Can we avoid the oncoming world recession?

February 9, 2016

There is a growing talk among mainstream economists and the financial media of a new global economic recession.  Until the last few weeks, the locus of this new slump has been focused on China.  But, as I have argued in a previous post, it is unlikely to start there.  Much more important to the world economy is the largest economy in the world in terms of national output and financial fire-power, the US.

In the last few weeks, there has been a continuous series of poor data for the US economy: falling manufacturing output, weakening business sentiment and capital goods orders and falling corporate profits.  And globally, international agencies by the week seem to announce reduced forecasts for economic expansion.

The latest of these agencies, after the IMF, the World Bank and the OECD, is the United Nations.  In its report on global economic perspectives, it concluded that “the world economy stumbled in 2015 and only a modest improvement is projected for 2016/17 as a number of cyclical and structural headwinds persist”2016wesp_full_en

UN economists downgraded their final estimate for global growth in 2015 from 2.8% to just 2.4% – remember the average prior to the Great Recession for global growth was 4-5% a year.  Naturally, like the other agencies, it expects an improvement this year and next: “The world economy is projected to grow by 2.9 per cent in 2016 and 3.2 per cent in 2017, supported by generally less restrictive fiscal and still accommodative monetary policy stances worldwide.”  But then each year these more optimistic forecasts are dashed and revised.

The UN also confirmed a key indicator of the Long Depression, that I call the period since the end of the Great Recession of 2008-9.  As Professor Joseph Stiglitz put it in a recent article: “Moreover, the UN report clearly shows that, throughout the developed world, private investment did not grow as one might have expected, given ultra-low interest rates. In 17 of the 20 largest developed economies, investment growth remained lower during the post-2008 period than in the years prior to the crisis; five experienced a decline in investment during 2010-2015.”  Indeed, the average growth rate in developed economies has declined by more than 54% since the crisis. An estimated 44 million people are unemployed in developed countries, about 12 million more than in 2007, while inflation has reached its lowest level since the crisis.

Stiglitz went onto consider “what’s holding back the world economy?”  He noted what some of us have been saying for years: that quantitative easing by central banks, as used in the US, Japan, the UK and belatedly in the EU, has failed to boost growth and investment.  The problem was that the banks used the cheap cash from central banks not to lend onto companies to invest or households to spend, but to build up their cash reserves or buy government bonds or their own shares.

As Stiglitz concluded: “Clearly, keeping interest rates at the near zero level does not necessarily lead to higher levels of credit or investment. When banks are given the freedom to choose, they choose riskless profit or even financial speculation over lending that would support the broader objective of economic growth.”  Of course, this is something that many Marxist economists have been saying for years – in opposition to the hopes of Keynesian economists like Paul Krugman or Noah Smith.  Moreover, what could provide a better case for the public takeover of banking systems in the major economies so that credit can be directed productively and not for bank profits?

Stiglitz also directs our attention to the massive reversal of capital inflows to so-called emerging economies.  “An unintended, but not unexpected, consequence of monetary easing has been sharp increases in cross-border capital flows. Total capital inflows to developing countries increased from about $20bn in 2008 to over $600bn in 2010.  Very little of it went to fixed investment. This year, developing countries, taken together, are expected to record their first net capital outflow – totalling $615bn – since 2006.”  Actually, according to the Institute of International Finance, the outflow figure was even larger, with net capital outflows of an estimated $735bn during 2015, the first year of net outflows since 1988!

screen shot 2016-01-29 at 11.44.03

As another international agency, the Bank for International Settlements (BIS), put it in its latest quarterly review, the surge in lending to emerging markets that helped fuel their own — and much of the world’s — growth over the past 15 years has come to a halt, and may now give way to a “vicious circle” of deleveraging, financial market turmoil and a global economic downturn.  “In the risk-on phase [of the global economic cycle], lending sets off a virtuous circle in financial conditions in which things can look better than they really are,” said Hyun Song Shin, head of research at the BIS, known as the central bank of central banks. “But flows can quickly go into reverse and then it becomes a vicious circle, especially if there is leverage.”

The BIS reported that the total stock of dollar-denominated credit in bonds and bank loans to emerging markets — including that to governments, companies and households but excluding that to banks — was $3.33tn at the end of September 2015, down from $3.36tn at the end of June.  This was the first decline in such lending since the first quarter of 2009, during the global financial crisis, according to the BIS.

dollar credit

In previous posts I have pointed out that the huge rise in credit to emerging markets threatens a major bust especially if the profitability of capital should begin to fall in these economies.

EM debt

And that is just what is happening.  The return on equity capital in advanced capitalist economies is below levels before the Great Recession but it partially recovered from 2009 and only started to fall in the last year or so.  But profitability in emerging economies has been falling since 2012 and is now below that of advanced economies for the first time.

EM profitability

The head of IIF, Caruana commented, “The issue is not just for emerging markets. It is spilling back into developed markets. The broader financial markets are recoiling from risk, and that spreads across all markets. The problem now is that the real economy is being affected.”

In my last post, I took up the issue of negative interest rate policy (NIRP).  This is the new policy forced upon central banks to try and get the world capitalist economy out of this Long Depression.  Zero interest rate policy (ZIRP) has failed, quantitative easing (QE) or printing money has failed, so now let’s charge banks and other financial institutions for keeping cash and try to force them to lend or invest.  Several small central banks had already adopted NIRP (Switzerland and Sweden) but last week, one of the largest, the Bank of Japan, applied NIRP.

deposit rates

The BoJ vote to do so was only 5-4 because the minority were not convinced that it would work.  Indeed, NIRP could make things worse, they thought.  NIRP is the last throw of the dice in monetary policy and if it did not work in getting the Japanese economy out of its stagnation, the Bank would be seen to be helpless.  And why should NIRP work any better in stimulating business investment than ZIRP or QE?

Within weeks, it is becoming clear that NIRP is not working.  Japanese government ten-year bond yields dropped into negative territory.  This means that banks and other corporate investors would prefer to pay the Bank of Japan and the government for holding bonds for the next decade rather than spend cash or invest!  And that behaviour is happening increasingly globally.  The volume of government bonds trading below zero interest has now reached $6trn, or one-third of the entire global sovereign bond market!

So what is to be done?  Martin Wolf, the Keynesian economic journalist for the UK’s FT, asked the question in a recent article.  His answer seemed to be more of the same ‘unconventional’ monetary policy.  “It is crucial to recognise that something more unconventional might have to be done”.  Another recession was bound to come along and doing nothing about it was not an option.

Wolf went through the various options that I have discussed above and eventually concluded that the only one left with the possibility of success was “helicopter money” — dropping money directly into people’s bank accounts in so that they spent more.  This is similar to the People’s QE advocated by some of the current leftist Labour opposition in the UK and has been mooted before by heterodox economists.  I have discussed this option in a previous post when it was proposed by maverick Bank of England economist, Andy Haldane.

In my view, it won’t work because it assumes that what is wrong with the capitalist economy and the reason for the continued Long Depression and the prospect of another slump is the Keynesian explanation of a ‘lack of demand’.  For Keynesians, you can create extra spending through money creation.  This leads to increased employment and then to increased income and growth and thus to more profits.  But the reality of the capitalist system is the other way round.  Only if profitability is sufficient, will investment increase and lead to more jobs and then incomes and consumption.  The demand for money will rise accordingly.  Artificial money creation by fiat from the government does not get round this – as the experience of ‘quantitative easing’ has already shown.

Instead, we must look at what is happening with profits and profitability.  And as I have shown in several previous posts, the profitability of business capital in the major economies is near historic post-1945 lows and the limited recovery in profitability since 2009 has come to an end.  Indeed, global corporate profit growth has ground to a halt and is now falling in China, the UK and most important in the US.

Last week, the investment bank, JP Morgan, noted that US corporate profit margins (the share of profit in each unit of national output) have started to fall back from its record highs.  After the slowdown in US productivity growth to near zero, as reported last week, JPM’s economists now expect US corporate profits to fall by 10% this year.

jp-morgan-us-corporate-profits-v-payrolls-growth-q1-2016

And here is the rub. As I and (a few) other Marxist economists have argued, JPM points out that every time there is such a large fall, an economic recession is not far behind, because such a fall is seldom not followed by an economic recession.  I quote: “this week’s larger-than-expected productivity drop in 4Q15 points to a 10% drop in corporate profits from year-ago levels. A double-digit decline in profits is a rare event outside recessions, having been recorded only twice in the last half century”.

JPM has raised the probability of a US economic recession from 10% to 25% in 2016. And that probability is greater than 50% before 2017 is out.

jp-morgan-us-recession-tracker-q1-2016 (1)

I have commented on the possibility of a new global recession in previous posts.  My view is that it is due and will take place in the next one to three years at most.  Some mainstream economists are now forecasting a more than 50% chance for 2016.  Citibank economists reckon that there is a 65% chance in 2016.

This doom-mongering is dismissed by others.  Bill McBride from Calculated Risk  trashed those recession mongers who think it is on the cards for next year. Says McBride: “For the last 6+ years, there have been an endless parade of incorrect recession calls. The manufacturing sector has been weak, and contracted in the US in November due to a combination of weakness in the oil sector, the strong dollar and some global weakness. But this doesn’t mean the US will enter a recession. The last time the index contracted was in 2012 (no recession), and has shown contraction a number of times outside of a recession. Looking at the economic data, the odds of a recession in 2016 are very low (extremely unlikely in my view).”

Maybe it won’t be in 2016.  But the factors for a new recession are increasingly in place: falling profitability and profits in the major economies and a rising debt burden for corporations in both mature and emerging economies.  And the Fed set to hike the cost of borrowing in dollars.  As I said before, it’s a poisonous concoction.

