Search This Blog

Tuesday, January 18, 2022

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.



Friday, January 7, 2022

Fighting Covid Together

It is often said that “the true measure of any society can be found in how it treats its most vulnerable members,” a quote attributed to Mahatma Gandhi. Nothing has brought that measure to the forefront like the two years of the Coronavirus pandemic.


In an unusual circumstance, a catastrophe borne by all simultaneously tests every country’s healthcare system, every country’s ability to respond effectively to an unexpected challenge.


The Coronavirus punishes those countries that lack a commitment to preparedness, execution, and relief. It inflicts great pain on those societies that tolerate or encourage inequality. It ravages the populations that stress individualism or individual responsibility over collectivism and social responsibility. 


Universal, publicly funded, publicly guaranteed, and publicly administered health solutions fare far better than private, semi-private, or public-private schemes.


The bastion of private solutions, “efficiency,” and individual responsibility-- the US-- wins the failed-approach-with-the-most-deadly-consequences competition hands down, besting all countries in late, insufficient, and botched response. 


Conventional wisdom among the television gasbags was that the US catastrophe was the fault of the arrogant, ignorant President Trump. But now with another year of record-setting infections and deaths under the Biden Administration, that explanation falls away. The problem is systemic, though no one in the US political industry will acknowledge that it is inherent to the US healthcare model.


The facts are incontrovertible: On Thursday, December 30 Worldometer confirmed US infections totaled 572,029 for the day– a new record– and 1584 deaths on the same day. More infections occurred in the US than any other country for that day and for the duration of the pandemic to date (55,252,823). More deaths (846,189) have been reported in the US due to Covid than any other country. Happy New Year!


Far more deaths have happened from the Covid infection than combat deaths in all the wars fought by the US since 1775. This singular “achievement” has been accomplished in only two years. There are no cries of “USA, USA!”, as were in other cases of US pride.


Other countries that follow the US model showed similar “victories” in the Covid wars. Poland, a US ally engaging a similar employer-based, private insurance system, incurred 14,319 new cases and 710 deaths on December 30. Another country, Colombia, a US ally incorporating private insurance and individual responsibility in its healthcare system, has amassed 5,147,039 total cases and 129,901 deaths. 


Compare these numbers to countries that have a robust public health sector, with a focus on identification, isolation, contact tracing, and selective, but thorough lockdowns. Unlike the US and its allies who rely upon individual responsibility, some countries have robust public health systems and a deep-seated identification with and duty to others.


China (PRC), for example, despite being the most populous country in the world, had 4636 new cases on December 30 and no deaths. In total, PRC has far fewer total deaths from Covid than the US has in a week. Japan has fewer total deaths than the US has in a month. And Taiwan has far fewer total deaths than the US has in a day.


A poor country like Nicaragua, limited by US sanctions, has only 17,487 total cases and 212 deaths through December 30, 2021.


All share a reliance upon a public healthcare approach, renouncing a dependence solely on vaccines and individual choices. They all approach the terror of Covid as a social issue not to be solved by private, profit-driven solutions and a state leaving the key decisions to individuals and their own self-interest. Instead, they call on the people’s highest values-- cooperation.


Heroic Cuba has mounted a national campaign against Covid, despite the barbarous blockade and scarce resources, developing its own domestically developed vaccines and offering them to other countries.


While these approaches embody what might be called “socialist values,” they need not be limited to socialist-oriented countries, as Japan and Taiwan demonstrate. An effective war against Covid can be waged by countries that embrace a healthcare system that cleanses private profit from the task of protecting public health and ensuring equal, universal benefits. 


In other words, an effective approach to Covid can be reached as a reform under capitalism, but not without a radical shift in the political landscape away from the notion that the private sector has all of the answers. Only lacking is the political will.


Yet there are compelling reasons to go further than healthcare reform. The pharmaceutical industry has a stranglehold over the efforts to win the war against Covid. Pfizer and Moderna have made over $35 billion in vaccine sales for the first nine months of 2021 and are projected to sell more than $52 billion in 2022, according to The Wall Street Journal. The same article, documents the “high stakes legal battle [that] is taking shape over lucrative patent rights for Covid-19 vaccines, with drug companies pitted against each other and government and academic scientists over who invented what.”


