A Tale Of Two Policies

This week has seen the release of two sets of data that illustrate the division between the kind of Keynesian policy of fiscal expansion undertaken in the US, and the policy of Austerian contraction adopted in the UK, and inflicted on the EU periphery, which I discussed some time ago. On the one hand, the US economy's growth has been revised up significantly from previous readings, showing 5% growth for the 3^rd quarter. On the other, UK growth has been significantly revised down from 3%, to just 2.6%.

The Liberal-Tories, for the last five years, have relied on telling lies about the condition of the UK economy. Ahead of the 2010 General Election, the Tories declared that the UK economy was in as bad a condition as Greece. That statement was ridiculously untrue, but it justified the Tories adoption of a policy of Austerianism, as a means of politically differentiating themselves from Labour, and of appealing to their small capitalist base. The Liberals, only after they had got the whiff of leather, from Ministerial limousines, adopted the same set of lies, to justify their collaboration with the Tories.

Having adopted this narrative, they became locked into it, in relation to the policy they were then forced to adopt. They no doubt believed that the economy would recover faster, so that many of their policies would never have to be implemented. They focussed a large part of their early cuts programme on Local Government, so as to be able to blame “profligate” Labour Councils, and avoid too much criticism themselves. The total package of cuts was back-loaded, so that, for example, the cuts in Child Tax Credits, which affect the better off voters, more likely to vote Tory, were only to be implemented to the back end of their programme. They no doubt expected never to have to introduce that part of their programme, and to thereby declare the success of their policies.

But, just the ridiculous catastrophist rhetoric that the Liberal-Tories came out with, in 2010, was enough to send the economy into a serious tailspin. When Osborne introduced his Austerian budget later in the year, it sent the economy into a recession, that was to last essentially for 3 years, reversing the sharp expansion of the economy it had been experiencing after 2009. The major lie that the Liberal-Tories have had to tell, therefore, has been that the UK economy was in a dire state in 2010, and getting worse, rather than that the economy was recovering strongly after 2009, and it was the Liberal-Tory policies which sent it into recession.

In fact, as the graph shows, UK GDP was higher in nearly every quarter between 2005, and the financial crisis of 2008, than the Liberal-Tories have managed after 2010. Moreover, far from the economy being in contraction prior to the election, as the Liberal-Tories have claimed, it was growing, at around 2%. And, given the fact that the Liberal-Tories could hardly claim any credit for what happened to the economy for most of 2010 (other than that their catastrophic pronouncements acted to depress rather than stimulate economic activity!) the continued growth of more than 2%, for the rest of the year, would reasonably have to be credited to the stimulative policies, previously introduced by Labour. It is after that period, when the economy noticeably begins to slow down under the impact of Liberal-Tory economic policy.

The line graph of the period, showing the strong “V” shaped recovery under Labour, and the decline under the Liberal-Tories, shows that even more clearly. Only in the last four quarters, has growth returned to the kind of level that it was at prior to the election, and, as set out previously, the basis of that has not been the kind of restructuring towards industrial production that the Liberal-Tories promised, but has been based on yet another, quick fix monetary stimulus to existing asset bubbles, and a reliance on freak phenomenon such as the stimulus provided from PPI compensation payments. But, as set out in that previous post, the UK economy is now turning down sharply, as that fig leaf of growth is exposed, and the chickens once more come home to roost, on Liberal-Tory short-termism and gimmickry. The revision of UK growth figures from 3% to just 2.6% represent a huge reduction, of around 12% of the original figure, and the trajectory is sharply downwards from here.

The other lie that the Liberal-Tories have relied on, is that the 2008 financial crisis was somehow the result of Labour profligacy in public spending. Yet, on average, the UK deficit to GDP ratio was lower between 1997-2008, under Blair and Brown, than it was under the arch Austerians Thatcher and Major, and significantly so. This is shown in the next chart. In 1995, under Major's government, the budget deficit was more than 5% of GDP. Under Blair's government, not only did the deficit to GDP figure shrink, but in 2000, it went into surplus. In 2001, Blair's government ran a budget surplus of around 3% of GDP, and there was a surplus in the following year too. Even in the following years, from 2002 up to 2008, the deficit to GDP ratio was only around 2-3% of GDP, and significantly lower than the deficit to GDP ratio that has been run throughout the period of the Liberal-Tory government. The main reason for that is that under Labour, there was economic growth, and under the Liberal-Tories there has been economic contraction.

