The Fed’s star-gazing

US Federal Reserve Chairman Jerome Powell spoke at the annual Jackson Hole symposium on Friday.  This annual symposium brings together all the top central bankers in the world who hear papers by mainstream economists on the issues and problems facing the major economies.  Powell was expected to deliver a speech in which he would appear cautious about the progress of the US economy.  He did not disappoint in his caution.

The Fed is still expected to raise its policy rate by another quarter point at its September meeting.  Indeed, it is projecting four hikes for this year, so the December meeting is also expected to be another when the Fed hikes again.  Earlier in the week President Trump  expressed his displeasure with the Fed and Powell, by name, saying he disagreed with the Fed’s interest-rate hiking because it could hurt the economy and vowed to keep criticizing the central bank until it stops.

At Jackson Hole, what did Powell think was the state of the US economy and what he would do with the Fed’s plan to raise interest rates this year and next?  He started by saying that “On the doorstep of the period now referred to as the Global Financial Crisis, surely few, if any, at that symposium would have imagined how shockingly different the next 15 years would be from the 15 years that preceded it.”  In other words, how wrong we were that the US capitalist economy could go on growing, the housing boom would continue and the credit-fuelled financial sector would keep on spiralling up.

But never mind, continued Powell, “over the course of a long recovery, the US economy has strengthened substantially”.  His ‘long recovery’ means a slow and weak one, something I have described better as a ‘long depression’.  But all is well now, because “there is good reason to expect that this strong performance will continue.”  And this justifies the decision of the Federal Bank to “gradually raise the federal funds rate from its crisis-era low near zero toward more normal level” and to end the policy of quantitative easing (buying government and corporate bonds by printing money),Powell reckoned that “this gradual process of normalization remains appropriate”.

So Powell reckons the ‘long depression’ (sorry, ‘recovery’) is over.  But he remains worried that the “US economy faces a number of longer-term structural challenges that are mostly beyond the reach of monetary policy. For example, real wages, particularly for medium- and low-income workers, have grown quite slowly in recent decades. Economic mobility in the United States has declined and is now lower than in most other advanced economies.  Addressing the federal budget deficit, which has long been on an unsustainable path, becomes increasingly important as a larger share of the population retires. Finally, it is difficult to say when or whether the economy will break out of its low-productivity mode of the past decade or more, as it must if incomes are to rise meaningfully over time.”  Hmm, so still a lot of problems for US capitalism to overcome and nothing much that the Fed can do about it.

Interestingly, then Powell discussed how accurate the Fed was in gauging whether the US economy was growing too fast (that might engender accelerating inflation and a squeeze on profits), or whether it was still growing too slowly (that hiking interest rates could actually push the economy back into a new recession, which would also hit profits).  He suggested that following the usual conventional ‘stars’, namely NAIRU, the natural rate of unemployment (when the economy is at full speed), or the natural rate of interest (where the cost of borrowing is about right) or some inflation target like 2% a year (the current Fed target) may not be of any use.

That’s because these natural rates for harmonious non-inflationary keep moving about!  “Navigating by the stars can sound straightforward. Guiding policy by the stars in practice, however, has been quite challenging of late because our best assessments of the location of the stars have been changing significantly.” The supposed strong relationship between economic growth and low unemployment (Okun’s law) seems to have shifted as the US economy crawls along at 2% while unemployment drops well below any previous estimates of NAIRU; or between falling unemployment and price inflation (the Phillips curve) as price inflation stays below the Fed Target although the official unemployment rate keeps dropping.

“Experience has revealed two realities about the relation between inflation and unemployment, and these bear directly on the two questions I started with. First, the stars are sometimes far from where we perceive them to be. In particular, we now know that the level of the unemployment rate relative to our real-time estimate of NAIRU (u*) will sometimes be a misleading indicator of the state of the economy or of future inflation. Second, the reverse also seems to be true: Inflation may no longer be the first or best indicator of a tight labor market and rising pressures on resource utilization.”

Inflation has not appeared in the ‘real economy’ but “destabilizing excesses appeared mainly in financial markets “ and so what is happening with debt or credit growth and the spiralling stock market may be more important indicators of whether the economy was about to ‘overheat’ and go bust.  Indeed…

So Powell concluded that moving interest rates up should be considered cautiously and even slowly, just in case: “when you are uncertain about the effects of your actions, you should move conservatively”.  However, in the next breath of his speech, he went on: “we have seen no clear sign of an acceleration (of inflation) above 2 percent, and there does not seem to be an elevated risk of overheating.”  So “further gradual increases in the target range for the federal funds rate will likely be appropriate.” 

Having spent a large part of his speech saying that the usual mainstream economic indicators of the health of the economy were not helpful because “the stars” kept moving and that the inflation indicator was less important than any ‘bubble’ signs in the financial sector (as they were in the 2008 crash), he then goes back to the inflation target to argue that more rate rises are ok!

Well, are they ok?  I have raised before that a capitalist economy goes into a slump or recession when profitability (rate of profit) starts to fall and profits (total profits) slow to a crawl or fall.  A slump in investment will follow eventually.  If the level of debt (particularly corporate debt) is also high and interest rates rise to push up the cost of borrowing, then profits available for investment will be squeezed more, perhaps to breaking point.

The Fed started hiking rates in late 2016. So far, that has not triggered a downturn or slump.  That’s because there has also been a sharp reduction in corporate taxation and other subsidies to US companies from the Trump administration – and it also appeared that economic growth was picking up in rest of the world, particularly Europe and Japan.  However, that optimistic spiral upwards from a seeming trough in 2016 appears to have peaked as I suggested last April.  Economic growth in Europe (2%) and Japan (1%) is slowing again.  And so is China.

As I offered in a previous post, the price of industrial metals, particularly copper (because it is sensitive to global investment in raw materials) is a very good high frequency indicator of the state of the global economy.  The copper price started to fall back in June – not yet back to the ‘recession’ level of 2016, but on its way.

At the same time, corporate debt in the US is still rising, as it has been in most ‘emerging economies’. At $8.6 trillion, US corporate debt levels are 30% higher today than at their prior peak in September 2008.  At 45.3%, the ratio of corporate debt to GDP is at historic highs, having recently surpassed levels preceding the last two recessions.

Rising interest rates, driven by the Fed, have already sparked serious emerging market debt and currency crises in Argentina and Turkey; and others are on the horizon.

And profits in the non-financial sector of the US have been falling while global corporate profits have slipped back into negative territory on my estimates (average of the top five economies). This is something not seen since 2015 which was followed by a near recession in 2016.

The US stock market jumped up after Powell’s speech because he seemed to be suggesting a relatively slow pace of interest rate hikes ahead.  The stock market reached an all-time high last week, fuelled by low interest rates, Trump’s tax cuts, but also by companies buying back their own shares to boost prices. This year companies have spent over $1trn buying shares.

Rather than invest in productive assets, the large companies have increased debt and spent their cash on financial assets (fictitious capital, Marx called it).  The build-up in US corporate debt threatens to squeeze profits further as interest rates rise and if wage growth does finally pick up.

One reliable signal for the start of a slump in the past has been the inversion of the bond yield curve.  As I explained in a previous post, the interest rate for borrowing money for one or two years is usually much lower than the rate for borrowing for ten years for obvious reasons (the lender gets paid back quicker).  So the yield curve between the ten-year rate and the two-year rate is normally positive (say 4% compared to 1%).

The general idea is that a steepening yield curve, where long rates are rising faster than short rates, indicates that credit is easy to access and profits are high enough from faster economic growth. But when short-term yields rise above the prevailing long-term bond rate it indicates credit conditions have become unusually restrictive compared to profits and that there is a very high probability that a recession will arrive within about a year.

RBC investment strategist, Jim Allworth reckons that: There hasn’t been a recession in more than 60 years that wasn’t preceded by an inversion of the yield curve. On average, the yield curve has inverted 14 months prior to the onset of a recession (median 11 months). The shortest “early warning” was eight months. We are not there yet in the US and certainly nowhere near in Europe.  But the US curve is going in that direction.”  The gap between the 2-year yield and 10-year yield, is now at a very flat 22 basis points.

Powell, it seems, is not worried about an inversion of the yield curve. One financial analyst commented: “We know there’s a bunch of people who are saying this time it’s different,” said Sharif. “Yet they (the Fed) spent a good chunk of their July meeting listening to a staff presentation on whether their tool kit is sufficient if there’s another downturn. They’re kind of prepping their tool kit.”