As is typical with drug research, public institutions and scientists research, develop, often do everything short of manufacture and market new drugs, while big pharma acquires patents or licenses to sell. “Patents are especially valuable in the pharmaceutical industry because they can give a company the exclusive right to sell a drug or vaccine for many years, free from generic competition.” Academic and government scientists sell licenses for a pittance and pharmaceuticals exercise the monopoly price-gouging all too familiar to anyone utilizing the US healthcare system.


In the matter of the Covid vaccine development, the role of government scientists and the National Institute of Health is being disputed by the drug companies. One expert claims that with the dispute, “tens of billions of dollars are on the line.” In a separate case, “Moderna could be on the hook to pay more than $1 billion to the government for infringing the patent.”


At a time when people are asked to risk their lives, to sacrifice in the battle against Covid, big pharma is carving the vaccine’s destiny to fit its profit model, extracting the last dollars from the vaccine’s development process, denying its partner, the US government, even a token.


As reported by Common Dreams, a group of Texas researchers have pointed the way ahead by developing and offering an open-source alternative to the corporate vaccines. “We're not trying to make money,” Peter Hotez, who led the Texas Children's Hospital team, told The Washington Post. “We just want to see people get vaccinated.” Implicit in his statement is a ringing indictment of the big pharma approach.


With US politicians clearly unwilling to rein in or reform the rapacious, big-donor pharmaceutical industry, it is time the people insist that it be nationalized. Since it cannot be tamed, it must be euthanized. Public ownership!


Greg Godels

zzsblogml@gmail.com




Monday, December 27, 2021

The ‘Democracy’ Wars

As part of the new Cold War orchestrated consensually by leaders of the two US political parties, a battle over democracy has emerged.


Aligned on one side are a group of bogus-independent, non-profit organizations like Freedom House (90% US government funded 2017), V-Dem Institute (funded by various governments, World Bank), Polity Data Series (funded by the CIA until 2020) that purport to rank and score nations on their level or degree of democratic governance. Not surprisingly, the countries that are aligned with their sponsors score high on democracy, while those who rival or conflict with their sponsors show poorly.


Despite these glaring conflicts of interest and transparent biases, scholars and pundits throughout the Atlantic alliance uncritically cite these results, thereby readily enlisting in the new Cold War encouraged by Western political elites.


Arrayed on the other side are those countries designated as foes of democracy-- The People’s Republic of China (PRC), The Russian Federation (Russia), The Islamic Republic of Iran (Iran), The Democratic People’s Republic of Korea (DPRK), The Bolivarian Republic of Venezuela (Venezuela), The Republic of Nicaragua (Nicaragua), (The Republic of Cuba) Cuba and others-- all of which proclaim their commitment to equal or greater democracy than their Western counterparts. 


The war over democracy escalated with the Biden administration calling for a “Summit for Democracy” on December 8-10. Foregoing any pretense of dialogue, the US State Department refused invitations to those countries on its hit list, turning the event into an orgy of self-congratulation and a rebuke of those falling short of US ideals. Other countries like Hungary, Poland, Ukraine, Colombia, and India, noted for their retreat from democratic norms, were welcomed with open arms. 


At the same time, the mainstream media, including The New York Times, Washington Post, NPR, are bemoaning the “backsliding,” “decline,” or “weakening” of US democracy. Establishment pundits express alarm over the Trump-turn in US politics, the increasing hostility between the two parties’ partisans, and charges and countercharges of electoral corruption.


Yet, they are oddly tolerant of the decisive role of money in “democratic” deliberation and the corrosive influence of corporate power, two anti-democratic trends that persistently worsen with the growth of economic inequality and profoundly undermine democracy. 


*****


Quoting R. Williams, Brian S. Roper in The History of Democracy makes this salient point: “Democracy ‘is a very old word… It came into English in the sixteenth century from a translation of demokratia, Greek, from the root words demos-- people, and kratos-- rule. It is at once evident from Greek use that everything depends on the senses given to people and to rule’” (page 1).


