US Economy On A Tear

In 2020, Michael Roberts, on his blog, wrote about a coming post-Covid slump, and he repeated the argument, subsequently, in articles in The Weekly Worker. I pointed out, at the time, that the claims were nonsense, and so they were, as the data since the ending of lockdowns has shown. No sooner were lockdowns lifted than a wave of pent up consumer spending was unleashed, and despite that going along with rising costs – not least from labour shortages – that reduced profit margins (the basis of Roberts' claim that falling profits would reduce capital accumulation, and so growth) competition drove firms to try to grab their share of this increased demand, and so, engaged in their own expansion, again, not least, in service dominated economies, an expansion of employment.

Defying all of the doom-mongering of the catastrophists, after 2022, and the hopes of the neo-liberals that have hoped and prayed for an economic slow down, so as to undermine the position of labour, and rising wages, so as to boost profits, and enable lower interest rates to boost asset prices, the US economy, in particular, has continued to grow strongly, and, most significantly, so has US employment numbers. Millions of additional workers have been employed in the US, and millions more have gone from part-time employment to full-time employment, precarious employment to more stable employment, and, with it, household earnings have risen, enabling a continuation of household consumption, even as the savings accumulated over lockdowns start to get run down.

For all of last year, the neo-liberals kept saying that the US labour market was cracking, even though there was no sign of that being the case. They looked for even the most tenuous data to support that argument, but, month after month, they were proven wrong, as employment continued to rise by large amounts, each month exceeding the highest estimates for non-farm payrolls. And, although I have set out why GDP is not a measure of output, and so rises in GDP are not a measure of output growth, the GDP figure has also exceeded the expectations, as each quarter came and went.

In the last quarter of 2023, it came in at 3.4%, which was down on the previous quarter's 4.9%, but still represents significant growth. And, last week's jobs numbers confirmed that its continuing. Not only do the weekly jobless claims numbers continue to come in at rates indicative of a period of boom rather than recession, let alone slump, but the numbers of additional jobs created continues to grow at a rapid pace. For the last month, US non-farm payrolls rose by 303,000, as against estimates of 200,000. Taken since last October, there has been not only strong jobs growth, but a rising trend of such growth.

In search of some data to support the idea that the jobs market is cooling, the ideologists of the speculators have pointed to the slow down in the Quits Rate. It measures the proportion of workers voluntarily quitting their job to move to some other, better job. It had been rising since the start of the new long wave upswing in 1999, as you'd expect, and as has happened at such periods in previous long wave cycles. It dipped after 9/11, and its aftermath, before rising again, and then falling sharply in 2008. But, since 2008, it has been on a continual rising trend. It peaked towards the end of 2022, and has since fallen back, but is, now, still at the kind of level seen prior to lockdowns. The reason it has fallen back is not an indication of a weakness in the labour market, but, if anything, the opposite.

After the ending of lockdowns, firms scrambled for workers, and paid higher wages to get them. The average pay increase for workers shifting jobs was around 14%, whereas the average pay rise for workers staying with the same employer was just around 7%, in the private sector, and much less in the state sector. But, that reflected, also, the fact that workers had not yet rebuilt the strength of their unions, and ability to get firms to pay up. Now, that has begun to change, following a surge in unionisation, including in previously non-unionised companies, and a rash of pay strikes for higher pay. In some cases, as with the US car workers, that has resulted in significant pay rises, so that, the individualist solution, represented by the Quite Rate, has been superseded by the collectivist solution, of greater collective organisation and collective bargaining.

The US economy is on a tear, which is in contrast to the situation in its subordinates in the EU and UK. The latter have suffered, as a result of the pursuit of the interests of US imperialism, in its proxy war in Ukraine against Russia, which led to the boycott of Russian energy supplies, causing Europe to face much higher energy costs, and, as a result of its global trade war against China, which has slowed global trade. As the EU boycotted Russian oil and gas, it damaged its own economies. The US, by contrast, benefited, as it was able to sell its higher priced oil and gas, to the advantage of US energy companies, and shareholders. As European companies were faced with these higher costs that resulted in both a tie-up of capital, and fall in the rate of profit. A portion of produced surplus value was resolved into constant capital (energy), rather than profit, and, meanwhile, the higher value of constant capital, caused a fall in the rate of profit, meaning less was available for capital accumulation, and so growth. I will come back to this later.

This is similar to the way that the subordinate role of European imperialism, to US imperialism, has led to it suffering in the past, to the benefit of US imperialism. For example the wars waged by US imperialism/NATO in Iraq, Syria, Libya etc., not only devastated the developing economies of North Africa, which were being drawn closer to the EU, but also led to a crisis of refugees, dealt with by European countries, not the US. Similarly, Biden has continued the global trade wars started by Trump, and has stepped up the trade war with China, not only blocking China from selling its commodities in the US (and pressuring European countries to follow suit), as with Tik-Tok, but also, blocking the sales of various technologies to China. That has restricted global trade, and, in particular, as the EU economy, notably Germany, has slowed, so that has impacted the Chinese economy, and vice versa.

