It has now been eight years of what I have called a Long Depression, since the Great Recession started in January 2008 (see Recessions,depressions and recoveries 071215). So, in looking ahead to 2017, I thought it might be necessary to check what my forecasts or predictions were in previous years.
I have been accused of calling a new slump every year on the basis that eventually I’ll be right. That’s a bit like claiming that the time is midnight when it is not, but knowing that it eventually will be. So were my previous annual forecasts just parroting the view that a slump is just around the corner? Well, at the end of 2011, I said that “2012 is likely to be another year of very weak economic growth in the major capitalist economies. But it is not likely to see a return of a big slump in capitalism.” At the end of 2012, I said “In 2013, economic growth in the major economies is likely to be much the same as in 2012 – pretty weak and below long-term averages. But 2013 is not likely to see a return of a big slump in capitalism.” At the beginning of 2014, I said that “the change in profitability of capital in the US does not suggest a new recession in 2014. ”At the beginning of 2015, I reckoned that “The global economy remains in a crawl and will do so in 2015 for one good reason: the failure of business investment to leap forward. “And at the beginning of this year (2016), I said “As for 2016, I expect much the same as 2015, but with a much higher risk of new global recession appearing….Even if a new global slump is avoided this year, that could be the last year that it is.”
That brings me to 2017. When I made my 2016 forecast, the world economy seemed to be slowing down fast. The US economy was nearly at a standstill, Europe’s ‘recovery’ remained weak and Japan appeared to have entered a new recession. The US economy grew far less than expected in the second quarter of 2016. Real GDP (that’s the value of national production after inflation is removed) increased at only a 1.2% yoy rate. And US business investment fell at a 9.7% annual rate, the third straight quarterly fall. Japan failed to grow at all in Q2 2016, a sharp slowdown from 2% growth in Q1. And business investment there also collapsed. Eurozone growth was still stuttering. Above all, the talk was for a collapse in China’s economy because of excessive debt, bringing about an end to its miracle growth story. As Gavyn Davies, former chief economist at Goldman Sachs and now a columnist for the FT, recently described the economic mood at the beginning of 2016: “At the turn of the year, there were forecasts of global recession in 2016. ….It was a bleak period.”
But as the year went on, the imminent collapse of the Chinese economy proved to be wrong – something I did predict. Indeed, by the second half of the year, there were signs of a modest pick-up in growth as the Chinese authorities pumped more credit into the state banks and corporations and directed a modest expansion in fiscal spending.
Now I have argued ad nauseam that it is the profitability of the capitalist sector of economies that is the driver of investment and thus employment and incomes. A sustained fall in profitability and in the mass of profits will eventually lead to a fall in investment after a year or so and then deliver a slump in the productive sectors of a capitalist economy, triggering in turn, a financial (credit) crisis. That appeared to be increasingly likely in the first half of 2016 as corporate profits and investment fell.
But in Q3, corporate profits in the major economies staged somewhat of a recovery back into positive territory and the major capitalist economies appeared to avoid a further slide down in growth towards zero. Corporate investment remains weak but if profits were to continue rise, then investment too could pick up. JP Morgan seems to think so. In the past, the investment bank’s economists, like me, have highlighted the strong role profits played in driving the capital expenditure (capex) cycle. So “the recent stabilisation in global profit growth bodes well for capex, in this regard.” (JPM).
Financial markets in the last month or so have been buoyed by the possibility of a sustained economic recovery and also by the prospect of huge corporate tax cuts and infrastructure spending to be initiated by the new American oligarch president, Donald Trump, in 2017. And America’s households also seem more optimistic about 2017. The University of Michigan’s consumer sentiment index reached 98.2 in December 2016, the highest reading since January 2004.
This renewed optimism encouraged the US Federal Reserve in December to bite the bullet and risk raising its policy interest rate with aim of controlling credit and inflation, supposedly likely to rise next year. So everywhere, mainstream economists are now forecasting an acceleration in economic growth.
Gavyn Davies summed this up: “there has been a marked rebound in global activity, and in recent weeks this has become surprisingly strong, at least by the modest standards seen hitherto in the post-shock economic recovery….. the first time that all of the major economies have been growing at above trend rates for several years” So, says Davies, “Overall, we can perhaps be hopeful, though certainly not yet confident, that the global economy will begin to overcome the powerful forces of secular stagnation next year.”
But is this optimism for 2017 justified? After all, every year since the end of the Great Recession in 2009, the main international economic agencies, the IMF, the OECD etc, have forecast a rise in GDP growth, trade and investment. And every year they have had to eat their words and revise their forecasts down. Investment in the major economies is now some 20% below where the IMF forecast it would be back in 2007.
But perhaps the agencies and economists are right this time and perhaps my forecast of a new slump (predicted by 2018 or so) is going to be proven wrong. Well, perhaps. But consider this. First, the so-called pick up in US economic growth is minimal. If the current forecasts of the final quarter of 2016 are realised, then the overall growth rate for 2016 in the US will be just 1.5%, the slowest annual growth rate since 2012. And growth in real GDP per person in 2016 will be the slowest since the Great Recession ended in 2009.
Second, much of this very modest growth has come from an expansion of household consumption and corporate borrowing (fuelled by very low interest rates and massive injections of credit). US mortgage rates are at an all-time low and the housing market is booming again. In Q3, personal consumption contributed two-thirds of the 3.5% (annualised) growth rate achieved by the US economy with trade and a build-up of stocks delivering the rest. Business investment contributed nothing.
Global debt sales (half by corporations) reached a record in 2016, matching levels not seen since before the global financial crash. The money raised has gone into financial speculation, buying back company shares and in higher dividends to shareholders, thus boosting the stock and bond markets rather than productive investment.
But household consumption, although the largest part of national spending, does not drive growth. And if the cost of borrowing on credit cards and mortgages is now set to rise as the Fed continues to hikes its floor rate during 2017, as planned, then consumption growth could begin to fall back. The recovery in corporate profits is based on keeping productive investment and wages low (thus weakening productivity growth) and not on an expansion of investment, sales and revenues. Moreover global growth is mainly coming from emerging economies like China (half of total growth). Only one-quarter is coming from the major capitalist economies, with the US, Europe and Japan making negligible contributions.
Globally, corporate debt levels continue to rise faster than productive investment. As the world’s leading bond investment company, PIMCO commented: “The low cost of financing with record-low interest rates simply made building up leverage tempting…This happens every economic cycle, but what makes this one special is the added incentive to issue debt at very low interest rates. (But) it sows the seeds of the next downturn or the next credit event.”
And there is now the prospect of more reductions in global trade as various international trade agreements bite the dust or flounder – while ‘the Donald’ talks of higher trade tariffs and walls.
One of the most graphic illustrations that the days of globalisation are over, making it more difficult for capitalism to get higher profits from the export of capital as profits fall at home, is the sharp fall in global capital flows – from over 25% of world GDP in 2007 to near zero now. Banks have stopped lending to other banks and taken their money back, while investors are increasingly reluctant to buy the corporate bonds of other countries.
Rising interest rates, along with still high corporate debt, sluggish world trade and poor business investment, do not look like a recipe for economic recovery in 2017. So 2017 will not deliver faster growth, contrary to the expectations of the optimists. Indeed, by the second half of next year, we can probably expect a sharp downturn in the major economies. Depending on whether this generates a new credit squeeze on weaker corporations and more pressure on banks. similar to that now being experienced in Italy, is difficult to judge. But far from a new boom for capitalism, the risk of a new slump will increase in 2017.
Michael Roberts Blog 
So now the slump is supposed to arrive in 2018. I made a note last year following a comment by Bill Jefferies about these perennially forecast slumps and slow downs. In this post on March 1st last year, where that comment by Bill was posted, we had the forecast that the slow down in profits, would lead to a slow down in investment, and slump within the next year or so. That would have been 2017, now as Bill suggested in his comment, that has been pushed back a year again, to 2018 “or thereabouts”.
In fact, despite the lower profits growth increased. The low prices on the Baltic Dry Index referred to turned into record high prices on the baltic Dry Index, usually a sign of an uptick about to happen.