It has taken hundreds of years for capitalist ruling classes to concede that “demos” means all of the people and not merely “white males of substance.” In the US, that awakening only became nominally universal with the Voting Rights Act of 1965, enacted fifty-six years ago as a response to a determined peoples’ movement.


As for kratos, there have been many models of democratic rule since the early Dutch, US, and French Republics, models that allow for power-sharing monarchies, socialist democracy, constitutions, multiple parties, direct and indirect elections, short or long electoral terms, single or multiple houses of congress or parliament, various vote-counting and weighing schemes, and a host of other wrinkles that democratic theorists have devised.


From even a casual glance at history, it should be, therefore, clear that who constitutes the people and what constitutes governance or rule are highly contested. Nevertheless, history does demonstrate that social movements have forced further democratization upon existing ruling classes. In general, there has been a trend towards an expanding demos and a more diverse kratos.


This suggests that perhaps it is more useful to view democracy as a process, rather than a categorical state-of-affairs, a fixed political achievement. 


Countries become more democratic or less democratic in the same way as they become more just or less just. Like justice, democracy is not a success-term, but a relation, a measure of the direction of change, a constantly moving target. For an illustrative example, consider a newly liberated former colony that is certainly more democratic than its previously dominated status regardless of the kind of political institutions that it chooses. Surely, this makes more sense of democracy than the idealized model celebrated in Western patriotic grammar school textbooks.


It is the height of arrogance for Western ideologues to insist that some countries have crossed a supposed line separating enlightened democrats from “authoritarian” pagans. Democracy is a process and not a merit badge. 


For nation-states, “democratization” should be the watchword, the never-ending process that places more and more decisions in the hands of more and more people. From this perspective, popular revolutions would count as the most democratizing process of all, liberating masses from elite oppression and imposing the rule of the majority over the former rule of a minority.


*****


The era of the great bourgeois revolutions of the sixteenth and seventeenth centuries-- the Dutch, English, and French risings-- were clearly and unmistakably a time of great democratization with the liberation of masses of people from feudal constraints and/or absolutist rule (the US revolution ill-fits this pattern). The new ruling classes created new procedures and institutions to guarantee both that the gains were secured and that no new challenges to the new rule would arise. They were far from completing the democratic project.


The heralded and high-minded constitutions of the period (including the US constitution) created new institutions-- parliaments, congresses, executives, etc.-- and procedures-- lawmaking, rights construction, voting regulations, etc.-- that were believed by their creators to be constitutive of democracy.


 In other words, the various “founding founders” thought they had captured the essence of democracy in a set of rules for its continued implementation, as if democratization was completed with declarations and constitutive documents.  


What the bourgeois revolutionaries failed to understand was that procedural democracy-- a worthy product at the ascendency of the bourgeoisie-- was a great achievement, but one not adequate for all times or adequate for the continued march of democratization under changing conditions. Bourgeois democracy certainly expanded the participation of the masses (and assured the dominance of the bourgeoisie as a class!), yet it too often failed to guarantee rule for the people.


In discussions of democracy, the distinction between rule by the people and rule for the people is too often overlooked or conflated. There is no reason to presume that a system constructed to establish rule by the people will necessarily produce rule for the people. Cynics can readily manipulate well-meant institutions from benefitting the people. Fair rules do not guarantee just outcomes.


There is every reason to believe that, in a class society, the best of procedural democracies will not rule in ways that favor all or even most of the people. Nowhere in the constitutions of the bourgeois democracies will be found the recognition of the existence of social classes and the question of their relationship to democracy or democratization.


Certainly, the history of the US two-party system for all of this century, last century, and beyond has seen the government generally favor the interests of a small minority of the wealthy and powerful over the interests of the majority of working people. Others can argue whether the procedures established by the supposedly all-wise “founding fathers” is the most perfect example of how a democracy should be organized. But shouldn’t its failure to rule for the people count against its democratic content? How democratic can a “democracy” be if it fails to serve the interests of the people that it rules?