Even so, the European economy has not gone into the kind of slump that had been predicted. Indeed, although the EU and UK, may have entered a technical recession, briefly, for the reasons I've set out before, its unlikely that this represented an actual reduction in output. For one thing, employment has continued to grow, meaning new value creation has continued to grow. In China, the continued imposition of lockdowns for purposes of slowing rapid growth, and of social control, has had its effect, now that they have been more generally lifted. But, the vast amounts of liquidity pumped into the Chinese system, to keep asset prices elevated, has meant that it is on the verge of an asset price bubble bursting, as shown in the problems of its property sector with the bankruptcy of Evergrande and Country Garden. That crisis is impacting on the rest of the economy, much as did the 2008 financial crash on western economies.

Yet, even so, China's economy is growing at 5.2% on an annualised basis, which is way below the 10% growth seen in previous decades, but can hardly be described as recession, let alone slump. To avoid an asset price bubble bursting, and affecting the rest of the Chinese economy, the state is likely to increase liquidity even further, leading to rapidly rising inflation, and as the Chinese economy expands, and sucks in primary products, those primary product prices are likely to rise in price, once more on global markets, as the next twist in the global inflationary spiral kicks in. Copper prices have already risen sharply, and are expected to rise another 30% this year. Iron ore prices are also rising, after having been falling. Gold is at an all-time high, not only because its production costs have risen in money terms, as currencies are devalued, but also because the actions of western imperialism in seizing Russian paper assets, gives an incentive to hold national wealth in the physical form of bullion.

But, its not only the Chinese economy, and US economy continuing to grow strongly. The Indian economy, which is seeking to challenge China in manufacturing production, is growing at 8.4% on an annualised basis, and its manufacturing at over 11%. This growth is taking place against the backdrop, and headwinds put in place, of the US's global trade wars, and rising interest rates. In fact, the rising interest rates are themselves not only a consequence of higher inflation, causing nominal rates to rise, but also of the rising economic activity, and demand for money-capital. As noted earlier, the tie-up of capital, resulting from higher energy and other primary product prices, means that a portion of produced surplus value is resolved into the replacement of this constant capital, rather than into profits. Because that appears in national accounts as lower profits (revenue), this gives the false impression that National Income/GDP has grown more slowly, or even fallen, hence the “technical recession”, in conditions where employment, and so new value creation continues to increase.

But, in conditions where, in reality, capital accumulation continues, this tie-up of capital, manifests in an increased demand, or reduced supply of loanable money-capital. If, firms have reduced profits, because a larger proportion is resolved into the replacement of consumed constant capital (and now, also, variable-capital, as real wages rise) in order to accumulate the capital required to grab their share of an expanding market, they must either retain more of their profits rather than paying it as dividends/interest, or throwing it into money markets, or else they must themselves go into those money markets to borrow additional money-capital. The first reduces the supply of additional money-capital, the latter increases the demand for it. The consequence of demand for money-capital rising, relative to supply, is rising interest rates. Hence, the latest data from the EU about reduced loan demand, may not mean what it is being presented as being.

Reduced loan demand may mean that consumers and businesses are reducing demand for loans, because of curtailing their additional consumption. On the other hand, it may mean that, given significant rises in interest rates, firms are deciding to finance capital accumulation from retained profits rather than additional borrowing. Moreover, with rising real wages, it may mean that worker households have less need to borrow to finance consumption, and are able to fund it, instead, from their higher nominal household incomes, or alternatively a combination of that along with a continued run down of built up savings, accrued during lockdowns.

Finally, recent data from the US, indicates that the petty-bourgeoisie are getting squeezed. As I have set out previously, from the 1980's onwards, the size of the petty-bourgeoisie expanded considerably, in contrast to the process of the previous century, in which it shrank, as its members were thrown into the ranks of the proletariat, resulting from the concentration and centralisation of capital. That growth in the petty-bourgeoisie, over the last 40 years, was the objective material basis of its increased social weight, during that period, as manifest in the take-over of the US Republicans, and British Conservatives, with similar processes elsewhere. But, economic expansion, now, means that workers, are again becoming organised in a way similar to the period of the 1950's through to the 1970's. Labour shortages have pushed up wages, and, now, unionisation, and an increased social weight for the working-class is making its first tentative steps in imposing itself.

Big capital, as Marx and Engels, and later Lenin, described, is able to deal, more easily with higher nominal and real wages. Labour forms a smaller proportion of its costs than for smaller capitals, and the greater productivity of the large capital, emphasises that. So, unlike the previous forty years, rising wages means that the petty-bourgeoisie is seeing their profits start to be squeezed, at a time when, also, they are facing rising interest costs on their borrowing. No wonder, therefore, that US Small Business Confidence has declined sharply, not as an indication of problems ahead for the US economy, but as an indication of a return of the normality of the squeeze on that petty-bourgeoisie, and its recognition of its impending descent into the ranks of the proletariat itself.