The other lie told by the Liberal-Tories is that this profligate spending by Labour had caused interest rates to rise, and it was only the sound money policies pursued by the Liberal-Tories that were saving the situation. But, the next chart shows that this is a lie too. The yield on the UK 10 Year Gilt was 5.5% in 2007, and was falling under Labour. At the low point of 2009, even as the government was forced to borrow on a large scale to deal with the financial crisis caused by the Tories friends in the banks and finance houses, it had fallen to 3%. Although, as the financial crisis unfolded, and that borrowing to deal with it rose, yields rose to 4%, by the start of 2010, under Labour, they were falling again, back down to 3%. In fact, it was after the Liberal-Tories were elected, that yields started to rise again, back up to 4%.

Its only when, the Bank of England came to the rescue of the Liberal-Tories, with a massive programme of QE, to buy UK gilts, that their price was pushed up, and the yield down, once more. The consequence of that policy, which was one of the causes of the financial crisis in the first place, was to once again inflate asset price bubbles in property, and shares, thereby preparing the ground for an even bigger crash than in 2008, when those bubbles burst.

Moreover, it has been under the Liberal-Tories, not under Labour, that the UK lost its Triple A credit rating; a direct consequence of economic contraction, resulting from a conscious political decision by the Liberal-Tory government. The role of QE by the Bank of England, was seen after it was ended, with Gilt yields rising back to 3% once more. It is only the influx of hot money from emerging markets, seeking relative safety, that has once more pushed yields down temporarily, before they once more shoot up, crashing asset prices, as that hot money rushes out again in search of higher yields, and currency gains.

Labour has said that the Liberal-Tory policies would cause “a lost decade”, and they are right. The difference between the policies adopted by the Liberal-Tories, and forced on Greece and other countries in the EU periphery, as against the policies adopted in the US, and that were being pursued previously by Labour, is stark. The US, and Labour in the UK, adopted a policy of Keynesian fiscal expansion after the financial crash of 2008. The sharp “V” shaped recovery they experienced is clear. But, after 2010, when the Liberal-Tories came to office, they announced that they would inflict austerity on the economy. A similar policy was adopted in the EU periphery. The consequence of that is shown in the divergent course of the US economy after that date with the situation in the UK and EU.

The US, took advantage of record low interest rates – as indeed did many large corporations – to borrow almost for free, to finance expansion, or to cancel more expensive, older debt. Large corporations, for example, borrowed large amounts at these low rates, in order to buy back shares. The US continued to grow strongly, whilst the UK and EU periphery went into contraction, which made their problems of repaying debt even worse. As a result, the UK failed by 50%, in the Liberal-Tories promise to eradicate the deficit by 2015, and ever harsher austerity was imposed on Greece, and other EU countries, sending their unemployment rates ever higher, and decimating the infrastructure of the country.

Its ironic that the Liberal-Tories talk about “repairing the roof when the sun is shining”, because they have done the exact opposite. When I was first elected as a County Councillor, back in 1997, one of the first speeches I made at the Full Council meeting was on precisely that point. After 18 years of Tory misrule, the fabric of society had not just been left to rot, but had been sold off to the highest bidder, asset stripped and vandalised. It would take several years, I said for Labour to repair all the damage that the Tories had inflicted on the fabric of society. Instead of repairing the roof of the fabric of society, the Liberal-Tories have simply resorted to their normal pattern of asset stripping whatever they can get their hands on, of allowing everything to fall into disrepair for the sake of short term, penny-pinching savings.

The US, despite the fact that it has faced sniping and attempts to undermine growth by the Liberal-Tories co-thinkers in the Republican Party, and Tea Party, was able by the use of Keynesian fiscal stimulus to create a solid enough base, that the economy has entered what seems to be a path of self-sustaining growth – at least until the next cyclical downturn arises. By contrast, the UK economy looks to be entering a further period of weakness that the Liberal-Tories policies of austerianism have made it ill-prepared to weather.

The UK economy has gone nowhere in the last 5 years as a result of those policies. It has sent millions of workers into zero hours, and other temporary and low paid jobs. Not only has it led to rising government debt, despite its promise to do the opposite, but it has sent millions of workers into much greater debt, in the hope of keep the ridiculous property bubble inflated, in the hope of saving the banks. Millions now rely on credit just to get to the end of the month, millions more are permanently dependent on the tender mercies of the Pay Day Loan sharks. It will take at least another 5 years, for Labour to once again remedy the mess that the Liberal-Tories have created. A lost decade that could have turned out much better without the pain the Liberal-Tories inflicted on the economy, and on the majority of the population.