The trouble is that the tool kit is pretty empty apart from reversing the current hiking of rates and going back to the failed policy of quantitative easing.

Advertisements

51 Responses to “The Fed’s star-gazing”

  1. Boffy Says:

    ” I have raised before that a capitalist economy goes into a slump or recession when profitability (rate of profit) starts to fall and profits (total profits) slow to a crawl or fall. A slump in investment will follow eventually.”

    It depends, as Marx showed on the cause of the fall in the rate of profit. As Marx shows, particularly in TOSV Part II, the rate of profit can fall because the economy is booming, causing wages to rise and the rate of surplus value to fall, and also because sharply rising demand for inputs causes the price of materials to rise, leading to a rise in the value composition, as opposed to organic composition of capital. These Marx defines as leading to a profits squeeze, as a short run phenomenon, as opposed to the long run phenomenon describes in his law of the tendency for the rate of profit to fall, which is based upon a rise in the technical and thereby organic composition of capital, even as, the value composition of capital falls (raw material unit prices fall, fixed capital suffers moral depreciation) and the rate of surplus value rises, as wages are squeezed.

    The first forms of fall in the rate of profit, which had earlier been identified by Smith (capital accumulates faster than labour supply so wages rise and profits fall) and Ricardo/Malthus (population rises, and to feed it less fertile land has to be brought into cultivation, pushing up the value of labour-power and wages, and thereby reducing surplus value) were advanced by them as their explanation of the tendency for the rate of profit to fall, and so shown by Marx to be wrong in that respect. It also led them to have a catastrophist view of the law of falling profits, as the conclusion of that concept is that not only the rate of profit, but also the mass of profit must ultimately fall.

    Marx showed why that is wrong, leading to his comment,

    “A distinction must he made here. When Adam Smith explains the fall in the rate of profit from an over-abundance of capital, an accumulation of capital, he is speaking of a permanent effect and this is wrong. As against this, the transitory over-abundance of capital, over-production and crises are something different. Permanent crises do not exist.”

    In fact,as Marx demonstrates, for example in his response to Weston in relation to a rise in wages, in Value, Price and Profit a fall in the rate of profit caused by rising wages, during a period of boom tends to lead to increased investment, because the rise in wages means that demand from workers for wage goods rises. Whilst the rate of profit motivates movement of capital between one sphere and another – i.e. from low profit spheres to higher profit spheres – it is not the rate of profit, that is determinant for the economy as a whole. If wages rise, and workers demand for wage goods rises, then capitals will seek to obtain the greater mass of profit this brings with it, even if the rate of profit they obtain is lower.

    They will do so for the reason Marx sets out as against Ricardo, who made the argument you do that it is the rate of profit that influences investment. Marx responds that capital will always be led under such conditions to invest, in order to obtain the additional mass of profit, even if the rate of profit is lower, because competition with other capitals forces it to do so.

    In the 1960’s, wages rose, and profits were squeezed, but capital was still led to invest in additional production to meet the sharply rising level of demand for consumer goods that went with the rising living standards. Moreover, as Marx sets out in relation to the rise in agricultural wages between 1849 and 1859, when rising wages start to squeeze profits sharply, it leads capital to respond by investing in a different way. It looks to new forms of labour saving technologies to invest so as to relieve the pressure on profits from rising wages, and labour shortages. Indeed, its that investment in labour-saving technology, during a period of intensive accumulation that creates the conditions for marx’s law of the tendency for the rate of profit to fall, which is the means by which crises of overproduction are resolved.

    It is the fact that during such periods, following a crisis of overproduction, that investment is intensive rather than extensive, that economic growth is sluggish, because firms rather than adding machines and labour, simply replace existing machines with new machines that do the job of several older machines, and also thereby replace several workers. It is a period where more or less the same level of output is sought to be produced, but with less capital (fixed capital and labour), and is also why the demand for raw materials during such periods is stagnant.

    Not only does the rate of profit fall for different reasons at different phases of the long wave cycle, but those different reasons also affect whether investment in value terms rises, falls, or remains stagnant, and also determines the type of investment that takes place.

    • vk Says:

      Yes, but Marx didn’t define it as “booming”. He just stated that crises often happen when wages are historically high.

      A capitalist economy can only be defined as “booming” when profit rates are high. To say high wages define a “booming” economy is a social-democrat mirage.

      • Boffy Says:

        “A capitalist economy can only be defined as “booming” when profit rates are high.”

        Who says? Marx certainly doesn’t. Quite the contrary. He also defines the cycle as being stagnation, prosperity, boom, crisis, and in his analysis he shows that it is during the prosperity phase that real wages begin to rise, as productivity gains feed through, in the boom phase nominal wages start to rise, as well as real wages, as the demand for labour rises more sharply, and in the crisis phase, this rise in nominal wages starts to squeeze profits and lead to more frequent crises of overproduction, because the mass of surplus value can no longer be so readily increased. That sequence is also illustrated in his analysis of the interest rate cycle.

        He shows, for example, that in the stagnation phase, interest rates fall to their lowest levels because the supply of money-capital from realised profits increasingly exceeds the demand for money-capital for productive investment. That arises for two reasons. Firstly, contrary to your assertion, it is during the stagnation phase, Marx says, that the annual rate of profit rises. It does so because, the introduction of new labour-saving technologies reduces the demand for labour-power, and so creates a relative surplus population. That slashed nominal wages, but also slashes the wage share, because relatively fewer workers are employed relative to output value.

        In fact, in TOSV Marx shows again where Ricardo and his followers were wrong, because he shows that during such periods, as rising productivity reduces the unit values of commodities, real wages – as opposed to nominal wages – for those still in employment, can rise, because even modestly lower nominal wages buy more of the now cheaper commodities. That was seen in the mid 1930’s, in Britain, for example, where the workers employed in the new car, domestic appliance etc. industries in the Midlands and South-East enjoyed relatively high living standards.

        The second reason that the annual rate of profit rises during the stagnation phase is that the labour-saving technologies cause a significant moral depreciation of the existing fixed capital stock, and Marx calculates the annual rate of profit on the basis of the value, i.e. current reproduction cost of the capital, not on its historic price, as he makes clear, for example, in TOSV, Chapter 23. The rise in productivity also reduces the value of other elements of constant capital, and so results in a rise in the annual rate of profit. It also leads to a rise in the rate of turnover of capital, thereby causing the annual rate of profit to rise, as well as leading to a release of capital as revenue, then available for accumulation.

        So, the annual rate of profit rises, even as the rate of profit/profit margin may fall, as a result of the rise in productivity, and increase in the technical, and thereby organic composition of capital. As Marx says, in any case, the fall in the rate of profit due to the long term tendency is much smaller than it is said to be, and operates only over very long timescales. It cannot be a factor in influencing investment, and certainly cannot be a cause of crises of overproduction.

        “It is an incontrovertible fact that, as capitalist production develops, the portion of capital invested in machinery and raw materials grows, and the portion laid out in wages declines. This is the only question with which both Ramsay and Cherbuliez are concerned. For us, however, the main thing is: does this fact explain the decline in the rate of profit? (A decline, incidentally, which is far smaller than it is said to be.)Here it is not simply a question of the quantitative ratio but of the value ratio.

        If one worker can spin as much cotton as 100 [workers spun previously], then the supply of raw material must be increased a hundredfold, and this is moreover brought about only by the spinning-machine which enables one worker to control 100 spindles. But if simultaneously, one worker produces as much cotton as 100 workers did previously and one worker produces a spinning-machine whereas previously he produced only a spindle, then the ratio of value remains the same, that is, the labour expended in the spinning, [in the production of] the cotton and the spinning-machine remains the same as that expended previously in spinning, the cotton and the spindle…

        The cheapening of raw materials, and of auxiliary materials; etc., checks but does not cancel the growth in the value of this part of capital. It checks it to the degree that it brings about a fall in profit.”

        (TOSV, Chapter 23)

        In other words, the value of fixed capital falls as a result of rising social productivity, and although the total value of raw material processed rises, because the rising social productivity results in a large increase in the amount processed by that fixed capital, and labour, the unit value of materials falls sufficiently to check the rise in the total value of processed material to a level whereby it does not lead to a significant or any fall in the rate of profit, because of the other countervailing forces, i.e. fall in the value of labour-power, rise in the rate of surplus value, and so on.

