked, and the EU and Britain looked to other sources of energy, now, at much higher prices, states were not at all too unhappy about that, because, no longer able to impose lockdowns on populations, to curb economic activity, as the Stalinists in China have been able to do, and with opposition to the policies of austerity that had reigned after 2010, the draining of household disposable income into the payment of energy bills, now to US based oil and gas companies, in which the British and EU ruling class also have large share holdings, meant that there was a prospect of slowing the rampant increase in spending that has prompted rapid economic growth, and demand for labour that was underpinning an upsurge in wages, and strengthening of the position of labour, as labour shortages abounded, as well as the demand for capital, which was raising interest rates, and again causing asset prices to have crashed by around 20% already.

Talk of disposable income being squeezed by rising energy and food prices, as well as of general inflation rising faster than hourly wages was a useful means of spreading a new moral panic amongst populations to frighten them into being more cautious in their behaviour, to slow down spending on consumption, and for businesses on expansion. The trouble is that, despite all of that, consumers have continued spending, and businesses have continued expanding, as competition forces them to do so out of fear of losing market share, in conditions where demand for goods and services continues to increase, despite the energy and food price rises and so on.

In part, that is because, in Britain and in Europe, households were handed those paper tokens as replacement incomes, and, because they were locked down for two years, although they increased spending on some things significantly, i.e. all those things they could buy online, and enjoy indoors, their overall spending was curtailed, meaning they amassed cash hoards, paid down existing debts and so on. They now have those hoards, and strengthened household balance sheets, which they are using to finance consumption of all those goods and services they could not enjoy during lockdowns – with a concomitant hit to all those technology based expenditures they engaged in between 2020-2022, which has caused a big temporary hit to those technology companies.

So, its simply not true that there is some existing, or imminent, profound economic crisis facing Britain, the EU or the US, or indeed, much of the world. China's economy is being deliberately slowed by the Stalinists, using continued lockdowns, under its nonsensical zero-Covid policy, because, as elsewhere, each time it relaxes those lockdowns, consumption and economic activity expands rapidly, and that puts pressure on Chinese interest rates, which then threaten to burst all of the massive serial asset price bubbles that have been blown up, and which would destabilise the regime, and the Chinese ruling class whose wealth is based upon those assets. But, it will not be able to hold that position for much longer, and when that dam breaks, and a surge in Chinese economic activity arises, it will have ramifications for global economic growth, not to mention for interest rates, and a crash in global asset prices.

The most obvious manifestation of the fact that there is no economic slowdown, let alone recession, or economic crisis, is the fact that, throughout the globe, not only does employment continue to rise, but unemployment continues to fall. That is the case so much, that the speculators are demanding a recession, to stop wages rising.  Enemies of the working-class, like Larry Summers, demand that unemployment in the US, needs to rise to more that 5% for more than year, so as to discipline labour, and push wages down.  Its why central banks are raising their policy rates, in a vain hope of creating such a recession, whilst continuing with policies of QE that create inflation!

Both employment and unemployment can rise simultaneously, for the simple reason that the workforce itself continually expands. If the workforce is 1 million, of which 900,000 are employed and 100,000 unemployed, and it rises to 1.2 million, then employment might rise by 100,000 to 1 million, whilst unemployment also rises to 200,000. But, the rise in employment cannot, currently, just be explained by a rising number of workers, because unemployment is also falling, along with an increase in the number of workers moving from part-time to full-time, and temporary to permanent employment. The latest US initial jobless claims data, again, came in better than expected, at just 217,000, and is currently at less than half the number it would be if the US were entering a recession. US GDP growth for Q3, itself came in at 2.6% on an annualised basis, indicating that, far from slowing, the economy is growing.

The increase in employment is evidence that, whatever GDP data might suggest, output itself continues to expand. GDP is not a measure of output, but only of new value created during the year/time period. Its actually, not even a good measure of that, because, as a monetary figure, it is affected by a number of other factors. Given high levels of inflation, what is being seen in GDP data is the fact that significant capital is being tied up, and this is reflected in incomes, making the actual amount of new value created appear less than it actually is.

Total output value consists of c + v + s, whereas GDP, the new value created, during the year, consists only of v + s. That is, it is equal to the wages and profits in Department I and II, which forms the demand for consumption goods, and for the accumulation of additional capital (new c + v). If GDP rises or falls, it only means that the amount of new value created, and resolved into these revenues has risen or fallen, not that the amount of output value has risen or fallen, because it does not take account of changes in the value of c. But, it also does not accurately represent even the amount of new value created, either, because of what Marx explains in Capital III, Chapter 6, and in Theories of Surplus Value, Chapter 22, in relation to the tie-up and release of capital.