Understanding The US Political Crisis - Part 1

The 17th October Of Barack Obama

The political crisis that has once again broken out in the US, over the Budget, is the kind of crisis I discussed in Marx and Engels Theories of Crisis. What is a political crisis, threatens to have serious economic consequences for the US, and, therefore, for the global economy. Its anticipated that every week sections of the US government are closed down, will cost the US economy around 0.2% of GDP. The longer the crisis continues, the more that will become manifest. The crisis may become intensified if it extends to a further confrontation in two weeks time over raising the Debt Ceiling. That could see the US technically default on its debts. But, although this crisis is political, it is impossible to divorce politics from economics or vice versa. The real basis of this political crisis resides in the conflicting material, economic interests of different sections of US Capital. The same conflicting interests exist in the UK, and in Europe.

In fact, some time ago - History Repeating As Farce - examining the way those conflicting interests of sections of the capitalist class are reflected in the world of politics in Britain, I examined the way the repetition of history by Cameron's Tories compared to Thatcher's Tories, mirrored the repetition of history by Napoleon III, compared to Napoleon I, as analysed by Marx in The Eighteenth Brumaire Of Louis Bonaparte . Marx's work is often cited as the best example of him putting into practice his theory of the materialist conception of history. It is also where Marx uses that method to examine classes and class factions according to that method, and to give his analysis of class meaning, as opposed to the schematic formulation of class referred to in the Communist Manifesto. His analysis of class in the Eighteenth Brumaire, which encompasses richness and complexity is virtually unrecognisable compared to the economic, determinist formulation of the Manifesto. But, for that very reason, it is the epitome of what Lenin means when he formulates the basis of the dialectic in the simple formula, “The truth is always concrete.”

At one and the same time, Marx is able to demonstrate both how the vying political parties and forces were nothing more than representatives of classes, and class fractions, and their material, ultimately economic interests, and yet, how that was far from meaning that these political parties were comprised of those elements, or even that these classes and class fractions were themselves conscious of exactly what their real interests were! False consciousness is not solely a feature of the working class. For example, Marx writes,

“Only one must not get the narrow-minded notion that the petty bourgeoisie, on principle, wishes to enforce an egoistic class interest. Rather, it believes that the special conditions of its emancipation are the general conditions within whose frame alone modern society can be saved and the class struggle avoided. Just as little must one imagine that the democratic representatives are indeed all shopkeepers or enthusiastic champions of shopkeepers. According to their education and their individual position they may be as far apart as heaven and earth. What makes them representatives of the petty bourgeoisie is the fact that in their minds they do not get beyond the limits which the latter do not get beyond in life, that they are consequently driven, theoretically, to the same problems and solutions to which material interest and social position drive the latter practically. This is, in general, the relationship between the political and literary representatives of a class and the class they represent.” 

Unfortunately, over the years, this complexity of Marx's thought and analysis has been bowdlerised by much of the Left, for whom the economic determinist definition of class used by Marx in the Manifesto – for propagandistic purposes – is a much easier concept to work with, given their own Economistic tendencies. It leads to a crude view of class, and a Philistine view, in which the Capitalist class appear as one monolithic, homogeneous bloc confronting the working class. With such a view it is impossible to understand phenomena such as the rise of UKIP in Britain, or the Tea Party in the US, let alone the divisions between Tories and Labour, Democrats and Republicans, or the various manifestations of similar divisions across Europe that lie behind the imposition of policies of austerity, even in the face for calls for those policies to be dropped by sections of big capital, and its representatives in the IMF, OECD etc.

In these posts I hope to utilise Marx's method of analysis in the Eighteenth Brumaire, to explain what lies behind the current political crisis in the US, and thereby to illustrate how that is mirrored in similar phenomena elsewhere.

Forward To Part 2

Obama & US Workers Win

Barack Obama has won a second term as US President.  Four years ago when he was elected, I wrote that no one on the Left should have any illusions about what it meant - I Was Born By The River.  Still less should anyone have illusions in that regard after four years of Obama Presidency.  Yet, compared to a Romney victory, Obama's re-election is also a win for US workers.

Unlike, pretty much every other developed economy, the US under Obama has responded to the aftermath of the Financial Meltdown with significant Keynesian Fiscal Stimulus, as well as with Friedmanite Monetary Stimulus.  Unlike pretty much every other developed Capitalist economy outside the BRIC economies, and the next tier of developing economies, the US, as a consequence, has continued to grow steadily out of recession.  It would probably have grown even more, had it not been for the fact that after 2010, a Republican Majority in Congress, and Republican majorities in the State legislatures, frustrated Obama's attempts to introduce even more fiscal stimulus.  Unlike, every other developed economy, Obama as the incumbent, managed to win the election, and the two things are not unrelated.  Obama's decisive win in Ohio, which was crucial to being re-elected, came largely on the back of the fiscal stimulus, and the State rescue of the motor industry, which saved thousands of workers' jobs.