The stunning growth of economic inequality-- itself a constant in the Western “democracies” --- surely demonstrates a failure to measure up to the performance test of a purported democracy: are the people better off than with any alternative political arrangement besides bourgeois democracy? 


Opinion poll after opinion poll show that the majority of the people-- the supposed beneficiaries of democracy-- want guarantees of housing, jobs, health care, education, safety, etc., guarantees that Western 'democracies' consistently fail to deliver. 


Detaching a concept of democracy from the wellbeing or interests of the people knows no greater cynicism. Democracy without a connection to the interests of the majority is faux-democracy, a mere parlor game.


Obsession with the form of democracy-- the obsession fostered by capitalist leaders-- blinds far too many to the importance and centrality of the content of democracy, a distinction too often overlooked in the conversation over democratic governance.


Democratic form that fails to deliver for the majority of the people is a mere empty shell, as the current US “democracy” demonstrates.


*****


In the ‘democracy’ wars, The People’s Republic of China is now clearly in the sights of many in the developed capitalist countries, especially the US. The rise of PRC economic power, its rivalry with US influence in the world, and PRC’s independent stance in global politics has increased the enmity of the US and its allies to the point of a new Cold War.


Like the old Cold War with the Soviet Union, PRC’s enemies focus on the fact that the PRC is a “one-party” state. That is, the Communist Party takes a leading role and the deliberative organs are not organized around two or more parties. Instead, the operative councils and parliament are non-partisan, composed of both Communists and non-Communists.


Ironically, most of the founders of the heralded Western 'democracies' never envisioned, nor wanted parties or factions; yet multiple parties have become a litmus test for democracy in the eyes of the Atlantic alliance watchdogs. Indeed, these same watchdogs have since raised the bar again to deny democratic governance exists among several countries that have party systems and robust elections. They are said to have 'authoritarian' tendencies, a slippery idea coined to obscure, rather than shed light on the democracy debate.


The People’s Republic of China has responded to the ‘democracy’ wars with a report entitled Pursuing Common Values of Humanity -- China's Approach to Democracy, Freedom and Human Rights, written by New China Research (NCR), affiliated with the Xinhua News Agency. The 88 page document is a comprehensive argument for the democratic content of PRC governance. While the report develops a number of provocative, fresh ideas, it has received no more than superficial note in the monopoly media, an indication of the deeply dogmatic prejudice of Western commentators.


The NCR report quotes PRC leader Xi on bourgeois democracy: “If the people are awakened only at the time of voting but go dormant soon after, if they listen to slogans at the time of the election but have no say after the election, or if they are favored at the time of canvassing but are left out in the cold after the election, such a democracy is not a true democracy.”


The Chinese Communist Party (CCP) argues for a new type of democracy that it calls “whole-process democracy,” a democracy that “pursues the unification of process and results-based democracy, procedural and substantive democracy, direct democracy and indirect democracy, as well as people’s democracy and state will.” The CCP counter poses whole-process democracy to “democracy for the few,” “one-time democracy,” and “pseudo-universal democracy.”


To my mind, “Whole-process democracy” is not rendered a completely transparent concept by this report-- some formulations remain vague. Others can judge for themselves, but the document and the accompanying ideas are surely worthy of careful study.


It should be evident nonetheless that the CCP recognizes that the test of democracy is how well it delivers for the people, that robust democracy must be more than procedural, that it must be substantial (results-oriented), as well. 


To bolster the claim that the test of democracy is fidelity to the interests of the people-- substantial, material democracy-- and that People’s China meets that test, the NCR cites a Harvard Ash Center study by Cunningham, Saich, and Turiel that shows trust of the population in the Communist Party of China has exceeded 90 percent for over a decade. 


In May of 2020, I cited a similar study, the Edelman Trust Barometer, that placed the PRC at the top of the list of 26 countries surveyed in terms of popular trust (the US, Germany, France, UK, Australia, Spain, Japan, and Russia all fell into the “distrust” bottom of the survey). So much for the "rule by the people" in the heralded capitalist countries.


How do Western political theorists reconcile their consistently negative portrayal of Chinese democracy with the high level of trust held by the people of the PRC in their governance?


By simply ignoring it.