        In Capital III, Chapter 15, Marx makes clear that a capitalist economy is booming not when the rate of profit is high, but when the MASS of profit is high, as a consequence of this large rise in output, and those tend to be the times when the rate of profit gets squeezed, because accumulation is extensive so productivity growth tends to be lower, input costs tend to rise, and wages tend to rise (and certainly wage share rises) causing the rate of surplus value to fall, leading to a squeeze on profits.

        The other factor influencing the rate of profit is the age of the existing fixed capital stock. This is made clear as Marx calculates the rate of profit on the value/current reproduction cost of capital, not on the basis of its historic cost. So, as he demonstrates, where fixed capital has been installed for a longer period, its value will have fallen as a result of wear and tear. As each year passes, and this wear and tear reduces the value of the fixed capital, the annual rate of profit must rise accordingly.

        “In the second year, the fixed capital of the coal producer would amount to 45, variable capital to 50 and surplus-value to 50, that is, the capital advanced would be 95 and the profit would be 50. The rate of profit would have risen, because the value of the fixed capital would have declined by one tenth as a result of wear and tear during the first year. Thus there can be no doubt that in the case of all capitals employing a great deal of fixed capital—provided the scale of production remains unchanged—the rate of profit must rise in proportion as the value of the machinery, the fixed capital, declines annually, because wear and tear has already been taken into account. If the coal producer sells his coal at the same price throughout the ten years, then his rate of profit must be higher in the second year than it was in the first and so forth.”

        (ibid)

        In this example, Marx sets out the situation where a coal producer has a fixed capital of 50, and a variable capital of 50, which produces surplus value of 50. The fixed capital loses 5 in wear and tear. The annual rate of profit in the first year is 50%, but because in the second year the fixed value has fallen to 45, the advanced capital is now only 95, whilst surplus value remains 50, so the annual rate of profit rises to 50/95 = 52.63%.

        As Marx says, for capitals that have a large amount of fixed capital stock, this is an important means by which they protect themselves against capital losses, and lack of competitiveness, when new technologies are introduced that bring about a sizeable moral depreciation. For example, after five years, the coal producer here would already have reduced the value of their fixed capital to 25, so if a new piece of fixed capital is introduced that has a value of 25, or alternatively if a new piece of technology with a value of 50, but which is twice as efficient is introduced, the initial coal producer, can simply reduce their prices accordingly, and still obtain the original 50% rate of profit. Its why capitals try to work existing fixed capital as extensively and intensively as possible, so as to write down their value through wear and tear as quickly as possible, and thereby protect themselves from capital losses due to depreciation.

        ” This extra profit may be equalised also as a result of the fact that—apart from wear and tear—the value of fixed capital alls in the course of time, because it has to compete with new, more recently invented, better machinery. On the other hand this rising rate of profit, which results naturally from wear and tear, makes it possible for the declining value of the fixed capital to compete with newer, better machinery, the full value of which has still to be taken into account. Finally, the coal producer sold his coal more cheaply [at the end of the second year], on the basis of the following calculation: 50 on 100 means 50 per cent profit, 50 per cent on 95 comes to 47 1/2; if therefore he sold the same quantity of coal [not for 105 but] for 102 1/2—then he would have sold it more cheaply than the man whose machinery, for example, began to operate only in the current year. Large installations of fixed capital presuppose possession of large amounts of capital. And since these big owners of capital dominate the market, it appears that only for this reason their enterprises yield surplus profit (rent).”

        (ibid)

      • VK Says:

        You just proved my point: what determines boom from bust is the profit rate. Higher or lower wages are a reflection of higher or lower profit rates (the mass of profit being reduced by high wages maintenance configuring a “delay” effect). Either way, it profit (rate) that is decisive for the capacity of capitalism to survive (i.e. to act in cycles), not wages. Therefore, wages are a symptom, not the cause, of a “booming” period.

        Now, I only esporadically read the English version of Capital. Maybe in the English translation the word “boom” was really used. One thing is for certain: he didn’t use it in the same sense post-war social-democrats use.

      • Boffy Says:

        “You just proved my point: what determines boom from bust is the profit rate. Higher or lower wages are a reflection of higher or lower profit rates (the mass of profit being reduced by high wages maintenance configuring a “delay” effect).”

        Absolutely not!

        As Marx demonstrates, as I stated, and as simple maths shows, the mass of profit can rise, and indeed rise significantly whilst the rate of profit gets squeezed by wages rising causing the rate of surplus value to fall.

        Ignore constant capital as its irrelevant to the rate of surplus value.

        1) Capital £1,000, surplus value £1,000, rate of surplus value/profit 100%.

        2) Capital £2,000, surplus value £1,600, rate of surplus value/profit 80%.

        So, here the mass of profit is 60% greater in the second case than the first, but the rate of profit is 20% lower, because as the capital expands, more labour is employed and produces more surplus value, but unit wages also rise, so that the rate of surplus value/profit falls.

        If an amount of constant capital is included that does not change the outcome, only the rate of profit.

        So, if we have £1,000 of constant capital in the first case, the rate of profit is 50%. If Constant capital rises to £1,600 in the second case, as more workers process more material, the rate of profit still falls to 44.44%.

        “Either way, it profit (rate) that is decisive for the capacity of capitalism to survive (i.e. to act in cycles), not wages.”

        I never said that it was wages that were the generator of boom. I said that higher wages were a symptom of boom. But higher wages, as Marx sets out, are also a cause of capital investing in production of additional wage goods.

        Michael has argued the same line as Ricardo that the driver of investment is a higher rate of profit, but Marx rejects that argument. He says that whilst sharply higher prices/rate of profit might induce additional investment and sharply lower prices/rate of profit have the opposite effect, the real basis of capital accumulation, of expanded reproduction is the continual expansion of the market arising from additional demand.

        “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)

        Marx explains that as additional capital is invested, this results in additional labour-power being employed and paid wages, which thereby creates some of the additional demand for the increased output. Similarly, additional materials are bought, and additional labour-power employed to produce them, as well as additional profits and rents being generated, which thereby creates the remaining additional demand. As he states above, each capital is forced by competition to expand its output in this way, even if the rate of profit obtained is lower than before, because otherwise it will lose market share to its competitors.

        Moreover, as Marx says in Capital III, Chapter 6 accumulation proceeds faster on the basis of a low rate of profit on a small capital than a high rate of profit on a small capital, and he repeats the point in Chapter 15 saying that what is decisive is not the rate of profit, but the mass of profit.

        Marx does use the word boom, in his analysis of the interest rate cycle, and he uses it in the same way that most economists do to mean that economic activity is at a high level.

    • ucanbpolitical Says:

      You have a point. Currently investment in US manufacturing is rising in absolute terms despite the mass of pre-tax profits sitting 50% below there high-point in 2014. This is primarily due tax cuts freeing up some cash flow, and the stimulus to the economy from these tax cuts. For example retail sales unadjusted for inflation is +9% annualised. But as you say this is a short lived phenomena. There is at most two quarters left for the tax cuts adrenalin rush to continue. Recent data including that from Goldman Sachs on world trade movements, both sea and air shows a very sharp deceleration in July. To view the movement of manufacturing profit go to https://theplanningmotivedotcom.files.wordpress.com/2018/08/economic-report-q1-2018-pdf.pdf
      I was quite surprised graphing them up to see how poor they were. However there is bound to be a rise in profit and an acceleration in turnover for quarter 2 due to the briskness of sales.

      • Boffy Says:

        The current slowdown is a temporary phenomena. Last year, I indicated that the normal 3 year cycle would result in a relative slowdown from 2017 Q3 to 2018 Q3. In fact, its been less than I thought might happen, especially given continued QE in Japan and the EU, diverting potential money capital away from productive investment into financial and property speculation, continued policies of austerity in Europe/UK, and Trump’s global trade war, depressing trade and creating uncertainty, alongside the similar effect from Brexit.

        In fact, Europe is already showing signs of growth rising again. Far more significant than any tax cuts will be the continuing growth of employment, which means that even if individual wages do not rise much, wage share itself must rise absolutely, simply because more workers are receiving wages. That means these increased mass of wages will demand an increased mass of wage goods, and competition, as Marx describes as against Ricardo, will lead to firms having to accumulate additional capital.

        Where they can, as Marx indicates, because capital is very elastic in being able to expand output, firms will try to utilise existing fixed capital more extensively and intensively, by increasing overtime, introducing new shifts and so on. Where they process materials, they will accumulate capital in the form of this additional circulating capital relative to fixed capital. But, such manufacturing now constitutes a small proportion of total output. Accumulation, therefore, takes the form more of an increase in employment, which is exactly what we have seen.

