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

A Painful Anniversary

Exactly ten years ago this past April 7, I posted an article on Marxism-Leninism Today entitled Tabloid Political Economy: The Coming Depression (for those who missed it, it is reproduced below). It was my first and only attempt at economic prognostication, always a challenging and risky venture. The “Tabloid” in the article’s title was a tongue-in-cheek reference to the headline in the April, 2007 issue of a now defunct supermarket tabloid, Weekly World News. Featured between Virgin Mary Slaps Boy and Jews Invented Pizzoh was the shrill admonition: Surviving the Next Great Depression! It’s Coming This Summer!

It didn’t come in the summer of 2007.

In fact, the Dow Jones Industrial Average continued to climb seemingly with no limit, reaching a new peak in the fall of 2007. The pundits continued to extol the virtues of unbridled capitalism.

While the folks at WWN built their case on scant evidence (“Skyrocketing gas prices, escalating war, crashing housing prices, calamitous weather and freefalling stock prices…”), there were many other good reasons to take their prediction seriously, reasons which I offered in my article. Unfortunately, the print edition did not survive to see the collapse that rocked the foundations of the global capitalist economy the following year. Nonetheless, the zany supermarket tabloid proved to be far more prescient than the Nobel laureates, academics, and popular pundits who postured as learned economists yet never saw the collapse coming. 

Ten Years On

The global economy never fully recovered from the crash of 2008. Instead, it has stumbled along from one setback to another, with economic growth only marginally topping population growth. When both the enormous loss of wealth from the crash and the obscenely unequal distribution of the wealth recovered since the crash are configured, it is fair to say that the vast majority of the world’s population have seen little or no recovery. In fact, the casualties from the crash continue to pile up.

The US economy is neither healthy nor without serious symptoms. Despite the market euphoria that surprisingly accompanied the Trump election, the Atlanta Federal Reserve has lowered its growth expectations for the first quarter to .5% from an earlier forecast of 3%. Other projections have similarly dropped.

For three months in a row, since January, durable goods orders (excluding volatile transportation orders) have dropped. Industrial production fell .1% in January and was unchanged in February. Factory output dropped .4% in March from February and was only up .8% from a year earlier.

Bank loan growth has slowed.

Retail sales slowed by .3% in February and .2% in March. Inflation, as a measure of consumer demand, dropped .3% in March. Retail stores are closing in unprecedented numbers and retail employment growth has slowed.

Sales of new cars-- the principal driver of consumption growth since the crash-- has fallen for three straight months. Auto dealers are now offering buyer incentives that are greater than the labor costs of production (labor costs are less than $2500 per car, on average). Incentives account for 10.5% of average sticker price ($31, 435). Yet the average car sits for over 70 days on the lot.

Used car prices were down 8% in February, another sign of declining demand. And auto loan defaults are on the rise.

The US trade gap-- the difference between imports and exports-- reached a 5-year high in February.

In stark human terms, the US economy is failing working people. Between January 2016 and January 2017, average hourly earnings slipped .1% and the hours of the average workweek dropped .3%. This calculates to a .4% loss in real average earnings for those twelve months.

With reduced earnings, more and more workers are drawing on their retirement savings: 20% of 401(k)s have been reduced through self-loans.

Not surprisingly, household debt in 2016 grew the most in a decade. Unlike in the lead-up to the crash, mortgage debt is growing modestly, still below the explosive growth rate of that time. Instead, the growth in debt is in credit cards, auto loans, and student loans. Auto loan debt has reached $1.2 trillion, while student debt has risen to $1.3 trillion.

Student debt is particularly crippling. There are 42 million outstanding loans. The average student loan debt jumped from $26,300 in 2013 to $30,650 in 2016. Defaults went from 3.6 million in 2015 to 4.2 million in 2016.

And senior citizens are saddled with growing debt as well. In 1998, 30% of people 65 and older were in debt. In 2012, the percentage of seniors in debt reached 43.3. Growing debt comes in the wake of the collapse of net worth since 2005, when it topped $300,000 among those 55 to 64. By 2013, average net worth within that group dropped to $168,900 (even below the net worth of $175,300 reached in 1989).

Talking heads and media “experts” hail the job market. But they seldom delve deeply into its performance. Put simply, capitalists are hiring additional workers, rather than purchasing labor-saving equipment, because labor is cheap and flexible. The failure of organized labor to defend or advance labor’s relative position has served as a disincentive for capitalist investment in new technologies and equipment. They see no need to do so, when labor power can be used on demand, with no restrictions, and at low costs.

That trend is clearly reflected in the most recent period’s historically poor growth in productivity, among the lowest periods of productivity growth since the Second World War. Contrary to the widespread hawking of the idea that most workers are in danger of being replaced by robots, corporations are showing little interest in the introduction of new or old technologies. They are spending very little on equipment. While the technology may be there, capitalists have shown little need for it, given low labor costs.

As Shawn Sprague shows in a recent BLS paper, since 2009 the growth of aggregate hours-worked has grown more quickly than the growth of non-farm business output. This fact demonstrates that US capitalists feel little pressure to “save” labor while restoring profits during the so-called “recovery.” Rather than having existing workers work more hours, they are hiring more workers at low wages and contingently. Profits rebounded nicely because the working class had been slammed by the downturn, rendering the employment costs so low that there was no need to invest in labor-saving equipment.

This harsh truth has been ignored by economists and labor leaders alike because it shows the complete bankruptcy of class collaboration as an approach to social justice for workers.

US capitalists have enjoyed a decade of low labor costs, no pressure to invest retained earnings, and high profits (corporate after-tax profits dipped in 2015, but came back smartly in 2016). By securing labor power at low costs, they have foregone the purchase of labor-saving instruments and achieved modest growth by expanding employment. Today, capital is profoundly afraid that, with reduced unemployment, competition for labor power will drive up the costs of labor and erode profits. The Trump tax change package, favorable to corporations and the repatriation of profits, is one ruling class response to this anticipated problem.

Despite the return of an overheated housing market with escalating prices (lagging new construction is fueling demand), no systemic accumulation crisis comparable to that of 2007-2008 appears on the immediate horizon. Instead, the post-collapse era of stagnation and deteriorating living standards continues for the working class. As the shrinking income and mounting debt of working people erodes aggregate consumption, the possibility of a business cycle contraction grows more and more likely. The long, tepid expansion transferred nearly all its gains to the wealthy few, leaving little but debt or asset cannibalization for the majority. With declining retail sales, especially auto sales, and the growing weight of personal debt, the likelihood of further consumption growth is in doubt.

A business cycle contraction will only further weaken the position of working people, setting them up for a further dose of sacrifice and pain.

Isn’t it time to get off the capitalist roller coaster?

Zoltan Zigedy

zoltanzigedy@gmail.com

April 7, 2007 MLToday (unedited)

Tabloid Political Economy: The Coming Depression

Always alert to emerging trends, I spotted the latest issue of the Weekly World News at the checkout counter of my supermarket. The headline announced the coming depression scheduled for this summer. Sandwiched between a sighting of Batboy in the New York Subway and alien abductions was the dire warning to prepare for a severe decline in the world capitalist economy. Now, Left sects sport this prediction more frequently than Elvis sightings or the announcement of Armageddon. Nonetheless, I paused for a moment. Who, I asked myself, has their fingers on the pulse of the economy more than the tabloids? Should we trust the tabloids less than the battery of economists periodically assembled by The Wall Street Journal? Would Ben Bernanke of the Federal Reserve tell us a depression was coming if he knew? Would Bush? Or Hillary?

The pieces of the economic puzzle began to come together for me. The housing bubble - the steady march of rising residential values that fueled enormous borrowing against assets - had finally began deflating, with no signs of let-up. The US middle class - saddled with record consumer debt and living from pay check to pay check – mortgaged their homes to maintain their “middle” status. Deathly afraid of falling below the media fueled standards of respectable success, they drew from their most precious assets to stay in the game.

At the same time, predators seized the moment afforded by the heralded market-place. Sub-prime lenders fed on the false prosperity by drawing the poor and the status-hungry to absurd loans, front loaded with instant gratification and back loaded with long-term pain. Stoking the housing bubble, budding entrepreneurs borrowed irresponsibly to purchase residential properties fully expecting values to rise and affording them the opportunity to “flip” the properties for an easy profit.

Like all hustles, the lure of easy money drew the most vulnerable, the most gullible, and the greediest into the game just as the bubble was bursting. Millions are facing stifling debt, foreclosures, and destruction of much of the value of their most valuable asset, their home. Economists estimate that 1,300,000 homes will foreclose this year, throwing additional housing stock into a market already suffering low demand. With an expected 50% decline in sub-prime and other easy mortgage terms in 2007, fewer people will have even a remote chance to buy from the swelling housing glut.

Of course those wiser heads who diligently worked two jobs, overtime, and  ignored the temptation of easy credit also lost big time.  The value of all housing is expected to drop 5% this year - the steepest drop since the Great Depression. In other words, the most precious asset of the working class will decline to 95% of last year’s value through the sheer irrationality of the market economy.

Nor is this a short term setback. A late March report by Emmanuel Saez and Thomas Piketty shows a level of inequality in 2005 unmatched since before the Great Depression (see The New York Times 3-29-07). Based upon 2005 IRS data, the authors concluded that the top 10% of the US population now commands 48.5% of all annual income, leaving 51.5% for the other 90%. Similar inequalities exist within the top 10%: The top 1% receives 21.8% of all income (nearly half of the income share of the top 10%). And so it goes. The top 1/10 of 1% (roughly 30,000 individuals) shares nearly as much income as the bottom 150,000,000.

In short, the US has become a society rivaling and exceeding pre-industrial England in class division and inequality. One of the earliest reasonably accurate surveys of class and income division – the famous 1688 estimates of English incomes by Gregory King – show the top 5% of English families garnering 28% of incomes (the top 1% of US individuals receive 21.8% of all incomes!). So the barons, lords, merchants, and traders of Olde England were less privileged than our own capitalist class. And we fought a revolution to escape the tyranny of the English ruling class only to replace it with our own home – grown privileged class!

No doubt the insightful team of political economists at the Weekly World News are aware that the post-2000 economic “recovery” was fueled by consumer spending, a source of energy that would appear to be nearly tapped out with personal debt at an all time high and personal wealth - the home - declining in value.

While bourgeois economist whistle past the graveyard, the coveted market – the magical mechanism that guides capitalist economic growth—seems to reflect deep – seated fears and insecurities. Despite being awash in capital, financial power searches for investment opportunities to no avail. Economic theorists have been puzzled by the low returns available, even for high-risk or long-term investment. Under normal circumstances, risk and patience earn a premium in investment, but not today. Instead, the enormous pool of wealth concentrated in fewer hands can only lure borrowers at modest rates. There is simply too much accumulated wealth pursuing too few investment opportunities.

Other alarm bells sound: Productivity growth, a centerpiece of US economic health, is now slipping below historic averages. Much of the economic success of the Clinton era is attributed to the restoration and maintenance of high productivity. During the last half - decade of his term productivity hovered at the same level as the post - World War II period. Most economists attribute this largely to the integration of new technologies into US industry. After the 2000 decline, productivity rose again thanks to the Bush administration's support for draconian management practices that squeezed every extra ounce of labor from the retreating working class. Outsourcing, downsizing and bankruptcy maneuvers forced fewer workers to work harder for less. Thus, the first hike in productivity came from technological change and the second from sweated labor.

But now productivity is dropping. Apparently, the technology impact has played out and the squeeze on labor is bearing limited returns: productivity growth dropped to a low of 1.4% in the last quarter of 2006.   

The enormous national debt adds to the list of ominous signs of decline. The obscene costs of the Iraqi occupation, the hysterical “war on terror”, and tax relief for the rich have left the US with unprecedented debt. Foreign trading partners have largely financed this debt by using their enormous surplus of dollars to buy US treasury notes. Yet there are increasing signs that as the dollar declines in value, they may be looking at other options.

The recent US tariff against Chinese high – gloss paper signals increasing tension between the US and its leading trading partners. There is a strong feeling internationally that the US is anxious to pass its economic burdens onto others. In the past, US economic might was sufficient to bully other countries to accept this sacrifice. But today, there is a growing resistance to US unilateralism—another sign of declining economic power.

Since both political parties maintain a general consensus on economic doctrine, it is unlikely that any new solutions will emerge to confront these serious cracks in the US economy. This ideological uniformity limits the policy decisions of the two parties to faith in the neo-liberal market and free, unfettered trade. With no answer to growing inequality, wasteful imperial aggression, and market anarchism, the prospects for avoiding crisis appear bleak. Let’s see if the Weekly World News gets it right.

Zoltan Zigedy

Tottering on Another Brink

In June of 2015, I wrote:

Broadly speaking, the three key factors of fixed business investment, productivity and, corporate profits have been trending downward for three to four years. First-quarter 2015 fixed investments fell 3.4%, not surprisingly, output per hour (productivity) fell by 3.1%, and earnings were expected to barely move. These three interdependent and fundamental indicators underscore the critical weaknesses in the US economy. Capitalism has wrung as much sweat as it can from workers, managers are reluctant to invest in new or advanced means of production, and US corporations are experiencing a decline in the rate of profit.

Since then, the “three key factors” gauging the health of the US economy have only worsened: Capital expenditure in the third quarter fell by 3.8%, productivity on an annualized basis was only up .4% for the third quarter, and profits suffered the largest (annualized through the third quarter) decline since the 2008 downturn.

In addition, the US manufacturing activity index (Institute for Supply Management) has fallen to its lowest level since June of 2009 and industrial production has declined for the third straight month through November (the just released December data from ISM affirm the first consecutive monthly contraction of the index of manufacturing activity since 2009).

Capacity utilization has dropped to 77%, the lowest in two years. Before 2007 and the onset of the economic crisis, it stood at 80%.

I wrote in June of the stock market inflation generated by mergers and acquisitions, stock buy-backs, and the obscenely low cost of borrowing. The wealth effect of that inflation—its psychological effect on spending—has receded. Market losses account for most of the $1.2 trillion in erased wealth in the third quarter, as reported by the Federal Reserve.

The rout of junk bonds (high-risk, high-yield bonds) in 2015 only adds to insecurity. While junk bonds only totaled $709 billion at the onset of crisis in 2008, they totalled $1.3 trillion when investors began to abandon them. Consequently the ratio of high-yield debt to corporate earnings is close to a new high. A faltering equity market is dampening investor euphoria.

I warned in June:

Today, there are 65 venture capital investments of over $1 billion each (CB Insights says there are 107), drawing funds from yield-hungry retirement funds, mutual funds, and hedge funds. Whatever the number, all agree that the total capitalization of these investments in firms that are little more than start-ups approaches or exceeds the capitalization of the similar “dot com” firms that blew up in 2000.

But new start-ups hit powerful head winds in 2015, especially in the tech/internet sector. As The Wall Street Journal reports: “Technology and Internet companies that went public in the US raised $9.5 billion in 2015, down from $40.8 billion in 2014… the number of IPOs in the sector dropped by more than half, to 29 from 62.”

Clearly, “yield-hungry” investors have miscalculated, as reflected by the current sharp fall of the NASDAQ equity market.

Of course, the US economy is also decidedly rocked by global developments: the PRC economy is shaky at best, the EU is stagnant, Canada is slowing, and the Russian and Brazilian economies are in sharp decline.

While consumer spending has buoyed the US economy, lifting GDP into positive territory, the well-spring of capitalism—profitability—continues to pose the critical problem. The third quarter of 2015 suffered the largest annualized decline in profits since the 2008 downturn. Third quarter profits were down 1.1% from the second quarter and 4.7% from the same quarter in 2014, demonstrating a persistent downward trend.

Interviewed in Barron’s (December 21, 2015), David Levy of the Jerome Levy Forecasting Center perceptively opined: “…But the one thing that has actually caused the economy to weaken a little is sagging profits. We’ve heard people use the expression ‘profit recession’, but there is no profits recession without a real recession. I see signs of things slowing as a result of that profits decline…”

It confounds me that progressive economists, many Marxists, and even Communist Parties continue to locate the source of the ongoing, and now deepening, capitalist crisis in “overproduction” or declining consumption or demand. These notions are remnants of an earlier pre-monopoly era or the influence of Keynesian thinking on Marxism and the broader Left. The “overproduction” that is relevant to capitalist crisis is the overproduction of capital which cannot find a profitable home without gumming up the accumulation process.

The demand-based theories serve as the centerpiece of social democratic crisis theory. Yes, corporate revenue and consumer spending are now stagnant or declining—not as leading indicators, but as consequences of a general economic slowdown brought on by the prospect of fewer profit opportunities. But it is a fall in the growth of profits or a decline in the rate of profit that causes capitalists to apply the brakes. If markets demonstrate greater profitability (by awarding capitalists a greater share, for example), capitalists will continue to invest, fuel the economic engine, even in the face of the stagnant or declining revenues of the moment. Of course falling revenues will eventually further retard the rate of profit. But it is profit that propels capitalism or sinks it in its absence.

For Marxists, it is not simply the numbers that explain the future, but the trends or patterns. Clearly the trends are negative. With central bank tools largely exhausted, it is difficult to imagine an easy escape from deepening crisis; it is difficult to see the coming year as bringing anything other than economic hardship.

Given the rise of the extreme right and the absence of a militant left in most countries, the economic crisis threatens to pose formidable political obstacles. And given the ubiquitous deadly conflicts and increasing inter-imperialist hostilities, the new year demands a heightened commitment to peace and social justice. That commitment must go beyond the tinctures and band aids served up currently by liberals and social democrats.

Zoltan Zigedy

zoltanzigedy@gmail.com