A deeper, less smug discussion of democracy might be a good antidote to Western conceit in the ‘democracy’ wars.


Greg Godels

zzsblogml@gmail.com 


Wednesday, December 8, 2021

Nine into Two: The Failure of the US Two-Party System

When the so-called “Founding Fathers”-- the elites who constructed the US republic-- unfolded their unique vision of republicanism and political decision-making, they went long on stability and continuity and short on broad participation and social change.

Accordingly, most of them opposed political factions or parties, but very soon after the new government came into existence, major differences arose, leading to factions and swiftly into parties.

Predictably, the break in unanimity came with the formation of two parties, in the US, a Federalist and an anti-Federalist party.


But what is truly remarkable is that subsequent political differences in the US have been contained by only two parties for over two centuries. In most countries that embrace a parliamentary system, political parties emerge with the development of social classes and distinctive social strata. 

Further, as social classes generate internal differences, they too spawn new parties. In addition, religious, regional, and economic differences have generated distinctive political parties.

This is the pattern that exists throughout the advanced capitalist countries, creating multi-party parliaments as a commonplace. But not in the US.

Where there have been emergent third or fourth parties, the two parties have either placed insurmountable obstacles in their way or absorbed their political identity.

Stunted class consciousness, illusions of social mobility, perceived opportunities afforded by an expanding frontier, and entrenched loyalties are among the many factors securing a two-party system. The distractions of wars and conflicts, demanding unity and stability, have also played a role in preserving the two-party system.

In truth, the US ruling class has won a remarkable achievement in maintaining an electoral vessel filled to overflowing with diverse, incompatible interests. When will that vessel fracture?

A Pew Research Center study enlisting over 10,000 respondents in a political typology study, the most robust of those conducted by Pew since 1987 suggests a possible answer. What they found bears directly upon the validity and viability of the-two party system. In the words of the study, “...the gulf that separates Republicans and Democrats sometimes obscures the divisions and diversity of views that exist within both partisan coalitions – and the fact that many Americans do not fit easily into either one.

Researchers found clusters of political attitudes that define independent voter perspectives that are hard to coexist comfortably in the two existing parties. They identify the following clusters and their respective percentages of the population:



It should be noted that these clusters are constructed from answers to questions that were posed to those participating in the survey. Thus, they are biased by the researchers' preconceived notions of the issues that they believe divide the US. Nonetheless,they do identify potential factions that coexist uneasily in both parties.

So we find that Pew identifies eight significant factions-- four that tend to vote Democratic and four that vote Republican (with stressed sideliners representing disinterested, disgusted, less frequent voters)-- funneling their votes into two electoral vehicles that cannot possibly represent them all adequately!

Moreover, the conventional illusion that each of the two parties represent a consistent, shared ideology obscures the many possibilities of creating useful coalitions or alliances in moving politics out of the stagnation and ineffectiveness of the US system.

Just to mention one of the insights to be drawn from the Pew study: [Members of the] "...Populist Right hold highly restrictive views about immigration policy and are very critical of government. But, in contrast to other parts of the GOP coalition, their criticism extends well beyond government to views of big business and to the economic system as a whole: 82% say that large corporations are having a negative impact on the way things are going in the country, and nearly half support higher taxes on the wealthy and on large corporations." In addition, more than any other group, they believe that they have been left behind. They also share with the left, the view that profits are too high.

While they share many left views that might be the basis for a tentative or calculated alliance with left forces, any such approach has been hysterically denounced by the liberal media, political purists, and smug elitists as consorting with evil, those who Hilary Clinton famously called "the deplorables".

If we were to burrow even deeper than the Pew topology and examine class differences-- and even more tellingly, various class ideologies-- it would become apparent that the two-party framework would fail abysmally in giving voice to the broad spectrum of political opinion characteristic of a modern, advanced capitalist state. In that regard, the two-party framework is a hindrance to democracy and neither a vehicle for nor exemplar of democratic decision-making.

Apart from its failure to capture ideological diversity, the two-party system encourages conformity on issues that are easily susceptible to patriotic or nationalistic zeolatry-- foreign policy, the military, loyalty, etc. Politicians in a two-party system dare not allow the other party to challenge them on these matters.

Consequently, we have two-party conformity on the “evils” of such diverse nations as Russia, PRC, Iran, DPRK, Venezuela, Nicaragua, Syria, and others, who share only one common feature-- they are made a target by our two-party dominated government. 

Nor do politicians of each party dare to question the glory or budgets of the military, the FBI, the CIA, etc. for fear that they will be called out by zealots in the other party-- again, a demonstration of the surfeit of democratic debate in a two-party parliamentary system.

Pepsi or Coke, Yankees or Blue Jays, ketchup or mustard are frivolous, but harmless choices. Democrat or Republican-- in the crises before us-- too often becomes frivolous as well, but increasingly harmful.

Unfortunately, too many people have invested heavily in their respective parties, succumbing again to empty, cynical promises like Obama’s risible “hope and change” slogan in our day. No amount of disappointment can seemingly separate the act of faith that cements voters to the two-parties. The prior investment in the Democratic and Republican parties generates what economists call the “sunk cost fallacy”, the idea that too much has been expended on the respective parties to jettison them now.

But it is a fallacy and until we learn to break away from the irrationality of the two-party charade, the Democratic Party will be an obstacle to the kind of changes that we desperately need to make.

Greg Godels
zzsblogml@gmail.com

Friday, November 26, 2021

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

Thursday, November 18, 2021

Bad Ideas

History is a corrective of ideas, serving as a reality check on intellectual inflation. Sometimes it takes years, decades, even centuries for big, even not so big ideas to be properly deflated.


I remember fondly many heated arguments with the late Fred Gaboury, a former union logger from the Northwest, who became an organizer for Trade Unionists for Action and Democracy, editor of Labor Today, and World Federation Trade Union representative to the United Nations. Fred was a serious thinker in ways that many of his contemporaries missed.


When the Eurozone-- the European monetary union-- was about to be established, I argued that between nationalism and uneven European development, a common currency was not sustainable. Posthumously, I conceded to Fred. But, today, there is plenty more reason to doubt the Eurozone’s future sustainability. History has yet to speak definitively.


As a retired worker, Fred followed trends in production and distribution closely. Me, not so much. When business writers began to herald modularization and just-in-time inventory production, Fred saw it as the next big thing, a profit-driven structural adjustment set to change the course of global capitalism.


With my usual knee-jerk skepticism, I argued that it was just a passing gimmick, something for the TV pundits to talk about. In any case, I argued, it would prove to be unworkable and ultimately disruptive to the production process.


Decades later, it seems that I was both wrong and, possibly, right. 


Wrong, because just-in-time distribution became a dominant mode with global supply chains. Virtually all production and distribution organized by monopoly capitalist enterprises moves product through their processes with none of the traditional back-up supply. There are no full-to-capacity warehouses filled with widgets for “just-in-case” scenarios or unanticipated short falls. That thinking has been rendered obsolete.


For the most part, the system works well, saving monopoly capitalism billions in costs. It works… until it doesn't!


History is speaking.


The pandemic brought the “efficient” system to its knees, demonstrating just how fragile this big idea actually is. The disruptive factor of massive layoffs, consumption declines, volatile production, and unanticipated imbalances today make lean production and instantaneous distribution look like genuinely bad ideas.  


Just-in-time has been replaced with never-in-time, as bottlenecks, late arrivals, and displacements choke off consumption. 


Shortages abound. Capitalist markets respond to shortages with higher prices. But it is not only material commodities, but also labor “commodities” that are in short supply and commanding higher “prices.” Labor costs rose by 8.3% in the 3rd quarter of 2021 (reflecting a 2.9% increase in hourly compensation and a 5% decrease in labor productivity, due largely to longer hours from the existing workforce). 


Workers sent home over the pandemic have been reluctant to return to work, whether it is from fear of infection, withdrawal from the rat race, or a sophisticated understanding of the gains possible from the withholding of labor. The result is a competition for labor, with capital offering bonuses, benefits, and higher wages to entice a shrunken labor market.


Labor compensation is now breaking through imagined barriers that restricted hourly wages to near flat growth for nearly half a century in the US and sapped the political will to advance the minimum wage.


One can only hope that the complacent, risk-averse labor leadership will learn a valuable lesson about the advantages of workers withholding their labor, a grand idea that deserves to be revisited.


While it is true that union workers are also on strike for better compensation (though with a frequency and volume well below that of a few years ago), it is clear that labor’s top leadership is cheering union militancy from the sidelines. 


Despite the assurances of those who believe that inflation is a thing of the past, manageably through Central Bank manipulation, rising prices have returned, and returned with a vengeance. 


After a long period of rescuing deflated financial values with central bank purchases of overvalued assets, after a lengthy regimen of ultralow interest rates designed to provide nearly free money to reviving risky or marginal investments, funding mergers and acquisitions, initial public offerings, and open-ended SPACs, and generally overcoming post-crisis inertia, the central banks have seemingly overshot their targets.


They have overloaded a deflated and deflationary economy. October’s inflation rate of 6.2% reached a thirty-one-year high, topping 5% for the fifth straight month.


Put simply, the effort by central banks to energize a sluggish economy has created inflation, amplified by supply shortages and a labor force growing at a snail’s pace.


Those living below the highest quintile-- the home of the bourgeoisie and the petty bourgeoisie-- are seeing any material gains from worker’s advantages in the labor market erased by higher prices. And, of course, those on fixed incomes-- the poor and elderly-- are hurt the most.


More bad ideas coming home to roost.  


It’s safe to say that the Democratic administration, through its own courtship of monopoly capitalism, finds itself caught between the sharp blades of a scissors. On one hand, the party has pledged to provide a constantly shrinking, minimalist, but sorely needed relief package to a major section of its base. 


On the other hand, promiscuous spending on managing the empire-- military and security services, foreign meddling, corporate giveaways, reflating or isolating capitalist flotsam and jetsam, and the tax coddling of the rich-- result in the risk of any future essential spending on human needs becoming inflationary. Crowding out relief for the masses while partnering with monopoly capital is the signature of state-monopoly capitalism.


The return of inflation has quieted the idealist-left’s infatuation with Modern Monetary Theory (MMT), the notion that spending on peoples’ needs could come at no cost to the bourgeoisie, its minions, and the bloated capitalist state.


Adherents saw the massive spending on resuscitating crisis-ridden capitalism with no apparent serious effect on prices and concluded that the same kind of spending could support social welfare programs with no inflationary consequences. 


They overlooked the context. Massive Federal Reserve spending took place to address a profoundly deflationary systemic crisis. 


From the MMT perspective, it is not necessary to curb insane military spending or tax the rich. Waving the magic wand of MMT will permit solving all of capitalism’s irrationalities and injustices, while meeting the people’s needs through deficit spending. Candide’s best of all possible worlds is in the MMT theorist’s grasp.


The harsh reality of inflation upends this utopian dream. Another bad idea dashed. 


If it seems like the US left is addicted to bad ideas, it’s because most of the think-tankers, academic gurus, and labor polemicists that influence the broad left deny that gains for the majority come from a zero-sum game-- the wealthy and powerful must lose for the rest of us to win. They pretend that there are roads to social justice that pass through regions of social harmony and equitable sacrifice, a long-held principle that keeps people in the Democratic Party orbit. They look for shortcuts that will avoid a direct confrontation-- class struggle-- while still challenging capitalism’s privilege to dictate human affairs. When, in fact, we must challenge its very existence.


This misguided approach guarantees that bad ideas steeped in idealism will dominate-- ideas that promise success, without pain or confrontation.


MMT will not magically solve the problem of inequality; a chain of coops will not defeat monopoly capital; and two-party theatrics will not establish real democracy.


We need bigger and better ideas for those tasks.


With a near future of a crippling price rise motivated by exploding profits, a do-little political stratum obsessed with fund-raising and securing the approval of the rich and powerful, and a murderous, gangster foreign policy motivated by service to global capitalism, we can’t afford the luxury of toying with bad ideas.  


Greg Godels

zzsblogml@gmail.com