      • Anti-Capital Says:

        “In fact, Europe is already showing signs of growth rising again.”

        Data or reference please. In July the Wall Street Journal was reporting that the EU growth estimate for all of 2018 had been reduced to 2.1% from 2.3%, this following a growth of some 3.6% (not adjusted for inflation) in GDP between 1Q 2017 and 1Q 2018. Estimates for 2019 are for 2% growth.

        In August, the Financial Times reported, that for the Eurozone, growth in the second quarter was at the lowest rate in 2 years with GDP in the 2Q up only 0.3% from the 1Q.

      • Boffy Says:

        You’ve provided the information yourself.

        “growth in the second quarter was at the lowest rate in 2 years with GDP in the 2Q up only 0.3% from the 1Q.”

        0.3% for a quarter is approximately 1.2% annualised.

        “In July the Wall Street Journal was reporting that the EU growth estimate for all of 2018 had been reduced to 2.1% from 2.3%”

        2.1% is nearly double 1.2%, in other words, in July the Wall Street Journal is predicting a higher rate of growth for 2018, than appeared to be the case on the basis of the Q1 data.

        My prediction was for a relative slowdown between 2017 Q3 and 2018 Q3, so we have plenty of time for that increase to manifest itself, as EU survey data is indicating. I suggest that the 2019 estimate for EU data will be revised higher by the end of this year, start of 2019.

      • Boffy Says:

        To anti-capitalist,

        I’d also suggest looking at the actual EU PMI Data

      • Anti-Capital Says:

        That’s not how statistical analysis works Boffy. You can’t say because growth has slowed, and estimates lowered, that growth is picking up because it won’t be as low as the lowest quarter.

        I would suggest you look at the Eurostat site.

      • Virgens VK Says:

        It is +0.3% only in relation to Q1, not in relation to last year’s Q2. A non-annualised quarterly growth means nothing.

        And even if Europe indeed grows in relation to 2017, it will be a very small growth over a very depressed growth rate. Nobody is complaining right now because Europe is still at the center of contemporary human civilization, so they can use the “high starting point” excuse. But when Europe begins to lose its cultural proeminency for the next 50-100 years, this moment will be correctly diagnosed by the historians of the time as the moment Europe reached its limit.

      • VK Says:

        “Far more significant than any tax cuts will be the continuing growth of employment, which means that even if individual wages do not rise much, wage share itself must rise absolutely, simply because more workers are receiving wages.” (Boffy, August 27, 2018 at 10:24 am)

        That is simply not necessarily true. Wages can be so depressed in general that even a rise in employment cannot offset the previous loss in consumption. Mr. Roberts himself debunked this myth in the very article we are commenting now.

        Also, working class consumption in general (be it by unemployment, be it by slave wages, be it by a combination of both), can result in a general rise in consumption for a country or the world: all it takes is the bourgeoisie to consume more, much more (rise in the luxury sector, as Marx observed in book II).

      • Boffy Says:

        All I said was that growth in Europe is rising again, and the data shows that it is. I said nothing about it rising already to a higher level than it had been at some point in the past. That is purely your connotation.

        All I was indicating was that, as I had predicted growth slowed down relatively from around 2017 Q3 and would be likely to be in a period of such relative slowdown until 2018 Q3 – as I pointed out at the time the nature of the relative slowdown would only be apparent when measured over a period extending into the next few years. All I said was that having slowed, over the last few months, the slowdown was ending and growth was rising again.

        It is, and that is what the PMI indicators show!

      • Boffy Says:

        “And even if Europe indeed grows in relation to 2017, it will be a very small growth over a very depressed growth rate.”

        Except 2% isn’t a particularly depressed growth rate. Its about average. Given all of the artificially imposed austerity, the effects of Trump’s global trade war, the attempts to restrict economic growth so as to prevent wages and interest rates rising, and the attempt to divert money into financial assets, along with all of the uncertainty of Brexit, I’d say plus 2% growth wasn’t too bad.

        Given that according to the IMF 90% of the world’s economies are growing above trend rates of growth, and given many economies are returning to the rates of growth seen at the start of the boom in the early 2000’s, I’d say the chances are your predictions of catastrophe will once again be proved wrong, as all such Malthusian prognostications have proved wrong in the past.

      • Boffy Says:

        “That is simply not necessarily true. Wages can be so depressed in general that even a rise in employment cannot offset the previous loss in consumption. Mr. Roberts himself debunked this myth in the very article we are commenting now.”

        Whose talking about offsetting some previous fall in consumption? All I said was that even if nominal wages do not rise, if the level of employment rises, the total amount of wages, by definition also rises. For that not to be the case, nominal wages would have to fall by more than the rise in employment. As Marx points out such falls in wages do not accompany periods when employment is rising sharply. The opposite occurs.

      • Anti-Capital Says:

        “All I said was that growth in Europe is rising again, and the data shows that it is..”

        Not it doesn’t. 2017 GDP growth for the EU was above 3% (actually 3.3% –not 3.6%– my mistake on the calculation). Growth in the EU is slowing, 2018 growth is expected to be 2.1% with 2019 even less. Will it turn out that way? I don’t know. Neither does Boffy.

        “Except 2% isn’t a particularly depressed growth rate. Its about average.”

        No it isn’t “about average.” EU growth from 1999-2008 was above 3%, about 3.5% as I calculate it. From 2008 to 2017 the growth rate falls to about 1.5% per annum, so 2% is marginally better than the period Michael correctly labels the long recession, and significantly below that period pre-long recession.

      • Boffy Says:

        Nonsense. If a mile ago down the road my car is accelerating rapidly, as I start off, and pick up speed, and then continues to pick up speed, but more slowly as I hit an incline, and then accelerates more quickly again, as I get over the hill, it is clearly accelerating more quickly in this last section than in the middle section.

        It does not at all mean that it has to be accelerating faster than it was in the section before it hit the hill! What the figure was for 2017 growth compared with what it is forecast to be for 2018 is irrelevant for comparing what the economy is doing currently. That is precisely why GDP is measured on quarterly bases as well as on an annual basis, because its only by looking at what is happening now that shows whether the economy is heading in an upward or downward direction, from where it is.

        The PMI data shows the economy accelerating at a faster pace than it was at the start of the year, which is what I said from the start.

        2% is not a particularly depressed level. Indeed the clue is in the name that it is growth! But, on your own statement it is higher than in the so called “long depression”, which never was a depression to begin with. Nor is it depressed compared with EU growth as an average over the last 30-40 years. Lower than in 2000-2008, true, but then as I’ve said all along 1999 marked the start of the new long wave boom that was interrupted by the 2008 Financial crisis, and prompted the state and central banks to try to restrict economic growth so as to hold back employment and wages, so as to stop the squeeze on profits, and thereby keep down interest rates so as to keep asset prices inflated.

        They have failed in that last endeavour, and the boom is reasserting itself, which is why despite all of their QE, to divert money into financial speculation, and away from real capital accumulation, despite all of their goosing of asst prices, despite all of their austerity measures, economic growth is rising across the globe again, employment is rising, and interest rates are rising, and the stage is set for the most humongous financial crisis ever.

      • michael roberts Says:

        “The PMI data shows the economy accelerating at a faster pace than it was at the start of the year, which is what I said from the start.”
        Just true for the US
        https://tradingeconomics.com/united-states/composite-pmi

        but not elsewhere

        https://tradingeconomics.com/euro-area/composite-pmi
        https://tradingeconomics.com/japan/composite-pmi
        https://tradingeconomics.com/united-kingdom/composite-pmi
        https://tradingeconomics.com/world/composite-pmi

      • Boffy Says:

        Michael,

        Thanks for that data. However, we were specifically discussing the Eurozone, and as I said, this is what the latest Markit PMI report says,

        “Flash Eurozone PMI Composite Output Index(1)
        at 54.4 (54.3 in July). 2-month high.
        ▪ Flash Eurozone Services PMI Activity Index(2)
        at 54.4 (54.2 in July). 2-month high.
        ▪ Flash Eurozone Manufacturing PMI Output
        Index(4) at 54.5 (54.4 in July). 3-month high.
        ▪ Flash Eurozone Manufacturing PMI(3) at 54.6
        (55.1 in July). 21-month low.”

        So on the main indicators, they are at 2 and 3 month highs, as I stated. Only the Manufacturing Index is at a low.

      • Boffy Says:

        In fact, having looked at the Trading Economics data it too obviously shows, because its basis on the Markit data, that the PMI rose in August compared to July. The line chart version shows what I have been saying, with the PMI data peaking in January, and then falling. If the spike in June is ignored, there is a clear upward trend from the May low upwards to today.