Suppose we have, in Year 1 total output equal to c 950 + v 475 + s 475 = 1900, and GDP - 950.  In Year 2, total output is equal to c 1000 + v 500 + s 500 = 2000. GDP is then equal to 1,000. However, during the year, the actual use values that comprise c, the constant capital, must be replaced “on a like for like basis”, as Marx describes it, in order for social reproduction to proceed. In other words, if the 1,000 c consists of 1,000 use values, another 1,000 such use values (raw materials etc.) must be bought out of the 2000 of total output, to replace them.

Suppose, however, that, between the time that the total output, equal to 2,000, is sold, and the 1,000 use values comprising c are bought, the price of these use values rises by 10%. They must still be bought, and the only way they can be bought, at a cost, now, of 1,100, is for some of the profit of 500 to be used for that purpose.  So, what would, then appear is c 1100 + v 500 + s 400 = 2000. It would appear as though profits had fallen by 100, and also that GDP has fallen, because of the tie-up of 100 of capital that previously would have formed revenue. If in the previous year, there was no tie-up of capital, and GDP was 950, it would appear that GDP had fallen by 50, to 900, whereas, in reality, it would have risen by 50, but, now, with 100 of it having been tied-up as capital to replace the higher priced constant capital.

We know that employment is expanding, and given that capitalist enterprises do not employ people to stand around doing nothing, let alone to actually reduce the amount of new value created, but rather to increase the amount of new value produced, we can assume that this increased employment, does, indeed, mean that the amount of new value being created is expanding, and, given the significant increases in employment, is expanding significantly, despite what GDP data might suggest.

We can conclude that the GDP data is simply reflecting the fact that capital is being tied up as a result of 10% rates of inflation, and frictions imposed reducing productivity, as constant capital is replaced during the year. And, a further look would tell us that, its possible that, given that hourly wages are rising more slowly than inflation, some of this tie-up of capital, which is reflected in lower profits, is itself offset by the fact that, currently, capital is able to shift some of that burden of the tie-up of capital on to labour, by money wages rising slower than prices, and raising relative surplus value.

There is also another question in relation to the amount of revenue that goes to the purchase of assets rather than commodities, with this money then being tied up in the sphere of assets rather than the general economy, which I will examine in some future posts.

In fact, its not only US GDP data that shows continued growth, albeit sluggish, but even the latest EU GDP data continues to show growth, so taking in the points above that GDP does not give an indication of output growth, the current condition does not at all signify some profound economic crisis, other than one that governments might create by idiotic policies such as those that Truss and Kwarteng attempted, or else that they deliberately create, as they did with austerity after 2010, or lockdowns after 2020, and that the Chinese Stalinists continue to implement, a version of which would be deliberately shutting down economies by creating physical shortages of energy, requiring businesses to close down for part of the week.

But, the austerity imposed after 2010, simply led to a further relative decline of those developed economies that imposed it. China continued to grow during that period, as did other Asian economies; African economies showed hardly any impact in the period after 2008, continuing to provide 6 out of the world's 10 fastest growing economies, with average annual growth rates above 10%. And, even with austerity, and QE being used to divert money and money-capital away from the real economy into speculation in assets, after 2014, developed economies too, began to expand more rapidly, and notably after 2018, the effect of which was, then, rising interest rates, and a 20% fall in stock markets, before Trump introduced a further impediment to growth via trade wars against China and the EU, and Brexit introduced the threat of frictions in Europe. As even that failed to stop global trade again beginning to rise, it was cut short in 2020, by the physical closing down of economic activity under cover of lockdowns.

In short, the continued rise in employment, fall in unemployment, tight labour markets, and continued rising demand for goods and services, in aggregate, does not give any grounds for believing that output is falling, or that economies are either in, or imminently approaching a recession, let alone some profound economic crisis. These latter facts, of continued economic expansion, causing the demand for capital to rise, and rising employment leading to rising wages, and the potential for a restriction on the increase in profits, available to finance capital accumulation, do represent a potential crisis for the ruling class, however, precisely because they recreate the conditions of rising interest rates that lead to a crash of asset prices, the form in which the ruling class, now, holds all of its wealth.

But, as Marx describes, this kind of financial crisis, causing asset prices to crash, is not at all the same as an economic crisis. Its why we should not allow the ruling class that owns its wealth in the form of that fictitious capital to exercise control of the socialised capital it does not own, and which is the collective property of the working-class. Its actions are, now, even contrary to the requirements of the capitalist system itself, sacrificing real capital on the altar of fictitious capital, and paper certificates.

Even for the continued development of the capitalist system, the existing ruling class has become a fetter, and should be swept aside, with control over capital passing to its collective owners, the working-class.