US GDP, rose by 4.9%, year on year, in the last quarter. That increase is way above the average trend growth of US GDP, and now, coming nearly two years after the ending of lockdowns, cannot be ascribed, simply, to a post lockdown rebound. Of course, some catastrophists such as Michael Roberts and Paul Mason, had even talked, during lockdowns, about a post-COVID slump, which of course, was the opposite of what happened, but means that this current growth is even more impressive, by comparison. It hasn't just been the catastrophists who hoped for a slump, of course. The ruling class speculators and their ideologists have wanted to see the global economy slow down again too, so as to prevent the rise in interest rates that again threatens to crash global financial asset prices, the form in which they now hold all their wealth.
The quarterly rise in US GDP was nearly double that of the previous quarter, frustrating all the hopes of the catastrophists and speculators alike, though the latter continue to proclaim that deliverance, for them, is at hand, in coming quarters, in the form of the long predicted recession, which they hope will lead to lower wages, higher profits, a slow down in the demand for capital, and reduction in interest rates, so as to again boost the already astronomically inflated prices of stocks, bonds and property. The fact that US inflation has fallen significantly, despite this rampant growth of the economy, again illustrates the fallacy of the claims of the orthodox bourgeois economists that tried to explain it in terms of imbalances of aggregate supply and demand, requiring a recession to correct it – really meaning to discipline workers and get them to accept cuts in real wages.
In fact, despite month after month predictions of the coming recession, and slow down in the labour market, it continues to go from strength to strength too. Employment continues to rise, and initial jobless claims, having ticked marginally higher, a few months ago, have, also, been falling, once more, to levels appropriate to a period of economic prosperity, if not yet boom, rather than of recession. As I have previously described, we are not yet at the stage of the cycle in which the demand for labour significantly pushes up hourly wages, but, we clearly are at a stage where that increased employment, and shift to better paid, permanent and full-time employment, increases household incomes, facilitating continued consumer spending.
The GDP figure, however, is flattered for the same reason that, previously, it was negatively distorted. That is the effect of inflation on the tie-up and release of capital. GDP is not a measure of national output, but only of the value added to output by labour, i.e. v + s, which is also equal to revenues (wages, rent, interest/dividends, profits, and taxes). That provides the demand for end consumption, as well as savings used for capital accumulation. The much bigger, and growing, component of output is that which comprises the value of constant capital (raw material and wear and tear of fixed capital) whose value is preserved and transferred to total output, but the demand for which comes from capital, not revenues, and which is replaced directly from total output.
Changes in values (or money prices) of this constant capital, during the year, creates the phenomenon described by Marx, in Capital III, Chapter 6, and in Theories of Surplus Value, Chapter 22, of the tie-up and release of capital, which appears as a one-off fall, or rise, respectively, in the mass of profit, despite no change in the mass of surplus value. If we take, say cotton yarn, we might have the following:
c 100 + v 50 + s 50 = 200.
If, the capitalist comes to replace the consumed cotton, but its price has now risen to 120, because they must produce on at least the same scale, they will use 20 of their produced surplus value (a tie-up of their capital), to buy the required amount of cotton. Although their produced surplus value remains 50, i.e. that is the amount of free labour provided by their workers, their profit will appear as being only 30. The opposite would be the case if the price of cotton fell to just 80. This is the importance of Marx's theory of value, and the explanation of how this commodity value “resolves” into the funds for capital and revenues, as against the cost of production theory of value of Adam Smith and the TSSI, which constitutes the value on the basis of the historic values of the components of production.
Of course, firms do not, generally, only sell their output at the end of the year, and, then, replace the consumed means of production, and labour-power. Their circulating capital is turned over many times during the year, so that this process of sale and purchase, is more or less continuous, and the consequent increase or decrease in profit, resulting from the release or tie-up, is reflecting in the actual reported profit figures. If the above example is considered as happening, say, 50 times in a year, the effect on the reported profits can be seen. But, profits are also the basis for the payment of other revenues, such as interest/dividends, rents and taxes, as deductions from profit. So, if inflation causes a tie-up of capital, because the rise in input prices runs ahead of final output prices, its not only profits that would appear to be lower than they actually are, but also these other revenues.
Of course, firms attempt to compensate for that, because they seek to place the burden on workers. If wage goods prices rise faster than hourly wages, the rate and mass of surplus value rises, so that some of the reduction in profit is shifted on to wages. In conditions such as we have, of rising demand for labour, that is disguised, because workers work more overtime, go from part-time to full-time employment, additional family members get jobs and so on, so that household incomes rise.
But, as central banks reverse QE, via the selling of the bonds on their balance sheet, thereby, reducing the excess supply of currency in circulation, slowing the rate at which the currency/standard of prices is devalued, so inflation is reduced. If input prices rise at a slow rate than end product prices, this above scenario is reversed, leading to a release of capital, and flattering of profits, which, thereby, flatters revenues/GDP.
The US performance contrasts with that in the EU, reflecting the fact that the EU has been screwed over by US imperialism, as a result of NATO's war against Russia in Ukraine, and the subsequent boycott of Russian energy supplies, which caused EU energy prices to rocket. The US, unlike the EU, is a net exporter of oil and gas. As global energy prices rose, it was domestically insulated against that, as a result of its own production. Of course, US workers suffered from it, because they faced higher costs for travel and heating, whilst US oil and gas companies profited from the higher prices, at their expense. But, the US also benefited from exporting that oil and gas to the EU, and elsewhere, now at these higher prices, and consequently profits/revenues, boosting US GDP.
The EU, by contrast, saw a huge rise in its replacement cost of constant capital/energy, causing a significant tie-up of capital, and fall in its revenues. The soaring energy bills for consumers/workers, also led to to them protesting, and demanding higher wages to compensate, which would have meant a permanent rise in wages, squeezing profits. EU governments, as also the UK government, then, acted to head that off, by introducing temporary subsidies to energy bills, and households, funded partly out of profits, and partly out of increased borrowing/liquidity injections, which will hit future profits.
The EU bought in expensive gas and oil, to build its stocks in the Summer/Autumn of 2022, only to see a mild Autumn and Winter, reduce demand for energy, and global energy prices drop. But, the inevitable continuation of the war in Ukraine, as Zelensky's forces fail to make any headway, means that global energy prices are high again, as demand rises to build stocks for the coming Winter. The Zionist/US war against the Palestinians and Iran, means those prices look set to rise further. It is unlikely that Europe will dodge a bullet two years in a row, as far as Winter weather is concerned, meaning it is likely to need to continue to buy oil and gas, in addition to the use of its stocks. Last year, the possibility remained that it could do a deal with Russia for the supply of cheaper gas, but the sabotage of the Nordstream pipelines, by the US and NATO, has removed that option, which was the intention of the US, in the first place.
So, the lacklustre performance of the EU compared to the US economy is not at all surprising, given the burdens that US imperialism has imposed upon it, via the Ukraine War. Yet, even with that, European economies have not fallen into the kind of slump that the catastrophists predicted, and speculators hoped for. Indeed, for the reasons set out above, the actual growth of European economies is likely to be much greater than the GDP figures suggest. The continued rise in employment in European economies, as in the US, is indicative of that.
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