        We should also point out that any reading over 50 represents future growth, and that the current reading of 54.4 compares with a high of 58.8 in January, which is the highest figure in the data series going back to 2012, when the figure stood at only 46!

        Indeed, the line graph of the data over that 6 year period, available by clicking on the Max button on the graph is very revealing in that regard, as it shows a steady improvement from 2012 to today. Even after the fall from the January high of 58.8, the index for today is at a higher point than it has been at any time prior to 2017.

        The longer term chart also illustrates the point I made previously about the three year cycle, with the trend turning down towards the end of 2014, before beginning a slow climb once more. The weakness over the last few months, has been precisely the weakness arising from that three year cycle I have described over many years, and which I again predicted at the end of last year, start of this year.

        I also note the comment that Eurozone Job Growth in August was the strongest in six months, and given the significance of services industry in modern economies, I suggest that this is a good leading indicator of the growth to come in coming months, as those workers go out and spend those wages, and as Marx described in response to Ricardo, firms then compete to obtain the greatest share of those additional consumption goods demands from workers.

      • Boffy Says:

        On the question of the Eurozone average GDP growth, according to trading economics, it average 1.7% between 1995-2018.

        https://tradingeconomics.com/euro-area/gdp-growth-annual

      • Boffy Says:

        Nor is it true that Eurozone average more than 3% between 1999-2008, as the following chart from trading economics makes clear.

        https://tradingeconomics.com/euro-area/gdp-growth-annual

        As the chart shows, for much of that period the figure was below 2%, and only briefly reached a height of 3.5% in 2007, ahead of the financial crash.

      • michael roberts Says:

        The trouble with all this is what years and data you use.
        Here are the averages for real GDP growth for the advanced economies and the euro area. Source IMF database.
        1998-07 2008-17
        AE 2.5 1.2
        EZ 2.2 0.6
        I think that suggests a clear difference between before the GR and after.

        EZ real growth reached 2.3% in 2017, its best year since 2007. But the latest quarterly data for 2018 do not suggest it will sustain that rate this year.

        As for the EZ PMI, if you look at the composite, then I see no clear upward trend this year. On the contrary, the EZ composite PMI is back to Jan 2017 levels. ”Two month highs” is not much to work on.

        Presumably, the point of all this is to claim that the major economies are having a boom; and that there was no ‘depression’after the GR. But it seems we agree that a humongous financial crisis is coming. Well, that’s relieving.

      • Anti-Capital Says:

        The chart referenced is NOT for the EU, but for the euro area.
        that’s one. For two, here are the numbers for the EU from the Eurostat website. Do the math yourself for annual average rate of growth. It’s not hard.

        EU GDP 1999: 8.998 trillion 2008 13.086 trillion 2017 15.336 trillion

      • Boffy Says:

        Michael,

        We seem to be talking at crossed-purposes here. As you say it depends what years, or quarters or data you use.

        I don’t doubt that EZ GDP grew slower in 2008-17, than it did between 1998-2007. I am quite happy to accept the 2.2% figure for that 98-07 period. My argument was with “Anti-Capital” who claimed that the rate of growth during that period was over 3%, so as to present the current 2.3% projection as in someway an historically low starting point. In fact, as your figures here confirm, 2.3% as current projection is marginally higher than the average rate of growth during that higher growth period between 1998-07, of 2.2%.

        Thank you, you have confirmed the point I was making.

        Again, you provide a figure of average EZ GDP growth for 2008-17 as 0.6%. So, the current estimate of 2.3 is approximately 4 times the average GDP growth figure during this period of slower growth that you define as the “long depression”. So, again, thank you, your data confirms precisely what I was saying, which is that taking into consideration the slower growth of EZ growth from the start of 2018, it is now rising again, and is doing so at a rate four times greater than the average for 2008-17.

        Thank you. Your data once again confirms the argument I put forward.

        On the EZ PMI data for this year, again I did not say that there was a clear upward trend for this year. I said there was a clear upward trend from the low point in May, if you take out the erratic figure for June. The May PMI figure stood at 54.1, and now stands at 54.4 as against 54.3 in July. I’d suggest that represents a clear upward trend over the last three months, even if modest. If the average for the last three months is taken, so as to smooth out the erratic figure for June, we get, 54.5, which represents a more notable rise over the May low point.

        Nor is the point of all this to claim that the major economies are having a boom, as you seem to be interpreting what I am saying. They clearly were not experiencing a “boom” in the conventional sense after 2008. They were not experiencing a depression either, however, I would suggest. The point here again comes back to the question of years and data.

        My point about “boom” is only in the sense that the period after 1999, is characterised as a long wave boom, just as we would talk about the period from 1949 to 1974, as being the “post-war”, long wave boom. No on would seriously suggest that just because that 25 year period represents the boom, or more correctly upward phase of the long wave cycle, each and every period within it, represented a boom in the conventional sense. Mandel, for example, in “The Second Sump”, identified 5 different recessions within the context of the post war boom.

        My point is only that the period after 1999 is similarly characterised as a period of long wave boom. It is that character that led to the conditions seen in the early 2000’s, soaring raw material and food prices, and so on, the start of rising wages, and subsequently rising interest rates that cratered asset prices in 2008, and which then led to the policies of austerity, QE and asset price manipulation in the period after that, including destroying real capital accumulation, or at least hampering it, in order to achieve that end.

        My point is that the underlying dynamic of the long wave cycle that leads to those factors that began to manifest themselves in 2000-2008, continue to operate despite all of the attempts of states and central banks to restrain them in their attempt to keep asset prices inflated. It is that fact, which continually pushes itself through despite all of their efforts to prevent it, and thereby continually undermines their efforts, as growth resumes, employment increases, wages or wage share rises, profits start to get squeezed, but in order to increase output to meet the rising demand, firms must increase their demand for money-capital relative to the supply (as realised profits fall relative to the increased demand), and so interest rates rise, and asset prices get crushed.

        Given that asset prices today are far higher than they were in 2007, with the Dow Jones being nearly double its pre-crash high, it seems to me, that with interest rates still at generally low levels, in absolute terms, any rise in interest rates will have an even more dramatic effect on asset prices.

        Again, I am glad we agree that a truly humongous financial crash is ahead. Is suspect, however, we would disagree on what the consequence of that will be.

      • michael roberts Says:

        First, I think Anti-Capital refers to the EU not EZ. The 1998-07 average growth rate for the EU was 2.7% and was 0.9% from 2008-17. The 2017 growth rate for the EU was 2.65% so more or less in line with the pre-2007 average.

        Second “taking into consideration the slower growth of EZ growth from the start of 2018, it is now rising again” No, EZ and EU growth this year will be slower than in 2017, not faster. EZ growth forecast by TE is Q3: 2.2 Q4: 2.1 Q1 ’19: 2.0 Q2’19: 2.2 and that assumes no crisis in the next four quarters.

        Third, your PMI story is flimsily based on two months. Expect the EZ PMI to slip in H2.

        Fourth, the differential in growth figures before and after the GR to growth rates 50-75% lower for ten years after the GR seems to support a ‘depression’ to me.

        Fifth, I leave the readers to consider your interpretation of the long wave boom against mine.

        That’s it from me on this.

      • Boffy Says:

        Anti-Capital,

        “The chart referenced is NOT for the EU, but for the euro area.
        that’s one. For two, here are the numbers for the EU from the Eurostat website. Do the math yourself for annual average rate of growth. It’s not hard.

        EU GDP 1999: 8.998 trillion 2008 13.086 trillion 2017 15.336 trillion”

        A hyperlink to the data source would, be useful. The EU includes the UK,whereas I was talking about Europe, especially in the context of Brexit. Its not clear from these bald figures whether this simply includes, also the increase in EU GDP arising from the inclusion of additional countries that joined after 1999, which rather makes the data meaningless.

        Either way the date that Michael has provided, and which is available at Trading Economics, which I have also linked to confirms the points I was making, and disproves the argument you were making.

      • Anti-Capital Says:

        Link to Eurostat website GDP figures I’m using:

        http://appsso.eurostat.ec.europa.eu/nui/show.do?dataset=nama_10_gdp&lang=en

      • Boffy Says:

        Thank you for that link. As I suspected. I you take the data for the EU 15, as at 2000, the GDP for 2008 is 12 trillion, not the 13 trillion you cited, which is for the EU as currently composed, and thereby including all of the other 12 economies that joined after 2000. So, no wonder the GDP figure looks much bigger over that period!

