Stagflation: Stagnation, Inflation, and Beyond

Since my prediction in April of 2007 of an impending economic crash, I've vowed not to risk my unblemished record with any further predictions. But a simple thing that I learned from the run-up to that catastrophe was when the “little people” -- the “every man and every-woman” -- found their way into stock market speculation, trouble was looming. Early in 2007, I recall acquaintances then announcing that they were day-traders, bragging that they were making more money buying and selling on their devices than from their regular job. 

The Wall Street Journal headlined in early October that More Working-Class Americans Than Ever Are in the Stock Market. “Among Americans with incomes between $30,000 and $80,000, 54% now have taxable investment accounts. Half of these investments have entered the market in the last five years according to…Commonwealth and the BlackRock Foundation.” 

A red flag.

And also, I learned that when the investment commentariat-- not the media cheerleaders-- sound the alarm, Marxists should listen. It’s a curious thing that academic Marxist economists, who frequently claim to foresee future crises in broad terms of overproduction and rate of profit, seldom cite the views of those solely driven by money-making realities. The Wall Street Journal, hedge fund managers, investor consultants, and others of the pursuing-alpha herd are good sources of alarm for market volatility as opposed to the capitalism-boosters of The New York Times and The Washington Post.

When a few weeks pass with the front page of The Wall Street Journal warning Credit Markets Are Hot, But Froth Is Worry and OpenAI’s For-Profit Restructuring Draws Pushback, Rattling Executives and Persistent Inflation, Soft Jobs Data Pull Fed in Two Directions and Shutdown Starting To Exact Its Toll on Business and Volatility Returns To Haunt Stock Market, it might be time to sit up and take notice.

When financial sites like QTR’s Fringe Finance-- not one to mince words-- announces Sh*t is Breaking… And it’s Going To Get Worse or when Reuters Morning Bid coins the jingle Bubble, bubble toil and trouble or when Wolf Street raises the alarm that Corporate Profits in Nonfinancial Industries Plunge by Most Ever in $, amid Massive Downward Revisions, it might be just the moment to question the health of the US economy.

More red flags.

The truth is that the US economy is strapped with two intractable, life-sucking issues.

First, the post-2007-2009 economic crisis has never been resolved. The US has foisted the damage onto its partners, subsidized sick and floundering corporations, run up enormous debts through monetary pump-priming schemes, fostered new armament production through escalating global confrontations, and sold investors on shaky, over-hyped “innovations.” That same concerted effort to overcome the deflationary tendency spawned by the financial collapse overshot the mark, generating a powerful inflationary trend. 

As I’ve argued emphatically since 2021-- contrary to the punditry-- inflation is rarely, if ever, a momentary, episodic development. It does not go away with policy tinkering or rebalancing. Once prices begin to rise, businesses and corporations try to catch up or get ahead. The floodgates of profit-taking and profit-preservation will not be easily closed. For those who fashionably love to borrow Marx’s concept of commodity fetishism, the conventional thinking on inflation fetishizes price rises, hiding the fact that inflation is the result of human decisions and human (capitalist) interests. And when capitalists see an opportunity to raise prices, they seize it.

Compounding the last four years of persistent inflation is stagnation in the non-financial economy. Economic growth-- apart from the stock market, the pocketbooks of the very rich, and the bloated military budget-- is slow and slowing. In November of 2021, I reminded readers of the dangerous return of 1970s “stagflation” in an article aptly entitled When Have We Seen This Before?. Of course, the dilemma is that government efforts to invigorate the stalling economy will only further increase inflation.

Second, the economy is currently in the hands of a helmsman without a compass. President Trump’s economic policies are decidedly a departure from the conventional reliance on the Federal Reserve as a somewhat independent arbiter and navigator of economic policy, from the reliance on and guidance from Bureau of Labor Statistics and Commerce Department data, from some self-preserving restraint of corporate and financial excess, and from muting obscenely deep and unrestrained graft and corruption. Trumpism is elite enrichment on steroids, the public be damned. Reportedly, Communist Party of China Chairman Xi believes that Trump is not ideological, but “transactional.” That would well summarize his economic program.

Whether Trump’s approach is politically sustainable is one question. Whether it will add confusion and misdirection to escaping stagflation is not in question. It will make things worse.