A large rise in profits does not signify that a large rise in capital investment is about to happen – let alone a large rise in fixed capital spending, rather than a rise in investment in circulating capital – unless it is also an indication of a sharp rise in demand, which is able to absorb the resultant increased output. And the opposite is also true. Both the rate and mass of profit may fall, whilst investment may rise, provided that firms competing for market share beleive that the market itself is expanding, or because individual capitals believe they must invest in more efficient machines etc. in order to protect or extend their market share.
That is because they plan out their investment over long time horizons, and that investment is geared to the need to protect or extend their market share, and thereby to increase or defend their share of the mass of realised profits, even if that means a lower rate of profit being obtained on that additional investment.
As Andrew Kliman correctly stated,
“Companies’ decisions about how much output to produce are based on projections of demand for the output.”
(Note 4, Page 16, The Failure Of Capitalist Production)
The rate of profit may determine that capital invests in sphere A, where it is higher, rather than in sphere B, where it is lower (though as Marxists economists realised in the 1980’s, and discussed in the pages of Capital and Class and other journals, even that is not a given, because not only do barriers to entry exist, but also barriers to exit also exist) but that simply reflects the important aspect of the law of falling profits that it explains the allocation of capital to different spheres. It does not explain the extent to which capital accumulation itself occurs, because the driving force for capital is to expand, and produce more profits, to preserve and extend market share, even if that occurs with lower rates of profit.
This was the post of 1st March 2016.
https://thenextrecession.wordpress.com/2016/02/28/g20-and-the-mainstream-solutions-to-a-global-slowdown/
I should have said that the Baltic Dry Index more or less doubled, rather than it hit record high prices.
“That is because they plan out their investment over long time horizons, and that investment is geared to the need to protect or extend their market share, and thereby to increase or defend their share of the mass of realised profits, even if that means a lower rate of profit being obtained on that additional investment.”
This is only true in the imperialist phase of capitalism, where monopolies and oligopolies become the dominant form of individual capital.
When you have a perfect monopoly, the prices of production equal their values. Therefore, the individual capital’s profit rate (the monopoly’s) equals the average profit rate by definition. Therefore, there’s the illusion, in advanced capitalist, that protecting market share is more important than boosting the profit rate. Actually, this is a movement of convergence between one own’s profit rate with the average profit rate, although by other means. The principle that it is the profit rate, and not demand, that guides investment, remains valid: you only invest more when said investment compensates the deleterious effect of conquering more “market share” to the profit rate.
Virgens,
Sorry to say, but there are almost as many errors here as words.
Firstly, its not just under imperialism that each capital seeks to defend and extend its market share. That is a fundamental aspect of all capital. Competition drives it to do so.
Secondly, it is not just under imperialism that each capital is led to seek to defend and extend its own market share, even if that means a lower rate of profit. Ricardo was of the view that it is only a higher rate of profit that brings forth additional investment, and Marx says he was wrong.
“Finally, the extension of cultivation to larger areas — aside from the case just mentioned, in which recourse must be had to soil inferior than that cultivated hitherto — to the various kinds of soil from A to D, thus, for instance, the cultivation of larger tracts of B and C does not by any means presuppose a previous rise in grain prices any more than the preceding annual expansion of cotton spinning, for instance, requires a constant rise in yarn prices. Although considerable rise or fall in market-prices affects the volume of production, regardless of it there is in agriculture (just as in all other capitalistically operated lines of production) nevertheless a continuous relative over-production, in itself identical with accumulation, even at those average prices whose level has neither a retarding nor exceptionally stimulating effect on production. Under other modes of production this relative overproduction is effected directly by the population increase, and in colonies by steady immigration. The demand increases constantly, and, in anticipation of this new capital is continually invested in new land, although this varies with the circumstances for different agricultural products. It is the formation of new capitals which in itself brings this about. But so far as the individual capitalist is concerned, he measures the volume of his production by that of his available capital, to the extent that he can still control it himself. His aim is to capture as big a portion as possible of the market. Should there be any over-production, he will not take the blame upon himself, but places it upon his competitors. The individual capitalist may expand his production by appropriating a larger aliquot share of the existing market or by expanding the market itself.”
(Capital III, Chapter 39)
Thirdly, it is most definitely not the case that the price of production is the same as the exchange value for commodities produced by a natural (or any other kind of monopoly). In Capital III, in examining the prices of such monopolies, Marx explains that in these cases, the monopoly producer is able to charge prices higher than both the price of production or exchange value, and the consequence of this is that they withdraw additional surplus value from the rest of the system, so that the average annual rate of profit is thereby lowered for all other capitals.
Marx’s statement on monopoly and prices and profits above the price of production and exchange value.
“Finally, if equalisation of surplus-value into average profit meets with obstacles in the various spheres of production in the form of artificial or natural monopolies, and particularly monopoly in landed property, so that a monopoly price becomes possible, which rises above the price of production and above the value of the commodities affected by such a monopoly, then the limits imposed by the value of the commodities would not thereby be removed. The monopoly price of certain commodities would merely transfer a portion of the profit of the other commodity-producers to the commodities having the monopoly price. A local disturbance in the distribution of the surplus-value among the various spheres of production would indirectly take place, but it would leave the limit of this surplus-value itself unaltered. Should the commodity having the monopoly price enter into the necessary consumption of the labourer, it would increase the wage and thereby reduce the surplus-value, assuming the labourer receives the value of his labour-power as before. It could depress wages below the value of labour-power, but only to the extent that the former exceed the limit of their physical minimum. In this case the monopoly price would be paid by a deduction from real wages (i.e.. the quantity of use-values received by the labourer for the same quantity of labour) and from the profit of the other capitalists. The limits within which the monopoly price would affect the normal regulation of the prices of commodities would be firmly fixed and accurately calculable.”
(Capital III, Chapter 50)
“That is because they plan out their investment over long time horizons, and that investment is geared to the need to protect or extend their market share, and thereby to increase or defend their share of the mass of realised profits, even if that means a lower rate of profit being obtained on that additional investment.”
Sure, that’s why the petroleum industry cut its capital spending year over year by 25% within the space of a few months, when the price plunged; sure, that’s why after years of record orders for maritime ships– tankers, container, and dry bulk, orders collapsed, only to revive again in/around 2014, only to drop again in 2016 because “they plan out their investment over long time horizons, and that investment is geared to the need to protect or extend their market share……..” blahblahblahblahBoffy. Boffy wouldn’t recognize the actual movement of capital investment, boom and bust, if it ran him over….and it has, several times.
I gave a fuller account of these arguments here recently.
When it comes to production and growth I think Michael will find this perspectve very interesting
https://www.stratfor.com/weekly/rise-manufacturing-marks-fall-globalization
What should be exercising us now is the interaction between profitability and interest rates. The question that must be posed is this: can the US economy exit the realm of low interest rates with its economy intact? This is unlikely, as the two main drivers of the economy are consumer spending (a significant amount based on credit) and the rising budget deficit in the US and not investment. Although December figures are not yet in, it is probable that US durable goods in total will have fallen by at least 3% this year adjusted for inflation and the extra day this year and capital goods by 4%. Even with the uptick, total business sales in Q3 were 7.5% below there peak in Q3 2014, and as these sales for all intents and purposes, after factoring for duplication and imputations, represent half the non-governmental economy, this strikes me as recession level conditions.
Returning to interest rates, the latest Congressional Report on the budget, covering November, has already shown a $10 billion rise in interest payments for the month year on year. The data coming through on housing shows contraction as does autos. We will see what retail has done in December shortly. On balance, the figures coming through for November have undone the upward blip found in September and October reverting growth back to below Q3. In hindsight it seems the Hillary Clinton quarter (Q3) was not the start of a new trend.
On a final note, the federal corporate taxes paid in Q3 suggests that a significant element of the increase in corporate profits during Q3 was based on lower taxes and fixed income and other trading by investment banks. They were not based on a rise in operating profits from making things.
Interest rates have not been low for a large proportion of consumers. In the US, as in the UK, many have to rely on credit cards to get through the month, with annual interest rates of up to 30%, whilst another large proportion have to resort to pay day lenders or worse, with annual rates of interest of up to 4000%.