In 2009, the Labour Government in Britain, also introduced large amounts of fiscal stimulus, including that which rescued the Banks.  It was that, which raised the level of Public Sector debt, which the Liberal-Tories have made so much about.  Their claims that Labour had overspent are not substantiated by the fact.  Throughout most of the Labour years after 1997, the ratio of borrowing to GDP was in fact only a fraction of what it had been under the Thatcher and Major Governments!  As with the US, the Keynesian stimulus worked to cut short the recession, and restore growth here too.  A look at the charts of the time show that it was following a typical "V" shaped recovery pattern.  Nor, were Capital markets overly concerned.  At the beginning of 2010, UK 10 year Gilts had a Yield of just over 3%, and it was falling.  Markets knew there was no chance that the UK would default on its debt.

But, unlike Obama, Labour responded to the Liberal-Tory attacks over the Budget, by committing themselves to Cuts that were not that much less to those proposed by the Tories.  The Liberal-Tories, having udnermined the economy by their ridiculous claims about Briatin being like Greece, and having walled themselves in behind the narrative of the need for fiscal austerity, proceeded accordingly, and the economy has tanked ever since.

So, although Obama is little different from Romney, the Social Democratic policies he has pursued the base themselves on the shared interests of workers and Big Capital have been beneficial to US workers, compared to the Austerian policies pursued by right-wing populists in the UK and Europe, based on the interests of financial capital, and small capital.  To that extent last night was a win for US workers too.  To the extent that Obama's policies have prevented the US economy sinking further into the economic mire, and appear once again to be leading to a renewed period of growth, that places workers in a better position to fight for, and defend their own interests.

That is not at all to say that Marxists support or advocate Keynesianism.  In different conditions, it could not work to stimulate growth.  There can be no crisis free capitalism.  But, Marxists are not politically indifferent to the polices that Governments pursue either.  For now, those Keynesian policies have, and will continue to offer an alternative to austerity, and economic chaos.  We should citically support Governments that pursue them, whilst continuing to point out their limitations, and the need for workers to organise and fight for their own solutions, based on winning worker ownership and control of the means of production on an increasing scale, and the ability thereby for workers to increasingly co-ordinate their economic activities.

In the immediate future, US workers should press through their Trades Unions, and the links of those Unions with the Democratic Party, for Obama, and the Senate to face down the opposition from the Republicans, and the Tea Party Taliban.  It requires a national mobilisation to ensure that any fiscal expansion is geared to renewing devastated industrial areas, on the basis of locally based and democratically formulated plans, where possible focussing on extending worker ownership and control, in whatever forms are available.  Those mobilisations should seek to win over all those sections of US workers, and small farmers that have been hoodwinked by the Republicans, and present them with a vision not based on bureaucratic, State control, but on the basis of collective, self-government, and self-reliance.  That mentality, which is manifest in the kind of culture of the US represented by things like "Barn Raising", is in fact, a powerful basis for real working class, socialism in the US.

What The Markets Are Telling Us

Markets are very useful tools. That is why Lenin and Trotsky argued it was necessary for Communists to study them, learn everything they could about them, as a precondition for first being able to use them, then control them, and finally to go beyond them.

Markets tell us what people are really thinking as opposed to what they say. Frequently, the two things are considerably different. For example, people say they want to reduce carbon emissions, yet they continue to buy cars, and often make unnecessary journeys. When asked, people have said that they think that nurses should be paid more than footballers. But, people's actions contradict that. They are prepared to pay £1,000 for a Manchester United season ticket, to buy subscriptions to Sky Sports and so on, and yet baulk at a rise in their taxes to cover additional NHS spending. People often say they want to buy a house, but rather than save money to provide a reasonable deposit, they continue to spend money instead on cars, going out, buying new clothes, the latest smart phone and so on.

This is one of the problems that would be faced by any kind of democratic planning in the immediate future. So long as people continue to see themselves, and to act as individuals rather than as part of a larger collective, their voiced preferences will conflict with their actual preferences as displayed by their spending patterns. In reality, the voiced preferences tend to be expressions of what choices they think society, (essentially everyone else) should make rather than what they as an individual want to make, or else they are expressions of preferences they would have, so long as it did not involve giving up something else to achieve it.

