Is There an Answer to Inflation?

Inflation is a scourge on those cursed with living under the capitalist order. It especially punishes those least able to weather the pain of constantly falling behind rising prices and expanding debt. 

Inflation harms nearly all working people whose income growth trails the rise in prices, including those with union contracts that bridge periods of rapid price increases. 

Small businesses suffer because of their inability to match supplier increases with price hikes of their own. Also, they are more likely to be locked into a cycle of incurring greater and greater debt and ever-higher interest rates.

The pain of inflation is intensified by the customary antidote prescribed by mainstream economists: interest-rate hikes designed to slow economic activity and force pricing restraint. While some decry the harshness of government anti-inflation policies, they can offer no other solution under capitalism. Erdoğan, President of Türkiye, recently experimented with defying anti-inflation orthodoxy with disastrous results.

Higher interest rates add higher interest charges that banks attach to already bloated prices through credit-card usage, mortgages, student debt, and other private borrowing. 

In the post-war period, we have known one period of extended, intractable inflation, and that came after a long period of government military-related spending and an unanticipated economic shock-- the oil crisis-- in the 1970s. As I wrote in 2021: 

The enormous costs of the US’s long, costly Asian war produced great debt and pressure on the gold-backed US dollar. The imperialist alliance with Israel brought a disruptive, unprecedented boycott on the part of the oil-producing nations resisting Israel’s occupation of Arab territories. Intense competition between the dominant US economy and the resurgent Euro-Asian economies was shrinking profit margins.

I thought there were common features with that earlier period and the emergence of high inflation in 2021:

The pandemic, like the oil crisis, has shocked the global economy. The US economy and subordinate economies have been running on the fumes of fiat money and central bank stimulation, exposing remedies that are losing their effectiveness. Despite the lack of even phantom existential threats, the US has conjured costly foreign adventures and an extraordinarily wasteful and large military budget and “security” spending, crowding out social spending and amplifying national indebtedness. Commodity scarcity generates rising prices. And both slow growth and inflation are now reappearing and promise to continue.

This was not a popular view in 2021. 

And it is not popular today, though wars in Ukraine and Gaza are adding even more limitless demand for weapons and more inflationary pressure.

In 2021, economists, government officials, and pundits scoffed at inflation, assuring us that inflation would subside as soon as income support from the pandemic was exhausted and damaged and broken supply chains were repaired. In sharp contrast, I pointed out:

Despite the admonitions of the central bankers and financial gurus, inflation seldom self-corrects. It rarely runs its course. Instead, inflation tends to gather momentum because all the economic actors attempt to catch up and get ahead of it…  And it is important to recognize that this profit-taking has and will continue to fuel inflation. Once again, the commanding heights of the US economy-- the monopoly corporations-- are using the excuse of catching-up to profit-up.

With Wall Street and its minions still clinging to the illusion that inflation was going away and that there was no need for the braking effect of high interest rates, the January and February inflation reports came as a shock. The media likes to jump from one measure of inflation to another to promote the best perception of inflationary trends. Thus, from report to report, they may feature the CPI or the core CPI, or the PCE, computed on a month-to-month or annualized basis, depending on which shows the most optimistic results. But manipulation and wishful thinking cannot hide the bare facts: December to January month-to-month CPI rose .6% and January to February month-to-month CPI by .4%, alarmingly high increases after three straight months of month-to-month decline. Inflation is still with us.

Conformation for the relationship between higher prices and profit-taking comes from an unexpected source. Conservative economist Greg Ip writes of the Big Profits, High Prices: There Is a Link: “Since the end of 2019, prices are up 17%, outpacing both labor and nonlabor costs. The result: Profits grew by 41%. If profits had grown at the same, slower rate as costs, that would have translated to a cumulative price increase of only 12.5%, and an average annual inflation rate roughly 1 percentage point lower.”

So, the monopoly corporations effectively robbed the consumer and small businesses of 1% more of the price of goods and services in each of the last four years, on top of their usual rate of exploitation. During this period, profits reached a rate unseen in the twenty-first century. 

In this election year, is anyone in either of the two major parties addressing the pain of inflation and its cause located in the insatiable thirst for profit on the part of monopoly capital? The monopoly corporations impose a unilateral 1% tariff on all goods and services for four years in a row with no outcry from the mainstream press? This is what the pundits mean by “our democracy”?

The Biden administration answers that, despite inflation, we are doing better. The economy is doing fine.

Consider the facts:

● The New York Federal Reserve reports that “serious” credit-card delinquencies have risen from 4.01% to 6.36% in the year through the fourth quarter of 2023, an increase of more than 50% in one year and indicative of “increased financial stress.” For many workers, the credit card is the mechanism used to address income shortfalls, but with interest on credit debt rising from pre-pandemic 14.9% to 21.5%, the average of the last quarter of 2023, credit cards are exacting a harsh toll. Credit-card usage now constitutes a vicious trap and not an answer.

● Mortgage and auto-loan delinquencies are also on the rise.

● Fox News reports: ”A record-breaking number of Americans are making emergency withdrawals from their 401(k) retirement plans in order to cover a financial hardship amid the ongoing inflation crisis, according to new data from Vanguard Group… Nearly 3.6% of workers participating in employer-sponsored 401(k) plans made a so-called "hardship" withdrawal in 2023, according to Vanguard, which tracks about 5 million accounts. That marks a major increase from the 2.8% rate recorded in 2022 and the pre-pandemic average of about 2%. It marks the highest level since Vanguard began tracking the data in 2004.” 

● The Wall Street Journal explains: “Inflation experienced by the poorest fifth of society was 1.6% higher than for the richest fifth from March 2020 to June 2023…”

● Also: “Pandemic savings have run down. The Federal Reserve concluded at the end of last year that ‘excess’ savings accumulated during the pandemic have been run down, and depending on the method used have either run out altogether or are close to it. Low-income consumers spent their excess-cash cushion earlier, according to other studies, which helps explain why they are struggling more with debt.”

● Consumers are pulling back on purchases. January’s revised 1.1% drop in retail sales has alarmed economists. While February’s numbers increased, they fell below consensus predictions.