        It rises to 14 trillion in 2017.

        So taking your 9 trillion figure for 1999, and the 12 trillion figure for 2008 that is a simple average of 3.7%. Taking the 14 trillion for 2017 as against the 12 trillion for 2008 that is a simple average of 1.8%.

        So, again it does not prove your point. I have never suggested that the rate of growth has been greater in the period 2008-2017 compared to 1999-2008! I have only said that the rate of growth having been falling is rising again, and clearly on the basis of the current data it is, because a 2.3% projected growth rate is greater than the average 1.8% growth rate over the last 9 years!

        It is 27.77% greater.

        And, a look at the PMI data shows the trend rise.

      • Boffy Says:

        Michael,

        You say,

        “Second “taking into consideration the slower growth of EZ growth from the start of 2018, it is now rising again” No, EZ and EU growth this year will be slower than in 2017, not faster.”

        I really don’t know how many more times I have to say this, or different ways to say it. I have not said that PMI’s are rising FASTER THAN in 2017, nor that growth is rising faster than in 2017! I have only said that it is rising faster than it was in the earlier part of this year! And, it is, your own figures show that. From the high point in January of the PMI’s at 58.8, they fell progressively to 54.1 in May. Since then they have again been rising, now standing at 54.4.

        So, actually the PMI story is based on 3 months not two months, and, of course, as the PMI figures show they have been progressively rising, themselves over recent years.

        Will the EZ PMI’s slip in H2? Possibly. As I said, my model sees a relative slowdown between Q3 2017 to Q3 2018, so that is quite possible, especially given Trump’s global trade war, Brexit and so on. I’m just saying that currently, they are moving in the opposite direction. With employment growing and the US growing, and China seeking to introduce another stimulus, its quite possible that the current increase will strengthen. In fact, if you look inside the composite figure, the situation in Germany looks healthier still.

        We will see what happens with forecasts for 2019 as the year draws on, but I’d remind you that for the last three or four years you have been predicting that a new recession was knocking at the door, and each year it has failed to materialise as I predicted would be the case.

        “Fifth, I leave the readers to consider your interpretation of the long wave boom against mine.”

        And that’s exactly how friendly and constructive debate should be.

      • Anti-Capital Says:

        Boffy, your original assertion was “In fact, Europe is already showing signs of growth rising again.” That means not simply that the economy is still growing, but that the growth is increasing, accelerating. That’s what “rising” means. Then when we get into the issue, you bring forth, first, data on the Eurozone, and now your definition of Europe excludes the UK which last time I checked is still, and will remain part of Europe regardless of Brexit.

        When I point out that 2Q growth in the EU was below estimates and has triggered downward revisions in GDP estimates for 2018 and 2019, you say, “growth must be increasing because the estimate says 2.1% which is higher than the .3% 2Q number when annualized.” That’s the real nonsensical part as what counts is the 3Q year-over-year growth. If 3Q growth comes in above 2Q but below or even at estimates, growth is not picking up for the year

        GDP growth in the EU has been revised downward for 2018. It will certainly be below 2017. 2019 is estimated to have even slower growth.

        As for the GDP growth rates, I’ll stick with the market price numbers given by the Eurostat. I think they’re reliable, and certainly come without the moving goalposts you throw in when you’re challenged.

      • Anti-Capital Says:

        You want EU 15?? OK we’ll do EU 15 and compare:

        1999-2007 EU 15 GDP growth 40%
        1999-2007 EU as currently constituted GDP growth 44.5%

        2008-2017 EU 15 GDP growth 16.7%
        2008-2017 EU as currently constituted 17.1%

      • Anti-Capital Says:

        First, regarding the PMI, I recommend everybody check the links provided, and in particular this:

        https://tradingeconomics.com/euro-area/manufacturing-pmi .

        Look at the decline in the growth of the PMI since Jan 2018. Note also that the PMI stays in positive territory, with declining growth in the 2Q when GDP came in BELOW expectations.

        and here’s the text accompanying the chart:

        “The IHS Markit Eurozone Manufacturing PMI fell to 54.6 in August of 2018 from 55.1 in July, below market expectations of 55, preliminary estimates showed. The reading pointed to the slowest expansion in the manufacturing sector since November of 2016. Export orders rose the least in two years; backlogs of orders’ growth was the weakest in three years; job creation fell to a 17-month low; input inflation accelerated amid higher salaries, fuel, transport and commodity prices while output price inflation slowed. In addition, business confidence slumped to a 34-month low, dragged down by cooling demand, higher prices and rising political concerns. Manufacturing PMI in the Euro Area is reported by Markit Economics.”

        That doesn’t sound like rising growth to me.

        Secondly, thanks to Boffy for confirmination using the Eurostat figures that growth in the EU 15, and EU CC exceeded 3% on average per annum during the 1999-2007 period, and then falls off the table to less than 2 percent per annum.

        Thirdly, while 2.1% estimated for 2018 exceeds the 2008-2017 average, but not by much, it falls woefully short of the 3.7% growth cited for 1999-2007 by about 42%. 2.1% is firmly in the grips of the long recession.

      • Boffy Says:

        Anti-Capital,

        Reply To Anti-Capital

        “That means not simply that the economy is still growing, but that the growth is increasing, accelerating.”

        And, that is what I indicated. The PMI data, shows an increasing pace over the past 3 months, from the low in May, which followed the decline from the high in January.

        We appear to have been talking at crossed purposes in relation to the EU and EZ, which is my fault for not making clear that I was talking about the EZ. However, as I’ll show it makes little difference whether we are talking about the EU or EZ. Britain may be part of Europe after Brexit, but it certainly will not be part of the EU, and is not currently part of the EZ.

        “When I point out that 2Q growth in the EU was below estimates and has triggered downward revisions in GDP estimates for 2018 and 2019, you say, “growth must be increasing because the estimate says 2.1% which is higher than the .3% 2Q number when annualized.” That’s the real nonsensical part as what counts is the 3Q year-over-year growth. If 3Q growth comes in above 2Q but below or even at estimates, growth is not picking up for the year.”

        You say that what counts is the “ 3Q year-over-year growth”, but I don’t, and I never claimed that it did, or that it was what I was measuring. You can say that Liverpool are not winning as many matches in a year, as they did in their glory days, and its only comparison with that period that counts if you like, but most Liverpool fans would take the relevant metric as being are they currently winning more matches than they have been earlier in the season, as an indication as to whether the teams performance is currently improving or not. That is all I stated in this regard too. That is the PMI indicators for the period since May, show an increase, having been falling since January.

        Similarly, in relation to the actual growth figures. Its fairly obvious isn’t it, that if growth for the part of the year that has gone was low, that in itself will drag the figure for the year as a whole down. If the average figure for the year, as currently estimated, however, is higher than the annualised figure for the earlier part of the year, or as in this case, for the Q2, that means that the projected growth for the remaining quarters of the year must be HIGHER, than was the case for the earlier quarters, or else it would be impossible for the annual figure to be higher. That is all I stated, that not only do the PMI’s for the last three months show an increase, having been falling since January, but even on the basis of your own data, the projection for growth for the rest of the year is higher than the growth during the earlier part of the year, i.e. the pace of growth is rising compared to the earlier part of the year. The requirement that that should mean compared with last year is entirely your construction, not mine.

        “GDP growth in the EU has been revised downward for 2018. It will certainly be below 2017. 2019 is estimated to have even slower growth.”

        Well, we’ll see whether 2019 estimates are revised upwards or downwards when we get towards te end of the year. Either way, the current estimates are not predicting some new recession, long depression or secular stagnation. I didn’t change the goalposts. We were simply talking at crossed purposes. I’m quite happy to play on any playing field you choose, which is why once I had the link to the raw data you were using, I was quite happy to deal with it.

        Your point was that 2% growth was a particularly depressed level of growth, and so 2.3% growth didn’t represent much of an improvement. My point was that 2% is not a particularly depressed level of growth. Either way 2.3% is greater than 2%, which is the point I was making, i.e. growth was picking up from its previous level, earlier in the year.

        Why are you recommending that readers look specifically at the EZ manufacturing PMI? Could it be that, as I showed above by providing the PMI data, the Manufacturing PMI is the only one that is actually negative?

        Let me quote the Markit PMI data, on which Trading Economics constructed their charts, again, for readers convenience.

        “Flash Eurozone PMI Composite Output Index(1) at 54.4 (54.3 in July). 2-month high.

