As I write, global stock markets kicked off 2016 by plunging, so much so in the case of China that stock market exchange was closed to stop selling. The fall was prompted by all-round disappointing surveys of business activity in China, India, the US and parts of Europe.
Indeed, by the end of 2015, most stock markets had their worst yearly results since the Great Recession in 2009 Clearly, rich investors and financial institutions are getting worried that the global economy, far from picking up pace, is slowing even further.
It has now been eight years of what I have called a Long Depression since the Great Recession started in January 2008. (See my paper presented to ASSA 2016 this week: Recessions,depressions and recoveries 071215).
Each year, mainstream economists and international institutions like the IMF and OECD forecast a pick-up in real GDP growth, employment and real incomes, and each time they have been proved wrong. This has been weakest post-war recovery of all.
But even on a per capita basis, US real GDP has grown only 9% vs. 18.8% for the average recovery. That is the lowest of any post-1960 recovery. Official unemployment of just over 5% today is low. But that’s because 94 million people in America over the age of 16 aren’t in the labour force. If job growth had been the same as in the average recovery, we would have 5.9 million more Americans working.
Mainstream economists, as they had done every year since 2009, whether from the IMF and or the OECD or Wall Street bank economists, forecast faster growth in 2015 over 2014. It did not happen – on the contrary. Global economic growth was at its lowest since the end of the Great Recession as China slowed to less than 7% real GDP growth and the commodity resource economies of Brazil, Russia and even Canada went into recession, while Japan hobbled along at an even worse state than in 2014, while Europe’s modest recovery was very modest indeed. Only the UK and the US of the top seven major advanced economies achieved growth rates above 2% but in both cases showed signs of slipping back towards to the end of last year. Global trade was weak and industrial production slowed to lowest rate since 2009.
But hope dies hard. On announcing a hike in its policy interest rate for the first time in nearly ten years, Janet Yellen, the head of the US Federal Reserve Bank, reckoned that the US economy was “on the path of sustainable improvement.”
Others are not so sure. In its end-year survey, the investment bank Goldman Sachs, with all those richly paid economists, admitted that they had got it wrong about the US economy: “this year’s growth disappointment is the thirteenth so far in the sixteen years since 2000. The cumulative impact of these forecast misses has been a 3.3pp downside miss on the level of real GDP since 2011 and a 14.9pp downside miss since 2000.” Now Goldman’s have become more pessimistic about 2016. “Both our own long-run potential growth estimate and the FOMC’s (the US Fed) are below consensus at 1.75% and 2%, respectively, and we suspect consensus estimates could fall further if growth continues to disappoint.”
According to Gavyn Davies, former Goldman Sachs chief economist and now blogger at the FT, the level of global output in 2016 will remain below trend in both the developed and emerging worlds.
Of course, it ain’t easy to forecast what will happen, whether in life, weather or economies, but that does not mean we should not try. Checking whether predictions come right is one gauge of the validity of a theory or law, as physics has always done. The better the theory, the better it fits the facts and the better the prediction of what will happen. It’s just that mainstream theories of how the capitalist economy works are so faulty that their forecasts are nearly always wrong.
So how has the Marxist explanation held up on forecasts? Well, this time last year, I said that “the global economy remains in a crawl and will do so in 2015”. Why did I say that? I won’t go over the arguments because last year’s post contains them all and little has changed.
As for 2016, I expect much the same as 2015, but with a much higher risk of new global recession appearing. After all, economic recession or slumps seem to come around in the major economies every 8-10 years and the last one began in 2008. We have been in this Long Depression because there has been no surge in business investment to drive incomes, employment and output up. And that’s because profitability of capital globally remains below the levels of the late 1990s and has now peaked since the Great Recession and is falling back.
As a result, capex (business investment) remains stagnant with the likelihood of a fall back this year.
The risk of a new recession is rising. First, emerging economies, with several large ones already in recession, face higher debt costs as the US Federal Reserve implements its programme to raise interest rates.