● Burger chain McDonald’s, a bellwether for middle- and lower-strata discretionary spending, reports more customers are turning to grocery purchases and dining at home to save money.

● In a January, 2024 Pew poll, 31% of respondents say that US economic conditions are “poor” and 41% say that they are “only fair.”

These facts present a formidable case that inflation is continuing and doing great harm to US citizens, especially the working class. Sadly, there is no-- and likely will be no-- political answer to this scourge expressed in the forthcoming elections. To properly address inflation without advocating the painful remedies now in place would require a critical challenge to the economic system that frequently spawns inflation. That system is capitalism and neither mainstream political party will dare make that challenge.

The US working class needs organizations-- unions, political parties-- that will actually fight against inflation or risk another lost decade of economic stagnation and declining living standards.

Greg Godels

zzsblogml@gmail.com

The End of an Era

Why do the International Monetary Fund (IMF), the World Trade Organization (WTO) and the World Bank-- three of the most highly regarded international economic organizations-- project a bleak road ahead for the global economy? 

Ominously, the World Bank warns of the possibility of a coming “lost decade” for economic growth. 

In January of this year, the World Bank dropped its global growth projection for 2023 to 1.7% from its June of 2022 projection of 3%. To put some perspective on the number, during the era of high globalization before the 2007-9 crash, global growth averaged 3.5%. Since the crisis, growth has averaged 2.8%. And just three months after the January projection, the World Bank warns of an entire decade of lowered growth expectations. As quoted in The Wall Street Journal: “it will take a herculean collective policy effort to restore growth in the next decade to the average of the previous one.”

Likewise, the WTO projects the volume of world merchandise trade to expand at only 1.7% this year from the 2.8% average growth experienced since 2008.

On the heels of the April World Bank alarm, the IMF has announced its worst medium-term growth forecast since 1990. 

Accordingly, all three major international organizations have offered challenging, if not dire predictions for the global economy.

Clearly, the capitalist ship that has been buffeted by a global pandemic, raging inflation, a European war, and bank failures is taking on water. While there is no reason to expect the ship to sink, serious alarm bells are going off.

The pundits, policy-makers, and economics professors assured us that the orgy of price increases battering household budgets was only temporary, due to disruptions in global supply chains caused first by the pandemic, then by the war in Ukraine. Those promises were made over two years ago. 

Since then, explanations have given way to prayer. The policy tools-- a bitter potion of Central Bank interest rate hikes-- have proven less effective against inflation than promised. The previous long decade of unusually low interest rates encourages consumers to freely use credit when income is under stress, as it is with rampant inflation. As interest rates soar, those same consumers are slow to recognize their exploding debt load from high interest payments, adding to an already deteriorating standard of living. Reliance on credit thwarts the dampening effects of interest-rate increases upon consumer demand. 

Media Pollyannas rejoiced over the March Consumer Price Index numbers, with growth down to 5% over the level of the year earlier (the Fed target is 2%). While the drop is significant, the media neglected to mention that they had been persistently reminding us that the Federal Reserve relies on the core rate over the overall rate in its policy decisions. That rate-- the core CPI-- actually rose in March (its components-- core services and core goods-- were both up from February). So much for the power of faith. 

Thus, the Federal Reserve will likely raise interest rates again in May, further increasing the cost of newly incurred debt.

And why would inflation ease when consumers are still rushing towards Armageddon by continuing to tolerate price increases? Proctor and Gamble, one of global economy’s biggest consumer-product monopolies (Tide, Charmin, Gillette, Crest, etc.) has raised prices by 10% with little loss in sales volume and with growing dollar revenue. P&G has no incentive to stop or slow price increases as long as revenue (and profits) continue to grow. In fact, why would they? They are in business to make money.

Simple as it may seem, that’s the answer behind the “puzzle” of inflation: “‘The only way to explain this in relation to what we’ve seen in some of the commodity price indices for food is that margins are being expanded,’ said Claus Vistesen, an economist at Pantheon Macroeconomics” as quoted in The Wall Street Journal. Yes, that’s price gouging.

It’s not a “wage-price spiral” as corporate flacks like to opine. Instead, as Fabio Panetta, European Central Bank board member, confesses, it’s “opportunistic behavior” capped by “a profit-price spiral.” 

Liberal and social democratic economists decry the Federal Reserve’s strategy of putting a wet blanket on consumption to discourage price rises, but they have no alternatives to offer. They are content to leave the management of the capitalist economy to the capitalists, while denouncing their remedies.

Similarly, the once loud advocates of Modern Monetary Theory (MMT) are strangely quiet. During the pandemic, the idea of running large, stimulative deficits without fear of igniting inflation became popular. Left-wing pundits thought that they had found a pain-free method of funding social reforms without tapping the accumulated wealth of the obscenely rich-- a magical political elixir. The arrival of spiraling inflation has stifled that talk.

If three major capitalist institutions are foretelling economic uncertainty and instability, it is because we are exiting a distinctive era of capitalist restructuring. Associated with the popular term of “globalization,” the accelerating mobility of capital, the opening up of new areas of capital penetration; a revolution in financial instruments; the release of huge new low-wage, skilled-labor reservoirs; modern, efficient shipping techniques; the removal of trade barriers and the streamlining of regulation; new formerly public areas opened to private development; and the adoption of trade agreements embodying these changes are among the more important and novel features of the era that we are leaving. 

That era gave capitalism a new lease on life, with growing profits, hyper-accumulation, and vastly expanded speculative investments. Little of that enrichment was shared with the masses, resulting in unprecedented inequalities of income and wealth. 

The great economic collapse of 2007-2009 exhausted the vitality of the epoch of globalism-- capitalist internationalism-- that lasted over two decades. Vast sums of hyper-accumulated capital channeled into riskier and riskier speculation, a process that eventually collapsed from its own arrogance.

Rather than surrender to the inevitability of the “creative destruction” that always naturally follows a crash-- the natural process of sweeping away the toxic “assets” left in the wake of a crash-- the great financial wizards in the financial centers of New York, London, Paris, Zurich, etc. sought to isolate, protect, and sustain the garbage of the disaster and “inflate” a deflated economy through “creative restoration.”