Can we avoid this slump?  Stiglitz’s answer to avoid this is to ‘direct’ banks to lend for investment or household spending and to introduce “large increases in public investment in infrastructure, education, and technology” to be financed by higher taxes on ‘monopolies’.  No doubt, increased public investment would help to compensate for the failure of capitalist investment.  But the world is capitalist: governments are not going to boost public investment if it means higher taxes for corporations, reducing their profitability even more.  So even this moderate policy for more public investment is a challenge to capitalism in an environment of low profitability, rising debt and depressed growth – something that Keynesian/Marxist Michel Kalecki at the end of the Great Depression of the 1930s pointed out.

Wolf’s ‘helicopter money’ and Stiglitz’s tax-funded public investment are poor options.  It is not the banking system that has to be by-passed or directed but the capitalist system of production for profit that has to replaced by planned investment under common ownership.

From ZIRP to NIRP: the last throw of the dice

February 3, 2016

The recent announcement of the Bank of Japan (BoJ) that it would introduce a negative interest rate (NIRP) for commercial banks holding cash reserves is the final admission that monetary policy supported by mainstream economics and implemented by central banks globally has failed.

The main economic policy weapon used since the global financial crash and the ensuing Great Recession to avoid another Great Depression of the 1930s has been zero interest rates (ZIRP), then ‘unconventional’ monetary measures or ‘quantitative easing (QE)’ (increasing the quantity of money supply to banks), all fixed to inflation targets of 2% a year or so.  ZIRP and a virtually unlimited supply of cash (QE) were supposed to kick-start the global economy into action, so that eventually capitalism and market forces would take over and achieve ‘normal’ and sustained economic growth and fuller employment.

But QE and ZIRP have failed to achieve their inflation (and growth) targets.  On the contrary, the major economies are close to deflation, as commodity and energy prices plunge and prices of goods in the shops and on the internet slide.  Deflation has its good and bad side.  Sure, it lowers the cost of many things but it also raises the real burden of debt repayments for those who borrow.  And if prices are falling continually, it breeds an unwillingness to spend or invest in the expectation that it will be cheaper to wait.  Deflation is a symptom of a weak economy, but also a cause of making it weaker.  Deflation can become a debt deflationary spiral.

So now we have NIRP.  It started with the Swiss, then the Swedes and more recently the European Central Bank and now the Bank of Japan.  Now about one-quarter of all interest rates are below zero!  And we have only just begun with this latest monetary tool.  BoJ governor Haruhiko Kuroda announced there is “no limit” to monetary easing and that he would invent new tools rather than give up his goal of 2 per cent inflation. “Going forward, if judged necessary, it is possible to cut the interest rate further from the current level of minus 0.1 per cent,” said Kuroda.  “The constraint of the ‘zero lower bound’ on a nominal interest rate, which was believed to be impossible to conquer, has been almost overcome by the wisdom and practice of central banks, including those of the Bank of Japan,……It is no exaggeration that [ours] is the most powerful monetary policy framework in the history of modern central banking,” he said.

The ‘wisdom’ of central banks – really?  ‘Most powerful’?  NIRP will fail in the same way that ZIRP and QE has.  Take Sweden.  There, the Riksbank, the central bank, has applied NIRP with zeal for some time.  What has been the result?  Inflation in the prices of goods and services has not returned.  Instead, cheap credit and penalties for holding cash (negative rates) have pushed banks into lending for property and stock market speculation, not productive investment. Swedish non-financial credit now stands are 281% of GDP, a rise of 25% on the pre-crisis peak and up from 212% a decade ago.  House prices have risen by a quarter nationally and 40% in Stockholm over the past three years, stretching earnings ratios to extremes (house prices are 11.7x earnings in the capital).

Far from curing deflation and restoring growth, NIRP will only exacerbate the sizeable debt burden that the major economies have built up in a desperate attempt to avoid a ‘Great Depression’ since 2009.  To bail out the banks and avoid a severe collapse in incomes and employment, governments borrowed hugely.  Sovereign debt, as it is called, rose to record post-1945 levels.  But the private sector, particularly the corporate sector, also expanded its debt.  Cheap central bank money flowed into the so-called emerging market miracle economies of Asia and Latin America.  But now they are in recession, leaving a debt burden to be serviced, mainly in appreciating dollars.

And as China and emerging economies slow or drop into a slump, the demand for exports from Europe, Japan and North America has slid away.  Take the European powerhouse, Germany. While Chinese exports only account for 6% of total German overseas sales, adding in Asia this rises to 10%.  That might still seem small, but is a potentially large drag on GDP where net trade has been contributing an average of 0.6% pts to the 1.5% pts of growth recorded over the last six years.

german exports

It’s a similar story in Japan.  The BoJ’s policy of ZIRP, QE and now NIRP has succeeded in weakening the yen against the dollar.  But it has failed to boost exports because most other Asian currencies have fallen too and now the Chinese yuan is under pressure.  Despite a 55% fall in the yen against the dollar in just three years of BoJ policy, there has been zero increase in export volumes.

japanese exports

Nevertheless, the dominant economic tool of the mainstream and major governments is still monetary policy, with its last stand in NIRP.  The US economy is still plodding along at about a 2% real growth rate, better than most and official unemployment has come down.  US Fed chief Janet Yellen claims to be confident that sustainable improvement in real GDP is here.  Yet all the recent economic data lend serious doubt to that forecast and the aim of the Fed to hike interest rates in 2016.  So there is even talk that the US Federal Reserve may adopt NIRP if everything goes pear-shaped in the US.

In its annual stress test of the US banks for 2016, the Fed said it will assess the resilience of big banks to a number of possible situations, including one where the rate on the three-month U.S. Treasury bill stays below zero for a prolonged period. “The severely adverse scenario is characterized by a severe global recession, accompanied by a period of heightened corporate financial stress and negative yields for short-term U.S. Treasury securities”, the central bank said in announcing the stress tests last week.  New York Fed President William Dudley said last month that policy makers were “not thinking at all seriously of moving to negative interest rates. But I suppose if the economy were to unexpectedly weaken dramatically, and we decided that we needed to use a full array of monetary policy tools to provide stimulus, it’s something that we would contemplate as a potential action.” 

Fed Vice Chairman Stanley Fischer said that foreign central banks that had resorted to negative interest rates to stimulate their economies had been more successful than he anticipated.It’s working more than I can say I expected in 2012,” he told the Council on Foreign Relations in New York. “Everybody is looking at how this works,” he added. Working well?  Really?  Sweden?

Radical Keynesian, Richard Koo summed up the NIRP option as “an act of desperation born out of despair over the inability of quantitative easing and inflation targeting to produce the desired results… the failure of monetary easing symbolizes crisis in macroeconomics”. RichardKoo_2Feb2016-1

As I have shown before in a previous post, during the Great Depression of the 1930s, John Maynard Keynes also gave up on monetary policy.  Having advocated lowering interest rates and ‘unconventional’ monetary easing, he eventually concluded that it was not working and moved onto to fiscal policy – in essence more government spending. This is also the answer for Koo.

Keynes in the 1930s was disappointed that governments, particularly the US and the UK, did not adopt his policy of deficit financing and government spending, let alone his more radical suggestion of the ‘socialisation’ of investment to replace the failure of capitalists to invest.  And modern Keynesians like Paul Krugman, Larry Summers, Simon Wren-Lewis or Brad Delong, while promoting monetary easing big time since 2008, have increasingly become disillusioned and joined Richard Koo in advocating fiscal spending to avoid ‘secular stagnation’ and deflation.  What puzzles the Keynesians is why governments, as in the 1930s, will not go down this road.

For the Keynesians, running up debt (public sector debt) is not a problem: one man’s debt and is one woman’s credit is the argument.  But debt does matter, as I have argued in previous posts.  Debt must be serviced and repaid by real production: money does not come out of nothing forever.  The corporate sectors of China, Asia, Brazil, Russia and Europe are finding that out now.  Deficit financing and rising public debt will not kick-start an economy that has low profitability and high corporate debt.  And in near deflationary economies, there is a real burden in servicing that debt.

Monetary policy has failed; NIRP will not work.  But neither will a more radical Keynesian deficit financing plan.  Both fail to recognise that it is profits versus the cost of capital and debt that sets the pace of economic expansion or contraction in a capitalist economy.

Globally, corporate profits have been falling and in the major economies even the largest companies are seeing falling earnings and sales.  In the US, 43% of the top 500 companies have reported their financial results for the last quarter of 2015.  On average, sales were down 2.5% over the end of 2014 and profits were down 3.7%.  In Europe, 17% of the top 600 companies have reported and sales were down 6.5% and earnings 11.7%.  In Japan, 45% of the top 225 companies reported a fall in sales of 2.5% and profits down 9.3%.

A new round of ‘creative destruction’ is coming globally and ZIRP, QE and NIRP will not stop it.

The global GDP story

January 29, 2016

There was a batch of economic data out today that confirmed that the global economic expansion since the end of the Great Recession in mid-2009 was in trouble.  The ‘recovery’ since then has already been the weakest since the 1930s.

Now data for the last quarter of 2015 from major capitalist economies showed that economic growth, as measured by real GDP growth, was slowing.  In preliminary figures for the US economy, the most important and fastest growing of the major economies, in Q4 2015, real GDP rose only at a 0.7% annual rate, sharply down from the 2% pace recorded from Q3 2015.  That meant the US economy had expanded in real terms (after inflation is deducted) by 2.4% in 2015, the same rate as in 2014.  But the worrying sign was that in Q4 2015, the yoy rate was only 1.8%, virtually the same rate as the UK economy achieved in that last quarter.

US GDP

And the prospects for 2016 are probably worse.  Earlier this week, figures for US durable goods orders, a measure of future investment purchases by America’s companies, showed a fall of 4.3% in December, making a 7.5% drop over the year.

US durables

Indeed, the real GDP figures released today showed that business investment contracted at a 1.8% annual pace, the first quarterly fall for over two years.  In 2015, investment rose only 2.9%, the slowest rate since 2010.  And it’s investment that drives a capitalist economy not consumption, as I have argued ad nauseam on this blog.

US bus inv

And earlier this week, we got the figures for the next fastest growing major capitalist economy, the UK.  In the last quarter of 2015, UK real GDP grew at just a 0.5% rate (even slower than the US) and the slowest rate for three years.  For 2015 as a whole, real GDP rose 2.2% down from 2.9% in 2014. Moreover, the economy was only larger by 1.9% in the last quarter – a sign that economic expansion was weakening.  Most significant was that while UK real GDP has moved above its pre-crisis peak that is only because British population has risen, with the influx of migrants from mainly eastern Europe.  Real GDP per head is virtually the same as it was in 2o08, eight years ago!

UK GDP

And the UK’s growth is led by an expansion in ‘services’.  Manufacturing has been contracting.  The main sector for growth has been in the financial and business services around the City of London.  A new financial crash would soon put that in jeopardy

In the Eurozone, the situation remains worse than in the US and the UK.  Spain has been recovering and recorded a 0.8% rise in the last quarter of 2015, led by ‘services’ and property.  But the French economy is staggering along with just a 0.2% rise, thus achieving a growth rate of just 1.3% in 2015.  The forecast at the beginning of 2015 was for 1.5%.  The IMF forecasts 1.6% for this year.  That must be in doubt.  As for Germany, the forecast for the last quarter is for little or no growth.

And then there is Japan.  Remember a few years ago, we were told that the new prime minister Abe had a plan to get the Japanese economy going through a mixture of monetary injections (quantitative easing), fiscal stimulus (government spending) and neo-liberal labour market reforms.  Keynesian economists like Paul Krugman and Noel Smith were very keen on ‘Abenomics’ as confirmation of the efficacy of Keynesian policy, especially as it would include a depreciation of the yen’s value to boost exports and growth.

Well, today the Bank of Japan announced that it was going to introduce a ‘negative deposit rate’ for banks keeping cash with it.  In effect, it would penalize Japanese banks for keeping excess cash with it.  This is a desperate attempt to kick-start the economy and a major admission that current ‘Keynesian’ policies had dismally failed.  Real GDP is crawling along and real household spending is falling, down 4.4% in December from a year ago while industrial production is contracting 1.4% yoy.

japan-household-spending

The BoJ acted just a day after one of the key architects of Abenomics. Akira Amari, was forced to resign as economy minister following allegations that he and his aides received bribes from a construction company.

The rest of Asia is slowing down too.  We all know about China where growth has slowed to its slowest rate in a decade.  But Taiwan also announced that its economy barely grew in 2015.  Elsewhere, energy producer, Canada is in a ‘technical recession’, two quarters of contraction in real GDP and as reported before, the large so-called emerging economies of Brazil, Russia and South Africa are in deep slumps.

And another large emerging economy, tied closely to the US, Mexico also produced real GDP data that showed a slowdown in the last quarter of 2015 to 0.6% from 0.8% in Q3.  Overall, Mexico grew 2.5% in real terms in 2015, slightly down from a weak 2.6% in 2014.

Is a new global recession impending?  A bunch of mainstream and leftist Keynesian economists were asked their opinion by the UK’s Guardian newspaper.  As far as I can read it, only one was forthright that a global recession was coming, although this was Albert Edwards who has been forecasting this for six years and even now when the recession was coming was not specified.  The others hedged and fudged and were unable to get off the picket fence.

My position has been it is the job of economics to make forecasts just like any other science, even if that is much more difficult with social sciences where human decision-making is involved.  But just like weather forecasting, your forecasts will be only as good as your theoretical foundations and empirical research.  Based on Marx’s laws of motion under capitalism, profitability, debt and investment are key indicators of boom or slump.  On those indicators, as I have argued in previous posts, a global recession is coming.

And as I argued at the beginning of this year, the timing of that has got much closer; maybe this year, but probably by the end of 2017 at the latest.

 

Donald Trump and the US economy

January 25, 2016

The US presidential election is just eleven months away and the US economy appears to be slowing down.  Eight years after the election of Barack Obama at the depth of the Great Recession, the economic policies of the administration and the forecasts of sustained recovery by mainstream economics have failed.

The latest Atlanta Fed estimate for US real GDP growth in the last quarter of 2015 is just a 0.7% annual rate.

Atlanta

If that turns out to be right with the first official estimate out this week, then the US economy will have grown (after inflation) by just 1.8% in 2015, down from 2.4% in 2014.  In addition, industrial production and manufacturing output have slowed to a trickle and retail sales, a measure of how much is being bought in the shops, has also slowed markedly.

US manuf

And most important, corporate profits are falling and companies are reporting fewer earnings in their quarterly results.  When profits fall, investment and then employment will eventually do so.

Stock markets globally are worried about the slowdown in China and in the collapse in oil prices.  This has brought recessions in many energy and commodity producers, like Russia, Brazil, South Africa and even Canada.  And just at this time, the US Federal Reserve decided to hike its interest rate, claiming that all was well in America.  Instead there is a rising risk that the US could enter a new slump in 2016 or 2017 – right at the time of the election of a new President.  And whoever is elected, do they have any idea of how to avoid a new slump or get America out of it when they are elected?

On the Republican side, we are offered a range of neo-conservative, pro-gun lobby, anti-abortion, anti-gay rights, anti-labour, anti-welfare, anti-tax, climate change denying multi-millionaires, the noisiest and most popular (among Republican party supporters) of which apparently being Donald Trump.

Let’s leave aside Trump’s provocations on gays, immigration, muslims, and ‘liberals’ and instead have a look at the economic policies he advocates for America.  The Republican party leadership represents Wall Street, the big corporate moguls and the military-industrial complex.  But Republican party activists are mostly small businessmen and, older white ‘middle class’ male workers in America’s suburbs who reckon or are told that what is wrong with America’s economy is too much government, too high taxes and too much free trade and immigration that do not protect Americans.  This is the classic petty-bourgeois (to use Marx’s phrase) view.

It is these people that the billionaire Trump appeals to.  So his economic proposals boil down to cutting taxes, reducing government spending (but not medicare needed by his elderly supporters), taxing imports to ‘protect’ American jobs and reducing bureaucracy.

But, of course, Trump’s economic plan does not really help his base of support.  He wants to cut income tax for all and corporate taxes.  The biggest beneficiaries of this would the very rich.  Top billionaires would see their taxes decline from 36 percent to 25 percent, and corporations would get a cut from 35 percent to 15 percent. On average, most people would see their tax bill reduced by about 7 percent of their after-tax income, but savings for the top .1 percent of the wealthy would be $1.3 million in savings, which amounts of 19 percent of their income.

These tax cuts if implemented, would, according to the Tax Policy Center, cause a loss of government revenues worth $25 trillion over the next ten years.  So just to get to 2025 without increasing the deficit, government spending would have to be cut by about 20 percent.  The biggest loophole in the Trump tax plan, according to Robertson Williams of the Tax Policy Center, is the “pass through” provision that would allow self-employed contract workers to have their income taxed at the lower 15 percent rate (this again is a policy aimed at Trump’s base).

Trump says he’d raise tariffs on foreign goods to help American industry and impose punitive sanctions on China and Mexico, which are America’s two largest trading partners.  This would break the NAFTA agreement.  If the US were to impose tariffs (driving up domestic prices), retaliation would follow from trading competitors. All of this is anathema to the Republican grandees who follow the demands of Wall Street and the big corporations for ‘free trade’.  But it sounds great to the self-employed and other small businessmen who are struggling to make ends meet, even though reduced government services would hit them too

So the strategists of capital in Wall Street and Main Street are getting worried.  It seems that Trump could actually win the Republican nomination.  The weakness of the other candidates and his appeal to activists is winning the day. Sure, it is likely that Hillary Clinton, if chosen as the Democrat candidate, would easily beat Trump in the presidential ballot.  And, on balance, that would be better than Trump. But Clinton is being pushed to the left by the campaign of Bernie Sanders and her election would probably involve higher taxation, more regulation and some concessions to labour. It would be more much preferable to find another Republican candidate or, now it seems, even a third party runner.

So the talk is that billionaire Michael Bloomberg, the owner of the financial services company and former mayor of New York, could be the man to step in and defeat Trump.  Apparently, Bloomberg is exploring an independent run for president and is willing to spend $1bn to finance a campaign.  But backing Bloomberg is a risky strategy for capital.  Many of Bloomberg’s positions on social issues from the environment to gun control are closely aligned with the Democrats.  So his candidature could simply hurt the chances of Hillary Clinton and put Trump into the White House.

So Republican Wall Street financiers are still thinking of finding another Republican.  Billionaire Charles Koch, the man who finances many Tea party groups within the Republicans, commented to the Financial Times that he was “disappointed” by the current crop of Republican presidential candidates and especially critical of Trump and Cruz. “It is hard for me to get a high level of enthusiasm,” he said, “because the things I’m passionate about and I think this country urgently needs aren’t being addressed.”

What is he proposing?  Apparently to fix the convention with money: “state legislators who are Republicans, congressmen, senators, local committeemen should join with the donors so they don’t send the party into suicide.” The donors and their allies would handpick their candidate, “winnowing the field”.

That’s what happening with the Republican Tweedledee.  But what is happening with the Democrat Tweedledum?  There, Clinton is facing a strong challenge from Bernie Sanders, the ‘socialist’ senator from Vermont.  That again is another sign that union workers, public sector employees and active working class Democrats are fed up with the dominance of the Democrat establishment, financed by hedge funds and big business and so tied to their policy needs.  Sanders has called for a living wage for all, government investment, breaking up the banks etc.

These policies are mild in their impact on a capitalist economy in successful times, but they are unacceptable in a capitalist economy still struggling to grow after the Great Recession and possibly heading back into economic slump.  So, for capital, it would be a disaster if Sanders won the Democrat nomination because it would pose a new threat to the profitability of capital.

But Sanders is also opposed by supposedly liberal reformist elements on the Democrat side.  Top Keynesian economist and NYT blogger Paul Krugman has launched a series of posts against Sanders.  Krugman is opposed not particularly because he is against Sanders’ mild measures, but because Krugman considers them unrealistic in the face of a Republican Congress and the might of Wall Street and the media.  So we ‘liberals’ ought to settle for Hillary so that we can get a few things done, as we did under Obama!

As Krugman put it, “accepting half loaves as being better than none: health reform that leaves the system largely private, financial reform that seriously restricts Wall Street’s abuses without fully breaking its power, higher taxes on the rich but no full-scale assault on inequality.”

Sanders’ more radical program is doomed.  You see, if Obama could not do anything at a time when Bush and Republicans were discredited with the Great Recession in 2008, there is even less chance now.  Of course, this argument assumes that Obama ever advocated anything radical to control the financial sector, reduce inequality or help labour.  On the contrary, Obama appointed Wall Street bankers to bail out the financial institutions, Ben Bernanke to help the banks with cash and a Treasury team that aimed to curb government spending.

But Krugman argues that a campaign for a “radical overhaul of our institutions” is a pipe dream because the ‘broad public’ will never support it.  You see, even Roosevelt could not carry out a radical program at the depth of the Great Depression because of opposition from ‘Southern racists’ with the Democrat party.  Actually, Roosevelt was never interested in eradicating racism and segregation in the south and the southern Democrats did not oppose radical economic measures.  The opposition came from Wall Street and mainstream economics; the former because of their vested interests; and the latter because of their blind belief in the market.

Krugman is right when he says that the “thing that  F.D.R. created were add-ons, not replacements: Social Security didn’t replace private pensions, unlike the Sanders proposal to replace private health insurance with single-payer. And Social Security originally covered only half the work force, and as a result largely excluded African-Americans.”

Roosevelt started out with big talk about radical changes in the American economy.  In his inaugural speech on election in 1933, Roosevelt said that in “the long run is the problem of controlling by adequate planning the creation and distribution of those products which our vast economic machine is capable of yielding… Too many so-called leaders of the Nation fail to see the forest because of the trees. Too many of them fail to recognize the vital necessity of planning for definite objectives. True leadership calls for the setting forth of the objectives and the rallying of public opinion in support of these objectives.”   There was a need for a “federal role so assertive that the country’s national government would be called on to supervise all forms of transportation and of communications and other utilities which have a definitely public character.”

But that radical objective of government planning over capitalist profit was soon dropped in favour of balanced budgets (as advised by the Treasury) and hiking interest rates (as advised by Wall Street and the Fed), as a recent paper at ASSA 2016 by Jan Kregel shows (WhatWeLearnedFromTheGlobalFinancia_preview (2).  The result was that the depression continued and only ended when America entered the world war and introduced state control of capitalist production and forced saving for the military effort.  In his book, End the Depression now, Krugman admitted that it was only ‘military Keynesianism’ that ended the depression not Keynes or the New Deal.  But it was not even Keynesianism but the (temporary) removal of the capitalist mode of production.

According to Krugman, there is nothing we can do.  To use Margaret Thatcher’s phrase, ‘there is no alternative’ (TINA): “The point is that while idealism is fine and essential — you have to dream of a better world — it’s not a virtue unless it goes along with hardheaded realism about the means that might achieve your ends. That’s true even when, like F.D.R., you ride a political tidal wave into office. It’s even more true for a modern Democrat, who will be lucky if his or her party controls even one house of Congress at any point this decade.”

So there it is.  The US economy is heading down again.  The policies of the last eight years under Obama have not turned things around.  And there is the prospect of a populist demagogue oligarch running as the Republican candidate, scaring the wits out of the majority of the ruling financial class.  Krugman’s response is just accepting that anything that would really improve the lives of majority is not on and backing Clinton is the only thing to do – in the hope that a few crumbs will fall the people’s way as a new recession looms.

The 62 billionaires and the truth about inequality

January 19, 2016

The global elites are meeting today for their annual jamboree at the World Economic Forum in Davos, Switzerland.  Some of the world’s top political leaders, banking chiefs and corporate moguls will discuss the key issues, ideas and strategies for how to rule the world.

This year’s main theme is the impact that ‘disruptive technologies’, robots and artificial intelligence will have the future of capitalism.  But the rising risk of new global economic recession, just eight years from the last, will also occupy minds.

Last year, the WEF debated the issue of rising inequality of income and wealth.  But nothing came of that.  So this year, Oxfam issued another report on the grotesque inequality of the ownership of wealth globally.  The headline was that just the 62 richest billionaires own as much as the poor half of the world’s population.  And the top 1% of wealth holders own more wealth than the other 99% combined!

Oxfam’s data suggest that inequality of wealth globally has got worse since the end of the Great Recession.  The wealth of the poorest 50% in the world dropped by 41% between 2010 and 2015, despite an increase in the global population of 400m.  In the same period, the wealth of these richest 62 people increased by $500bn (£350bn) to $1.76tn.  Back in 2010, it took 388 people to have as much personal wealth as the bottom 50%.  By 2014, that number had fallen to 80 people.  Now it’s just 62.  Oxfam’s prediction that the richest 1% would own the same wealth as the poorest 50% by 2016 had come true a year earlier than expected.  Last year, the average wealth of each of the 72 million adults belonging to the richest 1% was $1.7 million, compared with about $5,000 for the 648 million people in the bottom 90%.

And Oxfam’s measures do not account for the estimated $7.6tn in hidden offshore tax havens that inequality expert Gabriel Zucman has identified in a recent book. The charity said as much as 30% of all African financial wealth was thought to be held offshore. The estimated loss of $14bn in tax revenues would be enough to pay for healthcare for mothers and children that could save 4 million children’s lives a year and employ enough teachers to get every African child into school. Oxfam said nine out of 10 WEF corporate partners had a presence in at least one tax haven and it was estimated that tax dodging by multinational corporations costs developing countries at least $100bn every year. Corporate investment in tax havens almost quadrupled between 2000 and 2014.

To get its headline results, Oxfam used the data for the wealth of 1%, 50%, and 99% from Credit Suisse Global Wealth Databook (2013 and 2014) https://www.credit-suisse.com/uk/en/news-and-expertise/research/credit-suisse-research-institute/publications.html.  The wealth of the richest 62 was calculated using Forbes’ billionaires list, http://www.forbes.com/ with annual data taken from list published in March.  And calculations were after deducting debt.

Oxfam’s methods have come under severe criticism.  When Thomas Piketty published his tome, Capital in the 21st century, which argued that inequality of wealth was rising in most major economies, Chris Giles, the FT’s economics editor was quick to find holes in Piketty’s data and methods.  Piketty did an effective job of riposting Giles’ critique.

But Giles is now back having a go at Oxfam’s report.  First, Giles argues that actually the world is getting less unequal in income, and poverty is declining globally.  This is a hoary old argument from the mainstream.  Yes, inequality of income and wealth between countries has narrowed a little and poverty has fallen, as measured.  But this is for one main reason: the tremendous growth in real GDP and living standards for hundreds of millions living in China.  Take China out of the equation and there is no improvement in either inequality or poverty.  And within countries, inequality is rising as the gini coefficient of income and wealth in China and India shows.

Giles wants us to dismiss Oxfam’s numbers because they “splice together data on the richest individuals from Forbes, designed to sell magazines, with data on the rest of the world from Credit Suisse, which itself is compiled from a host of incompatible sources.”  I don’t think that the authors of the Credit Suisse report on global wealth would appreciate this attack on their integrity and methods.

I have reported before on the Credit Suisse report in this blog.  The co-author of that report is my friend Professor Anthony Shorrocks, who was head of the United Nations global wealth survey and is probably the world’s leading expert on global wealth.  He recently sent me an update on his data.  From this, he reckons that “the situation is even worse” than Oxfam indicates in its report.  He concludes that since 2000, the bottom 90% of the world’s population have seen a fall in their wealth, so that all the gain in personal wealth in the last 15 years globally has gone to the top 10%, with the lion’s share for the top 1%.

Giles also criticises the Credit Suisse measure of wealth as one of net worth (assets minus liabilities), so it treats a recent US graduate on a huge income, but with student debt, as poorer than a subsistence farmer in China. According to Giles, this explains why North America appears so unequal in this chart from the Credit Suisse report.  Actually, as a robustness check, Oxfam recalculated the share of wealth held by the richest 1 percent once negative wealth is excluded. It did not change significantly (falling from 50.1 percent to 49.8 percent). Negative wealth as a share of total wealth has remained constant over time, such that wealth distribution trends over time are not affected.

Giles makes much of the point that it does not take much wealth to end up in the top 1% globally: “most people owning a London property will have more than $760,000 wealth and put you in the supposed plutocrat zone of the global top 1 per cent.”  Yes, this is true.   But what this shows is how poor in personal wealth nearly everybody is: ownership of property is the province of the very few.  And even in London, most property owners do so through huge mortgages for which they must work to service.  That does not apply to the billionaires.

Giles’ last critique is to complain that Oxfam and Credit Suisse measure wealth in dollars rather than in purchasing power parity.  The latter supposedly measures what your wealth can buy in local currency.  Local currency goes further in Indonesia or Somalia but may not be worth much in dollars, particularly as the US dollar has been rising against most other currencies, making dollar wealth more than it is.   Giles claims that the change in national wealth in 2015 “is almost entirely linked to the size of last year’s depreciation against the US dollar.”  Maybe so, but PPP measures of wealth are just as biased as dollar measures.  You need dollars to buy imported goods like cars, i-phones, computers.  That form of durable goods or wealth is affected by your dollar wealth, along with land and buildings too in many countries.

The Giles critique does not really dent the Oxfam report or the work of authors of the Credit Suisse wealth report, just as he failed to do with Piketty’s data.  There is no getting away from the conclusion that the world is grotesquely unequal in the ownership of cash, bonds, stocks, land, buildings and means of production and in the incomes ‘earned’ by people globally.  It is unequal to the extreme between countries and within countries.  And the evidence suggests that inequality is not being reduced, at the very least, and probably is worsening.

But don’t expect the Davos elite to do anything about it.

 

The Fed, interest rates and recession

January 18, 2016

On Friday, US stock markets fell to their lowest level since August 2015 in its third consecutive weekly decline.

S&P 500

In many previous posts, I have argued that stock markets are really still in a long-term secular ‘bear market’ of decline.  Stock market values follow the profitability of capital and, as I have argued in other posts, the profitability of US capital has not yet reached the bottom of its current downwave that, in my view, began in 1997, with various upturns (2001-6, 2009-13).  If that is correct, then the US stock market (and others as well) have yet to reach the bottom of this secular bear market that began in 2000 with the dot.com hi-tech bubble bust.

Double top

This latest stock market collapse has taken place within weeks of the decision of the US Federal Reserve’s monetary policy committee (FOMC) deciding for the first time for nearly ten years to raise its policy rate that sets the floor on interest rates in the US and abroad.  At the time, Fed chief Janet Yellen said that the US economy “is on a path of sustainable improvement.” and“we are confident in the US economy”, even if borrowing rates rise.

As I commented at the time “This was ironic because just before the Fed hiked its interest rate, the figures for US industrial production in November came up and they showed the worst fall since December 2009 at the end of the Great Recession.”  Since then we have had further poor data on the US economy with weak retail sales and industrial production for December, suggesting that US real GDP growth in the last quarter of 2015 was likely to be as low as just 1%.

Stock markets falling and the US economy slowing, with the rest of the world stagnating and China apparently imploding: this is putting egg on the face of Janet Yellen, as the UK Guardian’s economic correspondent put it, Larry Elliott.

I have argued that there was a serious danger that the US Fed would repeat the mistake it made in 1937 during the last Great Depression of the 1930s.  Then it concluded that the US economy had sufficiently recovered to enable it to start raising interest rates.  Within a year, the economy was back in a severe recession that it did not recover from until America entered the world war in 1941.

So should the Fed be hiking interest rates at this time?  This question was debated at the recent annual meeting of the American Economics Association (ASSA 2016) by the great and the good of mainstream economics.  There were two sorts of the responses to this question from mainstream economics.

The first was to ignore the fact of the weak global and US economic recovery or argue that it didn’t matter.  At the main debate on the issue among leading luminaries of the mainstream, Martin Feldstein, former economics advisor to Bush, reckoned that the US economy was recovering well with unemployment down and incomes rising.  So there was nothing to worry about.

John Taylor, leading economist from Stanford University, took a different tack.  Yes, the US economy was very weak but this was the fault of economic and monetary policies of the current US administration and the Federal Reserve.  What was needed was to reduce regulation of the banks and large companies so they can grow and for the Fed to end its cheap money policy.  Let’s just get back to business as usual and things will be fine.  Taylor appeared oblivious to the fact that it was the failure to regulate the banks and financial system or to stop the introduction of speculative financial instruments that contributed to the global financial crash in the first place!

But the main response of the other debaters at the mainstream meeting was to conclude that we just don’t know why the economic recovery was so weak and now seems to be faltering.  Vice chair of the Fed, Stanley Fischer, offered several possible reasons, but said he did not know which was right.  Fischer was worried that the ‘equilibrium rate of interest’, (now called R*) where savings and investment are matched with full employment and moderate inflation looked very low, as inflation was near zero.  This was another way of saying that the equilibrium rate could be ‘zero bound’ and thus the economy was in some form of ‘secular stagnation’, as argued by Keynesians like Larry Summers.

But Olivier Blanchard, former chief economist of the IMF, ever the optimist, offered Fischer a positive answer.  Actually, the US economic recovery was beginning to look normal, after all.  You see, the infamous Phillips curve of the 1970s, namely that when unemployment fell, inflation would rise, was still operating weakly.  So as labour markets tightened, inflation would rise and the Fed would be justified in raising its policy rate as it had started to do.

I’ve discussed before this ‘equilibrium rate of interest’ idea (drawn from the work of neoclassical monetarist, Knut Wicksell).  Both Keynes and Marx looked, not to a concept of a ‘natural rate of interest’ but to the relation between the interest rate for holding or lending money to the profitability (or return) on productive capital.  Indeed, so did Wicksell.  According to Wicksell, the natural rate is “never high or low in itself, but only in relation to the profit which people can make with the money in their hands, and this, of course, varies. In good times, when trade is brisk, the rate of profit is high, and, what is of great consequence, is generally expected to remain high; in periods of depression it is low, and expected to remain low.”  But there was no mention of this relation between R* and the profitability of capital from the likes of Fischer or Blanchard at ASSA.

Another view is that of Austrian school of economics that argues that the easy money policy of the Fed and other central banks, including the use of quantitative easing (QE), i.e. ‘printing money’, has only fuelled the stock market and bond boom that is now bursting and distorted the allocation of investment into productive sectors.  This malinvestment must be quashed with a strong dose of monetary tightening to get interest back into line with the Wicksellian ‘natural equilibrium’.

This Austrian view has been promoted by the economists of the international central bankers association, the Bank of International Settlements (BIS).  The BIS economists reject the Keynesian view of ‘secular stagnation’ that must be overcome by more monetary and fiscal stimulus.  That is just making things worse, in their view.  They have done several studies to argue that what causes crises is excessive credit leading to malinvestment and financial bubbles that burst.  Their latest study of recessions in 22 rich countries dating back to the late 1960s claims just this.  It’s not a lack of demand that ‘causes’ economic crises under capitalism as Keynesians like Paul Krugman, Larry Summers or Brad DeLong argue, but malinvestment in the supply-side of the economy caused by too much debt.

Returning to Wicksell, the BIS economists reckon that if real interest rates (that’s after inflation is deducted) are held too low (i.e. below the ‘natural rate’ that equates savings and investment in the ‘real economy’), then credit bubbles and malinvestment ensue.  And rates are too low.  They are way into negative territory, not seen since the first post-war international slump of 1974-5.

The BIS reckons the Fed is right to hike interest rates, but what is wrong is that they have taken too long to do so.  Now the economy will have to go through ‘cold turkey’ or ‘creative destruction’ (to use the phrase of early 20th century Austrian economist, Joseph Schumpeter) to clear the system of excessive credit and unproductive investment.  In other words, another slump.

In a way, nothing has changed in the debates of the 1930s between the Keynesians who blame a lack of demand for the depression (with no real explanation of why demand slumped) and the Austerians (Austrians and monetarists like Milton Friedman) who blame excessive credit and the interference of central banks and governments in the ‘natural’ workings of the market.

Once again I have to trot out my hobby-horse on the debate within mainstream economics on whether the cause of the Great Recession and subsequent depression can be laid at the door of the lack of demand (Keynesian) or too much debt (Austrian).  Neither theory has a place for the profitability of capital in an economy that yet has a mode for production based on making a profit!

Yes, in a slump, there is a lack of demand (capitalists cut investment and households stop spending).  But that is a description of a slump, not an explanation.  Yes, too much debt can provoke a financial crisis and weigh down on future investment.  But why and when does debt or credit, a necessary part of capital accumulation, become ‘too much’?

The Marxist answer, in my view, is that debt becomes too much when it can no longer be serviced because the profits from productive investment become insufficient to sustain it.  And demand becomes inadequate when the profits from investment drop so much that capital stops employing labour and closes down companies and reduces the utilisation of plant and equipment.

Another irony of the debate within the mainstream at ASSA was a session by the so-called Real Business Cycle (RBC) theorists, a school of neoclassical macroeconomists, who deny that crises are due to a lack of demand or a liquidity trap, where even zero interest rates do not revive an economy, as Keynesians argue.  Steve Williamson of the Federal Reserve Bank of St Louis, along with others, presented a paper in which they argued that the concept of secular stagnation caused by a liquidity trap and that the equilibrium rate of interest was very low, was nonsense.  These RBC theorists reckoned that low interest rates were not an indicator that the US economy was in stagnation and so hiking them would not cause a new recession.  Don’t look at interest rates, they said, look at the profitability of corporate capital.  That is what matters.  And that is at its highest for 30 years.

While many authors have documented the low and declining returns on government debt, these returns bear little resemblance to the returns on productive capital: The latter is a direct measure and a much better indicator of adequate private investment opportunities and has been rising for the past five years. Summers (2014) and others have articulated the secular stagnation hypothesis based on insufficient aggregate demand: The evidence on investment strongly suggests otherwise. Indeed, the private sector has undertaken large capital outlays since the end of the recession. The takeaway here is that the current recovery is not an example of secular stagnation. The evidence on investment and returns on productive capital shatter the essential components of the secular stagnation hypothesis.”

In my view, the RBC theorists are right that “the returns on productive capital” are a much better indicator of the state of the economy than interest rates and the unproductive debate on what is the right rate of interest.  But they are wrong in arguing that all is fine because profitability has never been higher.  As this blog and other Marxist authors have shown, US and global profitability is not at its highest but near its lows since 1945.  And this is especially the case with the profitability of productive assets (ie excluding finance and real estate).

Yes, there was a recovery of profitability in the neo-liberal period after the early 1980s, but it was limited and came to an end by the end of century.  The last 15 years or so has been a profitability downwave (with short rallies).  It is because of this downwave (and excessive debt that has accompanied it) that capitalism has failed to get out of the long depression.  The current stock market collapse is an indicator of this and perhaps heralds the next leg down in the global economy, whether the Fed hikes again in 2016 or not.

Will China pull down the world?

January 14, 2016

The world’s stock markets are spiralling down.  The US equity market has fallen 10% in the last month, a figure that is called a ‘correction’ in investor terminology.  That’s not yet a crash or ‘bear market’, usually measured as a 20% fall.  But it’s going that way.

Stock markets are diving because it seems that the big investors, banks and financial institutions globally, are worried that China is imploding and planning to devalue its currency hugely, thus driving down the rest of emerging economies, many of which are already in recession (Brazil, Russia, South Africa etc) and so will pull down the rest of world, the major advanced economies, into a global slump.

The economists of many investment banks, previously confident of economic recovery and lauding the great emerging market ‘miracle’, are now in a despond of despair.  For example, analysts at the UK bank, the Royal Bank of Scotland (RBS) told clients to “sell everything” as stock markets could fall more than a fifth, while oil and other commodity prices could drop to a tenth of where they were just a year ago.  RBS have noticed a ‘nasty cocktail’ of deflation in commodity prices, emerging economies in recession, capital flight by investors and rich citizens from China and other emerging economies and the prospect of higher dollar debt servicing costs as the US Federal Reserve carries out a planned hike in its policy interest rate this year.

I raised the prospect of an emerging market crisis two years ago and then again last summer and the risk that Fed hikes could induce a new economic recession globally.  Now mainstream economics has caught on and is advising its clients (rich investors) to get out of the market.  But exaggerated optimism has swung to its opposite.  Is a global economic and financial collapse really imminent?

Most of the doom-mongers concentrate on what they see is the kernel of a global slump: China.  The RBS says that China has set off a major correction and it is going to snowball… the epicentre of global stress is China, where debt-driven expansion has reached saturation. The country now faces a surge in capital flight and needs a “dramatically lower” currency.”  Albert Edwards at Societe Generale has been predicting a deflationary slump for the last five years of global economic recovery.  Now he is convinced that the Chinese crisis will lead to a global slump.  “The western manufacturing sector will choke under this imported deflationary tourniquet,” says Edwards.

But is this right?  There is no question that the Chinese economy is in trouble.  Economic growth has slowed from double-digit increases back in 2010-11 to under 7% on official estimates in 2015.  Many reckon that this official figure is nonsense and, looking at the pace of electricity consumption and spending, economic growth is probably more like 4%, which in Chinese terms is almost a recession.

When the Great Recession broke, the Chinese government reacted to a serious decline in global demand for its exports by launching a major government spending programme to build bridges, cities, roads and railways.  That kept the Chinese economy growing.  Interest rates were slashed and local authorities were allowed to borrow in order to spend on housing and other projects.  There was a major credit boom.  As a result, Chinese non-financial debt rose from about 100 per cent to about 250 per cent of GDP.  Total Social Financing, a broad measure of monthly credit creation, is now growing at nearly three times the rate of officially recorded money GDP growth, or more if you don’t believe the official GDP data.

The government was influenced by pro-capitalist economists in their ranks who have been continually arguing that the government must ‘open up’ the economy to foreign capital and private companies. The government should privatise the big state owned companies and banks, end capital controls and allow the Chinese yuan to become a freely fluctuating currency, it was argued.  Indeed, just before the Chinese stock market and currency crash began, the government pushed for and got the Chinese yuan to be included in the IMF’s international reserve currency basket for the so-called SDR.  In effect, the Chinese currency was now increasingly subject to the laws of the international currency markets and the economy was increasingly influenced by the law of value.

More debt, slower growth and an overvalued currency, now subject to speculation, has engendered a stock market crash and now rich Chinese and foreign investors are trying to get their money out of China or the yuan and convert it to dollars abroad.  Capital flight, as it is called, is running at over $100bn a month, or about $1.2trn a year.  Given that Chinese dollar reserves are about $3.3trn and around half of that is needed to cover imports, if capital flight continues at the current rate, Chinese dollar reserves will be exhausted in about 18 months.

China FX

The Chinese authorities have been unable to handle this financial crisis.  By opening up their economy to currency and financial speculation, they created a Frankenstein that is now trying to kill them.  First, they tried to weaken the yuan against the dollar to boost exports.  But a weaker currency only encouraged rich Chinese and Chinese companies to switch even more into dollars, by legal and illegal methods.  Then they tried to prop up the stock market with extra credit and by making state-owned banks buy stocks.  But this only fuelled even more debt.  Then they reversed these policies, causing a stock market crash and credit squeeze.

China yuan

The seeming incompetence of the Chinese authorities and the continued capital flight have now convinced many Western capitalist economists that China will suffer a ‘hard landing’ or economic slump, capitalist-style, and this will add to already diving emerging economies and drive the world into slump.

But does a collapse in the Chinese stock market and fall in the value of the yuan mean an economic slump in China?  China is not a ‘normal’ capitalist economy.  The power of the state remains dominant in industry, in the financial sector and in investment. Yes, the Chinese authorities have opened the economy to the forces of capitalist value, particularly in trade and capital flows, and in so doing have made China much more vulnerable to crises.  This is something that I forecast back in 2012: “if the capitalist road is adopted and the law of value becomes dominant, it will expose the Chinese people to chronic economic instability (booms and slumps), insecurity of employment and income and greater inequalities.”  And this has been the result of Chinese leaders succumbing to the pressures of the World Bank and others to ‘liberalise’ the financial sector and become part of the international financial ‘community’.

Yes, the world is slowing down.  The Long Depression, as I have described it, is still operating.  Only last week, the World Bank pointed out that developing economies grew just 3.7 per cent in 2015, the slowest since 2001 and two percentage points below the average 6.3 per cent growth during the boom years between 2000 and 2008.  And IMF chief Christine Lagarde reckoned that developing countries face ‘new reality’ of lower growth. “Growth rates are down, and cyclical and structural forces have undermined the traditional growth paradigm.  On current forecasts, the emerging world will converge to advanced-economy income levels at less than two-thirds the pace we had predicted just a decade ago. This is cause for concern.”  A 1 per cent slowdown in emerging markets would cause already weak growth in advanced countries to slow by about 0.2 percentage points, Ms Lagarde said.

Global IP

But will the slowdown in China and the slumps in major emerging economies bring down the world?  The argument for that to happen is based partly on the claim that emerging economies are now the drivers of the world economy.  Emerging economies are 57% of world GDP and have outstripped the advanced capitalist economies, according to IMF figures. But this is a wild exaggeration because the IMF uses what is called a purchasing power parity (PPP) measure.  This measures what you can spend or invest in local currency in any country.  That exaggerates the national output of emerging economies compared to measuring GDP in dollars as is necessary in world trade and investment.

In dollar terms, emerging economies have only 40% of world GDP.  Sure, that share has doubled since 2002, but it is still the case that just the top seven major capitalist economies have a greater share than all the emerging economies, with 46%.  And in the last two years, that share has stabilised.  While China’s share of world dollar GDP has rocketed from just 4% in 2002 to 15% now, it is still much smaller than the share of world GDP for the US.  That has fallen from 32% in 2002 to 24% now.

World GDP shares

These figures show the tremendous expansion of the Chinese economy. But they also show that the US remains the pivotal economy for a global capitalist crisis, particularly as it dominates in financial and technology sectors.  In 1998, the emerging economies had a major economic and financial crisis but it did not lead to a global slump.  In 2008, the US had a biggest slump in its economic post-war history and it led to a global recession, the Great Recession.  In my view, this weighting still applies.

I have discussed the prospects of a new US economic recession in several previous posts.  What matters is not the level of interest rates, whether they are too high or too low relative to some ‘equilbrium natural rate of interest’ that US mainstream economists are now arguing about (more on that in a future post), but what is happening to corporate profits and investment.  Investment drives employment and incomes and thus economic growth.

I have presented evidence from my research and from others that the profitability of capital and corporate profits generally lead business investment with a lag of 12-18 months, up and down.  Currently global corporate profits (a weighted average of US, UK, Germany, Japan and China) have turned negative and US corporate profits are now also falling (on a year on year basis).  That suggests that business investment, which has been expanding at about a 5% rate in the US, will start to drop too within a year or so.  If that happens, then the US will likely head into recession.  But it won’t be China or emerging economies that will be decisive.

Global corporate profits

Brad Delong,the Marxists and the Long Depression

January 11, 2016

Last week, I presented a paper at the annual meeting of the American Economics Association (ASSA) as part of a joint session between the AEA and the Union for Radical Political Economy (URPE).  At this joint session, Marxist and heterodox economists presented papers and mainstream economists commented on them as ‘discussants’.

My paper was entitled ‘Depressions, recessions and recoveries’ (Recessions,depressions and recoveries 071215) and argued that the US and global economies were in a long depression that could be distinguished from a ‘normal’ capitalist economic recession because the economy did not return to the previous economic growth rate in the recovery from a slump.  Instead, economic growth, employment and incomes grew sluggishly well below trend and economies slipped back into recession.  Such depressions are rare; there have only been three: in the 1880s in Europe and the US; in the 1930s and now since 2008.

I argued in the paper that the main reasons the global economy is in a long depression are because the profitability of capital has not recovered and because corporate and public debt remains historically high, both weighing down on investment in technology to boost productivity and growth.  A combination of depressionary factors had come together, not seen since the 1930sOne consequence of this depression is that no amount of mainstream policies like monetary boosts (QE) or fiscal stimulus (government spending) can turn things around.  Regular readers of my blog will know that I have been pushing this thesis from several years (actually since 2009) and I have a book, entitled The Long Depression, coming out in the next month or so.

Now I was expecting that my discussant, Professor Brad Delong, a leading Keynesian economist at the University of Berkeley, California and a close associate of other Keynesians like Larry Summers and Paul Krugman, and a well-known economics blogger, would launch into a detailed critique of my paper.  But no, Professor Delong made no comment at all on my paper.

But lo and behold just a few days later, Delong had an article in the Huffington post, called “Future Economists Will Probably Call This Decade the ‘Longest Depression’”.  In this piece, it seems, that it was Joseph Stiglitz, not me or other Marxist economists like Anwar Shaikh, or even Paul Krugman (see various quotes in my paper) that have characterised the economy is being in a depression.

Delong comments “Unless something big and constructive in the way of global economic policy is done soon, we will have to change Stiglitz’s first name to “Cassandra” — the Trojan prophet-princess who was always wise and always correct, yet cursed by the god Apollo to be always ignored. Future economic historians may not call the period that began in 2007 the “Greatest Depression.” But as of now, it is highly and increasingly probable that they will call it the “Longest Depression.”  Now that’s praise indeed for Nobel prize winner, Joseph Stiglitz.

Delong continues in his article “back before 2008, I used to teach my students that during a disturbance in the business cycle, we’d be 40 percent of the way back to normal in a year. The long-run trend of economic growth, I would say, was barely affected by short-run business cycle disturbances. There would always be short-run bubbles and panics and inflations and recessions. They would press production and employment away from its long-run trend — perhaps by as much as 5 percent. But they would be transitory.  After the shock hit, the economy would rapidly head back to normal. The equilibrium-restoring logic and magic of supply and demand would push the economy to close two-fifths of the gap to normal each year. After four years, only a seventh of the peak disturbance would remain.”

But this was wrong, thanks to Stiglitz.  Says Delong “In the aftermath of 2008, Stiglitz was indeed one of those warning that I and economists like me were wrong. Without extraordinary, sustained and aggressive policies to rebalance the economy, he said, we would never get back to what before 2008 we had thought was normal. I was wrong. He was right.”  Okay, so we Marxist economists will get no credit from Delong for picking out the current state of the global economy as a depression.  That apparently goes to mainstream economists like Stiglitz or Krugman, or Larry Summers with his ‘secular stagnation’ thesis.

At the joint AEA-URPE session, Brad Delong may not have commented directly on my paper but he did criticise the Marxist analysis based on profitability as being the mirror image of the right-wing, pro-banking sector wing of the mainstream.  Delong said that former US treasury secretary Timothy Geithner during the Great Recession held to the view that economic policy must be devoted to restoring the ‘confidence fairy’ for big business and finance, thus opposing bank regulation or government interference in any way.  The Marxists were the same because they argued that nothing could be done to turn an economy around unless the profitability of big capital rose.  In a way, both were ‘waiting for Godot’ – my phrase not Delong’s.

That’s wrong, said Delong.  Something can be done.  We can’t wait for the economy to recover under its own steam as the likes of Stanford monetarist John Taylor or Martin Feldstein argued in a mainstream economic debate at ASSA – or apparently Marxist economists.  We can solve it with economic policies now.

You see the problem is not profitability.  As the great Joe Stiglitz said at the mainstream ASSA debate, the problem is the lack of demand bred by rising inequality of incomes and wealth, and/or secular stagnation caused by excessive savings. Delong again: “The problems we face now, Stiglitz points out, include “a deficiency of aggregate demand, brought on by a combination of growing inequality and a mindless wave of fiscal austerity.” He says the only cure is an increase in aggregate demand, far-reaching redistribution of income and deep reform of our financial system. The obstacles to this cure, he writes, “are not rooted in economics, but in politics and ideology.”

You see, we Marxists are wrong because there are policy actions that can put things right and yet we do not advocate them.  Delong’s position sums up the view of the Keynesian ‘left’.  The crisis in capitalism can be solved within capitalism in the usual ‘social democratic’ way through increased public spending and progressive taxation on inequality.  In his article, Delong calls for “debt relief to unwind the overhang and 2) much tighter financial regulation to prevent the growth of new fragilities. And if those prove inconsistent with full recovery, then we need massive government spending on infrastructure and other investments financed by money printing until full employment is reattained.”

Those who read my blog regularly will know that I have attempted to show that the causes of the Great Recession and the ensuing Long Depression (first noticed by Joe Stiglitz according to Delong) were not a ‘lack of demand’ or rising inequality.  (Does inequality causes crises). These are symptoms or descriptions of the crisis not the causes.  The causes lie with the profitability of capital remaining so low and debt being so high, even after the Great Recession.  Bank regulation, quantitative easing, fiscal stimulus in some countries and other measures have failed to get major economies back to pre-crisis trend growth.

Marxists are not opposed to bank regulation (but public ownership would be better); we are not opposed to progressive taxation and/or closing the tax gap (avoidance and evasion), or government spending on education, infrastructure or health.  Such measures can only help labour at capital’s expense.  But that is the point.  Such measures will severely undermine the profitability of capital.  So they are opposed by the ruling strategists of capital.  ‘Social democratic’ reforms were conceded (reluctantly) to labour pressure in the ‘Golden Age’ of the 1950s and 1960s when the profitability of capital was high.  But after profitability fell to lows by the early 1980s, the ‘neo-liberal’ counter-revolution of lower corporate taxes and taxes on the rich, bank deregulation, trade union restrictions and privatisation became the norm.  This was no accident.  It was done to drive up profitability with some success.

It is an illusion on the part of Delong and Stiglitz that capitalism is prepared to return to that era to save itself with ‘extra demand’.  The ‘second coming’ of social democracy (to use Delong’s phrase) is not on the agenda.  And anyway it would not work, in my view.  Meanwhile the global economy stumbles on in its Long Depression, as discovered by Joseph Stiglitz and as revealed by the shocking start to the year for stock markets and economies globally.

Predictions for 2016

January 5, 2016

As I write, global stock markets kicked off 2016 by plunging, so much so in the case of China that stock market exchange was closed to stop selling.  The fall was prompted by all-round disappointing surveys of business activity in China, India, the US and parts of Europe.

US Markit

Indeed, by the end of 2015, most stock markets had their worst yearly results since the Great Recession in 2009  Clearly, rich investors and financial institutions are getting worried that the global economy, far from picking up pace, is slowing even further.

It has now been eight years of what I have called a Long Depression since the Great Recession started in January 2008. (See my paper presented to ASSA 2016 this week: Recessions,depressions and recoveries 071215).

Each year, mainstream economists and international institutions like the IMF and OECD forecast a pick-up in real GDP growth, employment and real incomes, and each time they have been proved wrong.  This has been weakest post-war recovery of all.

coming upshort

But even on a per capita basis, US real GDP has grown only 9% vs. 18.8% for the average recovery. That is the lowest of any post-1960 recovery. Official unemployment of just over 5% today is low.  But that’s because 94 million people in America over the age of 16 aren’t in the labour force.  If job growth had been the same as in the average recovery, we would have 5.9 million more Americans working.

end to growth

Mainstream economists, as they had done every year since 2009, whether from the IMF and or the OECD or Wall Street bank economists, forecast faster growth in 2015 over 2014.  It did not happen – on the contrary.  Global economic growth was at its lowest since the end of the Great Recession as China slowed to less than 7% real GDP growth and the commodity resource economies of Brazil, Russia and even Canada went into recession, while Japan hobbled along at an even worse state than in 2014, while Europe’s modest recovery was very modest indeed.  Only the UK and the US of the top seven major advanced economies achieved growth rates above 2% but in both cases showed signs of slipping back towards to the end of last year.  Global trade was weak and industrial production slowed to lowest rate since 2009.

But hope dies hard.  On announcing a hike in its policy interest rate for the first time in nearly ten years, Janet Yellen, the head of the US Federal Reserve Bank, reckoned that the US economy was “on the path of sustainable improvement.”

Others are not so sure. In its end-year survey, the investment bank Goldman Sachs, with all those richly paid economists, admitted that they had got it wrong about the US economy: “this year’s growth disappointment is the thirteenth so far in the sixteen years since 2000. The cumulative impact of these forecast misses has been a 3.3pp downside miss on the level of real GDP since 2011 and a 14.9pp downside miss since 2000.”  Now Goldman’s have become more pessimistic about 2016.  “Both our own long-run potential growth estimate and the FOMC’s (the US Fed) are below consensus at 1.75% and 2%, respectively, and we suspect consensus estimates could fall further if growth continues to disappoint.”

According to Gavyn Davies, former Goldman Sachs chief economist and now blogger at the FT, the level of global output in 2016 will remain below trend in both the developed and emerging worlds.

gavyn davies

Of course, it ain’t easy to forecast what will happen, whether in life, weather or economies, but that does not mean we should not try.  Checking whether predictions come right is one gauge of the validity of a theory or law, as physics has always done.  The better the theory, the better it fits the facts and the better the prediction of what will happen. It’s just that mainstream theories of how the capitalist economy works are so faulty that their forecasts are nearly always wrong.

So how has the Marxist explanation held up on forecasts?  Well, this time last year, I said that “the global economy remains in a crawl and will do so in 2015”. Why did I say that?  I won’t go over the arguments because last year’s post contains them all and little has changed.

As for 2016, I expect much the same as 2015, but with a much higher risk of new global recession appearing.  After all, economic recession or slumps seem to come around in the major economies every 8-10 years and the last one began in 2008.  We have been in this Long Depression because there has been no surge in business investment to drive incomes, employment and output up.  And that’s because profitability of capital globally remains below the levels of the late 1990s and has now peaked since the Great Recession and is falling back.

As a result, capex (business investment) remains stagnant with the likelihood of a fall back this year.

capex

The risk of a new recession is rising.  First, emerging economies, with several large ones already in recession, face higher debt costs as the US Federal Reserve implements its programme to raise interest rates.

em credit

JPMorgan economists that emerging economies will be deleveraging excessive debt and that could reduce GDP growth in the emerging world by 2 to 3 percentage points over the next three years, or even more if there are severe crises of financial confidence. This would be enough to slow global GDP growth by 1 to 1.5 percentage points. At the lowest end of that range, a global recession would become likely.

As a result, JP Morgan’s economists reckon that the risk of a US recession over a two- to three-year horizon has “increased materially”. Indeed, they think there is a three-in-four chance that there will be a recession in the next three years, although they rule it out for this year.  But even without a new slump, global growth will be no more than 2.6%.

The US Federal Reserve Bank (Atlanta) reckons that the probability of a new recession is not far short of where it was in late 2007, just before the Great Recession arrived.

recession prob

Even if a new global slump is avoided this year, that could be the last year that it is.

Top ten posts of 2015: Market turmoil, Greece,Mason, Varoufakis and Marxist crisis theory

December 31, 2015

Here is my usual resume of the top ten most read posts on my blog in 2015.

Topping the list was my post in August, Market turmoil, which picked up on the plunge in global stock markets.  It seems that blog followers were keen to note that, as I said in that post, the “big truth” about the global ‘economic recovery’, such as it is since 2009, is that it had been mainly based, not on investment in productive sectors to raise productivity and employment, but in fictitious capital, (buying back shares, buying government and corporate bonds and property).  Cheap and unending money from central banks through their quantitative easing (QE) programmes has restored the banking system, but not the productive part of capitalist economies.  Debt has not been reduced overall but extended in the corporate sectors of the major economies.  There is still a huge layer of fictitious capital, as Marx called it.  It appears that global investors are beginning to realise that the ‘recovery’ is fictitious and is based only on yet another credit-fuelled mirage. Markets continued to be weak through to the end of the year.

Also in the top ten was a post made slightly earlier in August about the demise of the so-called emerging economies.  In The emerging market crisis returns, I made the point that for the first time since the emerging market crisis of 1998, the so-called BRICS economies (Brazil, Russia, India, China and South Africa) were in trouble, as well as the next range of ‘developing’ economies like Indonesia, Thailand, Turkey, Argentina, Venezuela etc.

Previously rising commodity prices in oil, base metals and food had led to fast growth in many of these economies.  But now the commodity boom had collapsed.  Commodity prices have fallen by 40% since 2011.  This was another indicator of the long depression and deflationary pressures in the world economy.  Alongside rising debt was falling profitability and weak consumer demand in emerging markets outside China.

But the most popular posts were those on the huge economic and political crisis in Greece, which dominated the thinking of many in the first half of 2015.  The leading Greek post was my critique of Greece’s economic star, Yanis Varoufakis, an erudite heterodox economist with Marxist leanings who briefly became finance minister in Greece’s leftist Syriza government.  My post took up what I considered were inconsistencies in his Marxist economic thinking.  Varoufakis considers himself an “erratic Marxist”. I argued that he was more the former than the latter.

Several other posts on Greece made the top ten in 2015.  First, there was the post I wrote before Syriza won the Greek general election last January, called, Syriza, the economists and the impossible triangle.  It was a review of the ideas of the now current Syriza finance minister, Euclid Tsakalotos who took over from Varoufakis.  I argued that the key issue was reducing the huge public debt that Greece had incurred from previous bailouts.  Tsakalotos’ position appeared to be that a compromise would be reached with the EU leaders to reduce that.

But as I write today, nearly 12 months later, such a compromise has not occurred.  On the contrary, Greek debt is still rising and growth has not been restored, while the Syriza government imposes further measures of austerity to meet the demands of the Troika.  In the post, I posed what some have called the impossible triangle: namely could Syriza 1) stay in power, 2) reverse austerity and 3) stay in the euro?  Surely, one or more of these aims would have to go?  It was the second.  I predicted that Syriza would split under the pressure but that Greece would still be in the Eurozone by January 2016.

Readers of my blog also followed two further posts on Greece.  In March, I posted Greece: Keynes or Marx?, in which I took a look at the position being taken by Costas Lapavitsas, a leading member of the Left Platform in Syriza and a Marxist economist from SOAS in London University, then a newly-elected Greek MP.  Lapavitsas had strong criticisms of Varoufakis and PM Tsipras.  But I took him to task for leaning on Keynesian rather than Marxist policies for the way out for Greece. I also criticised his Keynesian-style solution that leaving the Eurozone and devaluing must be done first before socialist measures could be considered.  Read this post again to see what you think and whether you agree with Lapavitsas or me.

Then there was my post in July after the Greek people, against all the odds, had voted 60% to reject the Troika bailout and austerity in a referendum.  The post posed the question: what now?  I said there were three possible economic policy solutions. There was the neoliberal solution demanded by the Troika.  This is to keep cutting back the public sector and its costs, to keep labour incomes down and to make pensioners and others pay more. This was aimed at raising the profitability of Greek capital and with extra foreign investment, restore the economy.

There was the Keynesian one, boosting public spending to increase demand, introducing a cancellation of part of the government debt and leaving the euro to introduce a new currency (drachma) that is devalued by as much as is necessary to make Greek industry competitive in world markets.  I argued that this would not work.

The third option was a socialist one that recognises that Greek capitalism cannot recover to restore living standards for the majority, whether inside the euro in a Troika programme or outside with its own currency and no Eurozone support. The socialist solution was to replace Greek capitalism with a planned economy where the Greek banks and major companies are publicly owned and controlled and the drive for profit is replaced with the drive for efficiency, investment and growth.

Although posts on Greece were prominent in the top ten, the most popular were theoretical ones around the issues of the theory of crises under capitalism and its long-term future, expressing the interest in these issues among many blog followers.  The most popular of all posts after stock market turmoil and Yanis Varoufakis was the one on Paul Mason’s new book, Post-capitalism.

Mason argued that capitalism is set to be replaced by ‘postcapitalism’ for three reasons. First, there is an information revolution which is creating a society of abundance in information, making a virtually costless and labour-saving economy. Second, this information revolution cannot be captured by the capitalist market and the big monopolies. And third, already the ‘post-capitalist’ mode of production, based on free ownership and cooperation in information, is emerging from within capitalism, just as capitalism emerged from within feudalism.

In my post. I commended Mason’s optimistic vision for a post-capitalist world but reckoned Mason ignored the two sides of technical advance under capitalism.  Yes, one side suggests the potential for a super abundant, low labour time world.  But the other suggests inequality, class struggle and regular and recurrent crises.  Postcapitalism’ cannot emerge without resolving this contradictions generated by capitalism.  Mason’s book and the seeming rise of robots and artificial intelligence continue to provoke debate among Marxists. And in August and September, I did three posts on the rise of robots.

Another key debate among Marxist economists, namely the nature and causes of crises in capitalism, led to a post in June in the top ten. Entitled There is a long term decline in the rate of profit and I am not joking!, it took up the issues of debate among Marxist economists at a special Capitalism Workshop in London last May which included several Marxist economic luminaries.  Marx’s law of profitability came in for a hammering for its relevance to crises, both theoretically and empirically.  The papers presented at that Workshop will be published as a series of chapters in a special edition of Science and Society in 2016.

As a follow-up to that debate and to the one that I had with Professor Heinrich in Berlin in the same month, I recently posted a short essay called A Marxist theory of economic crises in capitalism that presented my arguments for relying Marx’s law of the tendency of the rate of profit to fall as the basis for explaining recurrent and regular slumps under capitalism.  That got into the top ten.

Finally, the theme of rising inequality of wealth and incomes in the major capitalist economies remains a subject of keen interest among blog readers, and for the third year running, the post on the latest measure of global wealth inequality as provided by Credit Suisse’ annual report made the top ten.  Yes, the top 1% of wealth holders in the world own nearly 50% of all the wealth (properties, land, companies, shares and cash) globally.  Such is the result of 250 years of capitalist ‘progress’: no real change in overall inequality seen in previous class societies.

Finally, let me thank all my (now thousands) of blog followers for their interest in the blog this year and also to those who have made comments on my posts (sometimes favourably, but often critically).  During 2015, I had over 400,000 viewings of posts on the blog and over 185,000 different visits to the blog.

The blog aims to provide information on the world economy, discuss and develop economic theory and research from a Marxist point of view and comment on economic policy with the aim of replacing capitalism with a new stage of human social organisation, socialism.  The task continues.

Also remember, you can follow my Facebook site here, where I cover day-to-day items of interest.

https://www.facebook.com/Michael-Roberts-blog-925340197491022/

You can get my Essays on Inequality here.

Createspace https://www.createspace.com/5078983

or Kindle version for US:
http://www.amazon.com/dp/B00RES373S
and UK
http://www.amazon.co.uk/s/?field-
keywords=
Essays%20on%20inequality%20%28Essays%20on%20modern%
20economies%20Book%201%29&node
=341677031
.

And hopefully, in the early part of 2016, my new book, The Long Depression, will be out for you all to consider, criticise and review.

http://www.haymarketbooks.org/pb/The-Long-Depression

Best for the New Year.


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