Of course, under Capitalism this type of market, the market for consumer goods, is highly distorted. It is distorted, because the reality of productive relations means that the owners of Capital obtain by far the largest share of income, and control over the distribution of such commodities. That in itself shapes the market, and shapes the kind of spending choices others make, because of the demonstration effect, and of aspirational purchases. But, it is also distorted because of the role of advertising in further shaping that market. However, we shouldn't over egg that pudding. Advertising's main function is to create brand awareness and identity, and to win market share, not to create a market for commodities that otherwise would not be demanded. Remember the Sinclair C-5? Its rather patronising to argue that workers are making choices to buy things they really don't want to buy.

In the same way, the Capital markets tell us what the real thoughts of Capital are, as opposed to the views it expresses. They tell us what the real fears of Capital are.

The last few days have seen an awful lot of fear expressed in those markets. What does that fear tell us about what Capital is really thinking?

There are two views about what lies behind the falls in Stock markets over the last few days, which are an acceleration in the falls which have actually been taking place for the last two weeks. One view is that what lies behind it is fear over the debt crisis. That is that there is a huge amount of sovereign debt in Europe, which is why we have seen the crisis over Greece continue, and why it has now spread to Spain and Italy. There is also fear over the huge US debt and deficit. On this view it is the possibility of default that has spooked markets, and caused the sell-off.

The other view, which was presented on CNBC this afternoon by David Bloom, global head of foreign exchange strategy at HSBC, is that it is all about growth.

Growth in the EU periphery has tanked due to the austerity measures. Growth in the UK has disappeared due to the Liberal-Tory austerity measures. Growth in the US has slowed considerably as the fiscal stimulus has wound down, and now the Tea Party Taliban have forced $2 trillion of cuts over the next ten years on to the Government. In China, growth is still romping along at 8-9%, but has been deliberately slowed by the State, because of fears over inflation. Similar fears have caused the Indian Government to raise interest rates. As David Bloom put it, the concern over growth has gone global.

In reality the two things are not unconnected. If growth in the US and Europe slows, if China and India slow down their rampant advance, then this will be bad for Capital. It will mean lower profits, and slower Capital Accumulation. That would be bad, but not catastrophic for Capital. If, the EU periphery, and more importantly economies such as Spain and Italy fail to grow, or worse, go into recession, then there is no chance whatsoever that they will be able to reduce their deficits let alone cover their debts.

In every country where austerity has been introduced, including the UK, the slow down of the economy has resulted in deficits rising not falling. If that causes a default, or if the slow down fed off itself, because it became widespread, then that would have the potential not just for a “soft patch”, but for a full-blown recession or worse. In those conditions, large amounts of Capital would be destroyed, profits would cease to be made and so it is no wonder that fear of such an eventuality would cause Capital to show its real feelings by selling off.

Whatever individual Capitalists or their representatives say about wanting to cut deficits, reduce Government spending, and state intervention, the reality is that Capital fears the consequences of such action. That is why it is selling shares and other assets. It was, in fact, also spelled out by one of those who for the last few years has been calling for a reduction in that state intervention. CNBC's Rick santelli, a former commodity trader turned TV presenter, is credited with having given the impetus for the establishment of the Tea Party, in this rant a couple of years ago.



The other day, Santelli pointed out that over the last few years, the fact that Capital markets knew that if there was a crisis, the State would intervene, meant that they kept going up. The fact, that in holding the country to ransom over raising the debt ceiling, the Tea Partiers and Republicans had been able to insist on $2 trillion of cuts in the US Budget, meant that a sea change had occurred. As another presenter put it, investors were having to come to terms with the fact that “Momma isn't going to be here to help. Momma's gone away for a while.” In fact, the $2 trillion of cuts over ten years is pretty small beer when considering the size of the US economy and of State spending. Much of it will not even see the light of day. But, as with the Liberal-Tory talking down of the UK economy from early in 2010, and their threats of the austerity to be introduced, it is the fear unleashed, the animal spirits set in motion that do the initial damage, by scaring consumers away from spending, and businesses away from investing.

Moreover, at a time when it is becoming clear that the slow down is requiring an additional fiscal stimulus, just knowing it is unlikely to happen is enough to send the markets into a tailspin, because of the likelihood of that meaning the economy goes into recession.

That people like Santelli are happy to see that happen is not surprising. Many of these reporters and presenters on the business channels are former traders.

