Profit warning

March 27, 2015

The final estimate of US GDP in the fourth quarter of 2014 came out today. US real GDP growth was left unrevised at 2.2% year-on-year in the final three months of the year and the figure for the whole of 2014 was unrevised at 2.4%. Mainstream economists were keen to suggest that the current quarter in 2015 ending this week could show a pick-up.

But none mentioned the really important development – that corporate profits fell in the fourth quarter, increasing the risk of a new slump in investment in 2015-16. Profits fell $30.4 billion in the fourth quarter, in contrast to an increase of $64.5 billion in the third. This seems mainly due to a fall in profits from overseas as the dollar’s strength drove income gathered in other currencies down. This meant that corporate profits are lower by 0.2% from this time last year and are down 0.8% in 2014 compared to 2013.

In previous posts, I have argued that profits drive investment; and investment leads real GDP growth in capitalist economies – the opposite, by the way, of the causal sequence claimed by the Keynesians, who see it as consumer spending and investment leading to income and thus to profits (see my many posts on this issue,
and the excellent paper by Tapia Granados

In 2014, there were clear signs that US corporate profit growth was slowing, see my post…/us-gdp-up-but-pro…/.
I argued that, when corporate profits slow, some six months to year later, so will business investment. Well in Q4 2014, profits went negative for the first time since the beginning of the Great Recession in January 2008. The time before that was at the beginning of the mild recession of 2001. Now as the graph below shows, that would suggest a new investment slump before the year is out.

US corporate profit and investment

And it is not just US corporate profits. I have been tracking corporate profits in some of the major capitalist economies, namely, the US, UK, Japan, China and Germany. Combined corporate profits growth has been slowing sharply, from 11% yoy this time last year to just 3.2% at the end of 2014. Indeed, corporate profits growth has been very weak since the end of the Great Recession compared to before and now appears to be running out of steam.

Global corporate profits

This was mirrored by the figures for China’s industrial profits, also out today for the first two months of this year. Profits fell 4.2% from the same period in 2014, the biggest drop since early 2012.

The latest updated figures for the US mean that I can also make a pretty good stab at the movement in the US rate of profit right up to 2014. I have updated the estimate using the same sources, categories and methods adopted in my paper for a ‘whole economy’ rate of profit (see my paper, The profit cycle and economic recession).

For those of you who like to know how I get my results in detail (and there are many of you!), suffice it to say, that I have used the US Bureau of Economic Analysis NIPA accounts. I get the US net domestic income (GDP less capital consumption) and employee compensation from NIPA Table 1.10 and capital stock from the NIPA fixed asset tables 6.1 (for current cost measures) and 6.3 (for historic cost measures). Also, in my rate of profit measure, I include variable capital (employee compensation) in the denominator – something nearly all other analysts do not do. I won’t explain why I differ from others on this now (there is unpublished paper on this by myself and G Carchedi); again suffice it to say that if the rate of profit is measured with just fixed assets as the denominator, it does not make a decisive difference.

US rate of profit 2014

My results show that the US rate of profit fell in 2014, whether measured on a current cost or historic cost basis for fixed assets and depreciation, for the first time since the start of the Great Depression.

In the graph, the data confirm yet again what I and many other Marxist economists have argued (contrary to Thomas Piketty, among others) that the US rate of profit has been in secular decline since the end of the second world war. There was a ‘golden age’ from 1946 to 1965, when profitability held up (at least on the current cost measure) but then there was a period of sharply falling profitability (the crisis period) from 1965 to 1980-2. From 1982 to 1997 there was a significant revival in profitability (on a current cost basis) and a small pick-up, or end to the decline (on a historic cost basis) – the neo-liberal period, if you like. From 1997, US rate of profit entered a downward phase. Since the end of the Great Recession, profitability revived from lows in 2009 but is still below the level reached in 1997. And it fell in 2014.

From the data, we can see in more detail how profitability has changed. Between 1946 and 2014, US profitability in the capitalist sector fell 21% on a current cost basis and 29% on an historic cost basis. Most of the fall in the HC profit rate took place between 1946 and 1965, whereas on a current cost basis it dropped hugely between 1965 and 1982. There was a revival between 1982 and 1997, the neoliberal era, greater on a current cost basis. Since 1997, profitability has declined.

changes in us rate of profit

As I have explained before, the closest measure to the Marxian rate of profit requires the use of historic cost measures for fixed assets and depreciation. There is an exaggerated fall and rise in the current cost measure compared to the historic cost measure, due to the current cost inflation of fixed asset prices and depreciation. But the long-term story is the same (see Basu on RC versus HC for the argument that, over a long time, the current costs and historic measures can converge.)

Marx’s law of the tendency of the rate of profit to fall is just that. The rate of profit in a capitalist economy will tend to fall over time and will do just that. BUT there are periods when counteracting factors come into play, so the tendency to fall does not materialise in an actual fall for a period of time. Thus you can get a profit cycle of falling profitability followed by a period of rising profitability and then a new fall, all within a secular process of decline. The US rate of profit in the post-war period exhibits just that with a 32-36 year cycle from trough to trough (for more on this, see my book, The Great Recession).

Marx’s law says that the rate of profit will fall because there will be a rising organic composition of capital (the value of constant capital – machinery, plant and raw materials – will rise faster than variable capital – wages and benefits paid to the employed workforce). The US data confirm that. There is strong inverse correlation (-0.67) between the organic composition of capital and the rate of profit. The organic composition of capital rose 20% from 1946 to 2014 and the rate of profit fell 20%. In the period when profitability rose, from 1982 to 1997, counteracting factors came into play, in particular, a rising rate of exploitation (surplus value) and a cheapening of the value of constant capital that led to a fall in the organic composition. In that period, the rate of surplus value rose 13% and the organic composition of capital fell 16%. I calculate that the rise in the rate of profit from 1980 to 2014 was two-thirds due to a rise in exploitation of labour during the neo-liberal period and only one-third due to cheaper technology. Again this supports Marx’s law.

So in sum, the US rate of profit fell in 2014 for the first time since 2008 and the mass of corporate profits fell in 2014 and went negative in the last quarter. Global corporate profit growth is also slowing significantly. All this suggests that the days (years?) of the economic recovery, such as it is, may be coming to an end. The current economic cycle of boom and slump seems to be about 8-9 years. The trough of the last slump was mid-2009. That would suggest that the next trough would be about 2017-2018. And the peak before the slump is usually 12-18 months before – so about 2016-17.

Piketty update: graduate takes on a super star and comes up with a comforting conclusion

March 23, 2015

The work of Thomas Piketty is back in the spotlight among mainstream economists (see my post,

After Piketty’s book, Capital in the 21st century, won the business book Oscars as a best seller in America last year, discussion of the book quietened after the American Economics Association’s annual jamboree came to an end in January (see my post,

But debate has been revived by the work of 26-year graduate student, Matthew Rognlie. Rognlie’s recent work on the Marginal Revolution blog run by neoclassical economist, Tyler Cowen, from George Mason University (, has revived discussion of Piketty, prompting the man himself to reply.

Contrary to Piketty’s view that the inequality of wealth in the major capitalist economies was set to rise over this century unless action was taken, Rognlie disputes this. Rognlie wrote in his blog post that the French economist’s argument “misses a subtle but absolutely crucial point.” Piketty, he said, might have got the pattern in reverse. Instead of the returns to capital increasing in perpetuity, Rognlie said, they might be poised to decline.

So popular and startling was this post that Rognlie became an instant success and was promoted as a panelist at the esteemed Brookings Institution in Washington, where he presented a paper last weekend before many legendary mainstream economists, including Nobel Prize winner, Robert Solow. It’s the first time a mere graduate student has presented a sole-authored paper since 1979 (see and

So what are the great revelations of this economics prodigy? Well, Piketty argues that inequality of wealth has risen in the last 30 years because the returns to capital were increasing or at least rising faster than national income.  However, Rognlie found the trend to be almost entirely isolated to the housing sector. Yes, some investments with a high level of intellectual property, like computer software, had become extremely valuable in the hands of the wealthy. But some of those assets were unlikely to remain valuable for very long, like a software program that needs to be replaced in a few years with a new version. When adjusting for that depreciation, most of the rest of the increase in capital came in housing, a single sector that, while important, might not shape the entire future of inequality as Piketty assumed.

The second finding was that Piketty overestimates how high the returns to capital would be in the future. For his fears to come true, wealthy people who amass more and more capital would need to keep earning a high return on that capital. But Rognlie’s research suggests that the returns to capital will decline over. “Piketty’s story has multiple steps to it. I’m sort of showing that one of the steps does the reverse of what he says it does,” Rognlie said in an interview. Those findings, he added, suggest “there doesn’t seem to be a big need for panic” over Piketty’s predictions.  In other words, forget worsening inequality – it ain’t going to happen. This conclusion is music to the ears of mainstream economics, especially its neoclassical wing.

Piketty has responded to Rognlie’s criticism. Piketty said “there is some misunderstanding” about his book and Rognlie’s critique of it. He said he never predicted inequality would “rise forever” — only that it could reach “higher levels than what we have today, and that this is sufficiently important to be concerned.”

He also said Rognlie could be underestimating the ease of substitutions, because technology is making it easier for companies to switch from workers to machines. (As an example, he cited drones potentially replacing delivery workers at Amazon.) This reduces the demand for labour and increases the income from capital, Piketty would argue.