What are the markers, suggesting economic hardship and a rocky road ahead?

• Inflation shows no sign of a letup, still well above the consensus goal. While Trump has “declared” it defeated, consumers are even more alarmed than the numbers suggest, with grocery store prices a particularly sensitive arena for shoppers. The full weight of Trump’s tariffs has yet to spread through the economy, promising even further price elevation.

• Hiring is falling off; businesses are hiring fewer people. Though limited hiring has not yet resulted in a dramatic change in unemployment, it foretells an increase in those jobless.

• Real average hourly earnings growth is tepid, growing .7% from August 2024 to August 2025. Median household incomes remained largely unchanged last year, adjusted for inflation. When higher incomes are extracted, the numbers for most households are in decline.

• Outlandish financial schemes are back and collapsing, especially around the used-car market. As in 2007-2009, irrational, super-exploitive lending patterns have generated unserviceable debt with lower-income consumers. Car-loan delinquencies have reached 5.1%, a level approaching that of the earlier financial crisis.

• While stocks appear to be booming, their price-to-earnings ratio-- a traditional measure of overvaluation recently hit 22.5, one of the highest readings in the last forty years.

• Investor fear of market volatility is reflected in the great demand for the safety of gold, a commodity hitting its all-time high in price. Other signs of the turn toward safety are emerging. 

• The driver of stock-market growth is almost entirely artificial intelligence (AI) and its data centers. With immediate investment in AI estimated in hundreds of billions of dollars (as much as three-quarters of a trillion globally), little return on investment has materialized. OpenAI is expected to return only $13 billion this year. Morgan Stanley calculates that the entire industry only sold $45 billion in products last year. Many see a bubble much like the fiber-optic mania of 2000.

• Bank failures have prompted JP Morgan Chase’s top dog, Jamie Dimon, to quip “When you see one cockroach, there are probably more”.

• Private, direct credit-- a growing factor in finance-- has a default rate of over 8%, the highest ever.

• Class divisions are intensifying. Annual wage and salary growth for the bottom third of households through August of this year was lower than any year since 2016. At the same time, growth for the top third grew four times faster than that of the lower third. For the first time, consumer spending by the top 10% of earners was nearly half of total consumption.

• The Black unemployment rate went from 6.1% last August to 7.5% this August, a harbinger of employment trends: last hired, first fired.

• Recent college graduates are experiencing one of the highest unemployment rates of the last decade, another harbinger of a weak labor market.

• More children are claimed to suffer from some food inadequacy than at any time in nearly a decade; the US Department of Agriculture estimated the number at 13.8 million in its 2023 report. The Census Bureau similarly reports that nearly ten million children live in poverty, the most since 2018. The Trump Administration has halted the USDA survey of hunger in the US.

The high interest rates established to contain inflation are predictably slowing real, material economic activity and large consumer purchases for the majority. Four years of rising interest rates have made debt service a growing burden, as well as making the refinancing of debt costly. 

Economic royalty and their courtiers are publicly downplaying the growing inflation in a desperate effort to convince the Federal Reserve to lower interest rates and stimulate tepid economic activity. Should the Federal Reserve comply, inflation will undoubtedly accelerate to the great harm of most working people. Historically, stagflation ends with a deep recession, like the painful Reagan recession of 1981-1982. 

Many in ruling-class circles believe that a new wave of innovation will rescue the sluggish, fragile economy with the exploitation of Artificial Intelligence. They foresee a new age of high productivity and growth. 

However, research by JP Morgan Chase economists has failed to find a significant connection yet between the use of AI and industrial productivity. So far, it has boosted stock market values enormously, without showing a concurrent return on investment.

James Meek, writing in the October 9, 2025 issue of The London Review of Books, may well have captured where AI has taken us and how far it has to go:

Leaving aside the known problems…-- their massive energy use, their ability in malign human hands to create convincing fake versions of people and events, their exploitation without compensation of human creative work, their baffling promise to investors that they will make money by taking the jobs of the very people who are expected to subscribe to them, their acquired biases, their difficulty in telling the difference between finding things out and making things up, their de-intellectualizing of learning by doing students’ assignments for them, and their emerging tendency to reinforce whatever delusions or anxieties their mentally fragile users already carry-- leaving aside all this, the deep limitations of generative AI make it hard to see it as anything but a dead end if AGI is the goal.

Faith that AI is more than a possibly malign novelty is based on confidence that the tech oligarchs have a vision of our future that benefits us all.

Not likely.

Is economic reckoning on the horizon?

Greg Godels

zzsblogml@gmail.com

“Settling Accounts” on the Question of Imperialism

Writing in 1908-- six years before the first great inter-imperialist war and eight years before writing his landmark text on imperialism-- Lenin reminded us of the many ideological roadblocks that Marxism had to overcome before consolidating its position in the working-class movement.

First, Marx had to “settle accounts” with the Young Hegelians, then with Proudhonism, Bakuninism, and so on until scientific socialism became the dominant left factor in the workers’ movement in the late 1800s. 

Subsequently, the danger to ideological unity came from left and right-- largely right-- revisions of the revolutionary kernel that Marx and Engels had left us. “And the second half-century of the existence of Marxism began (in the nineties) with the struggle of a trend hostile to Marxism within Marxism itself.”

Today, all of those misguiding tendencies have become unsettled both outside and inside the Marxist movement. Ironically, as interest in Communism has become more acceptable with young people in reaction’s heartland-- the US-- confusion over once-settled matters grows more widely; the legacy of those hard-fought ideological struggles becomes lost to the dim past. 

It is a formidable task to rebuild the Marxist tradition that dominated the anti-capitalist workers’ movement in the twentieth century, but one necessitated by the inequality, the chaos, and the destruction wrought by unbridled capitalism and its champions.

Essential to that project is ideological clarity.

One critical issue facing the left today is the nature and behavior of contemporary capitalism on the international level-- what Lenin characterized as imperialism.

Over the recent period, I have offered several interventions on the question, primarily to shed light on the two most recent and dangerous wars-- the war in Ukraine and the war in Gaza. Understanding these wars is impossible without understanding imperialism today and understanding contemporary imperialism is not possible without subjecting that understanding to the practical test of explaining these two brutal wars.

My most recent intervention on this question has been challenged by Rainer Shea via Rainer’s Newsletter posted on Substack and X. His article, The KKE/Trotskyist effort to redefine imperialism, and how it undermines the global workers struggle, is largely a defensive rehash of the position taken by Carlos Garrido and addressed in my article. While it offers little new, it does provide an opportunity to clarify further.

Shea faults my article for failing “to find alleged examples of Russia or China engaging in imperialist actions.” But that is not what I promised to do, since I chose instead to clarify imperialism, to reject multipolarity as anti-imperialism, and to suggest that action in defense of Palestinians was a good litmus test of anti-imperialism.

I have consistently argued that imperialism is a system and capitalist-oriented nation-states participate in that system in various ways, as perpetrators, victims, and many times, both. What fundamentally determines imperialism is the maturation of capitalism into monopoly capitalism, along with the merging of bank capital with industrial capital. Marxists like Eugen Varga in the Soviet Union elaborated on these developments in the 1920s and 1930s. US Marxists like Anna Rochester and Victor Perlo carefully and thoroughly tracked the merging of industrial and bank capital through intermarriage, membership on interlocking boards of directors, stock purchases, mergers, etc. They tracked the various groups in the US organized around affinitive financial institutions, industries, and monopolies. 

The hyperaccumulation of capital generated by both industrial and financial monopoly corporations necessitates the export of capital, as well as risky financial schemes that promise new investment horizons or, almost inevitably, great crashes. 

The agents of this process are predatory monopoly corporations-- both industrial and financial-- and their action inevitably leads to spheres of interest (what Lenin calls “the division of the world among the international trusts”). It is the most powerful nation states that enforce this division of the entire world to the advantage of the favored monopoly corporations through occupation, force, threat, or other schemes.

This, in essence, is Lenin’s theory of imperialism. It is an explanation of how a global capitalist system operates under specific, evolving conditions. It is not a criterion for which nation-state is or is not imperialist or anti-imperialist. Imperialism is capitalism beyond its infancy operating on the international stage and not merely a club of exclusive members. That is why today, as in Lenin’s time, it will not disappear as long as capitalism exists. 

Lenin can shed further light on the flawed “new imperialism” embraced by Shea and Garrido. Writing late in 1916 in Imperialism and the Split in Socialism, Lenin scorns Kautsky’s claim that, with an anticipated weakened England (the overwhelmingly dominant global capitalist power of the time, like the US today), ‘there is nothing to fight about’.

On the contrary, not only have the capitalists something to fight about now, but they cannot help fighting if they want to preserve capitalism, for without a forcible redivision of colonies the new imperialist countries cannot obtain the privileges enjoyed by the older (and weaker) imperialist powers. [Lenin’s emphasis]

Lenin was right and Kautsky was wrong. After World War I, England continued to descend as the dominant power in the imperialist system, to be supplanted by the US within decades. And the US behaved with an even more overbearing global swagger than its predecessor.

Is there any compelling reason-- contra Lenin--- to believe that “In this era, one of our foremost missions is to defeat U.S. dominance in particular, which would thereby cause the imperial system as a whole to unravel” [my emphasis], as Shea contends? Like Kautsky, Shea believes that with the US knocked off the system’s pedestal, there would be nothing to fight about…

Our best efforts to defeat imperialism is not to applaud rivals to US domination, but to fight capitalism at home, the engine of both US domination abroad and the imperialist system. 

Both Garrido and Shea-- in their determination to cast Russia and the PRC as bulwarks against imperialism-- distract from the fight against capitalism. While we all --that is, all peace-loving people-- must stand against US aggression against Russia, the PRC, or any other country; we should not confuse that stance with the struggle against imperialism which is, in its essence, a fight against capitalism.

For those of us who profess Marxism, socialism, or Communism, nothing is gained by detaching imperialism from capitalism; nothing is gained by imagining that there can be a capitalist world without imperialism, if only the US were brought to its knees. 

Exploitation of labor and the appropriation of profit are still the engine of the capitalist mode of production, including in its current stage: imperialism. We are not, as Garrido contends, in a new stage, with imperialism based upon “debt and interest.” The workers in the so-called “Global South” are primarily exploited by their bourgeoisie and/or multi-national corporations (Lenin’s cartels), not by banks issuing credit cards or mortgages or by greedy insurance companies. The national debt and costly interest payments that plague less developed nations are akin to the personal debt of workers insofar as their subjugation will not be resolved by reforming banks or international institutions. The idea that debt, onerous interest payments, or labor exploitation will disappear under any restructuring of the global capitalist order is naïve, at best. Does anyone believe that debt, interest, or exploitation would dissolve if banks were reformed on the national level? If Goldman Sachs were dissolved?

It was a dream of post-World War II social democrats and many “popular-fronters” to construct a global trade architecture that would be “fair” to large and small, powerful and weak. They imagined institutions that would guarantee a fair playing field, while retaining capitalist exchange relations. Of course, those institutions have failed as they did with the earlier post-World War I project, the League of Nations. In both cases, the big and powerful came to dominate the institutions and continued to dominate the small and the weak. Why would anyone-- including Garrido-- expect a different result if the US would vacate its current position of dominance? Does history teach us nothing? 

Garrido has fallen under the sway of bourgeois economists like Michael Hudson, who dream of a debt jubilee under existing national and international conditions, thought to be attainable with the dethroning of the US as imperialism’s hegemon. Such memories of an ancient practice are distractions from today’s most urgent struggles.

It would be unconscionable to leave this question without noting Shea’s gratuitous slander of the Greek Communist Party (KKE). Shea’s identification of KKE with Trotskyism shows that he has little understanding of either. 

While the KKE is certainly more than capable of defending its position on issues that are critical for the left without my help, I must remind tweet-Communists of the long, principled, and illustrious history of Greek Communism, the Party’s role in defeating German, Italian, and Greek fascism, its sacrifices for national liberation and socialism, its ideological steadfastness, and-- most recently-- its determined effort to build Communist unity.

One can be critical of KKE without associating it with Trotskyism, without resorting to an anti-Communist slur. It diminishes the discussion and diminishes a participant with little or no experience or knowledge of the Communist movement.

Greg Godels

zzsblogml@gmail.com