Popularized by economist Joseph Schumpeter, the term “creative destruction” refers to the wreckage left after an economic crash-- the deflated and fictitious “values” associated with bank and enterprise failures, overpriced, unrealized goods and services, lost jobs, bad investments, ruined securities, etc. For Schumpeter and his followers, this destruction was essential for a reset of the economy, a new, fresh beginning, sweeping away the waste products of the crash.

Historically, the pain of a crisis is borne excessively by poor and working people, but the rich and powerful and the corporations are set back as well. The more severe the downturn, the less able the elites are to push all of the consequences onto those less powerful and more vulnerable. And the worse the downturn, the greater the political resistance to business-as-usual.

But after 2007-2009, working people’s institutions were extraordinarily weak, the mainstream party systems offered little advocacy for the victims of the crash, and the policy makers were determined and confident that they could avoid or buffer the period of creative destruction. They believed that they possessed the financial tools that would stabilize and resuscitate the global economy without a period of retrenchment and the accompanying economic setbacks. Central banks spent trillions to buy the worthless "assets" and place them in a lockbox until values could be restored and sold back into markets. And they embarked on an unprecedented decade of free money (ultra-low interest rates) to allow sickly, unprofitable, and marginal enterprises to live on life support and to compete another day. The discipline of the market-- of winners and losers-- gave way to state intervention to keep everyone in the game.

They only succeeded in postponing the inevitable. Today, the effort to forego creative destruction is failing and global institutions know and recognize that failure with their dire projections.

What will follow the collapse of globalism remains a matter of conjecture. 

However, we can see that we are entering a period of growing uncertainty and conflict. The rise of rightwing populism has spawned a strong dissatisfaction with conventional answers and a rise in nationalism and protectionism. Governments in Europe (Hungary, Poland, Italy, the Baltics, etc.) in Asia (India, Turkey, Taiwan, Japan, etc.) have taken a decidedly rightward turn, embracing militarization, sectarianism, anti-liberalism, and nationalism. The US and its allies are no longer the champions of free markets, employing tariffs, sanctions, and other aggressive, winner-take-all measures. 

The alliances and the rules of the game that were established in the 1990s and the first decade of the twenty-first century are now crumbling. Global leadership is now contested, with the war dangers that ensue. The win-win illusions of globalization are mutating into the voracity of grab-whatever-you-can. 

We have not seen in memory a period where the US and its allies simply steal the financial assets of a country like Venezuela or Russia with impunity. All signs point to not a world order, but a world disorder, with alliances coming and going between old allies and old enemies. Turkey can attack Russian planes over Syria and sell drones to Russia to use against Ukraine. Saudi Arabia can assist fundamentalists in killing Russians in Syria and then broker a global oil deal with Russia. Russia can sell weapons to both Peoples’ China and India, as tensions rise between the two. The US can destroy pipelines that offer cheap Russian energy to Germany with impunity, while the UAE sells sanctioned Russian oil back to Germany. And so it goes. Increasingly, the only principle behind international relations is absence of principle. 

Understandably, the highly-educated-- normally Pollyannaish-- minds diligently working for The World Bank, the IMF, and WTO foresee a rough road ahead for global capitalism. The rest of us should take notice. 

Greg Godels

zzsblogml@gmail.com

Out of the Wilderness

As the Soviet Union and our historical memory of it disappear in the rear-view mirror, ideological clarity about socialism disappears with it. It is not that the Soviet Union had a monopoly on socialist thinking-- there were certainly contributors from within and without the then-existing socialist world who reflected different times, different circumstances, and different traditions-- but the Soviet Union represented a historical constant, an evolving constant that connected the rise of revolutionary Marxism in the early twentieth century to later socialist thought.

One didn’t have to agree with Soviet socialist theory in the late twentieth century, but one had to reckon with it; one had to locate one’s thinking longitudinally and latitudinally from that pole.

Because it served as a frame of reference for other leftist movements-- purported Communist, non-Communist, and anti-Communist leftism-- there was a certain logic to the politics of the global left, best expressed by the division between the Communist, revolutionary left and the social-democratic, reformist left. These two trends captured left politics, with various wrinkles and departures playing a lesser role.

Subsequent to the demise of the Soviet Union, left ideology became unhinged. Social democracy retreated to applying a modest, slightly more human face to capitalist triumphalism, reaching full-expression with the self-described Third Way of Clinton, Blair, and Hollande. Without competition from the historical legacy of revolutionary Marxism (Marxism-Leninism), a rightward swing was inevitable.

Within the Marxist-Leninist movement, frustration and disappointment led to bitter fights, splits, and retreat to what Lenin described so well as “the years of reaction” after the defeat of the 1905 Russian revolution:

All the revolutionary and opposition parties were smashed. Depression, demoralisation, splits, discord, defection, and pornography took the place of politics. There was an ever greater drift towards philosophical idealism; mysticism became the garb of counter-revolutionary sentiments… It is at moments of need that one learns who one’s friends are. “Left-Wing” Communism: An Infantile Disorder

Many academic Marxists-- theorists whose ideas never took root in the working class, but who commanded much influence, nonetheless-- abandoned revolutionary socialism for social criticism, spurred on by a shiny new intellectual toy, postmodernism. The ideology that coalesced around the idea of class was shattered into the politics of individual identities and varied interests. Too often this thinking seeped into left-wing politics, confusing younger comrades, by nature, enthralled with the new.

Other academics believed that they had found a more rigorous foundation for Marxism in the neo-positivism of optimized choice, self-interest, and individualism, the growing intellectual consensus of bourgeois social science. After sterile debates-- often couched in formal language-- proponents concluded that the most interesting, most original ideas in Marxism could not be reduced to statements about isolated individuals maximizing their self-perceived, narrow, immediate interests. So Marxism must be abandoned to preserve the beloved method, a patent absurdity!

In the last decade of the 20th century, a process of soul searching had begun in major sections of the left, especially in the West. Both the centrality of class politics and the legacy goal of constructing socialism receded in the newly minted approaches of the broad left.