What can we make of this? Well, the first thing to say is that Rognlie’s point that the most of the rise in inequality of wealth in the last 30 years can be explained by the property boom is not new at all. When Piketty’s book first came out in France in early 2014, several French economists were quick to latch onto this. In particular, there was a paper by Bonnet, Bono, Chapelle and Wasmer (wp-25-bonnet-et-al-liepp), which concentrates on Piketty’s data. The paper points out that valuing housing by movements in property prices rather than in rental equivalents exaggerates the rise in capital share of national income significantly. As I commented in a post at the time, valuing ‘housing services’ as Piketty does, in some synthetic concoction does not work at all (

And several heterodox economists (see James Galbraith) showed that Piketty’s conflation of wealth with capital (in Marx’s sense) meant that the rate of return on ‘capital’ could rise even though there could be a fall in the rate of profit on productive capital. All these points were made by French Marxist economist, Michel Husson and in more detail by Esteban Maito and myself in recent papers (see  But of course, heterodox economics, let alone Marxist economics, get knows no airing or voice among mainstream economics. Instead, we have to wait for a graduate student at MIT to point these things out to Piketty and his supporters.

What Rognlie shows is that the share of capital income has increased since 1948, but when disaggregated this increase comes entirely from the housing sector: the contribution to net capital income from all other sectors has been zero or slightly negative, as the fall and rise have offset each other.

Capital income

A rising capital-to-GDP ratio is most likely to result in a fall in capital’s share of income, since the net rate of return on capital will fall by an even larger proportion than the capital-to-GDP ratio rises. In other words, or in Marxist ones, the rate of profit on capital excluding property, or more exactly residential housing, has been falling not rising. Rognlie comments on his data for the corporate rate of return: “The most striking feature of these plots is the general downward trend in r(t): according to this procedure, the required return on capital for the US corporate sector has fallen over the postwar era.”  So mainstream economist prodigy Rognlie confirms what we Marxist economists have been arguing for over a decade or more.

The other main criticism by Rognlie of Piketty is his use of gross capital shares and not net of depreciation. Again, this is not a new criticism but has been aired many other economists over the last year. You see, when we deduct the depreciation in the stock of capital over the last 30 years, because of the hi-tech nature of much modern equipment, it becomes obsolete and unprofitable very quickly. So the net stock of capital does not rise that much. This is another way of saying, as Marxist economics does, that the ‘moral depreciation’ of capital has been high, keeping profitability down. As a result, capitalists turned to speculative investment in financial products and property. So much of the apparent rise in income going to capital is fictitious or unproductive. Sure, that boosts the wealth of the rich, but it does not raise the ‘productivity of capital’, namely the rate of return on productive capital; on the contrary.

This is appealing even to Keynesian economists like Brad de Long, who was also a ‘discussant’ of Rognlie’s work and was lavish in his praise. “It is truly excellent that Matt Rognlie brings well-ordered and insightfully-organized data to these questions.” For de Long, Rognlie has shown that Piketty’s explanation for the variation in the post-war capital share of income does not hold up. “Let me end by strongly endorsing what I take to be Matt Rognlie’s bottom line. I take it to be that post-WWII variation in the observed net capital share is not explainable via returns on the underlying assets. Instead, the decomposition attributes most of the variation to pure profits, or markups (i.e. monopoly rent extraction by the financial sector and property owners – MR comment).

De Long goes on: “Accumulation and returns play, outside of housing, a distinctly secondary role, if they play any role at all. But it is equally hard to find any role for the race between education and technology, and there should be if we think the factors of production are labour, education skills, and machines. Likewise, variation in income inequality is hard to attribute to wealth ownership or to human capital investment or to differential shifts in rewards to factors like raw labour, experience-skills, education-skills, and machines. Matt thus concludes that: concern about inequality should be shifted away from the split between capital and labour, and toward other aspects of distribution, such as the within-labor distribution of income.”

Yes, behind the Rognlie critique and what appeals to mainstream economists are the conclusions that 1) inequality of wealth will not continue to rise and 2) that the inequality currently evident is not due the capital accumulation or the ownership of property but more to do with inequality of income within the labour force. You see, if the share going to ‘capital’ has not really risen, then the problem must be one of too highly paid footballers and graduate professionals and too lowly paid shopworkers. So it’s not the fault of the capitalist mode of production as such but the distribution of the incomes going the labour.

As David Ruccio has pointed out (, Rognlie attempts to define away the problem of the class nature of the struggle between capital and labour. By reducing corporate profits by the amount of depreciation of capital, it appears that capital is not really extracting any value from labour.

But that is putting the cart before horse. The first process in the capitalist mode of production is the extraction of surplus value from labour. The second process is the investment of that surplus value in the stock of fixed assets to compete and raise or maintain profitability. As Marx explained, this is where an important contradiction arises; between a rising rate of surplus value and a falling rate of profit. Both Piketty and Rognlie ignore or deny this contradiction. For Piketty, there is a rising share of income going to capital (a rising rate of surplus value) and so no falling rate of profit. For Rognlie, there is no rising rate of surplus value, so there is a falling rate of profit). Both are wrong.

Actually, whether net of depreciation or not, the share of income going to capital (the rate of surplus value if you like) in the G7 economies has been rising, if you include housing. On a net basis it has risen since the mid-1970s, even if the share is not much higher than in the mid-1960s. And yet the rate of profit on productive capital has fallen in G7 economies since 1950 (see the joint paper Carchedi and Roberts The long roots of the present crisis and see Maito, Maito__Esteban_Ezequiel_-_Piketty_against_Piketty_(on_evaluation_on_Review_of_Political_Economy)-libre).

capital share

So the Rognlie papers have not really brought up anything new in the debate about Piketty’s work and his conclusions. There is no dispute that the inequality of wealth and income in the main capitalist economies had risen to 19th century heights by the end of the 20th century. Rognlie merely follows previous work by heterodox and Marxist economists to show that this is mainly due to the explosion in the value of housing in the last 30 years. So Piketty’s ‘fundamental laws of capitalism’ that Piketty contrasts to that of Marx, namely that the rate of return on capital is and will be higher than the growth of income; and that savings rates will rise to benefit the owners of ‘wealth’, are not correct explanations of rising inequality (see my review of Piketty and the search for r, upcoming in Historical Materialism and my Essays on Inequality).

Essays on inequality (Essays on modern economies Book 1)

Essays on inequality (Essays on modern economies Book 1)

Buy from Amazon

What Rognlie adds for the benefit of mainstream economics is the conclusion that this means that inequality of wealth and income could fall from hereon if the bubble in housing and financial products does not resurface and that the real cause of inequality is within workers’ incomes and not between capital and labour. It is a comforting and well-lauded conclusion for the ruling consensus.

Keynesian economics – a spectacular success

March 20, 2015

Recently, Paul Krugman, Nobel prize winner, doyen of Keynesian economics and the world’s leading economic blogger, attacked yet again the monetarist-Austerian wing of mainstream economics for claiming the Keynesian macroeconomics theory had been proved wrong.  On the contrary, according to Krugman, Keynesian theory and its policy prescriptions had been triumphantly right,

“When I tell people that macroeconomic analysis has been triumphantly successful in recent years, I tend to get strange looks. …I stand by my claim, however. The basic macroeconomic framework that we all should have turned to, the framework that is still there in most textbooks, performed spectacularly well: it made strong predictions that people who didn’t know that framework found completely implausible, and those predictions were vindicated.”

What does Krugman mean by this framework?  Well, he says, it is the version of Keynes’ monetary theory developed by John Hicks back in 1937.  According to Krugman, Hicks’s book Value and Capital  “was a seminal work on the economics of general equilibrium – that is, getting past one-market-at-a-time supply and demand to the interactions among markets. Hicks didn’t invent general equilibrium, of course, but he sought to turn it into a useful tool of analysis.”  Hicks realized that a minimal model of macro issues involves three markets: the markets for goods, bonds, and money (or, better, monetary base) and as Krugman puts it, “What we already have here is an understanding that there isn’t that kind of clean separation, that money can affect interest rates and spending affect output.”

The monetarist theory (as best expressed by Milton Friedman’s quantity theory of money) is that, if changes in the money supply exceed real output growth, inflation will follow as ‘too much money chases too few goods’.  Well, the revelation from the Hick-Keynes model is that when interest rates get close to zero, “the rules change… Even huge increases in the monetary base won’t be inflationary. Large budget deficits won’t raise rates. However, changes in spending, positive or negative – e.g., harsh austerity — will have an unusually large effect on output, because they can’t be offset by changes in interest rates.”

And so, according to Krugman, it has proved.  In this current depression, interest rates are near zero and there has been a huge increase in credit injected by central banks but there is no inflation, indeed even deflation and government bond yields are at all-time lows.  “All of this was predicted in advance by those of us who understood and appreciated Hicksian analysis. And so it turned out. I call this a huge success story – one of the best examples in the history of economics of getting things right in an unprecedented environment.”  Thus the Hicks-Keynes money and income model remains secure in every macroeconomic textbook.

There are a few things to say here on this great success of macroeconomics, Hicks-Keynes style.  The first is that, contrary to Krugman’s history, the idea that in a capitalist monetary economy, money, in particular the hoarding of money in a depression, can play a significant role in explaining a slump, did not first come from Hicks.  As Fred Moseley has pointed out,,
“Keynes was given the credit of having demolished the theories of 19th century economists who had taught that, if left to its own devices, capitalism would always and of its own accord tend towards full employment. What was little noticed was that most of the ground covered by him had been treated in detail by Marx three-quarters of a century earlier.  While Marx dealt with this reluctance to spend to expand production, under the heading of “hoarding” ; Keynes coined the term “liquidity preference”, meaning that the capitalist prefers in that situation to keep his money in cash.”

Here is what Marx said in Volume one of Capital, “Whenever these hoards are strikingly above their average level, it is, with some exceptions, an indication of stagnation in the circulation of commodities, of an interruption in the even flow of their metamorphoses. Whenever there is a general and extensive disturbance of this mechanism, no matter what its cause, money becomes suddenly and immediately transformed, from its merely ideal shape of money of account, into hard cash. Profane commodities can no longer replace it. The use-value of commodities becomes valueless, and their value vanishes in the presence of its own independent form. On the eve of the crisis, the bourgeois, with the self-sufficiency that springs from intoxicating prosperity, declares money to be a vain imagination. Commodities alone are money. But now the cry is everywhere: money alone is a commodity! As the hart pants after fresh water, so pants his soul after money, the only wealth. “

To me, there are two big differences between Marx’s view of money’s role in crises and Keynes-Hicks.  First, in the latter’s model of liquidity preference (the desire to hold cash rather than spend it), an economy enters a ‘liquidity trap’ in the form of a new equilibrium of supply and demand (investment and saving) at less than ‘full employment’.  It is an underemployment equilibrium, which in some interpretations (New Classical) of Hicks-Keynes is due to ‘sticky wages’ i.e. workers keep wages up so that they price themselves out of jobs.  The Hick-Keynes model still assumes all the fallacies of neoclassical economics that the capitalist economy, if left to its own devices, will find an ‘equilibrium’.

In contrast, as Moseley puts it, in Marx’s conception capital is nothing other than value in motion, and capitalism only exists in and through constant movement to accumulate, any stock of money is nothing other than a hoard waiting to be thrown into circulation at a convenient time, i.e. as capital; and equally, any expenditure of money as capital is nothing else but a dishoarding of money, whether in cash or in credit, for the purpose of accumulation. As a result, money’s potential role as capital makes it contradictory in nature: it is always “held in order to be spent, and spent in order to be held by another”. Since there exists uncertainty about future investment and future circumstances in the market, the hoarding-dishoarding role of money necessarily implies the possibility of disequilibrium; it is subject to changes in the expectations about future investment.”  There is no equilibrium, except by accident.

The other difference is even more significant.  For Keynes-Hicks-Krugman, there is no explanation of why a capitalist economy gets into a ‘liquidity trap’ in the first place.  It just does; it does so because a change in ‘animal spirits’ or business ‘confidence’ about the future.  See my posts on Krugman’s explanations of crisis here, and  

In contrast, Marx stressed that the credit crunch is actually a symptom of problems in the underlying productive economy. “What appears as a crisis on the money-market is in reality an expression of abnormal conditions in the very process of production and reproduction.”

The monetarists may have got the causality backwards. They think that lower rates are what’s messing up the economy, rather than reflecting the fact that it’s already messed up.  But the Keynesians are little better when they say an economic slump is the result of a liquidity trap.  They have no causal explanation for this.  As such, they are merely describing a slump in monetary terms (hoarding of money and avoiding spending even at zero borrowing rates), not explaining it.  And if you cannot explain something, you cannot expect to find the right solutions to changing it.  Krugman may argue that the Keynes-Hicks model has been vindicated because increasing the money supply has not led to inflation as the monetarists expected.  But then neither has central bank quantitative easing led to a ‘return to normal’, or a new equilibrium of growth and ‘full employment’.  All it has done is fuel yet another credit bubble in the stock and bond markets for the rich.

Sure, Krugman would retort that this is why governments must adopt the second weapon in the Keynesian armoury, government spending.  End austerity and spend.  I have argued in previous posts why even Keynesian-style fiscal injections won’t restore growth and employment if profitability in the capitalist sector remains low or starts falling, or if the debt burden remains high (see my posts,

The example of Japan is confirmation of that, where monetary easing, fiscal stimulus and neo-liberal structural reforms have been applied under Abenomics (see my posts, and, with miserable results.

So it’s a very small victory to claim for mainstream Keynesian macroeconomics that inflation has not returned when interest rates are low and credit expansion is high.

UK budget: Osborne blowing in the wind

March 18, 2015

So now we have had the final Conservative-Liberal annual budget before the UK general election in May.  The Chancellor (finance minister) George Osborne waxed ecstatic in parliament that under his tutelage, the UK economy was the fastest growing in the G7 and in Europe and had created more jobs than anywhere else.

He announced a few more ‘goodies’ supposedly for the poorer income earners, namely an increase in the allowance before people start paying income tax.  This would take another 200,000 people out of paying tax by April 2017, but he failed to mention that these non-income tax payers would still be paying social security contributions even when they earning no more than £11,000 ($15,000) a year.  And there were already up to 5 million workers who earn so little that this increase in allowance would gain them nothing.  Indeed, most of the cost to the government budget from the increase will go to richer families with two incomes above the allowance.

The government is now forecasting that the UK economy will grow 2.5% this year and 2.3% each year in the next parliament up to 2020.  On this assumption, the Conservative chancellor has reduced the austerity spending cuts that he previously planned over the next five years.  Even so, the government still plans to cut department services by £13bn and welfare benefits for the poorest and disabled by £12bn.  And richer savers will get a reduction in tax rate on their interest. What the government plans to do is actually increase austerity up to 2018-19, sell another £20bn of public assets (bank shares) next year and then make “the biggest increase in real spending for a decade in 2019-20” – just before the next election!

As the independent Office for Budget Responsibility (OBR) puts it in its budget report,
“the Government is on track to meet its new fiscal mandate with £16.8 billion to spare. This implies a 65 per cent probability of success given the accuracy of past forecasts. Achieving the mandate with this margin depends heavily on cuts in public spending – particularly on public services and administration – implied by the first two years of the Government’s medium-term spending policy assumption.”

But can we expect these growth targets to be reached, with 65% confidence as the OBR reckons, after the performance of the UK economy in the last five years under the coalition?  The FT newspaper spelt out what was expected back then and what happened (  The forecast was for real GDP growth of 2.7% a year up to 2015.  Instead, there was no growth at all in 2011 and 2012.  The level of GDP is still 5% lower today than the 2010 forecast.

Unemployment fell more quickly than expected as companies kept on labour but stopped any wage rises (and reduced wages and conditions in some cases), increasing employment in part-time, casual and so-called ‘zero hours’ contracts.  So private sector employment eventually went up (public sector employment has been decimated), but real GDP did not so much.  So output per worker fell and then stagnated.  Productivity growth was non-existent throughout George Osborne’s period as chancellor.

UK growth FT

Back in 2010, the government predicted that wages from work would be rising  by 5.4% a year by now.  Currently they are rising by just 1.6% a year.  So average real incomes are still way below their peak back in 2008.

UK employment FT

And what of the much vaunted objective of balancing the books for the government by the end of this parliament?  Well, poor economic growth translated into weak wage growth and then into less than expected tax revenues.  So the government had to impose even harsher spending cuts.  But it still failed to reach its target and at least four more years have been added to the period of planned cuts.

The government’s proposed spending cuts, if less than previously announced, will still eat into public services, already cut to the bone.  At the same time, proposed spending on education and the health services will be way less than needed to meet an ageing population and the costs of tertiary education and training.

Of course, part of the reason the government could not achieve the balance was that it gave huge handouts to big business.  The corporation tax rate will be reduced this year to just 20% (and most corporations do not even pay this rate out of profits because of exemptions and allowances).  Osborne boasted that this was the lowest rate among major economies.  He stated that, as it was private companies that ‘created’ jobs (apparently the public sector has no employees), any hike in corporate tax was a tax on jobs!  In contrast, through VAT and other taxes, the total tax bill for workers still rose £16bn during this parliament.

UK taxes FT 

The FT summed it up: “Five years on there are three important facts. First, weaker growth and terrible productivity mean living standards are lower than hoped. The IFS estimates that median household net incomes are nearly 2 per cent lower than they were in 2010. Second, tax and benefit changes have hit the richest and the poorest the hardest, leaving those in the middle least affected. The richest have seen taxes rise and child benefits removed, while state benefits for those on low incomes have not risen with inflation. Over the period, therefore, there has been no significant change in inequality in either income or wealth.”

UK inequality FT

Even that statement about the rich being hit hardest is not correct.  That’s because there has been a huge rise in property prices and the stock market since 2010, assets mainly held by the richer households.  Their wealth has risen sharply under this government while those without homes of their own struggle with rising private rents, disappearing cheaper ‘social housing’ and wages that cannot keep pace with the cost of living.

And at best, that’s the prospect under another Conservative government.  At worst, expect another deep recession throwing all these forecasts to the wind as they were last time.

Ukraine: a permanent winter

March 17, 2015

The IMF has announced a new bailout package for Ukraine. It will disburse up to $17.5bn over the next three years, subject to all the usual conditions for fiscal austerity and neoliberal reforms conducted by the Ukraine government – see my previous post,

The bailout package is a joke. As a former IMF economist put it, “The odds of this program surviving intact for four years, or even through the end of 2015, are not much higher than for the original 2014 program,” said Robert Kahn, a senior fellow at the Council on Foreign Relations.
One of the biggest risks is that the bailout is based on a fragile cease-fire holding between Kiev and the militants. A re-escalation would scupper the ability of the government to meet its obligations to the fund.  The fund’s approval of the program despite the “exceptional risks”, and the clear breaking of basic rules on debt sustainability, shows the package is a really political decision by the West to shore up a pro-European government in its strategic battle against Russia.

The IMF has had to revise down its growth forecast for the country again. It now assumes a 5.5% contraction this year and a rebound to growth next year at 2%. “Private forecasters predict a deeper recession, as much as a 10 percent decline this year and a further fall next year,” said Kahn. Even the IMF staff had to admit in their 173 pages of program documentation that “the uncertainty around these projections remains exceptionally high”.

Part of the package includes the expectation that private creditors (the Russians and American hedge funds) will agree to a ‘haircut’ on the $15 billion in Ukraine bonds that they hold. Again the IMF had to admit that this may turn out to be wishful thinking. “Creditors may balk at the terms being offered in the debt operation and holdouts may try to free ride,” the IMF said. The process could turn “disorderly,” a fund euphemism for default.

The IMF said debt negotiations must be completed by June with a high creditor participation rate to trigger the next tranche of emergency cash.
Of course, all this assumes that the Kiev government will operate efficiently and without corrupt practices – some hope. Most likely, if the fighting in the east restarts and debt restructuring negotiations collapse, the economy will continue into free fall and the public debt ratio will double, pushing Ukraine into total default.

Ukraine’s recently appointed Finance Minister Natalie Jaresko is a US national who adopted Ukrainian citizenship to take up her post. The 49-year-old former banker, who only got her Ukrainian citizenship the day she was appointed minister in December, reckons that the war has consumed about 20% of the economy, taking out a region rich in industry and commodities. Corruption is endemic throughout Ukraine. The IMF estimates that Ukraine’s underground—and non-tax-paying—economy is as much as 50% of GDP. The hryvnia currency has fallen 70% since last year.

Ukraine hyrvnia

Inflation is officially 28.5% but, according to Johns Hopkins professor Steve Hanke, it’s really more like 272%. FX reserves have now fallen to just one month’s worth of imports. The economy is now smaller than it was when it gained independence from the Soviet Union in 1991.

It is in this environment that the IMF is providing funds, but just like Greece, not to help the people of Ukraine, but to meet the demands of its foreign creditors (European banks, Russian banks and American hedge funds). And this ‘bailout’ is to be administered along with all the austerity measures by an American banker with brand new Ukrainian citizenship.

In the meantime, Ukrainians are literally starving. President Poroshenko ordered the opening of food warehouses. The director of the Ukrainian State Reserve Vladimir Zhukov went to the store houses and found them empty! Why, because all the reserves had been sent to the frontline to feed and water the troops in the east. And last year’s entire harvest was sold abroad, while the acreage for the new sowing season was reduced by 30%. Having learned of the empty shelves not only in the stores but also in the State Reserve, Poroshenko reportedly went into shock.

The winter weather may nearly be over – but it’s going to be a permanent winter for Ukraine’s people right through the summer.

Brazil: a dirty scum on polluted water

March 16, 2015

More than a million protesters took to the streets of Brazil on Sunday to call for the impeachment of President Dilma Rousseff, as anger intensified over increasing economic hardship and the multibillion-dollar corruption scandal at state oil company Petrobras (where money was siphoned off for the use of political parties, mainly the governing one, while Rousseff was chair of Petrobras!). “I’m tired of corruption — we’re all tired of paying high taxes and seeing no return for society,” said Cristina Araújo, a systems analyst.

Brazil’s economy, presided over by a social-democrat administration that claims to stand for the poor and for labour, is in disastrous decline. Brazil’s currency, the real, is at a 12-year low. The economy is contracting and real incomes are falling.

Brazil graph
The government’s answer has been to introduce neo-liberal reforms and fiscal austerity. Since Brazil recorded its first primary budget deficit in more than a decade last year, newly and narrowly elected Rousseff has tried to introduce tax and benefit cuts to correct the country’s public finances.  The tax cuts are to benefit the corporations and the benefit cuts hit the poor.

However, she has met tough resistance, not only among ordinary Brazilians but also from coalition parties in Congress, which has been paralysed by infighting over the Petrobras scandal. Three weeks ago, truck drivers set up roadblocks across a third of the country in protest over higher fuel taxes, among other costs, leaving supermarket shelves bare and disrupting soyabean shipments. The government was forced to give into most of their demands.

Brazilians are also outraged by poor public services and rising inflation, which hit the highest level in a decade in February even as the country heads for another technical recession this year. Many states are also struggling with water shortages and the possibility of energy rationing after the country’s worst drought in 80 years.

What’s gone wrong? Well, I can refer to my post of July 2013 with almost little amendment ( In that post, I showed that the profitability of Brazil’s dominant capitalist sector had been in secular decline, imposing continual downward pressure on investment and growth.

Brazil ROP

Between 1963 and 2008, the rate of profit fell by about 19%. This secular fall was really the product of the very large decline in the rate of profit from 1963 to the early 1980s and 1990s. Over these 20 years or so, the rate of profit fell over 30% while the organic composition rose 23% and the rate of exploitation fell 17% – a classic example of Marx’s law of profitability at work.

But from the mid-1990s, Brazil’s ruling elite adopted neo-liberal policies designed to restore the rate of profit. Between 1993 and 2004, the rate of profit rose 35%. The organic composition of capital rose 20% as foreign investment flooded into industry (autos, chemicals and petroleum), but the rate of exploitation rose even more, up 55%, as more Brazilians entered the industrial and agro processing labour force with intensive capitalist production methods, while wages were held down.

Brazil became a major agricultural producer and exporter to the world market. Leading exports include soybeans and products, beef, poultry meat, sugar, ethanol, coffee, orange juice, and tobacco. Brazil’s agrifood sector now accounts for about 28% of the country’s GDP. Brazil’s is now the world’s third-largest agricultural exporter (in value terms), after the US and the EU. Rapid export growth was accompanied by changes in the composition of agricultural exports away from tropical products to processed products – up the value-added scale. Processed products now account for about three-fifths of agricultural exports.

And Brazil, like some other emerging economies, benefited from some other favourable external factors that supported the neo-liberal policies at home. Food commodity prices rose. In a way, it was like the discovery of North Sea oil that helped Britain’s Thatcher government in the 1980s. The income windfall to Latin America from persistently high commodity prices over the past decade was unprecedented. It averaged 15% of domestic income on an annual basis and close to 90% on a cumulative basis. So there was a lucky combination of rising commodity prices driven by Chinese demand; of productivity gains as the rate of exploitation rose; and an expansion of employment from the rural areas.  All this boosted profitability and growth for a decade.  After the 2002 crisis, GDP growth averaged above 4% per year until 2010. This led to significant improvements in living standards and life in general.

Under the government of former president Lula and the commodity boom, there were some important gains for the working class: a social protection system, increasing credit at low interest rates for workers and universalising health and education. The Bolsa Familia, or family allowance programme, is the most visible face of these policies. Between 2004 and 2011, the number of families benefiting from income transfers more than doubled, from 6.5 million to 13.3 million, representing nearly one-quarter of the population. In the more isolated regions, payments under this programme have become the principal engine of the local economy. Another pillar of government policy, adopted through negotiations with the unions, was to raise the minimum wage and associated pension. It went up by 211% in nominal terms between 2002 and 2012, for a real inflation-discounted increase of 66%. Unemployment rate plunged from 12.3% to 6.7% and the labour force expanded at a 1.6% yearly rate.

But the iniquities of capitalist development remained embedded in the system. Inequality of income and wealth in Brazil remains at extreme levels, exceeded only by post-apartheid South Africa. Despite the boom of the last decade, average household net-adjusted disposable income in Brazil is still way lower than the OECD average of $23,047 a year – and that’s the average. Over 16 million people are still living in what is deemed extreme poverty, with monthly incomes of below 70 reais (about $33). Some 80% of men are in paid work, compared with 56% of women and 12% of employees work very long hours, higher than the OECD average of 9%, with 15% of men working very long hours compared with 9% for women.

Around 7.9% of people reported falling victim to assault over the previous 12 months, nearly twice the OECD average of 4.0%. Brazil’s homicide rate is 21.0, almost ten times the OECD average of 2.2, one of the highest in the world at 21 per 100,000. Violence is concentrated among young people and over the past decade and a half, violence – including armed violence – has become a major social problem in the country.  And Brazil’s regional disparities remain very high: average GDP per capita varies from just 46% of the national average in the Northeast region to 34% above the average in the Southeast.

Moreover, Marx’s law of profitability was still at work. From 2004, the rate of profit began to fall (down 8% to 2008 and more since), as wages shot up and the rate of exploitation dropped 25%. It was only the continued boom in commodity prices that kept growth going. When the global slump came in 2008-9, the emerging capitalist economies could not avoid the consequences.

In the case of Brazil, it seemed that rising commodity prices plus a deliberate policy by the government to increase state-financed investment had enabled Brazil to avoid the worst of the slump compared to others. But prices for Brazil’s key agricultural exports began to falter from 2011 onwards. In the last few years, global commodity prices have fallen back sharply and profitability began to fall further. Now Brazil’s export profitability is some 20% below its best years before 2004.

Brazil’s GDP growth has consequently slowed since 2011. There has been a sharp fall in manufacturing investment and exports over the past two years. While public investment increased by 0.4% points to 5.4% of GDP, it has not been enough to compensate for the fall in the ratio of private investment to GDP from 14.3% to 12.7% last year. Industry has not even returned to its pre-2008 crisis production level.

The government has tried to get private sector investment going through tax cuts and incentives for the corporate sector but only at the cost of running up a deficit on its budget. Interest costs on the public debt have been mounting, forcing the government to cut subsidies to transport, housing and education on which the majority rely. It was the last straw to spend huge amounts on football and the Olympics (partly to boost capitalist sector profits) at the expense of basic public services.

Subsequent unrest has prompted the government to make some concessions, but it has no intention of reversing its neo-liberal policies. Profitability in the capitalist sector will not recover without further hits to living standards. But austerity and making labour pay for the failure of Brazil’s capitalist sector is not working. That’s because economic growth will remain low as long as the world economic recovery remains weak. This brings to the surface the blatant corruption and political patronage, like dirty scum floating to the top of polluted water.

Greece: Keynes or Marx?

March 14, 2015

The Greeks are now in a so-called four-month breathing space, an extension of the existing ‘bailout’ programme agreed by the previous Conservative-led government with the Troika (the EU Commission, the ECB and the IMF). Of course, this breathing space is already narrow and closing. The Greek economy continues to suffocate (see my post

An interview with Costas Lapavitsas
But there is an opportunity to consider the way out for the Greek people when the four months are up. That’s what makes the recent interview in Jacobin with Syriza MP and Marxist economist, Costas Lapavitsas, a leading member of the Left Platform within Syriza, so interesting. (

Costas pulls no punches and spells it out like he sees it, taking no prisoners from the reformist left as represented by current finance minister Yanis Varoufakis or what he calls the ‘ultra-left’ of the KKE communists and Antarsya (as well as unnamed impractical Marxists).

Previously based at the SOAS college in London, Lapavitsas is not a member of Syriza (although he was elected on the party list) and is a newcomer to parliamentary politics. However, he has been a socialist activist for most of his life and is known for his incisive and challenging theoretical work on the political economy of money, credit and financialization (see my post,

Lapavitsas has also worked with the Research on Money and Finance group in London to produce concrete analyses of the origins and trajectory of the European crisis and, most recently, published together with the German neo-Keynesian economist Heiner Flassbeck a kind of manifesto proposing a radical break from the euro.

It’s a long and thorough interview, excellently conducted by Sebastian Budgen, so I’ll just concentrate my comments on what I thought was key to understanding the state of the Greek capitalist economy and the policy objectives and alternatives open to Syriza and the Greek people.  This post is still very long!

Lapavitsas criticises the position adopted by the Syriza leadership in its negotiations for an extension of the bailout. For him, what was wrong was not that Varoufakis and Tsipras did not stick to the Syriza aim of cancelling or renegotiating the debt, but that they capitulated to the Troika on this because they were not prepared to exit the euro. “Syriza will attempt to lift austerity, reduce the debt — restructure or write off the debt — and change the balance of social, economic, and political forces in Greece and Europe more generally without breaking out of the monetary union and without coming into all-around conflict with the European Union. That’s clearly what this government signals.”

For Lapavitsas, it is impossible to end austerity and stay in the euro – and that is what is wrong with Varoufakis’ position. “The government went into negotiations with an approach which, as I’ve already said, was critical to its composition, to creating it, which is that we can go into the negotiating room and we can demand and fight for significant changes, including the lifting of austerity and the writing off of debt, while remaining firmly within the confines of the monetary union.”

Lapavitsas is right to say that whether we consider Varoufakis a Marxist or not is unimportant (at this point in the interview, reference is made to my own analysis of Varoufakis’ views – see my post, As Lapavitsas, puts it, Varoufakis is a heterodox economist who has rightly “rejected neoclassical economics”, but he has never been “a man of the Left, revolutionary left” and was at one time an adviser to reformist George Papandreou. Lapavitsas is right on this: labels are not important: the correct analysis and policy prescriptions are what matters. And what is clear is that Varoufakis owes more to Keynes than Marx.

Keynes or Marx?
Now here comes the really interesting bit. Lapavitsas goes on: “Let me come clean on this. Keynes and Keynesianism, unfortunately, remain the most powerful tools we’ve got, even as Marxists, for dealing with issues of policy in the here and now. The Marxist tradition is very powerful in dealing with the medium-term and longer-term questions and understanding the class dimensions and social dimensions of economics and society in general, of course. There’s no comparison in these realms. But, for dealing with policy in the here and now, unfortunately, Keynes and Keynesianism remain a very important set of ideas, concepts, and tools even for Marxists. That’s the reality. …. I’ve also associated myself with Keynesians, openly and explicitly so. If you showed me another way of doing things, I’d be delighted. But I can assure you, after many decades of working on Marxist economic theory, that there isn’t at the moment.”

So it seems that Marxist economics is less than useful for the immediate problems of the Greek people. As Sebastian Budgen puts it, Lapavitsas wants to make “a distinction between Marxism as an analytic tool and Keynesianism as a policy tool”. Costas spells it out: “Marxism is about overturning capitalism and heading towards socialism. It has always been about that, and it will remain about that. Keynesianism is not about that. It’s about improving capitalism and even rescuing it from itself. That’s exactly right. However, when it comes to issues of policy such as fiscal policy, exchange-rate policy, banking policy, and so on — issues on which the Marxist left must necessarily position itself if it is to do serious politics rather than denouncing the world from small rooms — then you will rapidly discover that, like it or not, the concepts that Keynes used, the concepts that Keynesianism has worked with, play an indispensable role in working out strategy, which remains Marxist. That’s the point I’m making. Unfortunately, there is no other way. And the sooner that Marxists realize that, the more relevant and realistic their own positions will become.”

So Keynes is realistic and relevant to policy and Marxist economics is not? Now is this right? Is Marxist economics just an analytical tool or a long-term strategy for socialism but irrelevant or at least less relevant to the immediate tasks of government trying to repair a broken economy than the Keynesian categories of devaluation, public spending and monetary policy?

I find that surprising coming from a Marxist. The Syriza government now has the opportunity to campaign among the Greek people and implement socialist measures to replace Greek ‘big capital’ with a domestic economy controlled by the common weal. Instead, it seems both the wings of Syriza want to adopt Keynesian solutions (only); except one wing wants to do it within the euro (Tsipras/Varoufakis), while the other says that is impossible and wants to do it outside the euro (Left Platform).

Now I’m not opposed to using Keynesian prescriptions as part of any socialist measures for Greece: e.g. progressive taxation, government spending, labour rights, minimum wage (not sure the latter are even Keynesian). But such measures must be part of a programme to replace capitalism, not try to make it work – in or out of the euro.

Lapavitsas is clear about his alternative: “the obvious solution for Greece right now, when I look at it as a political economist, the optimal solution, would be a negotiated exit. Not necessarily a contested exit, but a negotiated exit.” This would involve a 50% write-off the debt owed to the EU and protection of the new Greek currency (devalued by just 20%) with liquidity from the ECB.

Lapavitsas reckons that this policy might even get support from Germans wanting to get rid of Greece from the Eurozone. As he says: “Schäuble is on record, or at least Greek ministers are on record, stating that Schäuble offered an aided exit to the Greeks already back in 2011. I can see, from the perspective of the German power structure, why they might be tempted by this idea” And the IMF probably would support a debt restructuring. Devaluation would not have to be more than 20% because Greek labour costs have dropped so much already.

Lapavitsas poses the ‘success’ of the Argentine debt restructuring and devaluation of the peso in 2001 again as the example to follow. “I hasten to add that in the case of Argentina (though by no means would I suggest that Argentina is a shining beacon for the Left), it is much-maligned and much-misunderstood. What was obtained in that country after default and exit was vastly better than what held before and vastly better than what would have happened had the country continued along the same path, for working people. Let us stress that: for working people. If you look at it in terms of employment and in terms of income, there’s just no comparison.”

Well, I’m not convinced. In a joint paper with G Carchedi we showed that the recovery in real incomes in Argentina after the 2001 crisis was more to do with the debt default and the recovery in profitability of Argentine capital (see pp 108-9, The long roots of the present crisis). And the apparent success of the Argentine case was shortlived at best (see my post, The breathing space created for Argentina by breaking the dollar peg does not seem to have restored the Argentine economy to stable growth. After a few years of a commodity-export led boom, the Argentine economy is back in crisis, despite Keynesian policies adopted by the government. There has been a 6% fall in per capita GDP since 2011.

Even if the Troika were to agree to such a ‘negotiated exit’, which is a moot point; and even if the new Greek drachma only depreciated by 20% (extremely unlikely), the Greek economy would still be on its knees, unable to restore living standards for the majority. Devaluation and rising prices would eat into any gains made from cheaper exports. Lapavitsas seems to recognise this: “Wages must rise, but even if they rise, you’re not going to go back to where you were. It’s just not feasible at the moment. We need a growth strategy for that.” Exactly.

Why stop there?
Whether Grexit was negotiated or not, as Lapavitsas says, the government would have to act to control capital flows (not illegal even within the euro). And the banks would have to be nationalised. “Re-denomination would create a problem for the banks, and bank nationalization would obviously be immediately necessary. But bank nationalization is clearly a vital step for the Greek economy right now because the private banking system, or the banking system generally, has failed. So we’re not doing anything particularly shocking.”

So why stop there? Why not propose the replacement of ‘big capital’ with public ownership and workers control and a plan for growth? Apparently, that is something for the future, the medium-term, not now. “I am very skeptical, though, about this in the context of Greece right now… These are medium-term questions. These are questions that one should knuckle down and begin to confront once the problem of debt, fiscal pressure, and the monetary union have been resolved.” But can the latter be resolved without the former?

Costas spells it out: “I don’t think that Syriza should come out with a broad and wide nationalization program right now. What is necessary is to nationalize the banks, of course. And to make sure that energy privatizations stop, electricity in particular. That stops. And privatization of other key assets stops. To put a growth and recovery strategy in place immediately outside of the euro, and then to have a medium-term development plan.”

This last sentence is key for me (that’s why I have emboldened it). If I were Costas, I’d be advocating within Syria now for just such a broad and wide programme to replace capitalism. For me, the Marxist analysis of Greek capitalism leads to the policy prescription for its replacement now, in or out of the euro. But for Costas, a Marxist analysis is fine, but the policy prescriptions should be Keynesian – because the latter is more practical?

And yet Lapavitsas recognises in the interview at one point that the problem for the Greek economy has not been being in the euro as such but the weakness of Greek capitalism, translated into its lack of competitiveness: “the emphasis on the service sector means that Greece has become uncompetitive internationally because services are well-known for being not particularly competitive”.

As Frances Coppola spelt out in a recent blog post (, “Greece’s problem has been competitiveness for a very long time. It has run a large and persistent trade deficit for the last half-century.

Greek BOP

She goes on: “Greece’s debt overhang seriously impedes recovery, But it is not just public sector debt. The real problem is that both the public AND private sectors are over-indebted.”  Post-Keynesian economist Steve Keen has recently pointed out, “While Greece certainly had its own specific problems—especially with its current account—in general, its apparent boom before the crisis and the crisis itself had much the same cause as in the rest of the OECD: a private debt bubble that burst in 2008. Private debt grew rapidly before the crisis—on average by more than 10% of GDP per year.”  Since during that time the government deficit did not grow, the private sector deficit was funded by external capital inflows. In other words, the private sector borrowed from foreigners to fund domestic investment spending, resulting in a worsening external balance.

Greek debt levels

Coppola sums it up: “the story of the Greek crisis is not really one of fiscal profligacy resulting in a “sudden stop”. It is one of PRIVATE sector profligacy fuelled by rising external debt, itself resulting from (or caused by) falling competitiveness.”

Greek capitalism failed. It failed to invest, particularly in the productive sectors of the economy. Foreign investment and capital dominated the Greek economy and left Greece in the lurch at the first sign of trouble (see the paper by Stavros Mavroudeas, 2015_001-libre).

Second-rate economics
Can we explain and measure that weakness? Well, the Marxist way is look at the movement and level of Greek corporate profitability. This has been abysmal.

Greek rate of profit

And along with it, comes the low level of investment in productive sectors of the economy. Greek economic growth prior to the Great Recession was increasingly founded on speculation in property and construction, and on relying on foreign investment and euro subsidies.

The ultimate cause of the Greek crisis was falling and low profitability and the proximate cause was the huge increase in fictitious capital to compensate that eventually imploded in the Great Recession.

But apparently, according to Lapavitsas, this Marxist analysis is nonsense. And Costas wants to tell Jacobin readers this is so in no uncertain terms: “The Marxist left in particular, over the last couple of decades, has unfortunately regressed in terms of its ability to analyze the political economy of modern capitalism. It has imbibed and absorbed a kind of second-rate economics that basically thinks and believes that Marxism and the Marxist analysis of capitalism pretty much can be condensed into the tendency of the rate of profit to fall. For many people in Europe and elsewhere, Marxist political economy pretty much amounts to interpreting everything in terms of the proportion of profits — or what you measure as profits — in relation to GDP. That ratio, for some of these people, tells you everything you need to know about the past, present, and the future of capitalism. That’s not Karl Marx, of course, and that’s not what the great Marxists did. There are people who today try to interpret what is happening in Europe according to the tendency of the rate of profit to fall. That’s nonsense. Manifest nonsense. It doesn’t serve any interests or any purposes. It doesn’t help anyone. Greece is not in a crisis because of the tendency of the rate of profit to fall. The tendency of the rate of profit to fall is important, but what is happening in Greece is not a periodic crisis caused by falling profit rates. The tendency of the rate of profit to fall is important, but it is terrible economics and a fetish. You cannot condense everything to the tendency of the rate of profit to fall. That’s just bad Marxism and bad economics.”

For Costas, it is not the weakness of Greek capitalism, as analysed by a Marxist analysis of profitability, that is the problem; it is the financial sector and the monetary union – it is very simple. “If we approach the crisis of the eurozone purely as a monetary thing, from the perspective of monetary theory, it would take you five minutes to resolve it. It is perfect obvious, perfectly simple. It’s actually almost trivial. As a monetary theory problem, it’s trivial. And in fact, it didn’t take me longer than a weekend back in 2010, when I first began to deal with the numbers, for it to become obvious. It’s a matter of a monetary union that is badly structured and that has evolved very badly in the course of its own lifetime and therefore is unsustainable. And that, to someone who is trained in monetary theory, and who understands money and finance, would be clearer and easier to see than to others who have worked in other areas of economics and of political economy.”

It’s a shame that we ‘second rate’ Marxist economists with no training in monetary theory and who don’t understand money and finance (this cannot apply to me, I think, as I have worked in investment banking for 30 years – but maybe) fail to see that the problem for Greece is not its weak capitalist economy and its lack of profitability and investment. The problem is monetary union and the euro.

A Greek NEP
Costas wants to get Greece’s vast array of small businesses back functioning to provide jobs and incomes. “Small and medium enterprises will come to life immediately if there was a devaluation”. It’s what he calls a NEP for Greece. He argues that “econometric studies I’ve seen confirm it — little doubt that small and medium enterprises will allow a return of Greece to a reasonable productive state within a very short period of time, a couple of years. That would also generate the capital and the savings for the medium term strategy.”

Actually, there is a lot of evidence that Greece’s heavy dependence on small businesses has kept its productivity and investment low. But nobody should be opposed to supporting small businesses and Marxist economics does not imply that the government should nationalise everything that moves. But why draw back from taking over the ‘commanding heights’ of the economy and the oligarchs that own them?

The Keynesian ‘multiplier’, supposedly a measure of the likely boost to growth and incomes from public spending, does not work unless profitability is restored, as Carchedi and I have shown in our paper on the ‘Marxist multiplier’ (  So should Greeks wait until Keynesian policies have ‘generated the capital and savings’ for the ‘medium-term’ socialist strategy. Yet, as Lapavitsas says “there are vast unused resources in Greece. Capital is not short in that regard. Capital has far more than cash in the bank. We have to think as Marxists here. Capital is a relation. There are vast unused resources across the country!”  Yes, so a domestic plan for investment and growth based on the public ownership of big capital and integration of the banking sector and the major industries of shipping, pharma, agriculture etc could utilise these wasted resources of skilled labour and finance.

Lapavitsas says that “The Left in Europe over the last few years has gone on an incredible trip. It is as if it has lost its critical senses. It has imagined that the process of European integration through the EU and the process of forming the European Monetary Union [EMU] is somehow internationalism in the way in which we on the Left understand internationalism. The Left at long last must begin to table ideas about genuine internationalism in Europe that reject these forms of capitalist integration. Not improve them. Reject them. That’s the real radical outlook for the Left, and that is what it should do.”

I’m not sure which ‘Left’ Costas is referring too here. But Marxist economics agrees that the EU and EMU do not offer real internationalism for labour. These are organs of capital, especially big capital; and they have exacerbated the uneven development of capitalism in Europe (see my unpublished paper, Euro crisis is a crisis of capitalism).  That said, Greek capitalism is no position to turn things round with its own currency. Greek capital will be saddled with huge euro debts following devaluation and it won’t be able to export enough to stop the Greek economy dropping (further) into an abyss and taking its people with it. Grexit also means not just leaving the euro but also the EU and without any reciprocal trade arrangements that Switzerland has, for example.

Costas Lapavitsas and Yanis Varoufakis are economists who have become politicians and are now in the frontline of the fight by Syriza to restore the living standards and rights of the Greek people in the face of an onslaught from European capital.  It ain’t easy – it’s certainly easier to criticise from well behind the lines.  But if they read this, I hope they take it in the spirit of best intentions.

The issue for Syriza and the Greek labour movement in June is not whether to break with the euro as such, but to break with capitalist policies and implement socialist measures to reverse austerity and launch a pan-European campaign for change.

A fictitious boom

March 10, 2015

At the end of February, the S&P 500 stock index closed at a record high and the Nasdaq Composite (an index of hi-tech companies) briefly rose above 5000, the level last achieved in the bubble back in 2000.

equity markets

But we may well be near the end of this stock market bonanza, six years after the S&P embarked on a bull run, resulting in a rally of 250%, including the reinvestment of dividends.  Profits for US companies are expected to decline over two consecutive quarters for the first time in six years.  Not since the aftermath of the financial crisis have S&P 500 companies recorded two straight quarters of falling profits on a year-over-year basis.

world indexes

The profits of the S&P 500 multinational companies with significant global operations are now being pressured by a record high dollar, which results in lower foreign revenues. And energy companies have been hit hard by significant reductions in their earnings as oil prices have halved since the summer.  Deflation in energy and fuel prices may help consumers a little, but it is real bad news for the profitability of energy multinationals.

Analysts are forecasting a decline of 4.6% in Q1 2015 S&P 500 earnings compared with the same period a year ago, with those for the second quarter are seen falling 1.5%. That would represent the first back to back quarterly decline since the second and third quarters of 2009 at the depth of the Great Recession.

And it is not just energy companies.  Utilities, materials, telecom services, consumer staples and information technology corporations are forecast to record negative year-over-year earnings growth for the first quarter.  And since the early 1990s, the only times that earnings per share have fallen in the US have been at the onset of recessions, in 2000 to 2002 and 2007 to 2009.

And it’s not just earnings of the top companies that are set to decline.  Profits for the whole US corporate sector have now stopped rising.

US corporate profits


Increasingly, the stock market has been supported simply by an injection of billions in credit by the Federal Reserve.  Financial firms and non-financial corporate have been flush with cash that they have raised from the issuance of corporate bonds at extremely low rates of interest.  This cash has then been invested in the stock market and in paying out dividends and buying back stock, so encouraging others to buy stocks.  Only a small proportion has been used to invest in new technology and more labour

And profits have also been artificially sustained by significant cuts in corporation tax and other exemptions from tax.  For example, Warren Buffett’s investment company, Berkshire Hathaway has been able to defer $62bn in taxes, that’s eight years of taxes, because the company has bought capital intensive businesses like railways and power utilities.  That has given the company even more funds to invest in the stock market.   Berkshire’s Energy unit receives tax credits for renewable power generation — reporting $258m of wind energy tax credits in 2014, and $913m of investment tax credits in 2012 and 2013 for opening new solar power plants.  This is interest-free borrowing made possible by the taxpayer because of the business-friendly government.

But as I have argued in previous posts,
the days of low interest borrowing and investment speculation are about to come an end.  It seems that the Federal Reserve is going to start raising the floor on interest rates this summer, leading to rising mortgage and corporate bond rates.  That could spark a significant drop in stock market prices and even kick off a new recession.

Back in 1937 during the Great Depression, it appeared to the US authorities that the slump was over and it was time to ‘normalise’ interest rates. On doing so, the economy promptly dropped back into a new recession that was only overcome when the US entered the world war in 1941. The reality was that the profitability of capital and investment had not really recovered and raising the cost of borrowing tipped the economy back

But why would the Fed do this if there is such a danger?  Precisely because it wants to cool a speculative stock and bond market and, most important, avoid a sharp rise in wages that could squeeze profits as the labour market tightens.

If the Fed does move later this year, it could start to expose just how much fictitious capital (as Marx called stock and bond investment) has built up in the US and other economies and see it go up in smoke.

The lucky generation

March 5, 2015

I am part of the lucky generation. I am a member of that cohort of people born between 1946 and 1965, the baby boomer generation.  We are lucky because we came into the world in countries of advanced capitalism at a time when there was unprecedented economic growth, near ‘full employment’, relative low inequality of wealth and income and strongish labour movements able to extract concessions from Capital on labour rights, a welfare state, universal health and education, public housing.

Capital was able to concede these gains for Labour because it was experiencing high rates of profitability after the destruction of capital values during the war. It could draw on a huge reserve army of labour in Europe and Asia, along with new technology, to exploit. And global capitalism had one hegemonic power, the US, that could provide credit and investment in Europe and Asia within Pax Americana. In short, this was a Golden Age for capitalism. Concessions to labour were possible rather than launch into a desperate class battle.

The graph below (the simple mean average world rate of profit from the work of Esteban Maito (Maito, Esteban – The historical transience of capital. The downward tren in the rate of profit since XIX century) shows the golden age of the 1950s and 1960s in profit terms.

But the Golden Age was unprecedented and relatively short. It was not as long as a ‘lucky half century’ as Andy Haldane, chief economist at the BoE, has claimed in a recent paper (Haldane on growth). This lucky period was over by the late 1970s as capitalism entered a crisis of falling profitability.

But we were the lucky generation. When I graduated from university in the late 1960s I did not have worry about getting a decent job on the whole and I had no student debt. And during my ‘prime’ working years of 35-54, I was able to maintain a stable and even rising income, able to get a mortgage that allowed me to build up some property wealth as the housing bubble exploded from the 1990s in many countries. Now many of us aged over 55 years are relatively better off.

Of course, here I am talking about the middle-class, middle income group of baby boomers. Only a small minority went to university in the 1960s and 1970s.  But at least in the 1960s, if you failed to get into university, companies offered apprenticeships and there were state-funded training schemes and qualifications.  Nevertheless, poverty still claimed 20% of the baby boomer generation at least and, although real incomes rose for most in the Golden Age, it was not the case for a sizeable minority. Now there are millions of retired baby boomers living on just the state pension and means-tested benefits and dependent on public health and limited care facilities for the aged.

But the years 1948 to 1973, as the work of Thomas Piketty (PikettyZucman2014HID) and others have shown, was one of relative prosperity that was better shared among the population by a long way than now.  That was a product of faster economic growth. The US enjoyed rapid labour productivity growth, averaging 2.8% annually. Income inequality fell, with the share of income going to the top 1% falling by nearly one-third, while the share of income going to the bottom 90% rose slightly. Household income growth was also fuelled by the increased participation of women in the workforce. Prime-age (25 to 54) female labour force participation escalated from one-third in 1948 to one-half by 1973. The combination of these three factors increased the average income for the bottom 90% of households by 2.8% a year over this period.

It was different for what we might call, in the UK, Thatcher’s children, those born just before or after the 1980s double-dip recession and becoming working age adults in the late 1990s onwards. My son got a degree in computer science and has a job in IT in the banking sector of the City of London a typical target of aspiration in these times He earns good money as a result and is thus way ‘luckier’ than millions of others. But even he is worse off than the lucky generation. He works as a precarious contractor, with no sick or holiday pay and no pension. He works long and inconvenient hours on a contract that could see him sacked tomorrow without any pay-off. He is under stress.

There is much discussion and propaganda among mainstream economics that the real divide in society now is not between labour and capital, or between rich and poor, but between the young and the old, i.e. between my son and me. The old, like me, are sucking away the incomes and future pensions of the young and increasing taxes for our aged care and health. Many of us old baby boomers have nice homes without mortgages while the next generation and the one after that cannot get on the mortgage ladder. A recent study found that in London, there were more people forced to rent than there were owning their homes or renting from the state or from social housing.

The baby boomers (above 55 years) have increased their wealth dramatically since the 1980s while Thatcher’s children (35-54) have lost out.  Indeed, the Great Recession has created the largest wealth inequality gap between young and old on record. The wealth gap between old and young American households has quadrupled in the past 25 years. In 1984, households age 65 and up were 10 times wealthier than their younger counterparts. Now, they are 47 times wealthier.

median net worth

Disproportionate income gains are also driving the divide. Younger households have seen a 3% increase in income over their counterparts 26-years ago, while older households have had their incomes increase by 25%.  Student debt has played a strong role, as more of today’s youth attend college than in 1984. Spiralling tuition costs have left today’s young adults more burdened by college debt than past generations.  As a result, poverty for younger households in the US has reached a record high of 22%, nearly doubling since 1967. Older households have seen poverty rates decline over time, and are now at a record low of 11%.

It’s same story in the UK. Recently, the FT argued that Britain’s young adults, who for much of the 20th century enjoyed living standards well above average, have been displaced by the rise of the comfortably-off pensioner in the most dramatic generational change in decades. Replacing the young in the premier league of living standards have been people in their 60s and 70s. The average 65-70-year-old used to have lower living standards than 75 per cent of UK families. Now people in the same age group can expect to be almost in the top 40 per cent of family incomes.

relative living standards

Moreover, we baby boomers won’t give way to the next generation. Ernst & Young ITEM Club reported that much of the increase in the UK workforce over the past five years has been due to older people either staying in work or going back to work. Rising participation by older age cohorts, it says, has added even more people to the labour force than immigration. People who ten years ago might have retired are now staying in work.

average age of retirement

The FT says this is “gains for the old at the expense of the young” as though there was a pot of unchanging wealth and income that must be shared. But is that the case? What really has happened is that wages have dropped as a share of GDP, inequality has risen, capitalism has failed to maintain the Golden Age as profitability of capital fell.

Uk wages and profits share

In response, under the neo-liberal period since the late 1970s, cuts in wages, welfare, pensions and public services were made and job security, conditions and rights were curtailed in order to reverse the fall in profitability. It was the failure of capitalism to deliver, not the greed of old baby boomers like myself.

The reason many older people are staying at work is because their pensions are inadequate (annuity rates are at an all-time low) and they must stay in work now well beyond the expected retirement age.

The number of people in defined benefit pension (ie good final salary schemes) has been falling steadily and will decline sharply from here.

defined benefit schemes

“The young aren’t poor and the old rich because the old are snaffling the income and benefits from the young. The old are richer because they lived through a time when the country’s wealth was distributed more evenly, so more people had more. Intergenerational inequality is really just another story about falling incomes, less secure employment and job polarisation.” from the excellent

Will there ever be another ‘lucky generation’ under capitalism or is that the last we shall see?  After all, there have been other short periods in the history of capitalism that could be described as a golden age: say the period from the mid-1880s to the 1900s in the UK and Europe, when the labour movement grew stronger, mass socialist parties were formed and there was the beginning of a ‘welfare state’ in Bismarkian Germany and Liberal England.  Maybe, if and when the current Long Depression comes to an end, capitalism could have a new burst of life, based on a range of new technologies and surplus labour in the emerging economies of Asia.  This could generate another period for a new lucky generation.  See my old book, The Great Recession, p302 (GREAT RECESSIO).

But it gets more difficult each time for capitalism to deliver.

Greece: breaking illusions

March 3, 2015

A recent poll conducted by the University of Macedonia found that 56% of those Greeks asked believed the Greek bailout extension had been a success compared with 24% who said it represented a failure. A Metron Analysis poll showed that more than two in three Greeks were satisfied with the way the government was negotiating with EU partners, while 76% were positive about the government’s overall performance so far. It also put support for Syriza on 47.6% compared to New Democracy with 20.7%.

That’s an indication that, with the four-month extension of the bailout programme with the Eurogroup, the Syriza government has won time with the Greek people hoping for an end to austerity, as well as with the Eurogroup leaders wanting more austerity in return for the remaining bailout funds.

But this ‘window of opportunity’ is small and probably smaller than four months. The immediate issue is finding funds to cover the upcoming €1.5bn repayment due to the IMF this month and the rollover of short-term government debt. The ECB has ruled out an expansion of T-bill issuance to cover this debt redemption and probably will not raise the Emergency Lending Assistance limit to Greek banks so they cannot use ECB credit to cover Greek government debt bills. And yet tax arrears and non-payment have built up so that the government has lost between €1-2bn in revenues since the beginning of the year.

The Eurogroup has said that no outstanding bailout funds will be disbursed to Greece unless they show ‘visible evidence’ that they are trying to keep to the fiscal and other conditions of the existing bailout agreement. This will all come to a head on 9 March when the ECB meets on Greece again and the Eurogroup considers what the Greek government has done. Greek finance minister Varoufakis says he will present six ‘reforms’, costed, for approval by the Eurogroup.

In the meantime, it looks as though the Syriza government will proceed with various measures to ameliorate the ‘humanitarian crisis’. Tsipras said that the government would introduce measures including the provision of free electricity to 300,000 households living under the poverty threshold and the introduction of a new payment plan for overdue taxes and social security contributions. The scheme is set to allow applicants to pay in up to 100 instalments and will mean that anyone owing up to 50,000 euros cannot be arrested over their debts. And the government will protect primary residences with a taxable value of up to 300,000 euros from foreclosures and reopen the public broadcaster ERT, shut down in June 2013. None of this will affect the budget targets, Tsipras claimed, although how that is the case remains to be seen.

Maybe it won’t if the government can find extra revenues from undeclared funds that should be taxed. The finance ministry is now planning an amnesty on undeclared capital abroad, aiming to tax it – but not necessarily to repatriate it – according to Alternate Finance Minister Dimitris Mardas. The government reckons that up to €120bn is being held abroad by rich Greeks and oligarchs, often hidden in real estate in the UK or Swiss bank accounts. The government says it can obtain up to 10-15% of this. In addition, special tax minister Nikoloudis reckoned he had 3,500 audits amounting to €7 billion in back taxes, €2.5 billion of which he hopes will be collected by summer. If this money can be collected, then the government can square the circle of paying its debts and keeping within the Troika fiscal targets and help out the poor – at least for a while.

But only for a while because Greek public debt is ‘unsustainable’ and will never be reduced to a manageable level by Troika-style spending cuts and tax measures. However, as the interest rate on the debt is relatively low (4% of GDP annually) and the repayment schedule on the loans owed to the Eurogroup has been put back to the early 2020s, if the government can get through this year’s redemptions, then it may find another small fiscal ‘breathing space’. And if the Greek economy can grow over the next year, tax revenues will improve.

It’s just possible that an economic recovery in the rest of the Eurozone might also provide a boost to the Greek economy too. But it is only possibility. The Greek economy is still suffocating from the stagnation in Europe and the Troika’s inexorable austerity measures. Indeed, Greek real GDP rose only 0.7% in 2014 while prices fell 2.8%, so nominal GDP contracted.

Greek inflation

Greece’s manufacturing PMI, the main measure of current business activity, was down at 48.4 in February, implying that the economy is still contracting. Greek investment and profitability remains at all-time lows.

Actually what is more important for the Eurogroup and big capital in Europe is that the neo-liberal ‘structural reforms’ of deregulating the labour market and other capital markets and the privatisation and ‘foreignisation’ of the best bits of Greek industry must go through. For them, that is the policy for restoring the profitability of the Greek capital (at labour’s expense).

These ‘structural reforms’ have been pursued with gusto by the conservative governments of Ireland, Spain and Portugal that have been under Troika programmes. Now the last thing they want is for Syriza to succeed in turning things round without imposing austerity and without restoring the profitability of the capitalist sector. So these governments have been the strongest supporters of a ‘tough line’ with Greeks. The French and Italian social democrat governments also continue to introduce measures to weaken the rights of employment and worsen the conditions at work.

But what happens at the end of June? Already there is talk of shackling the Greeks into a new bailout programme. In return for new loans (and a mixture of old ones) of up to €50bn over three years, the Greeks would be committed to yet more Troika monitoring and neoliberal measures to save Greek capital. This is the aim of the Eurogroup and its conservative governments.

Tsipras has made it clear that the Greeks will not enter a new package after June. If the government also says that it will honour all its debts to the IMF and the EU (even though it wants a new debt schedule), then either financial markets must be willing to buy Greek government debt and bank debt at reasonable rates of interest; and/or the government must find extra tax revenues to meet its debt commitments.

Perhaps the Greek government can avoid default and stay in the euro as the debt servicing schedule in 2016 is much lower. After all, the Greeks could meet the ‘ordinary’ budget targets under the EU Fiscal Compact. But can it get that far, and even if it does, how can it, at the same time, meet the needs of its people in raising wages, pensions, reversing privatisations, and restoring a decent health and education and other public services, and get the economy growing? To do that, Syriza needs a Plan B, as I proposed in a recent post (

Others see the issue as depending solely on whether Greece leaves the euro or not. Professor of Economics at the London School of Oriental and African Studies (SOAS), Costas Lapavitsas (see my post, is now a Syriza MP and a leader of the Left Platform within Syriza. In a recent article in the British Guardian newspaper (, Lapavitsas reiterated his view that “to beat austerity, Greece must break free from the euro”. Lapavitsas reckons that “we are deluded to think that we can achieve real change within the common currency. Syriza should be radical”.

Lapavitsas correctly gauges the deal reached by Tsipras and Varafoukis for the four month extension as a heavy price to pay “to remain alive”. But is it correct to argue that breaking with the Troika and reversing austerity must start with advocating leaving the euro, as Lapavitsas says? Tactically, it does not seem right to me. The alternative to the Troika should not be posed as ‘leaving the euro’, but rather ‘breaking with capitalism’.

Plan B must be to reject a new programme with the Troika after June. Instead, Syriza must introduce measures that can get the Greek economy growing sufficiently to enable wages and pensions to be restored, labour agreements honoured, increase employment and revive investment. That will mean taking over the Greek banks, introducing capital controls, and bringing into public ownership and control strategic industries and companies with a plan for investment. Such an investment plan should be pan-European, with an appeal to the labour movement through Europe to campaign for this.

But won’t Greece be thrown out of the euro anyway if it adopts these policies? Well, maybe, even probably. But there is nothing in the EU treaties that stops a member state from adopting these measures. Public ownership of the banks and ‘commanding heights’ might break EU competition rules, but that would not be enough grounds for Greece’s expulsion. After all, Germany runs state-owned banks in every region. And if Greece is managing to run ‘balanced budgets’, it won’t be breaking the EU fiscal compact either. There is just the question of its huge public sector debt that is supposed to be paid back (but not for decades).

The issue for the labour movement is not the “illusions” that the left has in the “absurdity of the common currency” (as Lapavitsas calls it), but the illusion that capitalism can be made to deliver people’s needs (something that Varoufakis has encouraged – see my post, It is breaking with capitalism that matters, not breaking with the euro. The latter may flow from the former BUT the former does not flow from the latter.

Breaking with the euro will not provide “a chance of properly lifting austerity across the continent”. Default and devaluation and the establishment of a new drachma will not mean prosperity for Greece if Greece’s weak and corrupt capitalist sector continues to dominate the economy.

Take Iceland. This is a very tiny economy with only 325,000 people, the size of smallish city in Europe or the US. It is often presented by Keynesian economists and others as showing a way out of the crisis compared to staying in a common currency. The argument is that Iceland defaulted on its debts and devalued its currency and so recovered its economy (on a capitalist basis), while Greece remains trapped.

I have written on the experience of Iceland in several posts and this story of default and devaluation is just not true (see my post, ). Iceland did not renege on the huge debts that its corrupt banks ran up with foreign institutions (mainly the UK and the Netherlands). It eventually renegotiated them and is now paying them back like Greece.

And devaluation did not mean that Icelanders escaped from a huge loss in living standards. They have done little better than the Greeks on that score – although of course, Icelanders started from a much higher standard of living than the Greeks. In euro terms, Icelandic employee real incomes fell 50% and are still 25% below pre-crisis levels.

Iceland real income

The same myth is peddled by Keynesians and others that having its own currency saved Argentina in its crisis of the early 2000s. See my post,, and my joint paper with G Carchedi (The long roots of the present crisis) for a refutation of that. Argentine capitalism is back in crisis now.

Greek capitalism’s demise is not because it joined the euro. It had already failed when profitability collapsed, as a heap of excellent papers by Greek Marxist economists show (for a summary of these, see the paper by Stavros Mavroudeas out only this February and essential reading, 2015_001-libre).

Greek rate of profit

And as Steve Keen has pointed out, “While Greece certainly had its own specific problems—especially with its current account—in general, its apparent boom before the crisis and the crisis itself had much the same cause as in the rest of the OECD: a private debt bubble that burst in 2008. Private debt grew rapidly before the crisis—on average by more than 10% of GDP per year.” (  Here is Keen’s graph showing that public sector debt only mushroomed after the crisis began.

Greek debt levels

The ultimate cause of the Greek crisis was falling and low profitability and the proximate cause was the huge increase in fictitious capital to compensate that eventually imploded in the Great Recession.

Greek capitalism is in no position to turn things round with its own currency. Greek capital will be saddled with huge euro debts following devaluation and it won’t be able to export enough to stop the economy dropping even further into an abyss and taking its people with it. Grexit also means not just leaving the euro but also the EU and without any reciprocal trade arrangements that Switzerland has, for example.  Currently, Greece contributes €1.7bn a year to the EU budget and gets back €7.2bn a year in various funds, a net 3% of GDP a year.

The issue for Syriza and the Greek labour movement in June is not whether to break with the euro as such, but whether to break with capitalist policies and implement socialist measures to reverse austerity and launch a pan-European campaign for change. Greece cannot succeed on its own in overcoming the rule of the law of value.


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