JPMorgan economists that emerging economies will be deleveraging excessive debt and that could reduce GDP growth in the emerging world by 2 to 3 percentage points over the next three years, or even more if there are severe crises of financial confidence. This would be enough to slow global GDP growth by 1 to 1.5 percentage points. At the lowest end of that range, a global recession would become likely.
As a result, JP Morgan’s economists reckon that the risk of a US recession over a two- to three-year horizon has “increased materially”. Indeed, they think there is a three-in-four chance that there will be a recession in the next three years, although they rule it out for this year. But even without a new slump, global growth will be no more than 2.6%.
The US Federal Reserve Bank (Atlanta) reckons that the probability of a new recession is not far short of where it was in late 2007, just before the Great Recession arrived.
Even if a new global slump is avoided this year, that could be the last year that it is.
Michael Roberts Blog 
“As a result, capex (business investment) remains stagnant with the likelihood of a fall back this year.”
Except from a Marxist perspective “capex” is not the only form of investment or accumulation of capital. It is only an investment in fixed constant capital, and if that fixed capital is labour-saving, it may even reduce the amount of labour employed overall, causing revenues to fall.
But, as Marx demonstrated in Capital Volume I, and restates in Capital III, especially for more mature capitalism, its ability to use existing fixed capital to raise levels of output is “very elastic”.
A factory building costing hundreds of millions of pounds, is a major element of capex, but once built, what goes on inside it may be frenetic or slack. Marx’s description of how existing fixed capital is used more intensively as economic activity picks up, was given in Chapter 6 of Volume III, but the same thing applies to his description in Volume I, of the introduction of new shift working and so on, so as to use existing machines and fixed capital more effectively.
Additional employment of labour to work with existing fixed capital, to process additional material is also “investment” or accumulation, in Marxist terms. Indeed, it is the most important form of investment, because as Marx says in Volume I, the expansion of capital is increase in the working-class. It is the increase in the working-class, which is the basis of an increase in the mass of surplus value produced.
Moreover, as a number of economists have pointed out, in developed economies where service industry is now the major producer of new value and surplus value, even the question of an increased investment in circulating constant capital may be misleading. If people spend more money on mobile phone calls, for example, this involves no significant increase in the materials being processed, but it does represent a more intensive use of the existing installed fixed capital base, in the shape of the global telecommunications infrastructure, into which trillions of dollars has been invested over the last two or three decades, and which can cope “very elastically” with this extra usage.
Similarly, there are many industries where, existing fixed capital is being under used – in fact, one of the reasons that they have been able to continue in business, and the reason there are so many zombie companies, is that they have been able to finance that sunk cost, from very low interest rates, and a reluctance of banks to foreclose and cause a fire sale of assets – which can increase be used more effectively without any additional investment in fixed capital.
A McDonald’s restaurant, may be busy or not busy, but the cost of building it and fitting it out is the same either way. If it becomes busier, it will invest more capital as variable and circulating constant capital, employing more staff, buying in more buns and burgers and so on.
Moreover, if next door is a KFC, both will invest in this additional capital to meet the additional demand, as Marx sets out in his discussion in rent, and his critique of Ricardo’s argument, which you have repeated, that such investment is only driven by higher prices and profits. Marx points out that simple increase in the population drives higher demand, and that capital thereby naturally expands to accommodate that higher level of demand.
If, more people want to buy fast food, and existing supply does not meet it, then a McDonalds restaurant will employ more staff and burgers to cater for them, even if that means its rate of profit from doing so falls. It will do so, because in gaining these additional customers, its mass of profits will rise, and it will stop those customers, going instead to the KFC next door.
Its only if the additional investment is so great, that the supply exceeds the demand, pushing the prices down to a level whereby a smaller mass of profit, results from the investment (i.e. the condition of overproduction that Marx describes in Chapter 15) that firms would not seek to invest and capture larger market share. But, as Marx sets out in Chapter 15, no individual firm, believes that such overproduction is their fault, rather than the fault of other producers, and so they always believe that they can invest and let their competitors bear the cost of the overproduction.
So exactly what’s the point of Boffy’s tour of the “may or may not be” world? That the decline in capital spending is NOT indicative of impaired accumulation? That deflation is not the product of overproduction which is the result of prior accumulation?
We’re not living in a might be or the what-if world. We’re living in the world of capitalism where the TREND of capital investment correlates pretty well with overall expansion of the capitalist economy; where the trend in fixed asset accumulation correlates pretty well with historical tendency of the rate of profit to decline.
And it’s a world where overproduction is not the overproduction of use-values, but of capital– of the means of production as capital.
“The US Federal Reserve Bank (Atlanta) reckons that the probability of a new recession is not far short of where it was in late 2007, just before the Great Recession arrived.”
Or looked at from another less catastrophist perspective, it is, according to the graph, lower than it was at the end of 2011, when there was just the onset of the normal three year, cyclical slow down!
What does Boffy hope to accomplish here? Does he think that Michael will at some point cry out ‘You got me, I was foolish to go against the gospel according to Boffy!’
Michael presents facts and makes predictions often correct, Boffy just keeps giving us Marx quotes. If only he’d found religion instead then he could be bothering people about Leviticus instead of trying to use something from Theories of Surplus Value to prove his inane points.
Meanwhile, the stock markets fall off the table; industrial output in China and the US is decelerating if not already in outright contraction, rail shipments in the US are down 5% (and more) on a year over year basis, world economic growth is barely above the recession level (2% growth on the world level is considered recessionary), growth of world trade is less than half of what it was pre-2007, the recovery from 2008-2009 is the slowest and weakest from any contraction since WW2— but in the eternal sunshine of Boffy’s spotless capitalism, it’s spring, it’s summer, or late summer, or Indian summer, or the endless summer of the long wave.
Well, here in NYC, it’s 18 F (8 Celsius), the wind-chill has it at zero, and we call it winter.
Sorry, that’s -8 Celsius
I am glad others are pondering the point of Boffy’s comment. His he saying that his prediction for 2016 is that McDonalds and KFC will be a competitive battle to see how many people they can infect with type 2 diabetes?
That is not so much a prediction as a fact of life, whether capitalism is in crisis or not.
It is clear that the predictions of the mainstream economists have continually been found wanting. A bit like Boffy’s prediction that inflation would explode, that house prices would collapse etc. He was predicting the green shoots of recovery in early 2008 and hasn’t stopped beating the drum since. I was expecting nano gene bots by now, given Boffy was promising a new technological revolution. i think the guys in the lab need to pull their finger out and fast.
Maybe Boffy is so optimistic because he wouldn’t want to be labelled an ISIS supporter, as this is the sort of reductionism that exists in the sectarian world Boffy inhabits.
Must be a British thing.
Incidentally I can’t see any catastrophist perspective in what Michael writes, just sober and clam analysis of the facts and a use of Marxist tools to predict the direction. Though I think the latter is a bit of a fools errand personally.
Whether capitalism is in crisis or doing nicely the message is the same for me, workers of the world unite, you have nothing to lose but your chains.
My own predictions for 2016, along with an assessment of how last year’s predictions fared is given in my post Predictions For 2016.
Well I read Boffy’s predictiopns and well….. he knows how to put a good gloss on things. The whole Syriza thing, everyone knew they were going to get elected, that wasn’t the big issue with Syriza, the issue was what Syriza would accomplish in office. He defends the reprehensible betrayal of Syriza with crap about how they seemed proactive at first. He then skips over to Podemos without bothering to reflect on a party that within six months had given all in to austerity despite the initial election and the later referendum both giving the Greek people’s opinion on whether to fight.
He also got the election of Labour wrong, something where Michael Roberts was way ahead of him. Instead he moves on to making himself a prophet of Corbynism, we have already seen Jeremy sell out on the Syria vote.
As for 2016 we have nothing about a recession, on the contrary things are going to be good. Of course non-sequitors about various new industries, apparently landing rockets and health care apps are a big deal. Is private space the next rail, auto etc for capitalism? I have my doubts, for starters you can breathe without apparatus and have gravity at the end of your rail or auto trip.
I don’t think Corbyn sold out on Syria, he was clearly opposed to the bombing. You could say he should have sacked Hilary Benn. But you can’t be a politician without indulging in realpolitik.
Today’s ADP US Payroll data showing 257,000 additional jobs is good news. It is 100,000 more jobs than required to reduce the unemployment rate, and follows a similar pattern for the last couple of years.
It means that labour reserves are being used up, which is the basis for rising wages. The so called slack in the labour market that Yellen and others have talked about will turn out to be a mirage, because a lot of it, is baby boomers, who having built up assets, savings and pension rights over the last 40 years or so, have been able to utilise it to take early retirement, or to be able to take on just part-time, or casual employment.
The continual growth of payrolls over the last couple of years, and more, in excess of what was required to achieve falling unemployment, means that capital is accumulating circulating capital at a faster pace than fixed capital, in line with what I suggested above, and consistent with Marx’s comments that fixed capital can always be used more “elastically”.
The expansion of the labour force, at this pace means that the mass of surplus value will be expanding faster too, as it is that increased mass of employed labour, which creates the additional surplus value. With more workers in employment, and with wages rising that means an increased demand for wage goods, which will require an increased investment of capital in wage goods production to meet it.
The increased demand for capital relative to the supply of capital will cause interest rates to rise. As the prices of fictitious capital, and other revenue producing assets such as land, are determined by capitalised revenues, the higher interest rates mean lower capitalised prices for those assets, and so the falls in stock, bond and property markets.
That is again good news for the real economy, as less revenue is drained into financial and property speculation, which has been driven by the almost guaranteed large capital gains, backstopped by central banks and governments. It means more incentive to invest in real productive investment – particularly to meet the higher demand for wage goods – so as to obtain the higher rate of profit, as opposed to minimal levels of yields on financial assets.
All round good news for workers, who are thereby strengthened by such developments.
Sure thing, Boffo. The future’s so bright that sunglass sales are soaring. Except…..the US labor force participation rate in November 2015 was at 62.5 percent, below that of November 2005, 2006, 2007, 2008, 2009 (!), 2010, 2011, 2012, 2013, 2014, 2015, in fact below the rate going all the way back to……..1977.
Now is this because “baby boomers are retiring” or…. that the “recovery” from 2009 has been the slowest and weakest on record since WW2?
” because a lot of it, is baby boomers, who having built up assets, savings and pension rights over the last 40 years or so, have been able to utilise it to take early retirement, or to be able to take on just part-time, or casual employment.”
Don’t you just love the precision in Boffo’s analysis– “a lot of it”???
First off, those who have accumulated savings over 40 years of work are NOT “taking early retirement.” They are taking a regular, full term retirement.
And say, Bofforino, care to put some numbers to that “a lot”.. as opposed to the numbers UNDEREMPLOYED, those forced to accept casual, temporary, part-time employment and thus become the “working poor”? No? You can’t? Just like you can’t put any numbers to the “increase in circulating constant capital” that is supposedly offsetting the tendency of the rate of profit to fall? Why am I not surprised?
Well, the US BLS does have those numbers, in its alternative measures of labor underutilization– and those numbers show that the underutilization of the labor force, persists at around 10 percent of the labor force (down from 11 percent a year ago).
“The continual growth of payrolls over the last couple of years, and more, in excess of what was required to achieve falling unemployment, means that capital is accumulating circulating capital at a faster pace than fixed capital, in line with what I suggested above, and consistent with Marx’s comments that fixed capital can always be used more “elastically”.”
But of course Boffy can’t provide us with any evidence that the circulating capital is accumulating at a faster rate than fixed capital– which he thinks speaks of a really bright future where:
“The expansion of the labour force, at this pace means that the mass of surplus value will be expanding faster too, as it is that increased mass of employed labour, which creates the additional surplus value. With more workers in employment, and with wages rising that means an increased demand for wage goods, which will require an increased investment of capital in wage goods production to meet it.”
Well, I can point to some accumulations of circulating capital that don’t seem to support Boffy Pangloss” Political Economy: like in the accumulations of iron ore, copper, zinc, alumina, oil, steel, that are stockpiled, supposedly circulating capital that in fact is going nowhere.
According to Dr. B. Pangloss’ formula, we will see the mass of profits expanding over the coming year or years; there will be increased effective demand for wage goods, and therefore increased investment of capital in wage goods production (that famous Dept. II) to meet it.
Well wage-goods means food, clothing, transportation, shelter, education, medical facilities, etc accessible to wage-earners.
Estimates in the food production sector in the US are for investment to decline based on declining prices for corn, soybeans, etc.; textile and clothing production is choking worldwide from overproduction. Auto sales in the US are estimated to be near the 2000 all time high, fueled not by wage increases, but by declines in gas prices based on overproduction– the increase in fixed capital investment which leads to increased circulating capital– AND subprime lending (sound familiar).
Education is the province of the state and are there any indications, anywhere, that the US government(s) are increasing education spending to make facilities available to workers?
“The increased demand for capital relative to the supply of capital will cause interest rates to rise”
Pay close attention– increased demand for capital relative to supply– What complete nonsense. Where exactly is the increased “demand” for capital? In credit card debt? In subprime auto loans?
The increased demand for capital over the last several years has been driven by low interest rates, and has failed to budge those interest rates; the “demand” has been to take on debt with lower interest rates; to amass cash reserves. With capital expenditures declining, there will be no increased demand for capital. Interest rates may indeed rise, but not because of a “wage push” or capital demand.
The bond market set records for volume in 2014, and 2015. Anybody want to bet on 2016?
And if you want to bet on 2016, can I get you to bet on this:
“It means more incentive to invest in real productive investment – particularly to meet the higher demand for wage goods – so as to obtain the higher rate of profit, as opposed to minimal levels of yields on financial assets.”
There is also the prime working age labor force participation rate which shows that participation among the labor force aged between 25 and 54 years are at its lowest level since 1984, and has been on downward trend since it reached its peak in 1999. It pretty much debunks the idea that the “retirement of baby boomers” account for much of the drop in labor force participation.
Boffy has been making the same predictions since 2008 and when some of them finally happen he will proclaim his genius and his method!
Boffy is also assuming in his rosy picture of tomorrow that all the jobs created will be productive ones. But if they are not, wages will rise and profits will be squeezed even more, thus reducing surplus value.
But what is the real economy? Is it KFC offering us cheap deals to get type 2 diabetes? If so, why is that good news for anyone?
Go see The Big Short
More Good news.
Not only did weekly jobless claims fall, but the December job cuts were the smallest in fifteen and a half years.
The news that new technological developments in the production of microchips have made possible an implant that restores the sight of some blind people is also good news.
An example of the importance of the capitalist state in relation to innovation and technological advancement?
Boffy has found statism in 2016! Who would have predicted that!
I think Boffy might finally have gone mad. He’s pushing out drivel with more speed and efficiency than any robot he might prophesize abou—
…
…Wait a minute.
Even more good news: China suspends stock exchange trading for the 2nd day in a row. DJIA already down 167 points today. Praise the lord, children. Praise the lord.
I suppose that the stellar earnings of Star Wars The Force Awakens means no recession this year in Boffy logic!
This just in from the Boffy Business Outlook Network: More good news: DJIA down more than 350 points– which indicates that real demand for real capital is increasing because real masses of real profits are climbing thereby creating a summer-in-winter in the long-wave of surfin’ surfari psychedelic Marxism, and leading to the decline in fictitious capital. So the decline of the stock markets is really good news for the real economy, which as we know is about use values, so don’t worry, be happy.
“The risk of a new recession is rising.” For more in support of this point, see “Tottering on Another Brink,”.
very good!
More good news. The US economy created nearly 300.000 jobs last month, and it turns out that it created 50,000 more than previously thought in earlier months. The pace of jobs growth even got faster in the last month, and the labour participation rate also rose.
That means approximately 3 million new jobs in a year, and with an average wage of $45,000 a year, that is the accumulation of around $135 in variable capital alone.
The effect of this rising demand for capital on interest rates, is shown by the 200 point fall in the US stock market, following the strong job growth data.
More good news, as stock markets fall, weakening the power of the money-lending capitalists who leech off productive-capital, and thereby limit potential accumulation.
As Marx put, it,
“Talk about centralisation! The credit system, which has its focus in the so-called national banks and the big money-lenders and usurers surrounding them, constitutes enormous centralisation, and gives to this class of parasites the fabulous power, not only to periodically despoil industrial capitalists, but also to interfere in actual production in a most dangerous manner — and this gang knows nothing about production and has nothing to do with it. The Acts of 1844 and 1845 are proof of the growing power of these bandits, who are augmented by financiers and stock-jobbers.”
The fall in the prices of all this fictitious capital, represents a weakening of the power of these parasites, as productive-capital expands. As marx put it again.
“As regards the fall in the purely nominal capital, State bonds, shares etc.—in so far as it does not lead to the bankruptcy of the state or of the share company, or to the complete stoppage of reproduction through undermining the credit of the industrial capitalists who hold such securities—it amounts only to the transfer of wealth from one hand to another and will, on the whole, act favourably upon reproduction, since the parvenus into whose hands these stocks or shares fall cheaply, are mostly more enterprising than their former owners.”
(Theories Of Surplus Value, Part 2, p 496)
With approximately $135 billion of variable capital alone prospectively being accumulated in the coming year, on the basis of the strong growth of jobs, interest rates are likely to rise further, thereby depressing the prices of fictitious capital even more, and causing further falls in stock bond and property markets.
Except according to the US Bureau of Labor Statistics, the gain is 2.5 million jobs, which is not “approximately” 3 million; and the total wage bill up $105 billion, not $135 billion since December 2014.
Since the pre-recession peak in 2007, employment has increased by a total of 3.6% in 9 (NINE!) years, a rate well below the growth of the labor force and the general population, so much so that the ratio of those employed to the civilian population remains, for at least the 6th year in a row, below 60 percent; the RATE of increase in wage/compensation costs is far below that of 2006, 2007, which increases in what Boffy calls “variable capital” are coincident at tremendous upsurge in what Boffy calls “fictitious capital” and the runaway increase in stock market valuations, which is precisely opposite what Boffy proclaims this current increase in variable capital indicates.
Moreover, despite the Fed’s increase of interest rates, interest rate rises have been confined pretty much to emerging market countries and companies, and non-investment grade “junk bond” markets.
And the fall in the US stock market was about 900 points, not 200 points and is based on– overproduction, declining earnings, the big slowdown in China..
Oh, and the expenditure on variable capital is NOT identical with an accumulation of capital. “Capital” is accumulated labor-power, objectified, crystallized, embedded whatever as the property of the capitalists. Accumulated capital is created through the proportional, and disproportional expansion of the means of production REPLACING labor-power.
Other than that, once again Boffy has all his facts straight– straight out his ass.
Also, won’t the drop in shares reduce the value of workers pension funds? And aren’t pension funds Boffy’s vehicle for transforming society?
So good news for KFC and McDonalds in their infect the world with type 2 diabetes project but bad news for the transformation of capitalist society and the emancipation of the working class.
More good new, oil is at $31/barrel– and because oil is part of “c”– and circulating “c” at that, the decline in its price will boost the rate of profit, amounts to a wage increase for workers, and means nothing but good times are ahead, just as Boffy, Mario Draghi and others told us a year ago.
What puzzles me about Boffy is he seems to think that when the stock market is falling this is an indication that the economy is healthy. My understanding is that the stock market index measures the value of capitalist businesses. So if the value of those businesses is falling, how can that be a sign that the economy is healthy and that companies will invest productively?
Another indicator is the savings interest rate, which is at all time lows, surely this is another sign that the economy is fragile and still not recovered from the 2008 crash?
Reblogged this on Socialist Fight and commented:
An article well worth studying.