Only some heavily manipulated rates have been lowered, purely for the purpose of keeping asset prices inflated. For example, money printing is used to keep bond prices inflated, which also inflates stock prices, and various means have been used to keep mortgage rates reduced so as to keep property prices inflated.
But, that hyper inflation of capitalised asset prices thereby drained money from commodity circulation, and potential money-capital from productive investment, which thereby reduced economic growth, and depressed commodity prices. Using your money for productive investment continued to carry risks, so even if you could make 10% on such investment, you were incentivised not to do so, because central bank underpinning meant you could make a more or less guaranteed 10-20% capital gain from financial and property speculation.
As these interest rates rise, the virtually guaranteed capital gains, turn into almost guaranteed capital losses, as capitalised asset prices fall, as interest rates rise. But, that creates an incentive for the owners of that newly liberated potential money-capital to start investing it productively, in search of profit, as opposed to capital gain or interest. It means that its likely to result in higher investment, and higher not lower levels of growth.
That is also the case given that wages are rising to that workers become less reliant on credit to cover their spending, and the demand for wage goods rises as wages rise, and the number of workers employed rises.
The rise in interest rates, which causes capitalised asset prices to fall, also means that property prices crash, which means that the cost for workers to provide for their shelter falls significantly, because the price of buying a house falls massively, and with it the cost of renting is also forced down. That reduces the value of labour-power, which provides the basis for a higher rate of surplus value and profit, and with it an expansion of capital.
The same rise in interest rates and sharp fall in asset prices reduces the cost of workers providing pensions for themselves. The hyper inflation of stock and bond prices over the last thirty years meant that it became harder and harder for workers to buy those revenue producing assets for any given level of monthly pension contribution. As employers did not increase wages to facilitate such higher levels of workers contributions, and used the paper capital gain of the pension fund to justify pension holidays by employers, and the destruction of the capital base of pension funds by paying future pensions out of this capital gain rather than revenue, this created the huge pension black holes that exist for many pension schemes.
A collapse in stock and bond markets, will mean that as with the collapse in property markets, workers will find it much cheaper to buy the stocks and bonds required to provide the capital base for their pension funds, required to provide the revenue in future years needed to pay out their pensions.
In short, a rise in interest rates which collapses capitalised asset prices will make a whole range of important expenditures for workers – shelter, pension provision – much cheaper, and will thereby raise real wages, at a time when nominal wages are also rising, causing a rise in demand for wage goods, and consequent increase in investment by those capitals that produce wage goods.
A sharp fall in asset prices is no reason that either commodities or capital should be restricted in its circulation, because that only requires that the mechanisms for ensuring a sufficient amount of currency is available are kept in place. The collapse of those asset prices has nothing to do with the provision of money-capital for productive purposes, as Marx set out, and only represents a transfer of paper wealth out of the hands of one group into those of another.
Given the extent to which workers today also depend upon being able to buy these assets, to cover their shelter and their future pensions, a sharp fall in those prices represents a transfer of that paper wealth out of the hands of the owners of fictitious capital, and into the hands of workers, who now buy them at these knock down prices.
You know what’s funny about what Boffy writes? Besides nothing? It’s the fact that despite the recent doubling of the Baltic Dry Index, (signifying daily hire rates for dry-bulk carrier ships– handling coal, iron ore, grain, etc.), the index still stands at about 1/2 of what it reached in 2013, and less than 1/4 of what it was before the big collapse. But of course that’s history, and like Henry Ford, Boffy knows history is bunk.
You know what’s funny about what Michael Roberts writes? It’s that he was RIGHT way back when, but doesn’t realize it now, so he predicts the onset of as contraction of decline, when in fact we have been in the midst of one, until the 3Q 2016, and the uptick is simply the uptick from a recession, or more probably, a “dead cat bounce” as they call it on Wall Street.
How do we know this? A)profits in the US in the S&P 500 turned positive for the first time in 5 quarters B)in 2015 the volume of world trade grew at 1.4%, generally below what is considered the “recesssion” threshold for world trade, while value of that trade declined 14% which is more than a mere blip, it’s a downright depression C) US GDP, and indeed, world GDP has been “recalculated” and with a positive boost by now categorizing R&D expenses as capital investments rather than intermediate production costs, “zeroed” out, or carried through, in the value of the commodities actually sold. Whereas R&D was an expense against revenue, it now represents a capital investment, whether or not it has any impact on production. That’s some capitalization.
Tell you what else would be fun and/or funny: going back and looking at the predictions Boffy made right here on this blog, around January 17, 2016.
Actually, January 18, 2016
“In fact, despite the lower profits growth increased. The low prices on the Baltic Dry Index referred to turned into record high prices on the baltic Dry Index, usually a sign of an uptick about to happen.”
Uh–oh, correction. This just in from Boffy central.
“I should have said that the Baltic Dry Index more or less doubled, rather than it hit record high prices.”
Yeah, you and the Donald Trump news network, Boffy.
In this 21st century, on this planet, record highs were reached, first in 2007, at about 11,000, only to be topped again in 2008 (sorry, for my earlier confusion) at about 12,000. The record low, recorded in the last 12 months was less than 300– that’s right less than 300; the current “spike” has got the index back to……..about 980.
Yeah, it’s more than a “doubling” and it’s still 90% below record highs, and stillless than half of that intermediate peak notched in 2013.
Maybe on planet Boffy, where the clouds are made of cotton candy, and the bourgeoisie shit sugar wafers, this is a sign of an uptick waiting to happen, but here on planet earth, I think it’s more accurate to recognize clouds as dirt-balls, and shit as shit.
Just speculating here, but is there a possibility that, in the post-2008 world, there is going to be a ‘blackout’ so to speak on future recessions?
Is it possible that we will just not be getting any news from government or media of what is occurring?
The slowdown of the global economy in the past eight years seems to have generated a remarkable propensity among our leaders of freezing in the oncoming headlights. Tepid denial, combined with evangelical optimism is the order of the day.
Is it possible that the only way we will know about a new recession will be through blogs like this that collate the publicly released data of financial and governmental institutions?
Or will the drive towards catastrophe-porn in the media be stronger than denial? Will it be too irresistible to report on stories of corporate bankruptcies and layoffs, and will collapses of the stock-market be too obvious to ignore or explain away as blips?
It seems to me governments and media have spent the past decade equipping themselves remarkably well with tools of denial in the face of climate change disaster. I am wondering if these are transferrable skills in the arts of deception, or is ecological + atmospheric collapse a lot easier to sweep under the rug than economic collapse?
I’m just one of many people who anonymously read this blog but I felt compelled to post for the new year:
1. Thank you so much Mr. Roberts for the work you put into this blog and the clarity you bring to all the misinformation of the bourgeois media. I recommend this blog to everybody and there are many people who read it who don’t necessarily post in the comments.
2. I really wish boffy were banned. He’s basically hijacked this great blog to post nonsense and self-promote. At this point I don’t even read his comments but it makes it more difficult to recommend posts here when I have to qualify them with “don’t read the comments they are full of misinformation.” There is a silent majority who don’t post and read, and while I’m sure Mr. Robert’s wants free discussion, this is a matter of loud people with no self awareness disincentivizing those of us who do have self awareness and would like to post but perhaps don’t have the confidence to quote random passages from vol. 3 and don’t want to be bombarded with nonsense from posting.
3. Having said that even just the posts from Mr. Roberts makes this blog great. My one request would be more posts about specific countries. The posts about china, venezuela, greece, etc and how their economies actually work rather than simply their place in the world economy are rare but very appreciated. I’m sure Mr. Roberts considers himself an economist rather than a historian or agitator but his vision and consistency have built up a lot of trust in us readers. He should exploit that trust more. The posts on china are particularity appreciated, especially since that opinion is basically taboo in the western left and it takes an economist to make the point without polemics or moral outrage. Basically, I appreciate his posts as a Marxist as much as I appreciate his posts as a Marxian economist. That would cause controversy though so if it doesn’t happen that’s fine to, keep doing you Mr. Roberts.
4. Happy new year to everyone here, let’s all have some fun watching the world economy come crashing down in what appears to be it’s terminal crisis.
So you want to ban someone who has clearly gone to great lengths to read and understand what Marx wrote?
I often disagree with Boffy but ban him! What for, raising perfectly reasonable points of contention!
I really hope Marxism at its heart is anti censorship. Let even the idiots (which Boffy isn’t) have their say!
Well it’s not censorship if someone removes posts or bans a person from their blog, forum etc. Just like you have every right to eject someone from your home if you don’t want them there. To add I do believe Boffy is a troll, by his own standards in fact, he’s notorious for designating everyone he disagrees with as trolls. I got labelled a troll by him because I pointed out correctly that he was misrepresenting the views of Ernest Mandel. Of course it’s up to Michael but personally yes I think Boffy has worn out his welcome.
I think it is censorship to ban someone because you don’t like what they say. Whether in this case censorship is justified is another question.
When I visit this site I don’t think I am entering someones house but accessing public information, 21st century style!.
I don’t see the point of having a public website and not expecting an array of opinions. Unless we view these people as prophets whose word we must take as gospel. Now in my opinion as soon as you broadcast your opinion on the World Wide Web, as soon as you think you are worthy of sharing your ideas, then you are fair game.
If you don’t like trolls, if you want to avoid abuse, I say keep your mouth shut and use the internet for watching kids in underpants waving light sabers!
On the issue in question, why can’t both profit and accumulation drive investment to one degree or another? If profit didn’t influence investment then how could investment move to high profit areas as Marx outlines in volume 3?
In this day and age investment and the ownership of the firm are not necessarily the same thing!
Boffy has attacked Michael for his predictions but Boffy has been claiming for a number of years now that inflation will rise significantly, stock markets will collapse and house prices will fall massively, none of these things have happened. At what point do we say Boffy was wrong and that if these things did happen it wouldn’t prove Boffy’s prediction was correct being they occurred so long after the prediction?
here are my economic predictions for 2017:
Lower corporate taxes
increases in homelessness
2017 will be in the top ten for warmest years on record
Waiting times in hospitals will be greater
Ambulance response times will worsen
Private debt increases
Happy New Year to all!
Edgar,
I long since stopped reading any of the comments of the trolls, who are marked by their failure to understand anything, or to discuss anything in a comradely manner, but whose ignorance and true nature is manifest in their attempt at the earliest opportunity to simply resort to ad hominem attacks, and intemperate language, and to avoid at all costs having anything constructive to say, or honest discussion of issues.
I prefer to discuss the important issues and ideas. In that regard, I assume that what you meant to say above was, “On the issue in question, why can’t both profit and demand drive investment to one degree or another? Rather than “On the issue in question, why can’t both profit and accumulation drive investment to one degree or another?”
And, of course, that is correct, and indeed what I said. Firms will not (usually) invest additional capital just because they anticipate additional demand, if they know that the prices they can sell that output at, do not reproduce their capital, and provide a profit. The point here being that made by Marx, which I quoted above, no individual firm will know decisively, in advance, that the prices they eventually sell at will be high enough to produce such a profit. As Marx says, in the quote I gave above,
“But so far as the individual capitalist is concerned, he measures the volume of his production by that of his available capital, to the extent that he can still control it himself. His aim is to capture as big a portion as possible of the market. Should there be any over-production, he will not take the blame upon himself, but places it upon his competitors. The individual capitalist may expand his production by appropriating a larger aliquot share of the existing market or by expanding the market itself.”
(Capital III, Chapter 39)
Moreover, each individual capitalist may see that their capital investment will be capable of producing additional surplus value, and the potential, therefore, of additional profit, but the point is, as Marx sets out in Capital III, Chapter 15, the act of producing the surplus value is only one part of the task, the other is to be able to realise it as profit, from the sale of the produced commodities.
“Now comes the second act of the process. The entire mass of commodities, i.e. , the total product, including the portion which replaces the constant and variable capital, and that representing surplus-value, must be sold. If this is not done, or done only in part, or only at prices below the prices of production, the labourer has been indeed exploited, but his exploitation is not realised as such for the capitalist, and this can be bound up with a total or partial failure to realise the surplus-value pressed out of him, indeed even with the partial or total loss of the capital. The conditions of direct exploitation, and those of realising it, are not identical. They diverge not only in place and time, but also logically. The first are only limited by the productive power of society, the latter by the proportional relation of the various branches of production and the consumer power of society.”
And, of course, if every firm in a particular sphere increases its investment considerably, the level of output rises considerably, the supply of these commodities on the market expands considerably relative to the demand for them, and so market prices may then well fall below the price of production, or even cost of production so that the capital cannot be reproduced, and so as Marx states above, a crisis of overproduction occurs. Its why Marx says that such crises arise as a result of high rates of profit, high levels of economic activity and high levels of output, and not from low rates of profit.
A high rate and mass of profit also affects accumulation in other ways. Firstly, it is of course, a requirement (if we set aside foreign trade) that a sufficient amount of surplus value and its physical equivalent, a surplus product, exists, because without it, no accumulation can occur. The larger the proportion of the surplus value and surplus product, the greater the potential for accumulation.
But, this potential whilst being a necessary condition for accumulation is not a sufficient condition. If a large surplus takes the form of a surplus of realised profits, and potential money-capital, then as Marx describes in the chapters on the rate of interest, and the business cycle, if the supply of this potential money-capital outstrips the demand for it, interest rates will fall. The owners of money-capital may then use their money for financial speculation, or to consume part of the surplus product unproductively.
As I set out in the blog post previously referred to, in relation to large scale investment in copper production, firms even where a large rise in the rate and mass of profits occurs, for example as happened with copper after copper prices and profits shot up after the new long wave boom began in 1999, may refrain from the huge capital investments required, unless they are confident that these levels of elevated demand are likely to persist for the future.
That is why I said that Andrew Kliman was correct in his comment,
“Companies’ decisions about how much output to produce are based on projections of demand for the output.”
(Note 4, Page 16, The Failure Of Capitalist Production)
But, as I also pointed out some time ago in discussing that investment in such primary production, the consequence is nearly always to lead to the actual investment becoming bunched, which when these long term investment then bear fruit – usually around 12-13 years after the splurge – it results in the kind of overproduction that Marx discusses in the quotes above, it leads to a sharp drop in market prices below the price of production, and for some producers below the cost of production, which then causes a crisis of overproduction.
That is what some years ago I said would happen with oil, copper and so on, and that is what has happened.
On your point,
“If profit didn’t influence investment then how could investment move to high profit areas as Marx outlines in volume 3?”, I again made exactly that point. But, that the existence of a higher rate of profit in one sphere should tend to cause investment to move to that sphere, rather than some other, is not the same as arguing that if the rate of profit as an average rate rises, this must result in more investment in total. Its rather like Marx’s argument about the role of competition in relation to the formation of average market values, as opposed to its role in creating an average rate of profit.
Competition, Marx says, within a sector brings about a common average market value, out of the multitude of varying individual values for the particular commodity resulting from different firms producing with different levels of efficiency. But, the existence of this common market value, necessitates that all of the individual firms in this sphere, thereby make different rates of profit, because they each produce at different rates of efficiency.
Similarly, and this is what Ricardo did not understand, as Marx sets out in Theories of Surplus Value, it is precisely because of the existence of this average market value in each sector, which ensures that different rates of profit exist between these different sectors, because each sector has a different organic composition of capital. It is competition between capitals to obtain this higher rate of profit that drives capital from low profit spheres to high profit spheres, and thereby creates an average rate of profit, but which alos means that commodities then exchange not at their exchange values, but at their prices of production.
“In this day and age investment and the ownership of the firm are not necessarily the same thing!”
I’m not sure what you mean by this. Investment, the accumulation of productive-capital is something done by the firm whether it is a sole proprietor, partnership, private company, co-operative, or public limited company. I think you have confused “investment” here with speculation, i.e. the purchase of bonds, shares and so on by the owners of loanable money-capital, which may or may not be used for the purpose of actual investment in real capital, as Marx sets out in the chapters of Capital III, dealing with exactly that distinction, and the nature of fictitious capital as against real capital.
On predictions. At the time I spoke a couple of years ago about rising inflation and interest rates, I made the point of saying that this prediction was not the same as that I made just a few weeks before the 2008 financial meltdown occurred. I made the point that it was impossible to say exactly when that would occur, because it depends on a number of complex and inter related factors. All that could be said was that this is the logic of the situation, which must play out.
The fact, is as Marx sets out in the chapters on the interest rate and business cycle, if the rate of profit starts to get squeezed, as it does at this phase of the long wave for the reasons I have described, then the mass of available realised profits that create the potential loanable money-capital, starts to get outstripped by the demand for that money-capital, so interest rates rise. At it most acute, as Marx sets out, it is during a crisis, when firms profits collapse, and they need money simply to stay afloat, that they will borrow at almost any rate of interest, and so the owners of that money-capital will only lend it at very high rates.
We are far from such conditions at the moment, but we are at a stag where slowing productivity, stabilised primary product prices, and higher wages do start to squeeze profits so that the supply of money-capital declines relative to the demand for it, causing rates to rise. Furthermore, as Marx describes when interest rates rise, the capitalised values of revenue producing assets such as shares, bonds and property necessarily falls.
Actually, a couple of years ago I wrote, explaining why it was that money printing has caused a deflation of commodity prices as the other side of the hyper inflation of asset prices. But, a look at the way primary product prices have risen in the last year, as again i predicted they would, after the overproduction was worked through, shows the potential for that higher inflation.
I have always said that its impossible to say when asset prices would collapse, precisely because they do not follow the same kinds of laws that real capital, and the real economy follows. That is particularly the case, when we have seen unprecedented levels of state intervention to keep those asset prices inflated.
In relation to property prices, I have also written in the past about the unreliability of the data, and the divergence between the situation in different regions. In my own area, whatever the estate agents might try to say, the selling prices of houses are, in reality around 20% below their 2010 levels, as I know from personal experience and extensive analysis of local property prices.
Edgar,
It also occurred to me that as a cautionary tale about predictions, particularly predictions about financial markets, as opposed to the real economy is the experience of Marx himself.
In his later years, when he spent a lot of time walking with his grandchildren on Hampstead Heath, he also took to stock and bond market speculation, but with a notable lack of success. He also attempted to establish a co-operatively run newspaper without success.
By contrast, David Ricardo, made a great fortune from his own stock and bond market speculations, and Keynes, who wrote that “markets can remain irrational for much longer than individuals can remain solvent” also made a fortune from stock market speculation.
Clearly, the ability to predict the short term movements of interest rates, and with it the movements of capitalised asset prices, has little to do with the ability to understand the rationality and functioning of the real economy, or else we should all abandon Marx and line up with Ricardo and Keynes.
What Boffy says above might have some relevance if he was an investment adviser, telling people which stocks to pick, which bonds to buy or sell, whether to go long, or sell short, call or put– but he isn’t.
He pretends not to talk about how to make money in the capital markets, but rather to analyze the “rationality and functioning of the real economy..” a “real economy” where “demand for capital outstrips supply,” climbing interest rates work to the advantage of…..well, the working class if you pay close attention to what Boffy writes; where maritime shipping is about to experience a profit boon.
BTW, I’m not for banning Boffy at all. I think his arguments should be presented, confronted, shown to be the distortions of reality that they so clearly are, demolished, and cast aside.
“I think his arguments should be presented, confronted, shown to be the distortions of reality that they so clearly are, demolished, and cast aside.”
Something you do very well!
Reply To Edgar on Predictions
Edgar,
The fact remains that over the last seven years the catastrophists have repeatedly claimed that the global economy was going to succumb to some new economic crisis and slump. I, and others, have not only said that that was not going to happen – other than if some new, large financial crisis was allowed to bring it about via a credit crunch – but that it has not happened. The basic fact is that during the whole of that period the catastrophists have been proved wrong, and I and others have been proved right.
The fact is that over that seven years, the world economy has not been in a long depression, nor any kind of depression, nor even a recession. The fact is that, year after year, the world economy has continued to grow, despite having to recover from the worst financial crisis in history, despite the imposition of austerity by conservative regimes across Europe, despite the open attempts of Republicans in the US, at state and congressional level, to undermine Obama’s policies of fiscal stimulus, and the deliberately self-inflicted wounds they imposed via the Debt Ceiling and other political crises, and despite the fact that central banks pursued a deliberate policy of trying to keep asset prices inflated, via money printing, at the expense of diverting potential money-capital from productive investment into financial speculation.
Back in 2012, for example, Paul B. Smith wrote in the Weekly Worker that economic catastrophe was at hand, and that the world was already suffering from such an economic crisis. He told us that Chinese growth would be slashed in half to just 4.2%. In my response, at the time, I pointed out that, given that China is the second largest economy on the planet, even an annual growth rate of 4.2% is hardly something to be sneezed at, and certainly not a description of a “depression” that any normal person would recognise. In fact, however, I pointed out that the IMF’s forecast that Smith had cited, was a “worst case scenario”. Moreover, Chinese growth had been deliberately slowed by the authorities to avoid overheating! And, of course, the Chinese economy’s growth was not slashed in half. It continued to grow at around 7%, as I had predicted. What is more 7% growth in the Chinese economy today, when it has doubled in size from its position a decade ago, is the equivalent of a 15% rate of growth at the earlier period.
In fact, as I pointed out in the WW at that time, according to the IMF, world GDP had grown by 5.1, 5.2, 3, – 0.5, 5.1, 4.3 and 4.5%, respectively in the years from 2006 on.
Other catastrophists came forward in the WW to claim that world capitalism was doomed because oil was running out, and energy prices would would soar. In a series of WW posts Tony Clark continued to provide this Malthusian narrative. I pointed out back in 2012 that no such catastrophe was going to happen, because capital had already diminished the significance of oil in respect of economic growth, by revolutionising its usage, and it would also now deal with the shortages and high prices, by new investments in technology. At the very moment when Tony Clark was at his most vociferous in proclaiming the onset of this doomsday, the price of oil and gas fell sharply, as I predicted, because capital invested large amounts in the technology of fracking etc.
At the end of 2014, start of 2015, in a series of posts I wrote that this splurge of investment in oil and gas production, as well as in a range of primary products including agricultural production would result in a large overproduction of those commodities, and a subsequent sharp fall in prices, until such time as that overproduction and over supply was cleared from the market. I predicted that oil prices could spike down to as low as $25 a barrel, before eventually recovering in 2016 to a range between $40-$70, prior to finally moving up to a price of production of around $80 a barrel.
Where again earlier, the catastrophists had been proclaiming Armageddon because of food riots, as food prices had spiked, I was again proved right as agricultural product prices fell sharply as supply rose sharply. Global milk prices fell to less per litre than oil prices. Oil prices themselves, as I predicted fell to a low of $26 a barrel, before rising again into the range I had suggested, and now stand at just below $60 per barrel for Brent, and rising.
In that same series of posts, I argued that the fall in oil prices would badly affect those economies that relied on oil rents to cover state finances. Again proved correct as the effect on the economies of Venezuela, Saudi Arabia, Russia and Norway amongst others demonstrate. I said that it would mean that these economies from having been large suppliers of potential money-capital would become large demanders of potential money-capital, required to cover their budget deficits. So, it has been. Saudi Arabia has been led not only to issue bonds on a large scale, but is proposing the world’s largest IPO, in what is rumoured to be a $2 trillion sale of shares in Saudi Aramco.
At a time when many, including many mainstream pundits, were predicting that falling prices for oil and other primary products would cause the disinflation appearing in 2015, to turn into global deflation in 2016, certainly across the EU, I argued that was unlikely and that inflation would rise. And, not only did primary product prices begin to rise as I had predicted, but so did global inflation, particularly in emerging economies, whose currencies also suffered as the dollar rose. That also led to sharp rises in interest rates in many of those emerging economies.
As Marx points out, to compare the rate of interest between say England and India it is not the bank rate, or yields on government bonds that are to be used, but the rates that suppliers of equipment charge to each other. Another measure would be the various overnight borrowing rates, such as LIBOR, EURIBOR etc., and as predicted these rates have been rising over the last year, in some cases sharply. But, even the heavily manipulated yields on government bonds have also been rising. In the middle of last year, the 10 Year Gilt Yield stood at around 0.60%, and by the year end it was around 1.60%, or more than double, whilst the US 10 Year Treasury Yield had risen from around 1.60% to around 2.60%.
At the start of last year, Michael and others were again predicting that some new slump was near at hand, and pointed to the deflation, the fall in the Baltic Dry Index and so on. But, the reality has again been different. The global economy continued to grow. China as the world’s second largest economy continued to grow at around 7%, and its economy appears from current PMI data to be strengthening further. The US despite the best efforts of Republicans to frustrate it, has also continued to grow, and the UK even despite Brexit has also continued to grow. In fact, the US continues not only to grow, but to create new jobs at a rapid rate.
And, as Jlowrie says, its a good thing too, because not only does Marx point to the need for capitalism to revolutionise the productive forces as the prerequisite for socialism, and sets out that the best conditions for labour flow from such a rapid growth of those productive forces, but any actual economic crisis, were it to happen would be very bad news for workers indeed. It is not the left that would benefit from such a crisis, but the populist right such as Farage, Le Pen and Trump, and worse.
Boffy has a very selective memory when it comes to his own predictions. Some might find it interesting, although numbing, to wad through Boffy’s blog posts of January 2016 and check the predictions, evaluations, assessments made there to what has actually occurred.
Here’s one example: “What we see, in the US, therefore, is that the accumulation of capital is beginning to take place more on the basis of extensive accumulation, where instead of one new machine replacing two older machines, we are seeing instead, one new machine, being added to the existing stock of those same new machines.”
Care to provide any references, data, numbers that might be able to verify that– like maybe decreased rates of depreciation as older machines are not retired and taken out of production? Got any fries to go with that shake?
Pick an industry– say aircraft production, or locomotive production, or automobile production, or oil– yeah let’s try oil and see if we can find one machine being added to two, rather than replacing two– which of course contradicts the very fact that capital spending has declined yearly since 2013 on a global scale…. and on and on it goes.
I personally wouldn’t call Michaels– or anyone pointing out that this has been the steepest decline since WW2, with the slowest recovery; with millions “dropping out” of participating in the labor force, with unemployment still near record highs in Europe, particularly among those 18-34; with industrial production in the EU and the US barely above the 2007 level, if above it at all; with capacity utilization rates in the US significantly below the long term average and BELOW the TROUGH reached in the 1991 and 2001 recessions– a “catastrophist.” I’d call him or her a sober realist.
“I assume that what you meant to say above was, “On the issue in question, why can’t both profit and demand drive investment to one degree or another? Rather than “On the issue in question, why can’t both profit and accumulation drive investment to one degree or another?””
No Boffy I meant the natural dynamic of capitalism, more particularly competition. I was actually referring to a statement you made in your first post regarding the ‘driving force of capitalism to expand etc. So I wasn’t specifically referring to demand at all and wouldn’t entirely agree with the statement by Kliman in this regard.
“I think you have confused “investment” here with speculation”
Not necessarily, not all investments are mere speculation but contribute to reserves etc. So I think the point is that investment can respond more quickly to expected returns in this day and age, more so than in the past.
Remember what I said about planet Boffy, which so scandalized the guardians of scientific sincerity? Let’s try this on for size:
“In fact, as I pointed out in the WW at that time, according to the IMF, world GDP had grown by 5.1, 5.2, 3, – 0.5, 5.1, 4.3 and 4.5%, respectively in the years from 2006 on.”
really? Well in all scientific sincerity, if you check the IMF’s World Economic Outlook for 2016 you’ll find these numbers:
1998-2007 average annual rate of growth: 4.2%
2008 3.0; 2009 -0.1; 2010 5.4; 2011 4.2; 2012 3.5; 2013 3.3; 2014 3.4; 2015 3.2%– significantly less, in my opinion than what Boffy would like everyone to believe, and considerably below the AARG from 1998-2007, which does include the 2001 recession period.
But wait, there’s more, because if you go the World Bank’s website and check that data, you get the following for the rate of GDP growth:
2007 4.32, not Boffy’s 5.2%; 2008 1.84, not Boffy’s 3%; 2009 -1.70, not Boffy’s -0.5; 2010 4.37, not Boffy’s 5.1%; 2011 3.1, not Boffy’s 4.3%; 2012 2.44, not Boffy’s 4.5% [on planet Boffy GDP growth accelerated in 2012 vs 2011; here on planet earth, GDP growth decelerated]; 2013, 2.48, not Boffy’s yet to be supplied sunnier figure; 2014 2.69, 2015 2.7
(I did some rounding, but only in the interests of scientific sincerity).
So what’s the difference between the IMF and the WB? I don’t know, and I don’t really care to be honest. The point is that Boffy, where he doesn’t simply make things up, doesn’t bother to go back and check for revisions– or even conflicting valuations.
Scientific sincerity? Come on, it’s all ideological tub-thumping to prove that capitalism is the once and forever self-perfecting system, bringing the “gifts” of “civilization” — science of course being the most precious gift, to the ignorant mass, one of whom I’m only too happy to be.
Edgar,
The point I was making was that in Marxist terms “investment” and “accumulation” are the same thing. The process as marx explains is that capital is self-expanding value. It is only capital if it does self-expand. Self-expansion as Marx sets out is not the same thing as the accumulation of capital.
With simple reproduction, capital self-expands, a greater sum of value exists at the end of the process than started it, because surplus value has been produced during the production process. But, that surplus value need not be accumulated. The capitalist has to live, and thereby consume some of the surplus they obtain. If levels of social productivity are low, as Marx says, the proportion which must be used for this unproductive consumption by the capitalist is high – indeed as he and Engels describe, if social productivity is not above a certain minimum level the production of any surplus value or surplus product is itself impossible.
It is only when these minimum requirements for the consumption of the capitalist – and the other leeches such as the landlords and money lenders – have been met, that what is left of the surplus value is available to be accumulated as capital. That’s one reason that Marx sets out that a) capital is not accumulated from profit, and b) as the mass of surplus value rises, the proportion required to meet unproductive consumption necessarily falls, and the portion available for accumulation/investment rises.
So, when you say,
“Not necessarily, not all investments are mere speculation but contribute to reserves etc. So I think the point is that investment can respond more quickly to expected returns in this day and age, more so than in the past.”,
this suggests to me that you are using the term “investment” not as marx does but in the way it is used in common parlance to mean the buying of shares, bonds and so on. But, as Marx sets out in the series of Chapter in Capital III on the relation between fictitious capital and real capital that kind of “investment” is not investment at all in Marx’s sense.
To the extent that the money-capital loaned by a money lender, be it as a loan, the purchase of a bond, or a share, is used by a productive-capitalist to accumulate real capital – machines, materials, labour-power – it is only this last act that represents investment/accumulation. The same money-capital, as Marx sets out, simply functions twice, once in the hands of the money lender (bank, bondholder, shareholder), and then in the hands of the productive-capitalist.
The first advance of the money-capital does not represent investment or an accumulation of capital, it merely represents the purchase of fictitious capital as a loan/bond.share certificate in return for the money advanced. It has no power to self-expand as capital other than if it is used by a productive-capitalist to accumulate real capital, and thereby for that capital to self-expand, i.e. produce surplus value, and it is only a share in this surplus value, that the owner of the fictitious capital, the money-lender then obtains.
But, what money printing – especially when combined with measures of austerity to suppress aggregate demand – actually achieves is an encouragement for the owners of money-capital to use their loanable money-capital not for this purpose, of advancing money-capital for the purpose of buying new bonds, shares etc., or to make loans for the purchase of the elements of productive-capital, so as to obtain yield/interest, but instead to hold on to and to attempt to acquire additional existing shares, bonds etc. for the purpose of obtaining a capital gain, as the market prices of those financial assets are driven higher.
That is why we have seen in the past decades low levels of IPO’s, and profits used to buy back shares etc. It is why, as Michael referred to some time ago, in the UK the vast bulk of bank lending has gone to finance property speculation, whilst medium and smaller companies have been unable to borrow money-capital at almost any rate of interest – which is why we have seen the growth of peer to peer lending as savers also saw their rates of interest driven lower, and so means of lending directly to businesses were developed.
In the chapters on this in Capital III, which I don’t have time at the moment to reference, Marx makes a clear distinction between this build up and accumulation of potential money-capital, that results during periods of high rates and masses of profits, and its use for the purchase of these various forms of fictitious capital, as opposed to the actual investment in and accumulation of real capital.
It is one reason, particularly after 2008 that economic growth has been constrained because the incentive has been to use realised profits, and other accumulated money hoards for the purpose of such speculation rather than for the purpose of capital accumulation. Yet, despite that, despite the fact that central bankers and states have been willing to sacrifice real capital accumulation and growth on the altar of protecting the paper wealth of the top 0.001%, by encouraging that speculation and creation of asset price bubbles, the world economy has continued to grow, rather than to go into recession let alone a depression, let alone a long depression.
It is a question of the second derivative, of the direction of travel. Global GDP has continued to rise, not to move in the opposite direction, and in the last year global market rates of interest have started to rise (even the manipulated sovereign bond yields have started to rise too), and inflation rates are rising too, where only a year ago there was no shortage of forecasts that the world was falling into a spiral of commodity price deflation! So, for example, the price of copper, oil and other primary products and of related prices such as the costs of transporting those commodities reflected in the Baltic Dry Index was falling at the start of 2016 leading to predictions of deflation, depression and so on, because of past over accumulation of capital and the resultant overproduction (on top of the fact that since the 1970’s there was a massive rise in productivity that reduced the actual value of many of these commodities and of transport – (the World Bank produced a report using data from the McKinsey Report,which showed the productivity in 1965 of dock labour (prior to containerisation) was 1.7 tons per hour. Post containerisation, in 1970, that had risen to 30 tons per hour. The average ship size went from 8.4 GRT to 19.4 GRT, insurance costs fell from £0.24 to £0.04, and capital tied up in transit halved from £2 per ton to £1 per ton. Today, 90% of goods are transported by container, in an integrated road, rail and sea system. As the report suggests, the reduction in cost and increase in speed has also had a significant effect in stimulating the circulation of commodity-capital in the process).
If at the start of 2016 predictions of impending catastrophe, depression and deflation due to those falling prices actually proved to be false, and despite all of those factors, the world economy grew, that despite all those factors, and the imposition of austerity, of political crises in the US, EU, of the Brexit vote and so on, the world economy grew, and in some places that are becoming the new emerging markets, the rate of growth has remained relatively high throughout, then how much less likely (or rational) is it to predict some new global slump and long depression when all of those metrics start to move in the other direction?
If that predicted slump did not occur when the Baltic Dry Index was falling sharply, (and those falls were stated as an indication of the slump) how likely is it that such a slump is on the horizon, when that same Baltic Dry Index doubles during 2016? If a slump did not happen when measures of austerity were being imposed so as to keep asset prices inflated – and for other reasons such as the political motivations of Republicans to undermine Obama, and of conservative politicians in Northern EU countries seeking to prevent fiscal transfer to the periphery – how likely is it that such a slump is on the horizon, when even central bankers have realised that the game was up with keeping up the inflation of financial asset prices, and that only real capital investment in productive capacity can produce the surplus value required to produce yields on those financial assets? If the disinflation of commodity prices that was used as a basis for predicting such a slump and a collapse into a spiral of deflation, instead turned during 2016 into higher levels of inflation, what does that tell you about the likelihood of a slump?
What is more, if a new slump was predicted on the basis of all those factors, and of their continuation and intensification, but instead those factors start to move in the opposite direction, those that predicted catastrophe still continue to do so, what does that tell you about those making those predictions? At least Keynes had the sense to say when the facts change he changed his opinions. The catastrophists predict a new slump is close at hand whatever the facts. Its the problem also with mathematical models and empiricism, as Engels pointed out with those that wanted to explain the transformation of exchange values into prices of production, it leads to confirmation bias.
Here’s another scientific certainty from Boffy, and one of my personal favorites:
“In short, a rise in interest rates which collapses capitalised asset prices will make a whole range of important expenditures for workers – shelter, pension provision – much cheaper, and will thereby raise real wages, at a time when nominal wages are also rising, causing a rise in demand for wage goods, and consequent increase in investment by those capitals that produce wage goods.
A sharp fall in asset prices is no reason that either commodities or capital should be restricted in its circulation, because that only requires that the mechanisms for ensuring a sufficient amount of currency is available are kept in place. The collapse of those asset prices has nothing to do with the provision of money-capital for productive purposes, as Marx set out, and only represents a transfer of paper wealth out of the hands of one group into those of another.”
So….ummhhhhh… can we look to recent history, you think to find some sort of confirmation of this? Well, OK, post 2000, the US Fed’s fed funds interest rate in the US decline steadily until around 2005, and then turn up, plateauing in 2007-2008 at a at 5%, somewhat higher than the low point that was less than 2% back around 2004-5.
And what happened? Sounds to me like we have Boffy’s case where rising interest rates are followed by a collapse in capitalized asset prices, doesn’t it. I mean capitalized asset prices collapsed, didn’t they? Asset-backed securities, real estate itself, structured investment vehicles, stocks; the municipal bond markets seized up; banks imploded, and US Treasury debt instruments were the “go to” safe house for everything, right? And workers? How did they make out? Good you think? Pension funds? Wages? Shelter? Medical care? All those things were made such more accessible and beneficial to workers, not to mention the boost it gave to “productive” uses of capital, and rising employment?
Maybe on planet Boffy, but not here on planet Earth, that’s for sure. Clouds here really are dirtballs, and the bourgeoisie…….never mind.
The collapse of asset prices, contrary to Boffy and his misinterpretation, had everything to do with the provision of money capital for productive purposes– in that the collapse was the result, the derivative, pardon the expression, of the decline in profitability that had occurred in that same “productive” capital.
Boffy says,”A large rise in profits does not signify that a large rise in capital investment is about to happen – let alone a large rise in fixed capital spending, rather than a rise in investment in circulating capital – unless it is also an indication of a sharp rise in demand, which is able to absorb the resultant increased output. And the opposite is also true. Both the rate and mass of profit may fall, whilst investment may rise, provided that firms competing for market share beleive that the market itself is expanding, or because individual capitals believe they must invest in more efficient machines etc. in order to protect or extend their market share.
That is because they plan out their investment over long time horizons, and that investment is geared to the need to protect or extend their market share, and thereby to increase or defend their share of the mass of realised profits, even if that means a lower rate of profit being obtained on that additional investment.
As Andrew Kliman correctly stated,
“Companies’ decisions about how much output to produce are based on projections of demand for the output.”
(Note 4, Page 16, The Failure Of Capitalist Production)
So this is what Random Marxist would ban! Well, why stop there? Why not ban his books too? or put him in jail, as Lenin did with the great Russian marxist, Bogdanov? or shoot him as an enemy of the people?
Random Marxist says, “4. Happy new year to everyone here, let’s all have some fun watching the world economy come crashing down in what appears to be it’s terminal crisis.” And what does Random Marxist propose to put in its place amid all this fun? Can it have escaped his notice that the Marxist movement or however one might designate it is not exactly embraced by the worldwide working class?
But then if one is to argue in language like this, perhaps it is not too surprising: “Maybe on planet Boffy, where the clouds are made of cotton candy, and the bourgeoisie shit sugar wafers, this is a sign of an uptick waiting to happen, but here on planet earth, I think it’s more accurate to recognize clouds as dirt-balls, and shit as shit.”
Such vituperative banalities have all the scientific sincerity of a sanctimonious humbug!
J,
As I said to Edgar, I long since stopped reading anything the trolls write, and they are easily identified by their ignorance and vituperative language. Moreover, they are usually identified by the fact that they hide behind a pseudonym, because if they presented themselves in their true persona it would become apparent that they represent nothing other than an internet persona.
What have any of them actually done in the labour movement? How many can show that they have been shop stewards, or union militants, that they have been active members of the Workers Party and so on?
Everyone knows who I am, and what my long history as a trade union activist, Labour Party activist, anti-racist activist and so on consists of. I doubt the trolls can say the same thing.
Listen to Boffy, channeling the late Mayor of Chicago, Richard J. Daley– “What trees do they plant?”
Boffy has a long history as this and that? Guess what? Nobody cares about Boffy’s “history”– or his use of screen names; nor anyone’s use of screen names.
Labor Party activist? Well that settles that hash, doesn’t it? The UK Labor Party, upholder of NATO, supporter of the invasion of Iraq and Afghanistan.
What is at issue is what he pretends to produce as “Marxist” analysis, and it’s neither Marxist, no analysis. It’s justification after the fact for the myth of the perpetual progress under capitalism.
Look concretely for example at Boffy’s lauding of the growth of “cooperatives” as a sign of the advance of socialism, of workers power. Look into the details of everything, and anything Boffy claims, and you will find that there isn’t a shred of evidence in the real world to support Boffy’s “Marxist analysis,” where increasing interest rates “release” productive capital, “devalue” fictitious capital, and lead to good times for workers; where capital is always recovering if only the ignorant politicians would let it (if that sounds to you like laissez-faire Ayn Rand nonsense, that’s because it is. It is the fundamental belief in the rationality of markets, of value production).
Well in the real world Edgar not your ideal version of the internet, blogs, forums etc are moderated all the time. Trolling is a serious problem that concerns many of all shades of political opinion. Who is a troll and what counts as trolling is of course always a matter for debate. Jlowries hyperbole doesn’t make a positive contribution either, he reminds me of some guy on Richard Seymour’s site who in response to his moderation of posts said ‘It’s Kronstadt every day here!”.
Boffy ain’t the issue here, as much as he may want it to be. The course of capitalism is the issue. It’s immaterial whether he, or anyone including myself gets “banned” or whatever.
As for this: “But then if one is to argue in language like this, perhaps it is not too surprising: “Maybe on planet Boffy, where the clouds are made of cotton candy, and the bourgeoisie shit sugar wafers, this is a sign of an uptick waiting to happen, but here on planet earth, I think it’s more accurate to recognize clouds as dirt-balls, and shit as shit.”
Such vituperative banalities have all the scientific sincerity of a sanctimonious humbug!”
The “scientific sincerity of the sanctimonious humbug” is in the distortion of data introduced by Boffy; the consistent and persistent distortion of data introduced by Boffy– so the doubling of BDI is the trumpet sounding “Happy Days are Here Again,” when the history of the index shows just how depressed maritime shipping rates are.
But THAT doesn’t bother some; calling bullshit shit is the bother. Got it. I’ll try not to let the inclination to call things by their real names get in the way of “scientific sincerity.”
Nor apparently does this humbug bother the guardians of scientific etiquette: “The rise in interest rates, which causes capitalised asset prices to fall, also means that property prices crash, which means that the cost for workers to provide for their shelter falls significantly, because the price of buying a house falls massively, and with it the cost of renting is also forced down. That reduces the value of labour-power, which provides the basis for a higher rate of surplus value and profit, and with it an expansion of capital.”
And we have evidence of just that, and of just how efficiently that works since 2008, don’t we? When, in the face of modestly raised interest rates, the property markets crashed, and what a boon that was to the working class, wasn’t it?
Nor apparently does this humbug bother the guardian of the temple of scientific sincerity: “Given the extent to which workers today also depend upon being able to buy these assets, to cover their shelter and their future pensions, a sharp fall in those prices represents a transfer of that paper wealth out of the hands of the owners of fictitious capital, and into the hands of workers, who now buy them at these knock down prices.”
Sure and we have tons of evidence for that, too.
Capital operates as capital whether interest rates are high or low, and it’s paid for by the working class. As Marx put it in the Grundrisse, the price of beef may be high or low, but it always involves the same sacrifice for the ox.
Those who bluster about “scientific sincerity” ought to pay attention to what is being offered as “science.” Or not, and just accept their own guardian status is actually…….(I was going to use a barnyard epithet, but thought better of it) the theory and practice of and by humbugs.
I wish that I could put an end to all of this nonsense simply by pointing out how wildly inaccurate Boffy’s comments, predictions, assertions have proven. But probably not. It’s not “intemperate language” that is at the core of what bugs our guardians of scientific sincerity, but the in- temperateness of facts.
So, back in the day, the day being January 18, 2016, Boffy issued some predictions and assessments of his own. For example, this:
“Globally, the average rate of interest is rising, as that demand for capital begins to outstrip the supply..”
Really, he wrote that. Of course the rate of interest was not rising in January 2016, and globally, did not rise in 2016. And separately, there was no “demand for capital” beginning to “outstrip supply.”
And you know what? Even in December 2016, after the US Fed raised its funds rate, there was no generalized increase by central banks in interest rates. Of 26 major central banks, 4– the US, Chile, Mexico, and South Africa have raised their rates. The last actions of 22 others was to lower interest rates.
And demand for capital outstripping supply? Where has that happened? Where is that happening? Europe with its negative interest rates?
Globally, capital spending declined in 2013, 2014, 2015…and 2016, so where is the demand for capital coming from that is outstripping supply? Operating expenses?– not hardly.
Doesn’t matter, apparently, to the doyens of scientific sincerity, and certainly not to Boffy, who back in Jan 2016 offered this gem:
“An investment in the required accumulation of productive-capital, would raise the demand for capital relative to the supply sending interest rates higher still. It is not any significant fall in profitability that stands behind the falls in stock markets, but the inevitable rise in interest rates, which causes via the process of capitalisation, a fall in the prices of all revenue producing assets, be it shares, bonds, or property.”
And where did that happen? Where did we get an increased investment in productive capital. In the US, profits of the S&P 500 declined for 5 straight quarters prior to the 3Q 2016. You think that might have had something to do with the decline of the markets?
But that doesn’t matter either, because, as Boffy told us back in January 2016:
““Solomon points out that this tightness of capital means that companies will have to be resorting to capital markets with new public share offerings, which of course in itself by increasing the supply of such shares and bonds, acts to depress their prices.”
New public share offerings in the US? Didn’t exactly happen that way, did it? While the data is not yet available for secondary offerings, “new offerings” IPOs tanked. Reported Reuters, among others:
“The sluggish U.S. IPO market recovered from a dismal first half of the year, but still fell well below 2015 levels in both activity and proceeds raised, according to new research by Renaissance Capital, an IPO investment adviser and research firm.
The year’s 105 pricings raised $18.8 billion, down from $30 billion raised in 170 deals a year ago. Annual IPO proceeds dropped 37% year over year to their lowest level since 2003.”
and:
“The U.S. IPO market in 2016 is on track for its worst year since the financial crisis in 2009, when just 56 companies listed their shares.”
But hey, who’s counting? After all, since when does scientific sincerity have to include a measure of accuracy, when temperate language is the measure of all things “scientific”?
Not to mention, Boffy’s wonderful cv as a Labor Party activist? I mean really, with a pedigree like that, who wouldn’t want to be part of the Labor Party’s dog and pony shoe, barking along with Boffy to the tune of God Save the Queen?
The humbuggery and the humbuggerers are precisely those flashing their credentials as authentic working class advocates and adherents to scientific sincerity.
Bah, humbug indeed. Nicer word than bullshit, I guess, but I’m not really one for nice words.
Boggy arguments appear to be made by a Social Democrat cloaked as a ” marxist”. A “marxist” using math and capitalist provided data to apologise for the good times capitalism will provide. Really? Go back to the shop and see how real wages have decreased and work loads have increased. How the working class is getting their teeth kicked in. Get out of your ivory tower! Social Democrats are worse than the capitalist they try to confuse the working class. Beware!p