        Flash Eurozone Services PMI Activity Index(2) at 54.4 (54.2 in July). 2-month high.

        Flash Eurozone Manufacturing PMI Output Index(4) at 54.5 (54.4 in July). 3-month high.

        Flash Eurozone Manufacturing PMI(3) at 54.6 (55.1 in July). 21-month low.”

        And, as stated above the only reason that the first two are at only 2 month highs is because the June PMI figure was erratic, spiking higher to 54.8. In fact, if the aggregate figure for the three months from May is taken a figure of 54.5 is obtained, compared with the May low of 54.1. And as stated previously, a look at the PMI data going back to 2012, shows a steady upward trajectory from a low of 46 in 2012 to the high of 58.8. I fail to see how that steady rise in the PMI data over that 6 year period to its January high, prior to falling between January and May, and then again starting to rise, helps the argument you are trying to make! Perhaps that is why you refer to the Manufacturing PMI, which everyone knows is rather minor, considering that in modern economies 80% of new value comes from services, and only about 20% from manufacturing!

        “That doesn’t sound like rising growth to me.”

        That’s perhaps because you cherry picked the one indicator that was not showing a 2 or three month high! Its perhaps because you didn’t quote what they say about the composite in relation to employment at a six month high, or growth accelerating in Germany and France! For fairness, let me quote the whole text in relation to the composite.

        “The IHS Markit Eurozone Composite PMI came in at 54.4 in August 2018, little-changed from July’s 54.3 and slightly below market expectations of 54.5, a preliminary estimate showed. The latest reading pointed to a pick up in private sector expansion but was the third-weakest since January 2017 as growth rates in manufacturing and services remained among the lowest seen for at least one-and-a-half years. Also, new order growth was the third-weakest since December 2016 and business optimism deteriorated to a 23-month low, while the pace of job creation hit a six-month high. On the price front, input cost and selling price inflation rates cooled to three-month lows. Among Eurozone’s largest economies, growth accelerated in France and Germany but slowed across the rest of the single-currency area.”

        Which seems to be pretty much exactly what I have been saying. That is following a period of weakness, the data has improved in the last three months. Obviously, Trading Economics have no problem with the idea that growth can have “accelerated” in the current months compared to previous months, without that requiring that it has accelerated compared to last year, or some other previous time that might make things look less favourable.

        “Secondly, thanks to Boffy for confirmination using the Eurostat figures that growth in the EU 15, and EU CC exceeded 3% on average per annum during the 1999-2007 period, and then falls off the table to less than 2 percent per annum.”

        But, the period 1999-2007 is not an average period. It was a period of higher than average growth. Nor can growth of 2% be considered to be “falling off the table” unless you are comparing it with the growth rates of an economy like China, or the current growth rate of the US.

        “Thirdly, while 2.1% estimated for 2018 exceeds the 2008-2017 average, but not by much, it falls woefully short of the 3.7% growth cited for 1999-2007 by about 42%. 2.1% is firmly in the grips of the long recession.”

        Firstly, the 2.1% figure is for the year, and is thereby already depressed by the lower growth for the earlier part of the year. As I said earlier, 2.1%, or 2.3%, whatever the latest estimate, therefore, means that the growth in the remaining part of the year, on a monthly or quarterly basis must be more than that, in order to pull up the average for the year. Again, as I’ve said before, my central forecast was for the three year cycle to cause a relative slowdown between Q3 2017 and Q3 2018, so we will see whether it picks up, or not, thereby continuing the rise over the last three months. Given Trump’s Trade War, Brexit, the political situation in Italy and Turkey there are certainly plenty of non-economic headwinds against it. If it rises despite those headwinds, it will say a lot about the underlying dynamic.

        Your last sentence shows precisely the problem. A recession is defined as two successive quarters of negative growth. It certainly does not mean 2% positive growth. If you are happy to simply take your own actual data, and define them in terms that support your argument then there is really no point collecting the data in the first place.

        I have no more time to devote to this discussion due to other commitments.

      • Boffy Says:

        One final final comment from me that I had forgotten to include. The average EU 15 growth figure calculated that I provided was as I stated a simple average, i.e. take the total percentage rise and divide by the number of years. That is obviously an unsatisfactory method of calculating the average annual rise, because that is a compounded figure.

        Fortunately, Michael has provided the actual average figure for the EU above. He writes,

        “First, I think Anti-Capital refers to the EU not EZ. The 1998-07 average growth rate for the EU was 2.7% and was 0.9% from 2008-17. The 2017 growth rate for the EU was 2.65% so more or less in line with the pre-2007 average.”

        So, we see that the average growth rate was not as AntiCapital claimed 3.5%, but was in fact only 2.7% even during the higher growth period of 1998-07! In fact, as Michael points out far from the 2017 growth figure being at a very depressed level, as Anti-Capital claims it was not much different to the average for this higher growth, pre 2007 period.

        As I said 2.0% is not depressed let alone particularly depressed, but it more or less over the longer period, and 2.3% represents an increase above it.

      • Anti-Capital Says:

        1. I think Michael is using IMF data; not that from Eurostat, which is ok, but doesn’t invalidate the Eurostat data, nor my analysis of it.

        2. Eurostat data for “EU cc” for the period before adhesion of the “non-core” non-15, is adjusted to include those GDPs so that analysis over time is possible.

        3. The growth rates I calculate are the compounded growth rates.

    • mandm Says:

      Boffy, I had hoped someone better equipped than I would take you on, but it seems mums the word. At least the following should be pointed out.

      Classical political economy’s labor theory of value and Marx’s revolutionizing theory of surplus value are based on the value of labor, which in turn, is based on the price of wage goods in a given region of the world. Conditions were changing and regions integrating imperially as Marx wrote. Today, most of the world’s wage goods are produced in the peripheries of an integrated global economy centered in the old colonial powers, where they are valorized and mostly consumed by “better off” working populations whose own wages and living conditions have deteriorated and remain under attack. Any viable account (yours is moribund) of the production of surplus value, profitability, and crises in this capitalist world must factor in the value of super-exploited, extremely precarious, peripheral labor (including foreign labor, legal and illegal and particularly agricultural labor, in the imperial centers). Such a system must always be in “crises”–economic and political, while fomenting war as a solution to its problems.

      You write to the letter of Marx’s law, but regularly against its revolutionary spirit.

      • Boffy Says:

        ” the value of labor”

        Both Marx and Engels state that three is no such thing as “the value of labour” as opposed to the value of labour-power! They describe the term “value of labour” as irrational, as absurd, and the equivalent of a yellow logarithm!

        I’d suggest a bit more reading of basic Marxist concepts on your part, before you start criticising others.

      • mandm Says:

        Sorry, but I think you know that I meant “labor power” (which is exemplified in the adjacent, qualifying adjective clause). Most readers, despite the slip, probably understood my point. In any case, a casual, contemptuous dismissal is what I expected. You characteristically obliged.

      • Boffy Says:

        Given your own usual contemptuous, fact free, comment, i.e.

        “Any viable account (yours is moribund) of the production of surplus value, profitability, and crises in this capitalist world must factor in the value of super-exploited, extremely precarious, peripheral labor (including foreign labor, legal and illegal and particularly agricultural labor, in the imperial centers). Such a system must always be in “crises”–economic and political, while fomenting war as a solution to its problems.”

        as I have pointed out in the past, it hardly deserves any response whatsoever, dismissive or otherwise. Exactly what the point of your comment was to begin with is entirely unclear, because as usual it does not appear to address anything in what I had said, but just amounted to a vehicle for you once again to throw out unsubstantiated insults such as “moribund”, whatever that was supposed to mean in this context, as well as the again unsubstantiated comment about following the letter of Marx’s laws but not the revolutionary spirit, and to bandy about vague mantras and dogmas about permanent crises, a concept that marx himself specifically rejected.

      • mandm Says:

        When I referred to your approach to marxist analysis as “moribund” I implied what should have been clear enough within the outline of the global situation I was setting out. It referred to

        *Your willing suspension of disbelief in the largely fictitious nature of the latest figures for GNP and the average profit among the major capitalist powers.

        The fiction in these official tabulations is not only their being inflated by financial capital, but in their hidden, financially manipulated inclusion of stolen surplus value from super exploited labor in the peripheries of the imperial system. Michael Roberts is also necessarily constrained to deal with the same figures, but his approach is historical and materialist. So his conclusions are opposite of yours, which are more those of a very diligent bookkeeper than a marxist.