As Mandel points out the theorists of the Austrian School, and of Neo-Classical Economics were really ideological representatives of such people (See Marxist Economic Theory p715). Many of the examples, as Mandel says, that they use are drawn from the world of financial markets and luxury production. The basic hypothesis of these theories is that surplus arises not from production, but from Exchange, as one individual exchanges something they have for something someone else has. Each participant in this exchange does so, because their subjective valuation of what the other has is higher than their valuation of what they are giving up in exchange. (See my deconstruction of this argument in Reclaiming Economics Part 4) What better example of this in action is there than exchanges on the financial markets, where a seller sells shares they think are going to go down, and the buyer of those shares buys them because they think they are going to go up.

This view of Capitalism is one in which it is dominated by free markets, where the main characterisation of economies is one dominated by a myriad of small companies, and where monopolies are an abnormality. For those who hold this view, most fanatically by the Austrian School, the market would solve all problems were it not for the interference of the State.

Crashes are caused by the previous intervention of the State, which attempted to prevent some previous crash, and encouraged a crack up boom with cheap money. In so doing the State also encourages moral hazard, and protects those who made bad decisions, and who should have been allowed to go bust. It is responsible for the development of monopolies as a result of these policies, and increasingly because of a personal and fiduciary interest between the bureaucrats who run the monopolies, and the bureaucrats who run the State. The advocates of these ideas such as Hayek draw on the work of people such as James Burnham, who theorised this in his “Managerial Society”, in which he concluded that technological development was causing the societies such as the USSR, and those like the US to converge in a new type of “Bureaucratic Collectivist” society.

That is why the Austrians and their Anarcho-Capitalist (Libertarian Right) supporters describe the US as a socialist society! Its also why the other side of this coin - the Third Campist Left followers of Burnham - describe the USSR as State Capitalist or Bureaucratic Collectivist. In both cases a purely superficial and subjectivist view of the political regime, over rides, the actual class relations of the society, and the class nature of the State.

The Austrian/Libertarian ideas come essentially from the Libertarian views of Rousseau.

Rousseau believed that the ideal type of society was that he had seen in the small peasant villages of Switzerland. These small communities were keen to ensure that they were left alone by the State, which they largely were. They were self-sufficient, providing their own entertainment and so on. Its not surprising then that these ideas about liberty, self-sufficiency etc. were able to take hold in other largely peasant societies such as the US, and the UK of the 18th Century, when this Classical Liberalism was at its height. At the time, these ideas were revolutionary compared with the domination of life by the feudal state monopolies, and the lack of personal liberty.

As Marx says, they form the basis of the ideological revolution of the rising bourgeoisie against the old Feudal Class. But, we are not, however much the Libertarians want to believe we are, living in that kind of world dominated by small producers, and we are not going back to anything like it. The revolutionary ideas about social solidarity, self-reliance etc. that Rousseau identified can now, as Marx outlined, only be exercised by workers acting collectively, to establish their own co-operative property, and beginning to develop their own self-government.

So, the Austrians, who have many followers amongst the stock market traders, have no problem with the idea that such a crisis would bring down many of the Monopolies as well as reducing the role of the State. But, of course, Capitalism is NOT what they would like to think it is.

Capitalism is dominated by those very Monopolies they see as an aberration, and those Monopolies have arisen not because of State intervention, but due to the normal operation of the laws of Capitalism, which as Marx demonstrated lead to the centralisation and concentration of Capital in ever larger units, the ultimate version of which is the State Capitalist Monopoly. And, the increasing role of that Capitalist State in the economy is not a sign of the victory of Socialism, but merely a sign that this kind of modern Capitalism REQUIRES a large state presence, and intervention in the economy, precisely to create the conditions of long-term economic and social stability that these huge fractions of Capital require for their long-term planning, and in order to fulfil its function in ensuring the necessary reproduction of labour-power for Capital.

It is ironic that there is, in fact, a symmetry of view between the Austrians and much, if not most, of the Left. The Austrians see something unnatural, non-Capitalist, about the large role of the State in the economy, and much of the Left agrees with them. Much of the Left adopts the position that Capital seeks to minimise the role of the Capitalist State, and that is why it repeatedly attempts to introduce cuts. But, of course that is nonsense. Capital is interested in maximising profits, and, if the way to do that is through State intervention, that is what it will do, and has done repeatedly.

There is no natural drive for Capital to reduce the role of the State, which is why that role has continued to rise in all developed capitalist economies. There is a drive to do that from the smaller sections of Capital, and the Middle Classes and sections of workers, who see that the cost of its maintenance falls on them in the form of taxes. There is a drive to do that by the Conservative Parties whose electoral success is often predicated on winning the votes of this section of society. And, of course, there is a drive to try to ensure that State provision is efficient, and that if it isn't that an alternative form of provision is introduced.

So, however much the stock market traders, the Austrians, or even the politicians such as George Osborne argue to the contrary, indeed however, much some of the Capitalists themselves say they want austerity, the actions of Capital in selling off in fear of what that actually means discloses their real feelings on the matter.

A look at the last week demonstrates that. Markets have been selling off for the last fortnight. During that time, data has been coming in showing that economic activity was slowing down. More importantly, the circus over the US debt ceiling was holding out the possibility of a technical default. Yet, the sell-off was muted. Having done the deal, including the agreement to cut $2 trillion out of the Budget, the sell-off intensified. Yesterday, the markets took a dive. It came after comments by Jean Claude Trichet, president of the ECB, another supporter of the Austrian School. He let it be known that the ECB has been buying Bonds, but he also made it clear that the ECB would only buy Spanish and Italian Bonds, if their Governments intensified their austerity measures.

The connection could hardly be clearer. Those economies that were introducing austerity were seeing growth tank, and here was Trichet effectively blackmailing Spain and Italy, which already have stagnant economies to intensify their austerity measures. Markets went into a nose-dive.

Today, markets revived sharply as US Non-Farm payroll data came out showing a sharp improvement. Private sector jobs rose by 145,000, while Government jobs fell by around 30,000. The DOW rose by more than 100 points, a clear sign again that Capital's main concern was with growth. But, within a few hours, it had reversed again falling almost 200 points, an even bigger points reversal. The reason seems to be a realisation that one month's figures are not very meaningful, if austerity measures bring the economy to its knees. The day's data was backward looking not forward looking.

But, its not the first time we have seen this. When the Greek crisis first broke last year I wrote about the market reaction at the time. What we saw was that when it was announced that an EU intervention was to be launched, and the ECB was to provide liquidity for Greece, global stock markets soared. Within a week, when it was announced that the other side of this was that Greece would have to introduce draconian austerity measures, and that the ECB monetary intervention would be sterilised by withdrawing liquidity from elsewhere in the system, markets crashed even more!

We are seeing a range of conflicts playing out at the moment with the ranks of Capital itself. Large sections of Financial Capital, which have held considerable sway over politicians, particularly Conservative politicians, have come to believe that myth perpetrated by Austrian and neo-Classical economics that surplus, derives from exchange.

They see that they lend money out, at risk, and that it comes back in larger quantities, suggesting that it is this risk which creates the profit received. It is, of course, nonsense. The profits they have made, for the most part, are merely a share of the surplus created in production by productive Capital, in part a result of the vast money printing by the Capitalist State, which has created paper Capital Gains as asset prices have risen – the same delusion that makes people believe they are financial geniuses because the price of their house has risen. In fact, both are a form of leaching off productive capital. Financial Capital may think it can make profits without productive capital engaging in productive activity, it may think it can simply shift its speculation to other areas. In fact, without productive profits, it would soon find it was mistaken. But, more importantly Productive Capital KNOWS it cannot make profits without engaging in production, and doing so on an increasing scale. It has no interest in unnecessarily provoking a crisis through hasty austerity measures. That is what is being reflected in the markets. I suspect it may also be being reflected in the attacks on the more reactionary and nationalistic sections of the gutter press too.

Right-Wing Nutters

On the BBC Andrew Marr Show, yesterday, Business Secretary, Vince Cable, said that the problems, over settling the issue of the US Debt Ceiling, were down to the actions of a few right-wing nutters. He is, of course right. The situation in the US is ridiculous. Unlike every other developed economy, where Governments decide on Budgets, which are then approved or rejected by Legislatures, but which then proceed to raise the necessary revenues through taxation or borrowing, the US has a law, which limits the amount of debt that the country can take on.



Given, the immensity of the Financial Crisis of 2008, and the expenditures that were undertaken first by Bush, and then by Obama to deal with it, and with the subsequent recession, that debt ceiling has now been reached, and it should have been a fairly straightforward matter of simply passing a resolution to increase it.

However, in the weird politics of the US, what we now have is a situation, that is not that uncommon, of a Republican dominated Congress holding a Democratic President and Senate to ransom.

In the past it has been vice versa with Democrats blocking proposals from Republican Presidents. Indeed, it is not the first time that such a financial stalemate has occurred. There have been previous occasions when the US Government has ground to a halt, because it had not passed a Budget, and had no legal authority to spend.

To be clear, this is not at all like the problems facing Greece, or other Eurozone economies, whose problem is that they simply cannot afford to pay their bills, and required bailing-out. The US can pay its bills, and is never likely not to be able to pay its bills - as in the past, it can, like Britain, or any other country that has control over its currency, simply print more of it. The problem is only that the Republicans have decided to risk the economy, not just of the US, but of the world, for purely party political reasons.

It is not even that they object to raising the debt ceiling, though some members of the Tea Party, do, but that they have decided to refuse to agree to it being raised, unless Obama, and the Democrats agree to Spending Cuts, and only limited tax rises. Meanwhile, Obama and the Democrats, having already agreed to most of the Spending Cuts the Republicans are demanding, also want to raise taxes on the rich, marginally, by removing some of the Tax concessions that Bush brought in. The Republicans are opposing any tax increases on the rich.

Last week it looked certain that a deal had been reached, based on the proposals of the so called Gang of Six. Now it looks like that has failed. In truth, the markets do not seem too troubled by these events. The dollar has continued to rise against most other currencies, as it has been doing for several months. Bond investors, who are keen to put their money where at least it will be safe, continue to see the US as a safe haven, which has resulted in the yield on the US 10 year Treasury falling way below 3%, and continuing to fall.

Whatever, the Credit Rating Agencies might threaten about reducing the US's AAA credit rating, it clear that the Bond Vigilantes, such as Ed Yardeni, are still not ready to stop buying US Bonds. That could change quickly if no deal is reached soon, and the US stops spending money, including its repayment of interest, resulting in a technical default. In reality that probably will not happen for several reasons. Firstly, its likely that the brinkmanship will see one side or the other blink - probably the Democrats. Secondly, even if the US did stop paying interest, the markets know that this would be only a temporary situation lasting maybe a few days, or at most weeks. It would then resume payment. This is not like Greece, where private Bondholders, have just seen on average 21% of their money disappear.

But, the arguments are not even over that much. The deficit reduction proposals amount to $4 trillion over 10 years, to be made up approximately of $3 trillion in spending cuts, and $1 trillion in tax rises. That might seem like an awful lot of money, but everything is relative. The US, even under Bush, engaged in a fiscal expansion of $750 billion, just in response to the Financial Crisis, that was used for bailing out the Banks. It engaged in further fiscal expansion to bail-out the big car companies. Last year, Obama introduced a fiscal expansion of $2 trillion just for this year, which went on tax cuts for low wage families, and in extending Unemployment and Welfare Benefits for the long-term unemployed.

Put in that context, and the context of the massive size of the US economy $4 trillion over 10 years, is pretty small potatoes. In fact, what has characterised the US completely, from the UK and other European states, in the last year or so, has been the extent to which it has continued to employ Keynesian fiscal stimulus, despite the massive size of its debt.

Its interesting then that Cable should depict the problem as one deriving from a few "right-wing nutters". He is absolutely correct to characterise it that way, but he seems to fail to recognise that these right-wing nutters are, in fact, pursuing precisely the same kind of economically illiterate policies that he and the Liberal-Tory Government are pursuing here!!!

Indeed, the Tea Partiers, and other right-wing Republicans in the US, use as their example in arguing for their policies, precisely the actions of Cable and his Government in the UK.

Here, those policies, as they have in Ireland, Greece, Portugal, Spain, Italy, and elsewhere they have been used, have tanked the economic recovery, sending economies back into a recession they may have difficulty recovering from. In the UK, its likely that the next GDP figures will show the UK having negative growth once again, or at best being stagnant. In the US, the Keynesian policies, of fiscal expansion, have dragged the economy out of recession. Prior to the election of a number of right-wing Republicans, the economy was, in fact, starting to grow quite strongly. But, those forces have undermined the expansion by cutting local and State budgets. The US continues to grow, but more slowly.

That is not to say that the implementation of Keynesian policies can always resolve the problems of a capitalist economy. It can't, Capitalism is a system in which crises are inherent. But, that is not to say that there are not times, like now, during a Long Wave Boom, when Keynesian stimulus CAN work to cut short recessions. As Mandel sets out in "The Second Slump", there were numerous such recessions during the previous Long Wave boom, and all of them were cut short by the use of Keyensian stimulus.

Now as then, there is, in fact, more than enough Surplus Value available within the global economy to finance such a solution. As Marxists, we do not advocate Keynesian solutions to the problems of Capitalism, but nor are we indifferent to the solutions that Governments choose to those problems. Governments are frequently driven by ideological dogma, based on the kinds of policies they think they need to adopt to be elected, or to satisfy their membership base, rather than on any rational policy designed to deal with the problem, or even to meet the needs of the dominant sections of Capital. We have to reserve the right to point out that such solutions are available even within the context of Capitalism.