In the wake of the 2007-2009 global economic crisis, the idea of class reemerged, albeit in a simplistic, primitive way. In 2011, activists, organizing around the slogan “Occupy!”, introduced the dichotomy of the 1% and the 99% as an expression of the great and growing inequalities of wealth and income in the US. Lacking any grasp of the complexities of class and strata, the slogan “the 99%” was bound to conjure an illusory unity of the supposed have-nots that was naive and unattainable. And the idea of “the 1%” reduced the historically evolved power and rule of the capitalist class to a mere actuarial number.

The retreat from class (as Ellen Meiksins Wood so aptly characterized it) continued unabated. And the retreat from any real advocacy of socialism accompanied it.

Dissatisfaction with a soulless Democratic Party increasingly catering to a more affluent, petty bourgeois base, revived an interest in social democracy in the US. This new interest grew from the campaign of independent Democrat Bernie Sanders who refused to renounce the moniker “socialist.” Young people, in particular, were drawn in great numbers to a ‘legitimized’ socialism, energizing a number of leftist organizations and electoral campaigns.

Ironically, this new social democratic moment occurred in the US when social democracy in Europe-- its traditional address-- was discredited and marginalized.

While acceptance of the word “socialism” in the US was welcome, it was attached to a tepid, incremental socialism deeply embedded in the Democratic Party and virtually indistinguishable from its 1930s New Deal precedent.

Certainly, this leftish turn was welcome, and the freeing of the word “socialism” from its Red Scare chains marked progress.

But so-called democratic “socialism” was not socialism by any measure, but a brand associated with the left-wing of the Democratic Party.

The retreat from the real-- real-existing and real-theoretical-- socialism and the abandonment of the tool of class analysis disables and disarms the left in every way, leaving it vacillating between accommodating capitalism with patchwork reforms and surrendering the socialist project all together until a time off in the distant future.

My own advocacy of socialism has often been met with the patronizing dismissal: “Sure, but tell us how we get there from here.”

But we can’t get anywhere unless we settle on where we want to go. And surely, we must choose our route collectively.

The signs that our left has abandoned the goal of socialism, along with class partisanship abound… unfortunately.

The contradiction-- and the Marxist term is most appropriate-- between surging inflation and shrinking growth has capitalist policy makers in a bind. Their consensus-- and their consensus follows from bourgeois theory-- is that spending must be retarded. The conventional way to do this is through restraining economic activity, exactly what the Federal Reserve’s interest-rate increases are meant to do.

Given that a hard braking of the economy will inevitably produce widespread and deep pain on an already struggling working class, one would think that this would be a powerful, unassailable argument for socialism. Given that this moment in US history presents a seemingly intractable problem for the ruling class with only two possible and disastrous outcomes-- escalating inflation or a deep recession-- that the left would lay the portended disaster at the doorstep of capitalism.

But, no, that is not happening.

Instead, the left is blaming the Federal Reserve or searching vainly for ways to save capitalism from its dilemma.

● A headline in Jacobin-- a journal of “socialism”-- and reposted in Portside states ominously: To Fight Inflation, The Fed is Declaring a War on Workers. No, it is not the Federal Reserve declaring war on workers. The Federal Reserve is a capitalist institution. It is always at war with workers-- that’s its job. It is-- as it always is-- capitalism that is at war with workers. Say it! C-a-p-i-t-a-l-i-s-m…

The article ends by suggesting how capitalism could “forge” an alternative path to reducing inflation-- a brief suggestion unrelated to the dilemma that capitalism finds itself facing, but having the merit of evading the elephant in the room.

● Then there is Michael Hudson’s response to the Federal Reserve's interest-rate action, The Fed’s Austerity Program to Reduce Wages, found on numerous websites from Counterpunch to TeleSur. Hudson commands a huge following, despite having no history or connection with the organized left aside from apparent youthful happenstance with Trotskyism. His long history as a financial industry insider and his loquaciousness seem, somehow, to bolster his popularity.

Again, it is not capitalism that is responsible for the mess facing working people, but “neoliberalism,” “the tunnel vision of corporate managers and the One Percent,” and “Biden’s Cold War.” Hudson punches the explanation up by invoking his two favorite bêtes noires: debt and the rentier-class. But not capitalism.

I have no quarrel with the term “neoliberalism” if it is shorthand for the socio-politico-economic adjustment made by and for capitalism during the 1970s stagflation crisis and after the failure of Keynesian solutions. But today it is used far too often and with zeal to conjure an evil malignancy that attacks otherwise stable and enduring capitalism and imposes onerous conditions on a disgruntled, but somewhat-satisfied-with-capitalism working class.

This is sheer nonsense, of course, but it is the latent assumption behind the obsession with neoliberalism held by most left punditry. If only we could expel neoliberalism… Again, capitalism as an all-determining socio-economic formation gets a free pass.

● Professor Richard Wolff is an impressive expositor of many Marxist ideas. He is the go-to interview when center-left media, like Democracy Now!, wants to hear from Marxism. But Professor Wolf is no Marxist. Nor is he a socialist, though he might challenge this claim. While he is unquestionably dedicated and earnest, it is not to socialism that he is dedicated. Instead, he advocates for a snail's-pace assault on capitalism through small-business-like consumer and producer cooperatives, a persisting utopian strategy of nipping away at the edges of capital. That strategy has no answer for monopoly capitalism, the capitalism of our ages.

Like so many others, Wolff demonstrates an aversion to locating capitalism as the material, formal, efficient, and final cause of today’s crises, preferring to find the reparable flaws in capitalism and to search for a fix.

In his Three Anti-Inflation Alternatives to Raising Interest Rates appearing in Economy for All, In These Times, Popular Resistance, and other places, Wolff signals more interest in finding a way to manage the inflation-stagnation crisis than attacking its cause.

Wolff proposes not one, but three alternatives available to capitalism to escape the clutches of inflation.

First, he proposes a wartime solution: ration cards. One can only imagine how that would be received by a citizenry already divided by masks, vaccines, and lockdowns, not to mention guns. Indeed, this proposal might unwittingly be a stealth spark for further misunderstanding and mindless conflict.

Second, Wolff revives the Nixon-era tactic of the wage-price freeze. Like rationing, a freeze-- including Nixon’s brief wage-price freeze-- freezes injustices as well and merely temporarily bottles up the growing, deep-seated inflationary pressures. In Nixon, Ford, and Carter’s case, those pressures exploded for the rest of the decade to no relief or benefit to working people. Like rationing, price freezes give the impression of action, while leaving the cause of economic distress-- capitalism-- untouched and unspoken.

While not mentioning socialism, Wolff’s third “alternative” invokes its spirit with the possibility of “[t]the socialization of private capitalist enterprises…” But before one can anticipate Marx’s call in The Communist Manifesto for “the abolition of bourgeois property,” Wolff dashes our hopes. He is not calling for the end of “the exploitation of the many by the few” but something else entirely. Instead, he says, let’s borrow from the history of public utility commissions that have failed so miserably to protect consumers from fraud, unjustifiable price increases, and other abuses:

Across the United States, insurance, utility, and other public commissions limit private capitalist enterprises’ freedom to raise their prices in the markets they regulate. Private capitalists in such markets cannot raise prices without the permission of those commissions to do so. A government could establish all sorts of commissions in all sorts of markets with criteria for granting or refusing such permissions. Suppose, for example, that some or all food items were socially (democratically) deemed to be basic goods, such that no producer or seller could raise its prices without approval by a federal food commission. Fighting inflation could be among the approval criteria in this case (just as that is a criterion now for the Fed’s monetary policies).

Is this less utopian, less fabulist, less unrealistic, more promising than the call to abolish bourgeois property? Is championing socialism a more remotely possible solution than establishing “commissions” that would regulate capitalist prices and, accordingly, profits? Wolff simply issues a fanciful wishlist to address an impending disaster.

A survey of the various “solutions” to the contradiction of exploding capitalist prices and slowing economic activity offered by prominent left thinkers shows that they have no solution at all. Moreover, the offered “solutions” all portend to manage capitalism better than its bourgeois managers. They all seek to improve capitalism, to make it friendlier, to tame its “excesses” while guiding it through its internally generated crises.

If today’s left refuses to seriously discuss socialism, deferring it to another time and place, it consigns the people to eternal wandering in the biblical wilderness.

It is not another half-hearted attempt at reformist or utopian change (after centuries of disappointing attempts), but a commitment to revolutionary socialism that will deliver the working class “out of the hands of the [capitalists], and to bring them up out of that land unto a good land and a large, unto a land flowing with milk and honey…” (with apologies to Exodus 3:8).

The working class deserves better than another thirty years of wandering through the wilderness of misdirection, muddled ideas, and fear of socialism.

Greg Godels
zzsblogml@gmail.com

Report Card on a Failing Economic System

On Friday, May 6, the Federal Reserve released data showing that consumer credit (debt) has been accelerating since the fourth quarter of last year, with revolving credit (largely credit card debt) speeding up at an even greater pace since the third quarter of 2021. Total consumer credit grew by an annualized rate of 7% in the fourth quarter of last year, increased to 9.7% in this year’s first quarter, and expanded to 14% in March.

At the same time, revolving credit-- the debt largely incurred through credit cards-- grew 8.3% in the third quarter and 12.7% in the fourth quarter of 2021, and then 21.4% in the first quarter of this year, and an astonishing 35.3% in March!

Clearly, the US economy’s reliance on consumer spending is more and more dependent upon consumer debt, especially the credit card. For months, the business press has been hailing the continued expansion of consumer spending-- a huge contributor to overall economic growth-- as the one bright spot in the news. Now we see that consumer spending is built on the sands of consumer debt.

Likewise, personal savings (as a percentage of disposable personal income) in April, 2022 reached a low unseen since September of 2008, a sure sign that people are dipping into savings to make ends meet.

And subprime-- low credit score-- loans are failing. Subprime car loan and lease delinquencies hit a record high in February.

To make matters worse, the Federal Reserve has, after more than a decade of unprecedented near-zero Federal funds target interest rates, raised the rate by half a percentage point, the greatest one-time increase in 22 years. Without a doubt, this will translate into higher credit card interest rates going forward, applied to a broad, rapidly growing mass of consumer debt.

Thus, the consumer is turning to the credit card-- incurring debt-- precisely when the cost of using the card is rising.

Higher interest rates are exploding mortgage rates-- and dampening the over-heated housing market-- in some cases, doubling this year. Because of rising mortgage rates, new home sales fell 16.6% in April from March, yet prices of homes continue to rise: the median existing home price rose 14.8% from April, 2021 to April 2022. While it’s dramatically costlier for the homebuyer to finance a new home, the price of a house continues to rise alarmingly-- a perfect, classic housing-market bubble on the verge of bursting!

But the plight of the consumer gets worse: inflation continues to drive the cost of living for the average consumer higher and higher. For eight months, the annualized rate of inflation has been rising, culminating in an 8.5% rate in March and 8.3% rate in April-- rates rarely seen in the last 40 years. Food prices alone-- the most critical consumer goods for the least advantaged-- are up 10.8% for the year ending in April, 2022, the greatest 12-month increase since November, 1980.

When inflation raised its ugly head last year, pundits and the Federal Reserve dismissed it as temporary, an anomaly caused by dislocations following the Covid pandemic. In response, I wrote:

Despite the admonitions of the central bankers and financial gurus, inflation seldom self-corrects. It rarely runs its course. Instead, inflation tends to gather momentum because all the economic actors attempt to catch up and get ahead of it.

Today, the central bankers and financial gurus agree that inflation will be around for some time, eroding the buying power of the average worker.

Despite the dire accusations in the business press that increases in worker compensation is driving inflation, the truth is the opposite. The average worker’s hourly income-- adjusted for inflation-- has dropped by 2.6% from last April! Whatever gains are made, they are soon devoured by inflation.

Nor does the future portend well. US economic growth (GDP) sunk by 1.5% in the first quarter of 2022. As they did with the inflation crisis, pundits are shrugging this off as a self-correcting aberration. Yet, it is hard to imagine that the shrinking incomes, expanding debt, and fierce inflation will not take its toll on consumer confidence and spending, the factors that contribute far-and-away the most to US growth.

A powerful indicator of roadblocks ahead for growth was the first-quarter collapse of labor productivity. Thus, labor productivity dropped by an astonishing 7.5% in the nonfarm business sector, the largest decrease since the third quarter of 1947-- nearly 75 years ago! This collapse was brought on by a 5.5% increase in hours worked and a 2.4% drop in economic output (this is a broad measure of hours worked, including employees, proprietors, and unpaid family workers).

Companies continue to compete for employees and hire new employees, while the economic product shrinks, a formula-- under capitalism-- for future slowing accumulation, a coming decline in the rate of profit. Some of the US’s largest retailers are reporting a decline in earnings.

This employment boom arose especially in the technology sector, where tech start-ups round up capital, borrow heavily, and hire furiously on the faith that profits will come later. Risk taking, future high return-seeking venture capitalists and the extremely low cost of borrowing, combine with a young, educated, competitive workforce to create the perfect conditions for inflated expectations and recklessness. With interest rates rising and uncertainty growing, the tech bubble is now leaking-- hiring freezes, layoffs, and austerity are occurring or in the offing.

The technology sector is the most vulnerable sector of the capitalist economy because of a long period of easy access to capital and a long incubation period before returns on investment appear. Banks have become impatient for profits from the latest glitzy app, just as they gave up waiting for returns on their investment in promiscuous fracking a few years ago (that is being corrected with the greatly increased demand for energy in Europe as a result of the Ukraine war).

The tech sector's troubles are reflected in equity markets, with the tech-based NASDAQ sinking faster, yet dragging down the S&P index as well. So far this year, as of May 20, the NASDAQ composite has dropped well over a quarter, with the S&P falling 19%, the S&P’s worst start to a year since 1970. With 8 straight weeks of losses, the Dow Jones Industrial Averages has incurred its worst stretch since 1932. For those whose only exposure to the stock market is their 401(k) retirement plans, stock performance is a disaster-- investment advisors and managers have put a greater proportion of their funds into stocks (as opposed to other investment instruments like bonds) than in the past. This will be catastrophic for those planning to retire in the next few years.

Bonds, a usual safe haven when the markets are down, are also down for the year. And bitcoin, the darling of the financial hipsters and the crooks, has lost a third of its value this year.

Nonetheless, investors are buying in the face of a deepening bear market, seduced by the old saw of “buying on the dip” -- buying stocks when they are at the bottom and, therefore, a bargain. Despite the market's abysmal performance in March, individual investors bought a net $28 billion in stocks and ETFs-- a record. This would appear the greatest exercise in wishful thinking since the 2007-2009 crash. Maybe it's an omen!

Certainly, if equity markets continue to lose trillions of dollars of hypothetical wealth (the top six Standard and Poor’s companies lost $3.76 trillion of nominal value through May 20), the negative wealth effect will restrain spending, especially among those in the middle strata and in the bourgeoisie. Bloomberg estimates that global stocks have lost over $11 trillion in value: “Investors continue to reduce their positions, particularly in technology and growth stocks,” said Andreas Lipkow, a strategist at Comdirect Bank. “But sentiment needs to deteriorate significantly more to form a potential floor.”

What does all of this bad economic news mean?

The end of the Cold War brought not a peace dividend, but a gift to the victorious capitalist ruling classes. It was, after all, a struggle between capitalism and socialism, despite what the bogus left thought about Soviet socialism. Without question, the capitalist class understood the Western confrontation with the Soviet Union as an existential battle.

With capitalist triumphalism came decades of super-exploitation of millions of workers thrust into the global labor market. Billionaires abounded, income and wealth inequality exploded, and the resultant accumulated capital sought new and creative destinations. To a large extent, the financial sector enthusiastically accommodated this need by devising innovative, complex instruments, new investment structures, and opaque financial operations.

Capital’s imperative to reproduce itself took it into riskier and riskier places; the growing volume of accumulated capital became more difficult to productively reinvest; investors booked “profits” that were more and more contingent or hypothetical; the euphoria of hyper-accumulation invited greater and greater leverage; and the accumulation mechanism finally crashed under the weight of tenuous, hypothetical, and “fictitious” capital in 2007.

The history of the twenty-first century since the 2000 tech collapse has been one continuous struggle on the part of the Central Banks, international economic organizations, government administrations, and financial institutions to rescue capitalism from the giddy orgy of speculation and overinvestment triggered by capitalist triumphalism.

These actors have attempted to seal off the trash-- bad investments, overvalued, unredeemable bonds, unrecoverable debt-- from the healthier economy, while injecting massive volumes of no- or low-cost (near-zero interest rates) liquidity into a shell-shocked economy.

The raging inflation that emerged late in 2021 places the masters of the capitalist economic universe in a policy vice. To stem inflation, they must raise interest rates, which invariably dampens economic growth. But economic growth has already slowed-- indeed, turned negative in the US for the first quarter of this year. With so many economic indicators declining or going negative, rising interest rates will only accelerate the slowdown of consumer spending, productivity, wage growth, investment, and social spending, while increasing debt and its costs.

This is truly a bleak picture and it's not clear what useful tools remain in the hands of the policy makers to brighten it. The NATO/Russia/Ukraine blunder of a disruptive, grinding war can only worsen global economic conditions for everyone except the arms makers.

We can only hope that people will make the connection: capitalism breeds misery and war.

Greg Godels
zzsblogml@gmail.com

Reading the Economic Tea Leaves

Imagine a car careening around dark mountain roads during a rainstorm. The driver has no speedometer, but a set of brakes and plenty of power available at the accelerator. The passengers have both a need to get to their destination and an abiding concern for their own safety. They want to arrive promptly, but safely.

This story is a simple metaphor for the situation facing the US economy today. The dangerous roads represent the precarious state of the US economy still in disrepair in the aftermath of the 2007-9 systemic meltdown and suffering the devastation wreaked by the extra-systemic pandemic a decade or so later. The conjunction of these two unexpected disasters make the road ahead uncertain.

The lack of a speedometer represents the modern absence of any objective, material, universally accepted measure of value. In the past, the convention of measuring value by some rare metal like gold or silver would anchor the circulation of money and credit in something beyond the judgment or interests of central bankers or treasury officials who can set the “speed” of currency by fiat. But not today.

In the US, officials-- our economic “drivers” --have been pressing hard on the accelerator: buying up US debt and mortgage debt so that their growth will not devalue existing assets. In fact, their actions have more than met the challenge of devaluation-- asset deflation-- left by the 2007-9 crisis; they are now pumping up financial, home, and other asset values to new, seemingly limitless heights.

The “drivers” have suppressed interest rates which makes the cost of borrowing virtually zero, allowing corporations to access easy money for mergers, acquisitions, and stock buy-backs, further swelling asset values without touching corporate earnings.

Finding that pressing the accelerator on dangerous roads has not resulted in a crash, the emboldened bankers and policymakers have been pushing even harder, producing inflated values of assets and profits, while debt remains fixed and with little associated costs. Ruling elites and corporate executives fully support and reward these policies.

Thus was created a policymaker’s utopia: a limitless stimulus to the capitalist economy with no associated danger. Ruling class policy makers drink the same magic elixir that many on the left have urged: Modern Monetary Theory (MMT), the notion that fiat currency (currency free of any basis in a common material standard) allows currency expansion without any necessarily negative consequences. But they have hitched it to the interests of wealth and power. While US economic czars will not admit it, they have quietly tossed out their faith in the infamous Phillips curve, the close relationship of government spending and inflation, budget balancing and fiscal restraint.

Once, when Keynesian demand-side economics was popular, many policy makers also took to hiding this once-universal consensus for political reasons. Just as many read Keynes as justifying welfare spending and public-sector investment, ruling-class apologists insisted that “pumping up” the economy (bourgeois economics floats on metaphors) would result in massive inflation and crisis, while contradictorily endorsing obscene military spending and massive corporate subsidies and bailouts to do their “pump priming”!

Similarly, today’s elite policymakers mask their commitment to MMT remedies behind bluster about budget deficits and pay-as-you-go: they urge austerity, while government and quasi-government institutions spend money like drunken sailors, scarfing up assets and locking them up on their balance sheets in order to evade a deflationary crisis and to promote the stock market’s wild ride.

The limitless utopia imagined by US policymakers resulted in the Federal Reserve accumulating $8.76 trillion in assets by December 29, 2021, nearly $6 trillion of which they acquired since 2013. Had the assets (Treasury securities and mortgage securities) remained in the marketplace, the value of ALL securities would have dropped dramatically and the yield necessary to entice buyers would have risen sharply, discouraging future borrowing and retarding economic growth.

Instead, the Federal Reserve engaged in a massive inflation of financial assets to fend off the deflationary pressures inherited from the 2007-9 catastrophe, presenting investors and bankers with the gift that kept on giving: perpetual asset inflation and an assurance that the Fed would always have their back.

But eventually, the driver of a speeding car or those steering the US economy run into a sharp curve in the road and realize that they must slow down.

For the US economy, that curve in the road is consumer inflation. It is a misconception to see inflation as only arising in 2021. The first signs of fast-rising consumer inflation were indeed in 2021, but artificially induced asset inflation had preceded this for nearly a decade. Indeed, it was this asset inflation in conjunction with the shock of a collapse in supply brought on by pandemic lockdown and an even more dramatic rebound in demand that spurred the consumer inflation that now plagues the US economy.

How the masters of the economic universe thought that they could perpetually spur financial asset inflation without inducing inflation in more mundane, real-world markets-- autos, bacon, and eggs-- is truly astounding and hubristic. Most of us have the sense to slow down for the curves in the road.

******

Inflation will be with us for a while. Despite their initial Pollyanna assurances of a temporary inflationary blip, most of our economic gurus have come around to acknowledge that inflation has considerable staying power. The December year-to-year consumer price index (CPI) accelerated to 7% from November’s 6.8%, with December’s CPI constituting the biggest increase since June 1982.

Core producer-prices leaped a stunning 8.3%, the fastest on record, according to The Wall Street Journal, an ugly foretell of future consumer prices.

As I noted in late November, inflation is, ironically, itself like a virus, intensifying and spreading far and wide. Enterprises and institutions scramble to catch up to price increases with further price increases. Monopoly capitalism seizes on this opportunity to increase profit margins well beyond any catching-up level and driving inflation ever further. Small businesses and labor unions lag behind inflation, while the monopolies push it forward. It is the mega-firms, the giant monopolies, and not Labor or small business, that push the inflation spiral to greater and greater heights.

As they have in past inflationary periods, officialdom-- awakened to the danger-- are now set to “put the brakes” on the economy. Through raising interest rates and discontinuing buying securities, even selling off some locked in the Federal Reserve, they hope to slow down the economy. Of course, this “braking” will also slow down the tepid recovery from the earlier lockdown in response to the Covid pandemic.

Though clearly prescribed by the accelerating inflation, the slowdown could not come at a worse time. Nearly all of the retail and manufacturing figures for December 2021 were already trending down long before any Federal Reserve or Treasury braking was to occur. Total retail and food service sales dropped 1.9% from November, led by an 8.7% drop in online stores and 7% drop in department stores. Industrial production fell, with manufacturing down .3% from the previous month.

Fourth quarter 2021 reports also showed a significant drop in profits for two of the largest US banks, a departure from the unprecedented profit growth of the financial sector during the pandemic, an omen of pressure on profitability that will undoubtedly affect prices and interest rates.

******

What will inflation, higher interest rates, and slowing growth (In January, The World Bank revised its global growth estimate downward by roughly 25%) mean for 2022?

For some time, obscenely growing profits and nearly free money have generated an intense search for yield, as they did in the lead-up to the recession of 2000 and the 2007-9 crash. The growth of “blank check” companies, special-purpose acquisition companies (SPACs) and the surging of “unicorns” (privately-owned start-ups valued at over a billion dollars) places a lot of capital in a risky environment of slowing economic growth, rising costs, and higher financial costs. Even before the slowing economy and high inflation, start-ups were struggling. When investors, swollen with funds, seek out these dark, less regulated areas of economic activity in search of higher yields, trouble is often on the horizon. At the end of 2021, two thirds of initial public offerings (IPOs) traded below their opening price, according to The Wall Street Journal.

Rising interest rates may also endanger the mortgage/home-buying bubble, a phenomenon that has seen home prices soar at near-record paces, thanks to low-interest loans. Those pundits who derided the Chinese Communist Party’s pre-emptive strike on its own wildly anarchic residential construction boom may live to eat their words as the US home-buying spree unwinds.

With low union density, 2022 will likely see a loss in relative income of workers to inflation. A slowing economy and a squeeze on corporate profits will bring an increase in labor exploitation, more unemployment and more intense working conditions.

At best, we face a revisiting of the stagflation of the 1970s. At worst, a deflationary overshoot-- a deep recession like the early years of the Reagan administration.

How will we respond?

Greg Godels

zzsblogml@gmail.com.

When Have We Seen this Before?

Fifty years ago, global capitalism came to a crossroads. The enormous costs of the US’s long, costly Asian war produced great debt and pressure on the gold-backed US dollar. The imperialist alliance with Israel brought a disruptive, unprecedented boycott on the part of the oil-producing nations resisting Israel’s occupation of Arab territories. Intense competition between the dominant US economy and the resurgent Euro-Asian economies was shrinking profit margins. Traditional macroeconomic tools failed to meet the challenges of this new situation. The ensuing crisis came to be called the era of stagflation-- stagnant economic growth coupled with persistent, intractable inflation.

Stagflation persisted through most of the decade and ended with shock therapy-- a radical dose of deregulation, privatization, and market fetishism, a regimen of austerity now prescribed by all mainstream parties.

The crisis of the 1970s bears some similarities with today’s turmoil.

The pandemic, like the oil crisis, has shocked the global economy. The US economy and subordinate economies have been running on the fumes of fiat money and central bank stimulation, exposing remedies that are losing their effectiveness. Despite the lack of even phantom existential threats, the US has conjured costly foreign adventures and an extraordinarily wasteful and large military budget and “security” spending, crowding out social spending and amplifying national indebtedness. Commodity scarcity generates rising prices. And both slow growth and inflation are now reappearing and promise to continue.

Does this mean that we are bound to relive the crisis of the 1970s? Are we seeing a replay?

Maybe, maybe not. Time will tell. But we would be foolish not to study the 1970s to distill the lessons that might apply to today.

Despite the admonitions of the central bankers and financial gurus, inflation seldom self-corrects. It rarely runs its course. Instead, inflation tends to gather momentum because all the economic actors attempt to catch up and get ahead of it.

In the 1970s, it was popular with the capitalist media to blame workers who were demanding cost-of-living adjustments (COLAs) to ward off inflation. “Greedy” unions, welfare, senior, and disability advocacy organizations were claimed as the causes of inflation’s persistence and deepening.

Cynically, all were asked to sacrifice equally, while it was monopoly corporations that were raising the prices that constituted the core of inflation. They were using “catching up” as an opportunity to “profit up.” Under the guise of responding to inflation, dominant corporations raised prices beyond their growing costs to expand their profit margins.

Unlike monopoly corporations, small businesses were limited in their ability to raise prices because of intense competition. They were caught in a profit squeeze between their need to remain competitive and the grinding increases in their costs of doing business. They are especially victimized by inflation.

At the same time, inflation cheapened the value of debt, especially corporate debt, while choking new consumer debt with high interest rates.

Today, rising prices are eating up workers’ gains just as they did in the 1970s. Let the Bureau of Labor Statistics (BLS) explain it: “From April 2020 to March 2021, the 12-month changes in real average earnings were all increases, between 4.0 percent to 7.4 percent. Prior to that, from January 2017 until March 2020, the over-the-year change in real average weekly earnings ranged from −0.5 percent to 2.0 percent.” But: “Real average weekly earnings of employees on private nonfarm payrolls decreased 1.6 percent from October 2020 to October 2021. In every month from April 2021 to October 2021, the 12-month changes in real average weekly earnings have been decreases, ranging from −0.8 percent to −2.6 percent” [my emphasis].

In other words, real average weekly earnings exploded with the labor shortages induced by the pandemic, but they were wiped out by the five months of over 5% inflation culminating in the 6.2% rise in October, a 31-year high.

It is not workers’ wages that are driving inflation, but something else.

In a revealing article, The Wall Street Journal exposes the real cause of escalating inflation. Inflation Helps Boost Profit Margins: Companies seize rare opportunity to increase prices and outrun their own rising costs [print edition] tells that “[n]early two out of three of the biggest U.S. publicly traded companies have reported fatter profit margins so far this year than they did over the same stretch of 2019… Nearly 100 of these giants have booked profit margins-- the share of each dollar of sales a company can pocket-- that are at least 50% above 2019 levels” [my emphasis]. The authors note: “Executives are seizing a once in a generation opportunity to raise prices…”

It is apparent from this candid article that monopoly capitalism is leading this profiteering. And it is important to recognize that this profit-taking has and will continue to fuel inflation. Once again, the commanding heights of the US economy-- the monopoly corporations-- are using the excuse of catching-up to profit-up.

If history’s repeat is not to be farcical, the workers’ movement must avoid the mistakes of the 1970s. It must fight against monopoly price increases and not join the purveyors of common sacrifice, like the silly WIN (Whip Inflation Now) campaign of that period.

The workers’ movement must not follow its false partner, the Democratic Party, down the road of wage and benefit restraint. The inflation-directed restraint of the 1970s gave way to the give-backs of the 1980s and 1990s.

Workers must understand that inflation is not a self-inflicted wound, but a feature of the capitalist system, especially in its finance-dominated, monopoly stage. And it must be contained by attacking the profit-taking that spurs the inflationary spiral.

Further, the working class must bring this understanding to the frightened petty bourgeoisie who feel threatened and are threatened by the scourge of inflation, a stratum that otherwise turns in great numbers to the extreme right for answers.

Of course, this task would be made easier if we had a robust Communist movement in all of the capitalist countries.

Greg Godels
zzsblogml@gmail.com