        *Your apparent blindness to the actual condition, not only of the working classes in the imperial peripheries, but in the centers themselves, especially in the US and in England, which have been under relentless attack since Reagan and Thatcher.

        This blindness enables you to be positive about the increase in (precarious) employment and the attendant increase in the consumer spending index of GNP– despite the former being a function of the war on unions and public utilities, and the latter made possible by a combination of debt peonage and cheap wage goods provided by super-exploited fellow workers in the peripheries (but also marginalized citizen and foreign workers in the centers). You also seem blind or indifferent to the social effect of this war of divide and rule on the working classes at the imperial centers: the rebirth of a fascist right and the establishment of militarized surveillance states.

        *Your apparent blindness to the fact that, indeed, the imperialist systems of modern capitalism have been in a long, systemic crisis since the last quarter of the 19th century, requiring a permanent state of increasingly destructive wars and increasingly ineffective financial manipulation to cover overproduction cycles up to the present, when the disintegration of the latest attempt at capital concentration and integration now threatens war with the “integrated” Russia and China.

        My argument is not with you. Your views are similar to those of the majority among economists, including many marxists. My argument is against the predations of capitalism, not for them.

      • Boffy Says:

        Once again a reply that is a non-reply, simply once again setting out unsubstantiated, fact free, assertions, shrouded in in vague language, and mantras.

  2. Boffy Says:

    The shape of the yield curve is irrelevant because it has been so grossly distorted by QE. The short end rises each time the Fed proposes another hike in its rates, because it is the shorter dated bonds that are immediately affected by it. If the fed wants to stop the curve inverting it has a simple answer, just do a reverse of the operation it did previously, i.e. as it unwinds its balance sheet, simply allow more ten years to mature, without replacing them, and buy more two and five years.

    • vk Says:

      I agree with the diagnosis, but disagree with the cure. The geenie is already out of the bottle, no way putting it back.

      • Boffy Says:

        I didn’t offer a cure, I simply pointed out that the yield curve is a meaningless indicator, because bonds have been so grotesquely distorted by QE, and that is illustrated by the fact that the Fed could prevent an inversion simply by applying QE in a different form of operation switch.

        An inversion does not at all signal an oncoming recession, because the yield curve is meaningless due to this QE induced distortion. Even 150 years ago, Marx noted that these official interest rates, and manipulated government bond yields should not be used as a measure of average market rates of interest, but instead it is the commercial rates of interest that businesses charge each other that are a more accurate barometer.

      • ucanbpolitical Says:

        Having read all your comments one correction. It is in the stage of rising animation, not stagnation, that the mass of profits first begin to rise raising the rate of profit absolutely. This is consistent with Marx’s characterisation of the phases of the industrial cycle and one proved by the turnover formula which shows an acceleration in the circulation of capital from the low point found during the phase of stagnation. You place the emphasis on new investment in the most efficient technologies, true, but it is really the reversal in the rate of turnover which is now occuring and with it the needed for price discounting. In other words only in the phase of rising animation is the realisation problem ended for profits.

      • VK Says:

        “An inversion does not at all signal an oncoming recession, because the yield curve is meaningless due to this QE induced distortion.”

        On the contrary, it indicates the upcomming crisis will be even worse than if QE had never happened.

      • Boffy Says:

        Ucan,

        I didn’t say that the mass of profit rises during the stagnation phase – though generally it does, but at a slower pace. What I said was that the annual rate of profit rises sharply during this period. What I said was,

        “Firstly, contrary to your assertion, it is during the stagnation phase, Marx says, that the annual rate of profit rises. It does so because, the introduction of new labour-saving technologies reduces the demand for labour-power, and so creates a relative surplus population. That slashed nominal wages, but also slashes the wage share, because relatively fewer workers are employed relative to output value.”

        Its because growth itself rises at a slower pace during such periods that the mass of profit rises more slowly, but that the rate of profit rises, or as Marx describes it in TOSV, the net product rises relative to the gross product.

        You are quite right that the mass of profit rises most sharply in the animation or prosperity phase that follows the stagnation phase, and it does so precisely because, the annual rate of profit, having risen during the stagnation phase, is then accompanied by a more rapid accumulation of capital, and expansion of output.

        “The rising demand for labour-power can never by itself be a cause for a rising rate of interest, in so far as the latter is determined by the rate of profit. Higher wages are never a cause for higher profits, although they may be one of the consequences of higher profits during some particular phases of the industrial cycle.

        The demand for labour-power can increase because the exploitation of labour takes place under especially favourable circumstances, but the rising demand for labour-power, and thus for variable capital, does not in itself increase the profit; it, on the contrary, lowers it pro tanto. But the demand for variable capital can nevertheless increase at the same time, thus also the demand for money-capital — which can raise the rate of interest. The market-price of labour-power then rises above its average, more than the average number of labourers are employed, and the rate of interest rises at the same time because under such circumstances the demand for money-capital rises. The rising demand for labour-power raises the price of this commodity, as every other, increases its price; but not the profit, which depends mainly upon the relative cheapness of this commodity in particular. But it raises at the same time — under the assumed conditions — the rate of interest, because it increases the demand for money-capital. If the money-capitalist, instead of lending the money, should transform himself into an industrial capitalist, the fact that he has to pay more for labour-power would not increase his profit but would rather decrease it correspondingly. The state of business may be such that his profit may nevertheless rise, but it would never be so because he pays more for labour. The latter circumstance, in so far as it increases the demand for money-capital, is, however, sufficient to raise the rate of interest. If wages should rise for some reason during an otherwise unfavourable state of business, the rise in wages would lower the rate of profit, but raise the rate of interest to the extent that it increased the demand for money-capital…

        In times of stringency, the demand for loan capital is a demand for means of payment and nothing else; it is by no means a demand for money as a means of purchase. At the same time, the rate of interest may rise very high, regardless whether real capital, i.e., productive and commodity capital, exists in abundance or is scarce.”

        Capital III, Chapter 32

        “After the reproduction process has again reached that state of prosperity which precedes that of over-exertion, commercial credit becomes very much extended; this forms, indeed, the “sound” basis again for a ready flow of returns and extended production. In this state the rate of interest is still low, although it rises above its minimum. This is, in fact, the only time that it can be said a low rate of interest, and consequently a relative abundance of loanable capital, coincides with a real expansion of industrial capital. The ready flow and regularity of the returns, linked with extensive commercial credit, ensures the supply of loan capital in spite of the increased demand for it, and prevents the level of the rate of interest from rising. On the other hand, those cavaliers who work without any reserve capital or without any capital at all and who thus operate completely on a money credit basis begin to appear for the first time in considerable numbers. To this is now added the great expansion of fixed capital in all forms, and the opening of new enterprises on a vast and far-reaching scale. The interest now rises to its average level. It reaches its maximum again as soon as the new crisis sets in. Credit suddenly stops then, payments are suspended, the reproduction process is paralysed, and with the previously mentioned exceptions, a superabundance of idle industrial capital appears side by side with an almost absolute absence of loan capital.

        On the whole, then, the movement of loan capital, as expressed in the rate of interest, is in the opposite direction to that of industrial capital. The phase wherein a low rate of interest, but above the minimum, coincides with the “improvement” and growing confidence after a crisis, and particularly the phase wherein the rate of interest reaches its average level, exactly midway between its minimum and maximum, are the only two periods during which an abundance of loan capital is available simultaneously with a great expansion of industrial capital. But at the beginning of the industrial cycle, a low rate of interest coincides with a contraction, and at the end of the industrial cycle, a high rate of interest coincides with a superabundance of industrial capital. The low rate of interest that accompanies the “improvement” shows that the commercial credit requires bank credit only to a slight extent because it is still self-supporting.”

        (Capital III, Chapter 30)

  3. ivarjordre Says:

    Hi,
    thanks for always interesting art. on your blog. I’m also a marxist blogger and I occasionally write about or take art. into my blog on economy and the state of capitalism, among many other issues. I’ve reblogged your two latest art. “Crashed: more the how, than the why” and “The Fed’s star-gazing”. I hope that’s fine with you? Thanks!

    Here’s some of my own blog posts on the issue:
    https://ivarjordre.wordpress.com/2014/02/28/the-corporate-europe-and-the-us-the-danger-of-capitalism/
    https://ivarjordre.wordpress.com/2014/01/17/corruption-rings-the-distorted-bells-of-capitalism/

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

This site uses Akismet to reduce spam. Learn how your comment data is processed.


%d bloggers like this: