Archive for the ‘marxism’ Category

Lives or livelihoods?

April 6, 2020

There are now two billion people across the world living under some form of lockdown as a result of the coronavirus pandemic. That’s a quarter of the world’s population. The world economy has seen nothing like this. Nearly all economic forecasts for global GDP in 2020 are for a contraction of 3-5%, as bad if not worse than in the Great Recession of 2008-9.

According to the OECD, output in most economies will fall by an average of 25% (OECD) while the lockdowns last and the lockdowns will directly affect sectors amounting to up to one third of GDP in the major economies. For each month of containment, there will be a loss of 2 percentage points in annual GDP growth.

This is a monstrous way of proving Marx’s labour theory of value, namely that “Every child knows a nation which ceased to work, I will not say for a year, but even for a few weeks, would perish.”  (Marx to Kugelmann, London, July 11, 1868).

The lockdowns in several major economies are having a drastic effect on production, investment and, above all, employment. The latest jobs figures for March out of the US were truly staggering, with a monthly loss of 700,000 and a jump in unemployment to 4.4%.

In just two weeks, nearly 10m Americans have filed for unemployment benefit.

All these figures surpass anything seen in the Great Recession of 2008-9 and even in the Great Depression of the 1930s.

Of course, the hope is that this disaster will be short-lived because the lockdowns will be removed within a month or so in Italy, Spain, the UK, the US and Germany.  After all, the Wuhan lockdown is ending this week after 50 days and China is gradually returning to work – if only gradually.  In other countries (Spain and Italy), there are signs that the pandemic has peaked and the lockdowns are working. In others (UK and US), the peak is still to come.

So once the lockdowns are over, then economies can quickly get back to business as usual. That’s the claim of US treasury secretary Mnuchin: “This is a short-term issue. It may be a couple of months, but we’re going to get through this, and the economy will be stronger than everKeynesian guru Larry Summers echoed this view: “I have the optimistic guess—but it’s only an optimistic guess—that the recovery can be faster than many people expect because it has the character of the recovery from the total depression that hits a Cape Cod economy every winter or the recovery in American GDP that takes place every Monday morning.”

During the lockdowns, various governments have announced cash handouts and boosted unemployment benefits for those laid off or ‘furloughed’ until business is restored.  And small businesses are supposedly getting relief in rates and cheap loans to tide them over.  That should save people’s livelihoods during the lockdowns.

One problem with this view is that, such have been the cuts in public services over the last decade or so, there is just not enough staff to process claims and shift the cash.  In the US, it is reckoned that many will not get any checks until June, by which time the lockdowns might be over!  Moreover, it is clear that many people and small businesses are not qualifying for the handouts for various reasons and will fall through this safety net.

For example, 58% of American workers say they won’t be able to pay rent, buy groceries or take care of bills if quarantined for 30 days or less, according to a new survey from the Society for Human Research Management (SHRM).  One in five workers said they’d be unable to meet those basic financial needs in less than one week under quarantine. Half of small businesses in the U.S. can’t afford to pay employees for a full month under quarantine conditions. More than half of small businesses expect to see a loss in revenue somewhere between 10-30%.

Indeed, many people are being forced to work, putting their health at risk because they cannot work at home like better paid, office-based workers.

Many small businesses in travel, retail and services will never come back after the lockdowns end. Even large companies in retail, travel and energy could well go bust, causing a cascade effect through sectors of economies. For example, the US Federal Reserve requires banks to run stress tests that assume certain bad scenarios to make sure the banks can weather a market downturn. The worst-case scenario had GDP falling by 9.9% in Q2 2020 with unemployment jumping to 10% by Q3 2021. Based upon recent estimates from Goldman Sachs, GDP will likely fall over 30% and unemployment could end up at a similar level… within weeks.

Also there are huge amounts of corporate debt issued by fairly risky companies which were not making much revenue and profit anyway before the pandemic.  And as I have said in previous posts, even before the virus hit the world economy, many countries were heading into recession.  Mexico, South Africa and Argentina among the G20 nations and Japan in the G7 were already in recession.  The Eurozone and the UK were close and even the best performer, the US, was slowing fast.  Now all that corporate debt that built up in the years since the end of the Great Recession could come tumbling down in defaults.

That is especially the case in the impoverished ‘Global South’ economies, which have experience an unprecedented $90bn outflow of capital as foreign investors leave the sinking ship.  And there is little or no safety net being offered by the likes of the IMF or the World Bank. Things are only going to get worse in the coming quarter and recovery may not be anywhere near the optimists’ view in H2 2020.

Clearly these lockdowns cannot go on forever, otherwise billions of people are going to be destitute and governments will be spending more and more, funded by more and more debt and/or the printing of money to make cash handouts and buy yet more debt.  You cannot go on doing that if there is no production or investment.  Jobs will disappear forever and inflation will eventually rocket.  We shall enter a world of permanent depression alongside hyper-inflation.

It seems that several European countries, encouraged by the peaking of cases are preparing to end their lockdowns by the end of this month.  But even if they do, a return to ‘normal’ will take months as it will depend on mass testing to gauge whether the virus will come back as it surely will and whether it could then be contained while gradually restoring production.  So any global recovery is not going to quick at all.  A German Ifo study predicted the German economy could shrink by up to 20% this year if the shutdown lasted three months and was followed by only a gradual recovery.

And the latest US forecasts from Goldman Sachs show the trough of the US recession being reached in the second quarter of 2020, with GDP likely to be 11-12 per cent below the pre-virus reading. This would involve a dramatic decline at an annualised rate of 34 per cent in that quarter.  GDP is then projected to rise very gradually, not reaching its pre-virus path before the end of 2021. This pattern, implying almost two “wasted” years in the US, has been common in recent economic forecasts. A similar picture is expected in the eurozone, which is experiencing a collapse in manufacturing output more precipitous than in the 2012 euro crisis.

But the gradual plan is the only óptimal’ option, says one bunch of economists: “importantly, the level of the lockdown, its duration, and the underlying economic and health costs depend critically on the measures that improve the capacity of the health system to cope with the epidemic (testing, isolating the vulnerable, etc.) and the capacity of the economic system to navigate through a period of suspended economic activities without compromising its structure.”

Could the lockdowns have been avoided?  The evidence is increasingly clear that they could have been.  When COVID-19 appeared on the scene, governments and health systems should have been ready.  It is not as if they had not been warned by epidemiologists for years.  As I have said before, COVID-19 was not an ‘unknown unknown’.  In early 2018, during a meeting at the World Health Organization in Geneva, a group of experts (the R&D Blueprint) coined the term “Disease X”: They predicted that the next pandemic would be caused by an unknown, novel pathogen that hadn’t yet entered the human population. Disease X would likely result from a virus originating in animals and would emerge somewhere on the planet where economic development drives people and wildlife together.

More recently, last September the UN published a report warning that there is a “very real threat” of a pandemic sweeping the planet, killing up to 80 million people. A deadly pathogen, spread airborne around the world, the report said, could wipe out almost 5 percent of the global economy.  “Preparedness is hampered by the lack of continued political will at all levels,” read the report. “Although national leaders respond to health crises when fear and panic grow strong enough, most countries do not devote the consistent energy and resources needed to keep outbreaks from escalating into disasters.”  The report outlined a history of deliberate ignoring of warnings by scientists over the last 30 years.

Governments ignored the warnings because they took the calculated view that the risk was not great and therefore spending on pandemics prevention and containment was not worth it.  Indeed, they cut back spending in pandemic research and containment.  It reminds me the decision of Heathrow airport in the UK to buy only two snow ploughs because it hardly ever snowed or froze in London, so the expense was not justifiable.  The airport was badly caught out one winter day and everything stopped.

How could the lockdowns have been avoided? If government had been able to test everybody for the virus, to provide protective equipment and huge armies of health workers to test and contract trace and then quarantine and isolate those infected.  The old and sick should have been shielded at home and supported by social care.  Then it would have been possible for everybody else to go to work, just as essential workers must do so now.  Small countries like Iceland (and Taiwan, South Korea) with high quality health systems have been able to do this.  Most countries with privatised or decimated health systems have not.  So lockdowns have been the only option if lives are to be saved.

The policy of the lockdowns is only partly to save lives; it is also to try and avoid health systems in countries being overwhelmed with cases, leaving medics with the Hobson choice of choosing who will die or will get help. The aim is to ‘flatten the curve’ in the rise in virus cases and deaths so that health system can cope.  The problem is that flattening the curve in the pandemic by lockdowns increases downward curve in jobs and incomes for hundreds of millions.

And yet if the pandemic were allowed to run riot, historical studies show that it also would eventually destroy an economy.  A recent Federal Reserve paper, looking at the impact of the Spanish flu epidemic in the US, found that the then uncontrolled pandemic reduced manufacturing output by 18%. So lockdowns may be less damaging in the end.  It seems you cannot win either way.

Lives or livelihoods?  Some right-wing ‘neoliberal’ experts reckon that the capitalist economy is more important than lives.  After all, the people dying are mostly the old and the sick.  They do not contribute much value to capitalist production; indeed they are a burden on productivity and taxes.  In true Malthusian spirit, in the executive suites of the financial institutions, the view is prevalent that governments should let the virus rip and once all the young and healthy get immune, the problem would be solved.

This view also connects with some health expert studies that point out that every day, hospital doctors must make decisions on what is the most ‘cost effective’ from the point of view of health outcomes.  Should they save a very old person with COVID-19 if it means that some younger person’s cancer treatment is delayed because beds and staff have been transferred to the pandemic?

Here is that view: “if funds are not limitless – then we should focus on doing things whereby we can do the most good (save the most lives) for the least possible amount of money. Or use the money we have, to save the most lives.” Health economics measures the cost per QALY.  A QALY is a Quality Adjusted Life Year. One added year of the highest quality life would be one QALY.  “How much are we willing to pay for one QALY? The current answer, in the UK, is that the NHS will recommend funding medical interventions if they cost less than £30,000/QALY. Anything more than this is considered too expensive and yet the UK’s virus package is £350bn, almost three times the current yearly budget for the entire NHS. Is this a price worth paying?”  This expert reckoned that “the cost of saving a COVID victim was more than eleven times the maximum cost that the NHS will approve.” At the same time cancer patients are not being treated, hip replacements are being postponed, heart and diabetes sufferers are not being dealt with.

Tim Harford in the FT took a different view.  He points out that the US Environmental Protection Agency values a statistical life at $10m in today’s money, or $10 per micromort (one in a million risk of death) averted.  “If we presume that 1 per cent of infections are fatal, then it is a 10,000 micromort condition. On that measure, being infected is 100 times more dangerous than giving birth, or as perilous as travelling two and a half times around the world on a motorbike. For an elderly or vulnerable person, it is much more risky than that. At the EPA’s $10 per micromort, it would be worth spending $100,000 to prevent a single infection with Covid-19.  You don’t need a complex epidemiological model to predict that if we take no serious steps to halt the spread of the virus, more than half the world is likely to contract it. That suggests 2m US deaths and 500,000 in Britain — assuming, again, a 1 per cent fatality rate.  If an economic lockdown in the US saves most of these lives, and costs less than $20tn, then it would seem to be value for money.”  The key point for me here is that this dilemma of ‘costing’ a life would be reduced if there had been proper funding of health systems, sufficient to provide ‘spare capacity’ in case of crises.

There is the argument that the lockdowns and all this health spending are based on an unnecessary panic that will make the cure worse than the disease.  You see, the argument goes, COVID-19 is no worse than bad flu in its mortality rate and will have way less impact than lots of other diseases like malaria, HIV or cancer, which will kill more each year.  So stop the crazy lockdowns, just protect the old, wash your hands and we shall soon see that COVID is no Armageddon.

The problem with this argument is that evidence is against the view that COVID is no worse than annual flu.  It’s true that, so far, deaths have only reached 70,000 by April, some 40,000 less than flu this year and only quarter of the deaths from malaria.  But the virus ain’t over yet.  So far, all the evidence suggests that the mortality rate is at least 1%, ten times more deadly than annual flu; and is way more infectious. So if COVID-19 were not contained it would eventually affect up to 70% of the population before ‘herd immunity’ would be sufficient to allow the virus to wane.  That’s 50 million deaths at least!  Annual mortality rates would be doubled in most countries (see graph).

Moreover, this is a virus that is novel and different from flu viruses and there is no vaccine yet.  It is very likely to come back and mutate and so require yet more containment.

Some governments are risking people’s lives by trying to avoid total or even partial lockdowns to preserve jobs and the economy.  Some governments have put in place sufficient testing and contact tracing along with self-isolation, to claim that they can keep their economies going during the crisis .Unfortunately for them, even if that works, the lockdowns elsewhere have so destroyed trade and investment globally, even these countries cannot avoid a slump with global supply chains paralysed.

There is another argument against the lockdowns and saving lives.  A study by some Bristol University ‘safety experts’ reckoned that a “business as usual” policy would lead to the epidemic being over by September 2020, although such an approach would lead to a loss of life in the UK nearly as much as it suffered in the Second World War. But conversely, lockdowns could decrease GDP per head so much that the national population loses more lives as a result of the countermeasures than it saves.

But the Bristol study is just a risk assessment.  Proper health studies show that recessions do not increase mortality at all. A recession – a short-term, temporary fall in GDP – need not, and indeed normally does not, reduce life expectancy. Indeed, counterintuitively, the weight of the evidence is that recessions actually lead to people living longer. Suicides do indeed go up, but other causes of death, such as road accidents and alcohol-related disease, fall.

Marxist health economist Dr Jose Tapia (also an author of one of the chapters in our book World in Crisis) has done several studies on the impact of recessions on health.  He found that mortality rates in industrial countries tend to rise in economic expansions and fall in economic recessions. Deaths attributed to heart disease, pneumonia, accidents, liver disease, and senility—making up about 41% of total mortality—tend to fluctuate procyclically, increasing in expansions. Suicides, as well as deaths attributable to diabetes and hypertensive disease, make up about 4% of total mortality and fluctuate countercyclically, increasing in recessions. Deaths attributed to other causes, making up about half of total deaths, don’t show a clearly defined relationship with the fluctuations of the economy.  “All these effects of economic expansions or recessions on mortality that can be seen, e.g., during the Great Depression or the Great Recession, are tiny if compared with the mortality effects of a pandemic,” said Tapia in an interview.

In sum, the lockdowns could have been avoided if governments had taken notice of the rising risk of new pathogen pandemics.  But they ignored those warnings to ‘save money’. The lockdowns could have been avoided if health systems had been properly funded, equipped and staffed, instead of being run down and privatised over decades to reduce costs and raise profitability for capital.  But they weren’t.

And there is the even bigger picture.  If you have enough firemen and equipment, you can put out a bush fire after much damage, but if climate change is continually raising temperatures, another round of fires will inevitably come along.   These deadly new pathogens are coming into human bodies because the insatiable drive for profit in agriculture and industry has led to the commodification of nature, destroying species and bringing nature’s dangers closer to humanity.  Even if after this pandemic is finally contained (at least this year) and even if governments spend more on prevention and containment in the future, only ending the capitalist drive for profit will bring nature back into harmony with humanity.

For now, we are left with saving lives or livelihoods and governments won’t manage either.

Engels on nature and humanity

April 2, 2020

In the light of the current pandemic, here is a rough excerpt from my upcoming short book on Engels’ contribution to Marxian political economy on the 200th anniversary of his birth.

Marx and Engels are often accused of what has been called a Promethean vision of human social organisation, namely that human beings, using their superior brains, knowledge and technical prowess, can and should impose their will on the rest of the planet or what is called ‘nature’ – for better or worse.

The charge is that other living species are merely playthings for the use of human beings.  There are humans and there is nature – in contradiction.  This charge is particularly aimed at Friedrich Engels, who it is claimed, took a bourgeois ‘positivist’ view of science: scientific knowledge was always progressive and neutral in ideology; and so was the relationship between man and nature.

This charge against Marx and Engels was promoted in the post-war period by the so-called Frankfurt School of Marxism, which reckoned that everything went wrong with Marxism after 1844, when Marx and Engels supposedly dumped “humanism”.  Later, followers of the French Marxist Althusser put the blame on Fred himself.  For them, everything went to hell in a hand basket a little later, when Engels dumped ‘historical materialism’ and replaced it with ‘dialectical materialism’, in order to promote Engels’ ‘silly belief’ that Marxism and the physical sciences had some relationship.

Indeed, the ‘green’ critique of Marx and Engels is that they were unaware that homo sapiens were destroying the planet and thus themselves.  Instead, Marx and Engels had a touching Promethean faith in capitalism’s ability to develop the productive forces and technology to overcome any risks to the planet and nature.

That Marx and Engels paid no attention to the impact on nature of human social activity has been debunked recently in particular by the ground-breaking work of Marxist authors like John Bellamy Foster and Paul Burkett.  They have reminded us that throughout Marx’s Capital, Marx was very aware of capitalism’s degrading impact on nature and the resources of the planet.  Marx wrote that “the capitalist mode of production collects the population together in great centres and causes the urban population to achieve an ever-growing preponderance…. [It] disturbs the metabolic interaction between man and the earth, i.e., it prevents the return to the soil of its constituent elements consumed by man in the form of food and clothing; hence it hinders the operation of the eternal natural condition for the lasting fertility of the soil. Thus it destroys at the same time the physical health of the urban worker, and the intellectual life of the rural worker.” As Paul Burkett says: “it is difficult to argue that there is something fundamentally anti-ecological about Marx’s analysis of capitalism and his projections of communism.”

To back this up, Kohei Saito’s prize-winning book has drawn on Marx’s previously unpublished ‘excerpt’ notebooks from the ongoing MEGA research project to reveal Marx’s extensive study of scientific works of the time on agriculture, soil, forestry, to expand his concept of the connection between capitalism and its destruction of natural resources. (I have a review pending on Saito’s book).

But Engels too must be saved from the same charge.  Actually, Engels was well ahead of Marx (yet again) in connecting the destruction and damage to the environment that industrialisation was causing.  While still living in his home town of Barmen (now Wuppertal), he wrote several diary notes about the inequality of rich and poor, the pious hypocrisy of the church preachers and also the pollution of the rivers.

Just 18 years old, he writes: “the two towns of Elberfeld and Barmen, which stretch along the valley for a distance of nearly three hours’ travel. The purple waves of the narrow river flow sometimes swiftly, sometimes sluggishly between smoky factory buildings and yarn-strewn bleaching-yards. Its bright red colour, however, is due not to some bloody battle, for the fighting here is waged only by theological pens and garrulous old women, usually over trifles, nor to shame for men’s actions, although there is indeed enough cause for that, but simply and solely to the numerous dye-works using Turkey red. Coming from Düsseldorf, one enters the sacred region at Sonnborn; the muddy Wupper flows slowly by and, compared with the Rhine just left behind, its miserable appearance is very disappointing.”

Barmen in 1913

He goes on: “First and foremost, factory work is largely responsible. Work in low rooms where people breathe more coal fumes and dust than oxygen — and in the majority of cases beginning already at the age of six — is bound to deprive them of all strength and joy in life.

He connected the social degradation of working families with the degradation of nature alongside the hypocritical piety of the manufacturers. “Terrible poverty prevails among the lower classes, particularly the factory workers in Wuppertal; syphilis and lung diseases are so widespread as to be barely credible; in Elberfeld alone, out of 2,500 children of school age 1,200 are deprived of education and grow up in the factories — merely so that the manufacturer need not pay the adults, whose place they take, twice the wage he pays a child. But the wealthy manufacturers have a flexible conscience and causing the death of one child more or one less does not doom a pietist’s soul to hell, especially if he goes to church twice every Sunday. For it is a fact that the pietists among the factory owners treat their workers worst of all; they use every possible means to reduce the workers’ wages on the pretext of depriving them of the opportunity to get drunk, yet at the election of preachers they are always the first to bribe their people.”

Sure, these observations by Engels are just that, observations, without any theoretical development, but they show the sensitivity that Engels already had to the relationship between industrialisation, the owners and the workers, their poverty and the environmental impact of factory production.

In his first major work, Outlines of a Critique of Political Economy, again well before Marx looked at political economy, Engels notes how the private ownership of the land, the drive for profit and the degradation of nature go hand in hand. To make earth an object of huckstering — the earth which is our one and all, the first condition of our existence — was the last step towards making oneself an object of huckstering. It was and is to this very day an immorality surpassed only by the immorality of self-alienation. And the original appropriation — the monopolization of the earth by a few, the exclusion of the rest from that which is the condition of their life — yields nothing in immorality to the subsequent huckstering of the earth.” Once the earth becomes commodified by capital, it is subject to just as much exploitation as labour.

Engels’ major work (written with Marx’s help), The Dialectics of Nature, written in the years up to 1883, just after Marx’s death, is often subject to attack as extending Marx’s materialist conception of history as applied to humans, into nature in a non-Marxist way.  And yet, in his book, Engels could not be clearer on the dialectical relation between humans and nature.

In a famous chapter “The Role of Work in Transforming Ape into Man.”, he writes: “Let us not, however, flatter ourselves overmuch on account of our human conquest over nature. For each such conquest takes its revenge on us. Each of them, it is true, has in the first place the consequences on which we counted, but in the second and third places it has quite different, unforeseen effects which only too often cancel out the first. The people who, in Mesopotamia, Greece, Asia Minor, and elsewhere, destroyed the forests to obtain cultivable land, never dreamed that they were laying the basis for the present devastated condition of these countries, by removing along with the forests the collecting centres and reservoirs of moisture. When, on the southern slopes of the mountains, the Italians of the Alps used up the pine forests so carefully cherished on the northern slopes, they had no inkling that by doing so they were … thereby depriving their mountain springs of water for the greater part of the year, with the effect that these would be able to pour still more furious flood torrents on the plains during the rainy seasons. Those who spread the potato in Europe were not aware that they were at the same time spreading the disease of scrofula. Thus at every step we are reminded that we by no means rule over nature like a conqueror over a foreign people, like someone standing outside nature — but that we, with flesh, blood, and brain, belong to nature, and exist in its midst, and that all our mastery of it consists in the fact that we have the advantage over all other beings of being able to know and correctly apply its laws.” (my emphasis)

Engels goes on: “in fact, with every day that passes we are learning to understand these laws more correctly and getting to know both the more immediate and the more remote consequences of our interference with the traditional course of nature. … But the more this happens, the more will men not only feel, but also know, their unity with nature, and thus the more impossible will become the senseless and antinatural idea of a contradiction between mind and matter, man and nature, soul and body. …”

Engels explains the social consequences of the drive to expand the productive forces.  “But if it has already required the labour of thousands of years for us to learn to some extent to calculate the more remote natural consequences of our actions aiming at production, it has been still more difficult in regard to the more remote social consequences of these actions. … When afterwards Columbus discovered America, he did not know that by doing so he was giving new life to slavery, which in Europe had long ago been done away with, and laying the basis for the Negro slave traffic. …”

The people of the Americas were driven into slavery, but also nature was enslaved. As Engels put it: “What cared the Spanish planters in Cuba, who burned down forests on the slopes of the mountains and obtained from the ashes sufficient fertilizer for one generation of very highly profitable coffee trees–what cared they that the heavy tropical rainfall afterwards washed away the unprotected upper stratum of the soil, leaving behind only bare rock!” .

Now we know that it was not just slavery that the Europeans brought to the Americas, but also disease, which in its many forms exterminated 90% of native Americans and was the main reason for their subjugation by colonialism.

As we experience yet another pandemic, we know that it was capitalism’s drive to industrialise agriculture and usurp the remaining wilderness that has led to nature ‘striking back’, as humans come into contact with more pathogens to which they have no immunity, just as the native Americans in the 16th century.

Engels attacked the view that ‘human nature’ is inherently selfish and will just destroy nature.  In his Outline, Engels described that argument as a “repulsive blasphemy against man and nature.”  Humans can work in harmony with and as part of nature.  It requires greater knowledge of the consequences of human action.  Engels said in his Dialectics: “But even in this sphere, by long and often cruel experience and by collecting and analyzing the historical material, we are gradually learning to get a clear view of the indirect, more remote, social effects of our productive activity, and so the possibility is afforded us of mastering and controlling these effects as well.”

But better knowledge and scientific progress is not enough. For Marx and Engels, the possibility of ending the dialectical contradiction between man and nature and bringing about some level of harmony and ecological balance would only be possible with the abolition of the capitalist mode of production. As Engels said: “To carry out this control requires something more than mere knowledge.”  Science is not enough. “It requires a complete revolution in our hitherto existing mode of production, and with it of our whole contemporary social order.” The ‘positivist’ Engels, it seems, supported Marx’s materialist conception of history after all.

Engels’ pause and the condition of the working class in England

March 15, 2020

On this day, 15 March 1845, Friedrich Engels published his masterpiece of social analysis, The Condition of the Working Class in England.  This year is the 200th anniversary of Engels’ birth.  Below is a short (rough) extract from my upcoming book on the contribution that Engels made to Marxian political economy. 

Engels was just 24 years old when he wrote the Condition.  He had already developed left-wing ideas when he was despatched to England at the end of 1842 to work in the family firm of Ermen and Engels, manufacturers of sewing thread in Manchester. He arrived in England only weeks after the Chartist general strike of 1842 which, despite its eventual failure, had demonstrated the potential power of the workers. The strike’s centre was in Manchester and the surrounding areas of Lancashire and Cheshire, the areas of textile production. England was by far the most advanced industrial economy in the world, having been the scene of the Industrial Revolution. It was already leading the world in the production of cotton, coal and iron. Its working class was also the most advanced in the world, organised through the Chartist movement.

Engels was horrified at the poverty and misery that he saw in Manchester. The city had grown up around the cotton industry and was a mass of filthy slums. Infant mortality, epidemic diseases and overcrowding were all facts of life. Up to a quarter of the city’s population were immigrant Irish, driven there by even worse conditions in their own country. Poverty had existed in the old towns and rural areas – as it had done in Germany – but the growth of the big cities exacerbated and accentuated these conditions.

The new working class soon accounted for the mass of the population, as capitalist methods of manufacturing destroyed many of the old artisan or middle classes, turning the bulk of them or their children into workers. The needs of manufacturing industry led to the building of factories and mills and there was rapid urbanisation.’ Industrial towns then developed into the great cities that Engels observed when he first visited England.

In the evenings and weekend when not working for his father’s firm, Engels went with his new girlfriend and factory worker, Mary Burns, to various working-class districts.  In the book, he describes in great detail the condition of life in these cities, using a variety of contemporary press reports, official investigations and even diagrams of the back-to-back houses which formed the early Manchester slums. Engels summed up the position of the poorest. “In 1842 England and Wales counted 1,430,000 paupers, of whom 222,000 were incarcerated in workhouses – Poor law Bastilles the common people call them. – Thanks to the humanity of the Whigs! Scotland has no poor law, but poor people in plenty. Ireland, incidentally, can boast of the gigantic number of 2,300,000 paupers.”

But Engels’ book is much more than reportage of the terrible conditions in which workers lived. Woven into it is an economic analysis of capitalism which Marx and Engels later developed, but which even at this stage was central to the book’s analysis. Engels starts by looking at how the industrial revolution transformed the old ways of working to such an extent that it created a whole class of wage labourers, the proletariat. The introduction of machinery into the production of textiles, coal and iron turned the British economy into the most dynamic in the world, creating a mass of communications networks – iron bridges, railways, canals – which in turn led to more industrial development.

Engels describes the very nature of the capitalist system. The competition between capitalists leads them to pay their workers as little as possible, while trying to squeeze more and more work from them: ‘If a manufacturer can force the nine hands to work an extra hour daily for the same wages by threatening to discharge them at a time when the demand for hands is not very great, he discharges the tenth and saves so much wages. This leads in turn to competition between workers for jobs, and to the creation of a pool of unemployed who can be pulled into the workforce when business is booming and laid off again when it is slack”. The existence of this reserve army of unskilled and unemployed workers – especially among the immigrant Irish in the cities of the 1840s – holds down the level of wages and conditions for all workers.

Engels developed a theory of wages.  It was the intraclass competition between workers that was “the sharpest weapon against the proletariat in the hands of the bourgeoisie,” which explains “the effort of the workers to nullify this competition by associations.”  In the absence of union counterpressure, the advantage is with the employing class, which “has gained a monopoly of all means of existence,” and “which is protected in its monopoly by the power of the state.”  That unionisation helps to sustain real wage levels and the share of labour in output has since been borne out by many studies.

And ahead of Marx, Engels began to explain how workers were exploited despite receiving a ‘fair day’s pay for a fair day’s work’.  Engels: “The bourgeoisie “offers [the proletarian] the means of living, but only for an ‘equivalent,’ for his work,” and it “even lets him have the appearance of acting from free choice, of making a contract with free, unconstrained consent, as a responsible agent who has attained his majority,” though he is “in law and in fact, the slave of the bourgeoisie.” Thus “the worker of today seems to be free because he is not sold once for all, but piecemeal by the day, the week, the year, and because no one owner sells him to another, but he is forced to sell himself in this way instead, being the slave of no particular person, but of the whole property-holding class”.  Later Marx would fully develop this notion into the category of ‘labour power’ as the object of purchase by employers.

Another brilliant concept developed by Engels was to anticipate Marx’s general law of accumulation and its dual nature.  On the one hand, the introduction of new machinery or technology leads to the loss of jobs for those workers using outdated technology.  On the other hand, the new industries and techniques could create new jobs.  Again, this debate over the impact of technology and jobs is topical with the advent of robots and artificial intelligence now.

Engels describes domestic spinning and weaving under conditions of “constant increase in the demand for the home market keeping pace with the slow increase of population.”  The “victory of machine-work over hand-work” – reflecting the competitive advantage of the new technologies – entailed “a rapid fall in price of all manufactured commodities, prosperity of commerce and manufacture, the conquest of nearly all the unprotected foreign markets, the sudden multiplication of capital and national wealth”; and also “a still more rapid multiplication of the proletariat” and “the destruction of all property-holding and of all security of employment for the working-class”.  So industrialisation and the introduction of machinery destroy small businesses and self-employment and drive people into large workplaces where jobs appear as companies with better technology and lower costs can gain market share at home and abroad.

Empirical evidence supports Engels’ thesis. Carl Frey reckons that the early inventions of the Industrial Revolution were predominantly labour-replacing: If technology replaces labour in existing tasks, wages and the share of national income accruing to labour may fall. If, in contrast, technological change is augmenting labour, it will make workers more productive in existing tasks or create entirely new labour-intensive activities, thereby increasing the demand for labour.”

The divergence between output and wages, in other words, is consistent with this being a period where technology was primarily replacing labour. Artisan workers in the domestic system were replaced by machines, often tended by children—who had very little bargaining power and often worked without wages. “The growing capital share of income meant that the gains from technological progress were very unequally distributed: corporate profits were captured by industrialists, who reinvested them in factories and machines”.

There was a growing gap between wages and productivity growth as workers were displaced by new technology and nominal wages were kept stagnant,  Robert Allen has characterised the period, particularly after the end of the Napoleonic Wars up to the time that Engels arrived in Manchester as the ‘Engels pause’.

However, Engels also offers the other side of the coin.  There are “other circumstances” at play including re-employment generated by the reduced costs resulting from new technology: “The introduction of the industrial forces already referred to for increasing production leads, in the course of time, to a reduction of prices of the articles produced and to consequent increased consumption, so that a large part of the displaced workers finally, after long suffering, find work again in new branches of labour.”

Engels vehemently rejected the Malthusian explanation.  Population growth is a response to growing employment opportunities, not vice versa: But this argument is not an apology for capitalism, because new jobs don’t last: “as soon as the operative has succeeded in making himself at home in a new branch, if he actually does succeed in so doing, this, too, is taken from him, and with it the last remnant of security which remained to him for winning his bread.”

And he carefully notes the views of workers themselves: “that wages in general have been reduced by the improvement of machinery is the unanimous testimony of the operatives. The bourgeois assertion that the condition of the working-class has been improved by machinery is most vigorously proclaimed a falsehood in every meeting of working-men in the factory districts.”

Was Engels (and the workers he talked to) right about the lack of growth in real wages in 1840s Britain?  Economic historians since, on the whole, agree. ‘Engels pause’ has been confirmed. As per capita gross domestic product grew, real wages of the British working class remained relatively constant.

The two main studies of ‘real wages’ show that they were more or less flat from 1805-1820, a period of economic depression in England.  There was a pick-up in the 1830s.  But the ‘hungry forties’ as they were called, saw a significant fall in real wages, mainly because of rising food prices that were not expunged until the abolition of the Corn laws in 1846.  And during the forties there were two slumps, in 1841 and 1847, with Engels’ study straddling both. By 1847 real wages had been stagnant at best for over ten years.

Engels’ conclusion was that the main cause of low wages was the power of employers over non-unionised workers, the threat of machinery and the industrial cycle under capitalism.  This conclusion still holds 175 years later.

It was the virus that did it

March 15, 2020

I’m sure when this disaster is over, mainstream economics and the authorities will claim that it was an exogenous crisis nothing to do with any inherent flaws in the capitalist mode of production and the social structure of society.  It was the virus that did it.  This was the argument of the mainstream after the Great Recession of 2008-9 and it will be repeated in 2020.

As I write the coronavirus pandemic (as it is now officially defined) has still not reached a peak.  Apparently starting in China (although there is some evidence that it may have started in other places too), it has now spread across the globe.  The number of infections is now larger outside China than inside.  China’s cases have trickled to a halt; elsewhere there is still an exponential increase.

This biological crisis has created panic in financial markets. Stock markets have plunged as much 30% in the space of weeks.  The fantasy world of every rising financial assets funded by ever lower borrowing costs is over.

COVID-19 appears to be an ‘unknown unknown’, like the ‘black swan’-type global financial crash that triggered the Great Recession over ten years ago.  But COVID-19, just like that financial crash, is not really a bolt out of the blue – a so-called ‘shock’ to an otherwise harmoniously growing capitalist economy.  Even before the pandemic struck, in most major capitalist economies, whether in the so-called developed world or in the ‘developing’ economies of the ‘Global South’, economic activity was slowing to a stop, with some economies already contracting in national output and investment, and many others on the brink.

COVID-19 was the tipping point.  One analogy is to imagine a sandpile building up to a peak; then grains of sand start to slip off; and then comes a certain point with one more sand particle added, the whole sandpile falls over. If you are a post-Keynesian you might prefer calling this a ‘Minsky moment’, after Hyman Minsky, who argued that capitalism appears to be stable until it isn’t, because stability breeds instability.  A Marxist would say, yes there is instability but that instability turns into an avalanche periodically because of the underlying contradictions in the capitalist mode of production for profit.

Also, in another way, COVID-19 was not an ‘unknown unknown’.  In early 2018, during a meeting at the World Health Organization in Geneva, a group of experts (the R&D Blueprint) coined the term “Disease X”: They predicted that the next pandemic would be caused by an unknown, novel pathogen that hadn’t yet entered the human population. Disease X would likely result from a virus originating in animals and would emerge somewhere on the planet where economic development drives people and wildlife together.

Disease X would probably be confused with other diseases early in the outbreak and would spread quickly and silently; exploiting networks of human travel and trade, it would reach multiple countries and thwart containment. Disease X would have a mortality rate higher than a seasonal flu but would spread as easily as the flu. It would shake financial markets even before it achieved pandemic status. In a nutshell, Covid-19 is Disease X.

As socialist biologist, Rob Wallace, has argued, plagues are not only part of our culture; they are caused by it. The Black Death spread into Europe in the mid-14th century with the growth of trade along the Silk Road. New strains of influenza have emerged from livestock farming. EbolaSARSMERS and now Covid-19 has been linked to wildlife. Pandemics usually begin as viruses in animals that jump to people when we make contact with them. These spillovers are increasing exponentially as our ecological footprint brings us closer to wildlife in remote areas and the wildlife trade brings these animals into urban centers. Unprecedented road-building, deforestation, land clearing and agricultural development, as well as globalized travel and trade, make us supremely susceptible to pathogens like corona viruses.

There is a silly argument among mainstream economists about whether the economic impact of COVID-19 is a ‘supply shock’ or a ‘demand shock’.  The neoclassical school says it is a shock to supply because it stops production; the Keynesians want to argue it is really a shock to demand because people and businesses won’t spend on travel, services etc.

But first, as argued above, it is not really a ‘shock’ at all, but the inevitable outcome of capital’s drive for profit in agriculture and nature and from the already weak state of capitalist production in 2020.

And second, it starts with supply, not demand as the Keynesians want to claim.  As Marx said: “Every child knows a nation which ceased to work, I will not say for a year, but even for a few weeks, would perish.” (K Marx to Kugelmann, London, July 11, 1868).  It is production, trade and investment that is first stopped when shops, schools, businesses are locked down in order to contain the pandemic.  Of course, then if people cannot work and businesses cannot sell, then incomes drop and spending collapses and that produces a ‘demand shock’.  Indeed, it is the way with all capitalist crises: they start with a contraction of supply and end up with a fall in consumption – not vice versa.

Here is one mainstream (and accurate) view of the anatomy of crises.

Some optimists in the financial world are arguing that the COVID-19 shock to stock markets will end up like 19 October 1987.  On that Black Monday the stock market plunged very quickly, even more than now, but within months it was back up and went on up.  Current US Treasury Secretary Steven Mnuchin is sure that the financial panic will end up like 1987. “You know, I look back at people who bought stocks after the crash in 1987, people who bought stocks after the financial crisis,” he continued. “For long-term investors, this will be a great investment opportunity.”  This is a short-term issue. It may be a couple of months, but we’re going to get through this, and the economy will be stronger than ever,” the Treasury secretary said.

Mnuchin’s remarks were echoed by White House economic adviser Larry Kudlow, who urged investors to capitalize on the faltering stock market amid coronavirus fears. “Long-term investors should think seriously about buying these dips,” describing the state of the U.S. economy as “sound.”  Kudlow really repeated what he said just two weeks before the September 2008 global financial crash: “for those of us who prefer to look ahead, through the windshield, the outlook for stocks is getting better and better.”

The 1987 crash was blamed on heightened hostilities in the Persian Gulf leading to a hike in oil prices, fear of higher interest rates, a five-year bull market without a significant correction, and the introduction of computerized trading.  As the economy was fundamentally ‘healthy’ so it did not last.  Indeed, the profitability of capital in the major economies was rising and did not peak until the late 1990s (although there was a slump in 1991).  So 1987 was what Marx called a pure ‘financial crash’ due to the instability inherent in speculative capital markets.

But that is not the case in 2020.  This time the collapse in the stock market will be followed by an economic recession as in 2008.  That’s because, as I have argued in previous posts, now the profitability of capital is low and global profits are static at best, even before COVID-19 erupted.  Global trade and investment have been falling, not rising.  Oil prices have collapsed, not risen.  And the economic impact of COVID-19 is found first in the supply chain, not in unstable financial markets.

What will be the magnitude of the slump to come?  There is an excellent paper by Pierre-Olivier Gourinchas that models the likely impact.  He shows the usual pandemic health diagram doing the rounds. Without any action, the pandemic takes the form of the red line curve, leading to a huge number of cases and deaths.  With action on lockdowns and social isolation, the peak of the (blue) curve can be delayed and moderated, even if the pandemic gets spun out for longer.  This supposedly reduces the pace of the infection and the number of deaths.

Public health policy should aim to “flatten the curve” by imposing drastic social distancing measures and promoting health practices to reduce the transmission rate. Currently Italy is following the Chinese approach of total lockdown, even if it may be closing the stable doors after the virus has bolted.  The UK is attempting a very risky approach of self-isolation for the vulnerable and allowing the young and healthy to get infected in order to build up so-called ‘herd immunity’ and avoid the health system being overwhelmed.  What this approach means is basically writing off the old and vulnerable because they are going to die anyway if infected and avoiding a total lockdown that would damage the economy (and profits).  The US approach is basically to do nothing at all: no mass testing, no self-isolation, no closure of public events; just wait until people get ill and then deal with the severe cases.

We could call this latter approach the Malthusian answer. The most reactionary of the classical economists in the early 19th century was the Reverend Thomas Malthus, who argued that there were too many ‘unproductive’ poor people in the world, so regular plagues and disease were necessary and inevitable to make economies more productive.

British Conservative journalist Jeremy Warner argued this for the Covid-19 pandemic which ‘primarily kills the elderly’. “Not to put too fine a point on it, from an entirely disinterested economic perspective, the COVID-19 might even prove mildly beneficial in the long term by disproportionately culling elderly dependents.” Responding to criticism ‘Obviously, for those affected it is a human tragedy whatever the age, but this is a piece about economics, not the sum of human misery.’ Indeed, that’s why Marx called economics in the early 19th century – the philosophy of misery.

The reason that the US and British governments won’t impose (yet) draconian measures, as in China eventually and now in Italy (belatedly) and elsewhere, is because it will inevitably steepen the macroeconomic recession curve. Consider China or Italy: increasing social distances has required closing schools, universities, most non-essential businesses, and asking most of the working-age population to stay at home. While some people may be able to work from home, this remains a small fraction of the overall labour force. Even if working from home is an option, the short-term disruption to work and family routines is major and likely to affect productivity. In short, the best public health policy plunges the economy into a sudden stop.  The supply shock.

The economic damage would be considerable. Gourinchas attempts to model the impact. He assumes that relative to a baseline, containment measures reduce economic activity by 50% for one month and 25% for another month, after which the economy returns to the baseline. “That scenario would still deliver a massive blow to headline GDP numbers, with a decline in annual output growth of the order of 6.5% relative to the previous year. Extend the 25% shutdown for just another month and the decline in annual output growth (relative to the previous year) reaches almost 10%!”  As a point of comparison, the decline in output growth in the U.S. during the 2008-09 `Great Recession’ was around 4.5%. Gourinchas concludes that “we are about to witness a downturn that could dwarf the Great Recession.”

At the peak of the Great Recession, the US economy was shedding jobs at the rate of 800,000 workers per month, but the vast majority of people were still employed and working. The unemployment rate peaked at `just’ 10%. By contrast, the coronavirus is creating a situation where – for a brief amount of time – 50% or more of people may not be able to work. The impact on economic activity is comparatively that much larger.

The upshot is that the economy, like the health system, faces a ‘flatten the curve’ problem. The red curve plots output lost during a sharp an intense downturn, amplified by the economic decisions of millions of economic agents trying to protect themselves by cutting spending, shelving investment, cutting down credit and generally hunkering down.

What to do to flatten the curve?  Well, central banks can and are providing emergency liquidity to the financial sector. Governments can deploy discretionary targeted fiscal measures or broader programs to support economic activity. These measures could help `flatten the economic curve’, i.e. limit the economic loss, as in the blue curve, by keeping workers paid and employed so they can meet bills or have bills delayed or written off for a period.  Small businesses could be funded to ride out the storm and banks bailed out, as in the Great Recession.

But a financial crisis is still a high risk.  In the US, corporate debt has risen and is concentrated in bonds issued by the weaker companies (BBB or lower).

And the energy sector is being hit with a double whammy as oil prices have plunged. Bond risk premia (the cost of borrrowing) have rocketed in the energy and transport sectors.

Monetary easing certainly won’t be enough to flatten the curve.  Central bank interest rates are already near, at or below zero.  And the huge injections of credit or money into the banking system will be like ‘pushing on a string’ in its effect on production and investment. Cheap financing won’t speed up the supply chain or make people want to travel again. Nor will it help corporate earnings if customers aren’t spending.

The main economic mitigation will have to come from fiscal policy. The international agencies like the IMF and World Bank have offered $50bn. National governments are now launching various fiscal stimulus programmes.  The UK government announced a big spend in its latest budget and the US Congress has agreed an emergency spend.

But is it enough to flatten the curve if two months of lockdown knock back most economies by a staggering 10%?  None of the current fiscal packages come anywhere near 10% of GDP.  Indeed, in the Great Recession, only China delivered such an amount.  The UK government’s proposals amount to just 1.5% of GDP maximum, while Italy’s is 1.4% and the US at less than 1%.

There is a chance that by the end of April we will have seen the global total number of cases peak and begin to decline.  That is what governments are hoping and planning for.  If that optimistic scenario happens, the coronavirus will not disappear.  It become yet another flu-like pathogen (which we know little about) that will hit us each year like its predecessors.  But even two months lockdown will incur huge economic damage. And the monetary and fiscal stimulus packages planned are not going to avoid a deep slump, even if they reduce the ‘curve’ to some extent.  The worst is yet to come.

Disease, debt and depression

March 5, 2020

As I write the coronavirus epidemic (not yet declared pandemic) continues to spread.  Now there are more new cases outside China than within, with a particular acceleration in South Korea, Japan and Iran.  Up to now more than 80,000 people infected in China alone, where the outbreak originated. The number of people who have been confirmed to have died as a result of the virus has now surpassed 3,200.

As I said in my first post on the outbreak, “this infection is characterized by human-to-human transmission and an apparent two-week incubation period before the sickness hits, so the infection will likely continue to spread across the globe.”  Even though more people die each year from complications after suffering influenza, and for that matter from suicides or traffic accidents, what is scary about the infection is that the death rate is much higher than for flu, perhaps 30 times higher.  So if it spreads across the world, it will eventually kill more people.

And as I said in that first post, “The coronavirus outbreak may fade like others before it, but it is very likely that there will be more and possible even deadlier pathogens ahead.” That’s because the most likely cause of the outbreak was the transmission of the virus from animals, where it has probably been hosted for thousands of years, to humans through use of intensive industrial farming and the extension of exotic wildlife meat markets.

COVID-19 is more virulent and deadly than the annual influenza viruses that kill many more vulnerable people each year.  But if not contained, it will eventually match that death rate and appear in a new form each year.  However, if you just take precautions (hand washing, not travelling or working etc) you should be okay, especially if you are healthy, young and well-fed.  But if you are old, have lots of health issues and live in bad conditions, but you still must travel and go to work, then you are at a much greater risk of serious illness or death.  COVID-19 is not an equal-opportunity killer.

But the illnesses and deaths that come from COVID-19 is not the worry of the strategists of capital.  They are only concerned with damage to stock markets, profits and the capitalist economy.  Indeed, I have heard it argued in the executive suites of finance capital that if lots of old, unproductive people die off, that could boost productivity because the young and productive will survive in greater numbers!

That’s a classic early 19th century Malthusian solution to any crisis in capitalism.  Unfortunately, for the followers of the reactionary parson Malthus, his theory that crises in capitalism are caused by overpopulation has been demolished, given the experience of the last 200 years.  Nature may be involved in the virus epidemic, but the number of deaths depends on human action – the social structure of an economy; the level of medical infrastructure and resources and the policies of governments.

It is no accident that China, having been initially caught on the hop with this outbreak, was able to mobilise massive resources and impose draconian shut-down conditions on the population that has eventually brought the virus spread under control.  Things do not look so controlled in countries like Korea or Japan, or probably the US, where resources are less planned and governments want people to stay at work for capital, not avoid getting ill.  And poor, rotten regimes like Iran appear to have lost control completely.

No, the real worry for the strategists of capital is whether this epidemic could be the trigger for a major recession or slump, the first since the Great Recession of 2008-9.  That’s because the epidemic hit just at a time when the major capitalist economies were already looking very weak.  The world capitalist economy has already slowed to a near ‘stall speed’ of about 2.5% a year.  The US is growing at just 2% a year, Europe and Japan at just 1%; and the major so-called emerging economies of Brazil, Mexico, Turkey, Argentina, South Africa and Russia are basically static.  The huge economies of India and China have also slowed significantly in the last year.  And now the shutdown from COVID-19 has pushed the Chinese economy into a ravine.

The OECD – which represents the planet’s 36 most advanced economies – is now warning of the possibility that the impact of COVID-19 would halve global economic growth this year from its previous forecast.  The OECD lowered its central growth forecast from 2.9 per cent to 2.4 per cent, but said a “longer lasting and more intensive coronavirus outbreak” could slash growth to 1.5 per cent in 2020.  Even under its central forecast, the OECD warned that global growth could shrink in the first quarter. Chinese growth is expected to fall below 5% this year, down from 6.1% last year – which was already the weakest growth rate in the world’s second largest economy in almost 30 years. The effect of widespread factory and business closures in China alone would cut 0.5 percentage points from global growth as it reduced its main forecast to 2.4 per cent in the quarter to end-March.

Elsewhere, Italy endured its 17th consecutive monthly decline in manufacturing activity in February. And the Italian government announced plans to inject €3.6bn into the economy. IHS Markit’s purchasing managers’ index for Italian manufacturing edged down by 0.2 points to 48.7 in February. A reading below 50 indicates that the majority of companies surveyed are reporting a shrinking of activity. And the survey was completed on February 21, before the coronavirus outbreak intensified in Italy. There was a similar contraction of factory activity in France, where the manufacturing PMI fell by 1.3 points to 49.8. However, manufacturing activity increased for the eurozone as a whole in February, as the PMI for the bloc rose by 1.3 points to 49.2, but still under 50.

The US, so far, has avoided a serious downturn in consumer spending, partly because the epidemic has not spread widely in America.  Maybe the US economy can avoid a slump from COVID-19.  But the signs are still worrying. The latest activity index for services in February showed that the sector showed a contraction for the first time in six years and the overall indicator (graph below) also went into negative territory.

Outside the OECD area, there was more bad news on growth. South Africa’s Absa Manufacturing PMI fell to 44.3 in February of 2020 from 45.2 in the previous month. The reading pointed to the seventh consecutive month of contraction in factory activity and at the quickest pace since August 2009. And China’s capitalist sector reported its lowest level of activity since records began. The Caixin China General Manufacturing PMI plunged to 40.3 in February 2020, the lowest level since the survey began in April 2004.

The IMF too has reduced its already low economic growth forecast for 2020.  Experience suggests that about one-third of the economic losses from the disease will be direct costs: from loss of life, workplace closures, and quarantines. The remaining two-thirds will be indirect, reflecting a retrenchment in consumer confidence and business behavior and a tightening in financial markets.”  So “under any scenario, global growth in 2020 will drop below last year’s level. How far it will fall, and for how long, is difficult to predict, and would depend on the epidemic, but also on the timeliness and effectiveness of our actions.”

One mainstream economic forecaster, Capital Economics, cut its growth forecast by 0.4 percentage points to 2.5 per cent for 2020, in what the IMF considers recession territory. And Jennifer McKeown, head of economic research at Capital Economics, cautioned that if the outbreak became a global pandemic, the effect “could be as bad as 2009, when world GDP fell by 0.5 per cent.” And a global recession in the first half of this year is “suddenly looking like a distinct possibility”, said Erik Nielsen, chief economist at UniCredit.

In a study of a global flu pandemic, Oxford University professors estimated that a four-week closure of schools — almost exactly what Japan has introduced — would knock 0.6 per cent off output in one year as parents would have to stay off work to look after children. In a 2006 paper, Warwick McKibbin and Alexandra Sidorenko of the Australian National University estimated that a moderate to severe global flu pandemic with a mortality rate up to 1.2 per cent would knock up to 6 per cent off advanced economy GDP in the year of any outbreak.

The Institute of International Finance (IIF), the research agency funded by international banks and financial institutions, announced that: “We’re downgrading China growth this year from 5.9% to 3.7% & the US from 2.0% to 1.3%. Rest of the world is shaky. Germany struggling to retool autos, Japan weighed down by 2019 tax hike. EM has been weak for a while. Global growth could approach 1.0% in 2020, weakest since 2009.”

What are the policy reactions of the official authorities to avoid a serious slump?  The US Federal Reserve stepped in to cut its policy interest rate at an emergency meeting. Canada followed suit and others will follow.  The IMF and World Bank is making available about $50 billion through its rapid-disbursing emergency financing facilities for low income and emerging market countries that could potentially seek support. Of this, $10 billion is available at zero interest for the poorest members through the Rapid Credit Facility.

This may have some effect, but cuts in interest rates and cheap credit are more likely to end up being used to boost the stock market with yet more ‘fictitious capital’ – and indeed stock markets have made a limited recovery after falling more than 10% from peaks.  The problem is that this recession is not caused by ‘a lack of demand’, as Keynesian theory would have it, but by a ‘supply-side shock’ – namely the loss of production, investment and trade. Keynesian/monetarist solutions won’t work, because interest rates are already near zero and consumers have not stopped spending – on the contrary. Jon Cunliffe, deputy governor of the Bank of England, said that since coronavirus was “a pure supply shock there is not much we can do about it”.

And as British Marxist economist Chris Dillow argues, the coronavirus epidemic is really just an extra factor keeping the major capitalist economies dysfunctional and stagnating. He lays the main cause of the stagnation on the long-term decline in the profitability of capital. “basic theory (and common sense) tells us that there should be a link between yields on financial assets and those on real ones, so low yields on bonds should be a sign of low yields on physical capital. And they are.”  He identifies ‘three big facts’: the slowdown in productivity growth; the vulnerability to crisis; and low-grade jobs. And as he says, “Of course, all these trends have long been discussed by Marxists: a falling rate of profit; monopoly leading to stagnation; proneness to crisis; and worse living conditions for many people. And there is plenty of evidence for them.”  Indeed, as any regular reader of this blog will know.

And then there is debt.  In this decade of record low interest rates (even negative), companies have been on a borrowing binge.  This is something that I have banged on about in this blog ad nauseam.  Huge debt, particularly in the corporate sector, is a recipe for a serious crash if the profitability of capital were to drop sharply.

Now John Plender in the Financial Times has taken up my argument.  He pointed out, according to the IIF, the ratio of global debt to gross domestic product hit an all-time high of over 322 per cent in the third quarter of 2019, with total debt reaching close to $253tn. “The implication, if the virus continues to spread, is that any fragilities in the financial system have the potential to trigger a new debt crisis.”

The huge rise in US non-financial corporate debt is particularly striking.  This has enabled the very large global tech companies to buy up their own shares and issue huge dividends to shareholders while piling up cash abroad to avoid tax.  But it has also enabled the small and medium sized companies in the US, Europe and Japan, which have not been making any profits worth speaking of for years to survive in what has been called a ‘zombie state’; namely making just enough to pay their workers, buy inputs and service their (rising) debt, but without having anything left over for new investment and expansion.

Plender remarks that a recent OECD report says that, at the end of December 2019, the global outstanding stock of non-financial corporate bonds reached an all-time high of $13.5tn, double the level in real terms against December 2008. “The rise is most striking in the US, where the Fed estimates that corporate debt has risen from $3.3tn before the financial crisis to $6.5tn last year. Given that Google parent Alphabet, Apple, Facebook and Microsoft alone held net cash at the end of last year of $328bn, this suggests that much of the debt is concentrated in old economy sectors where many companies are less cash generative than Big Tech. Debt servicing is thus more burdensome.”

The IMF’s latest global financial stability report amplifies this point with a simulation showing that a recession half as severe as 2009 would result in companies with $19tn of outstanding debt having insufficient profits to service that debt.

So if sales should collapse, supply chains be disrupted and profitability fall further, these heavily indebted companies could keel over.  That would hit credit markets and the banks and trigger a financial collapse.  As I have shown on several occasions, the profitability of capital in the major economies has been on a downward trend (see graph above from Penn World tables 9.1).

And the mass of global profits was also beginning to contract before COVID-19 exploded onto the scene (my graph below from corporate profits data of six main economies, Q4 2019 partly estimated).  So even if the virus does not trigger a slump, the conditions for any significant recovery are just not there.

Eventually this virus is going to wane (although it might stay in human bodies forever mutating into an annual upsurge in winter cases).  The issue is whether the ‘supply shock’ is so great that, even though economies start to recover as people get back to work, travel and trade resumes, the damage has been so deep and the time taken so long to recover, that this won’t be a quick one-quarter, V-shaped economic cycle, but a proper U-shaped slump of six to 12 months.

Marx’s law of profitability at SOAS

February 27, 2020

Last week I gave a lecture in the seminar series on Marxist political economy organised by the Department of Development Studies at the School of Oriental and African Studies (SOAS).  The Marxist Political Economy series is a course mainly for post-graduates and has several lecturers on different aspects of Marxian economics. Course Handbook – Marxist Political Economy 2019-20 (8)

Mine was on Marx’s law of the tendency of the rate of profit to fall.  Not surprisingly, the department team has noticed that I am apparently ‘obsessed’ by this law, at least according to critics of it.

Anyway, I thought it might be useful to go through my lecture in a post, with the accompanying slides referred to.  So here goes. (Marx’s law of the tendency of the rate)

I started by saying that Marx considered the law of the tendency of the rate of profit to fall as “peculiar to the capitalist mode of production” along with “the progressive development of the social productivity of labour.”  They go together: rising productivity and falling profitability.  (Slide 2).

Indeed, Marx’s law is the direct opposite of what Thomas Piketty, author of Capital in the 21st century claimed was Marx’s view.  Piketty reckoned that “Marx’s theory implicitly relies on a strict assumption of zero productivity growth over the long run” and that “Marxist analysis emphasises the falling rate of profit – a historical prediction that has turned out to be quite wrong.”  Indeed, Marx’s law is ignored by mainstream economics (except for getting wrong like Piketty) and also is either ignored or rejected by so-called heterodox economics.

Moreover, even most Marxist economists consider it irrelevant or wrong for any critique of capitalism. I referenced top MEGA scholar, Michael Heinrich: “A few manuscripts from the late 1860s and 1870s suggest that Marx had doubts about the ‘law of the tendency of the rate of profit to fall’, which he no longer mentioned after 1868.“  And then the world’s most famous Marxist economist, David Harvey: I find Heinrich’s account broadly consistent with my own long-standing scepticism about the general relevance of the law”.  Indeed, it is only a minority of Marxists who consider, like Alan Freeman, that “Marx’s LTRPF remains the only credible competitor left in the contest to explain what is going wrong with capitalism.” (Slide 3).

In contrast, I argued that Marx’s law of profitability is both theoretically valid, empirically supported and relevant to the critical analysis of modern capitalism.  But the law is only valid if two other laws of motion of capitalism that Marx held to are also valid. (Slide 4).

The first is the law of value.  The law of value says that the value of commodities depends on the amount of human labour exerted on producing commodities, as measured by the socially necessary labour time involved.  At one level, it is self-evident, “as any child knows” that nothing is produced to use or sell unless humans go to work to do it.  (Slide 5).

Under the capitalist mode of production, commodities are produced for sale, in a particular social relation.  The capitalist starts with money and the ownership of the means of production.  With that money he/she buys the technology and raw materials to make a new product for sale and employs the workers to do so.  Both that technology and workers are commodities to buy for the capitalist.  But only the workers produce the new commodity for sale on the market for a new amount of money.  And that end product must be worth more in labour time that invested by the capitalist and more in money than spent.  There must be a profit to make it worthwhile.  That profit comes from the surplus value appropriated by the capitalist over above the value paid for labour power.  M- C- P- C’- M’ (Slide 6)

Marx’s theory of value reveals that more value is created only by human labour power and a surplus is extracted by the capitalist because he/she owns and controls the means of production; and that value is realised by sale in markets.  The law of value is theoretically sound and indeed has been empirically supported, namely that total prices of commodities in an economy are closely correlated with total hours of labour time applied. (Slide 7)

The second law is Marx’s general law of accumulation. Competition among capitalists forces them to continue to expand their production in order to accumulate more profit or be driven out of business by others.  Competition drives each individual capitalist to increase the productivity of labour ie lower their costs of production. (Slide 8)

As capitalists spend more of their profits on means of production to boost the productivity of labour and reduce costs, the ratio of the value of means of production compared to the value of the labour power employed tends to rise.  Marx called this ratio the organic composition of capital. It is a law in capitalist economic expansion that the organic composition of capital will rise. (Slide 9)

The law is empirically valid. (Slide 10); fixed capital per worker rises over the long term.

But there is a dual nature to the accumulation process under capitalism.  On the one hand, there is a tendency to increased unemployment from technology shedding labour.  On the other hand, new technology creates new jobs.  Everything then depends on the momentum of the industrial cycle: “the general movement of wages is exclusively regulated by the expansion and contraction of the industrial reserve army and this corresponds to the periodic alternations of the industrial cycle”. Marx (Slide 11) Accumulation can drive down labour’s share in new value but also lower the price of future investment. (Slide 12).

In sum, the organic composition of capital (C/V) rises over time.  This means increased centralisation and concentration of capital. Rising C/V creates a reserve army of labour and technological unemployment. The size of reserve army will vary cyclically with the strength of accumulation.  This law can be empirically verified and has been in many studies. (Slide 13)

This brings us the main message of the lecture.  The first two laws of motion lead to the third law: the law of the tendency of the rate of profit to fall.  The first law says that only labour creates value.  The second says that capitalists will accumulate more capital over time and this will take the form of a faster rise in the value of the means of production over the value of labour power i.e. a rising organic composition of capital. (Slide 14) For Marx, the third law of profitability is “in every respect the most important law of modern political economy and the most essential for understanding the most difficult relations. It is the most important law from the historical standpoint. It is a law, which despite its simplicity, has never before been grasped and even less consciously articulated.” (Slide 15)

The law has a simple formula (Slide 16).  The capitalist starts with money to invest in:

Means of production (fixed capital) and raw materials (circulating capital) = constant capital (c)

Labour force to produce the commodities paid in wages.  But the labour force produces more value than it is paid in wages; so it is called variable capital (v).

The labour force produces commodities that contain surplus value over and above its own value in wages paid = surplus value (s)

The rate of profit is thus S/(C+V).  If we divide this formula by the value of labour power (V), we get s/v//c/v+1.  In other words, the rate of profit falls if C/V rises faster than S/V and vice versa.  (Slide 17)

Marx argues that rising C/V is the tendency which will generally rule and operate over time and rising S/V is a countertendency (induced by the tendency) that can curb, or slow or occasionally reverse the tendency.  If the tendency prevails, the rate of profit will fall  – and most of the time it does.  That is Marx’s law. (Slide 18)

This law has been subject to criticism from the start when it was first revealed in the 1890s in Volume Three of Capital.  (Slide 19)

There are two main critiques.  The first is the so-called ‘transformation problem’. In Volume Three, Marx shows how the values of commodities as expressed in socially necessary labour time are modified in competition for sale of those commodities.  There is price for the commodity in the market, but different producers have different efficiencies – some produce the commodity for sale in less labour time than others.  And they do so because they invest more in labour-saving technology as expressed in a higher organic composition of capital.  Through competition in the market, a production price is established.  At that production price, the more efficient producers make more profit.  They do so because in the market there is a transfer of value from the less efficient to the more efficient and profitability tend to an average across the economy.

Values are turned into prices of production by this competitive process.  Market prices will oscillate around production prices, which are also continually changing due to changes in technology and the organic composition of capitals.  But in Marx’s transformation, total value in the economy (in labour time) is still equal to total price of production (which is value modified by average profitability) and total surplus value is equal to total profit.  So value, the labour time exerted, is still the basis of prices in a capitalist economy. (Slide 20)

Marx’s transformation of values into prices was rejected and attacked by many Marxists.  Bortkiewicz argued that the inputs in values (c+v) on the value side of Marx’s table are really prices of production. In Marx’s formula, the value of the inputs before the equalization differ from the prices of production for the same commodities after the equalization of profit rates. But surely, says Bortkiewicz, the same commodities must be bought and sold as prices of production and not as values.  So Marx’s formula is incorrect and indeterminate. But if we ‘correct’ Marx’s transformation using simultaneous equations, total value no longer equals total price and/or total surplus value does not equal total profit.  So there is a logical inconsistency in Marx’s solution.  Value in labour time is no longer proven as the basis of prices. (Slide 21)

The reply to this critique is that Marx’s transformation is temporal.  The Bortkiewicz critique removes the temporal aspect completely.  Let us say that production starts at t1 and goes to t2.  The output produced during t1-t2 is then sold at t2, the end point of t1-t2.  Then t2 becomes also the initial point of the next production period, t2-t3. The output of t1-t2 has become the input of t2-t3. It exits one period and it enters with the same value in the next period.  Instead, the Bortkiewicz critique holds to the absurd notion that the output of one period is the input of the same period. That’s what simultaneous equations do; remove time. (Slide 22)

The second critique of Marx’s law is that is that new technology would never be introduced by a capitalist if it did not raise profitability.  Indeed, Marx says in Volume Three of Capital that “No capitalist ever voluntarily introduces a new method of production, no matter how much more productive it may be, and how much it may increase the rate of surplus-value, so long as it reduces the rate of profit.”  So Okishio says that “A profit-maximising individual capitalist will only adopt a new technique of production if it reduces the production cost per unit or increases profits per unit at going prices.  So capitalist accumulation must lead to a rise in the rate of profit, not a tendency to fall – otherwise why would any capitalist invest in new technology?” (Slide 23)

The reply to that is this argument is a fallacy of composition – to use the Keynesian term of logic.  Yes, the first capitalist to introduce a new technology will gain extra profit – at the expense of the other capitalists who have not.  The second capitalist will then introduce it and also gain some profitability (but not as much as the first did) at the expense of the other less efficient ones.  But once all capitalists adopt the technology, the extra profitability for introducing it will have dissipated.  And because the organic composition of capital (C/V) is likely to have risen, the rate of profit across all producers will have fallen compared to before.  As Marx says: ”Competition makes it general and subject to the general law. There follows a fall in the rate of profit — perhaps first in this sphere of production, and eventually it achieves a balance with the rest — which is, therefore, wholly independent of the will of the capitalist.” (Slide 24)

And there is one more retort to the critics of the law.  It is empirically supported.  Over decades, there has been a secular decline in the profitability of capital across all the major economies – if you like, the world rate of profit has fallen –  but not in a straight line, because there have been periods where the counteracting factors to the tendency have been stronger.  But over the history of modern capitalism, the rate of profit has fallen. (Slide 25)

Marx’s law is not only secular (namely a long-term tendency for profitability to fall).  The law also helps explain the cyclical recurrence of booms and slumps in capitalist production and investment. (Slide 26) The operation of counter-tendencies transforms the breakdown into a temporary crisis, so that the accumulation process is not something continuous, but takes the form of periodic cycles. (Slide 27)

The rate of profit can be falling but the total or mass of profit in the economy can be rising.  Indeed, that will be the usual situation as capitalists expand investment and production to increase profits as the profitability of each new unit of investment begins to drop.  This is what Marx called the double-edge law of profit. (Slide 28) So the mass of profit can and will rise as the rate of profit falls, keeping capitalist investment and production going. But as the rate of profit falls, eventually the increase in the mass of profit will decline to the point of what Marx called ‘absolute over-accumulation’, the tipping point for crises.

Thus Marx’s law of profitability provides an underlying explanation of the cycle of boom and slump that occurs periodically in capitalism. (Slide 29)

In sum:

The law of value:  only labour creates value.

The law of accumulation: the means of production will rise to drive up the productivity of labour and to dominate over labour.

The law of profitability: the first two laws create a contradiction between rising productivity of labour and falling profitability for capital. This can only be reconciled by recurring crises of production and investment; and, in the long term, by the replacement of capitalism. (Slide 30).

That was the lecture.  Questions from the seminar attendees were many and perceptive.  Here are a few.

Are there no other factors that cause crises in capitalism apart from profitability?

What is the difference between the organic composition of capital and the technical composition of capital that Marx refers to?

Does not the law suggest that there is no economic policy within capitalism that can stop recurring crises? 

If so, do the crises go on forever or will it come to a total breakdown at certain point?

I’ll leave the reader to consider these answers, if there are any answers.

Coronavirus: nature fights back

January 31, 2020

As I write, the new deadly coronavirus 2019-nCoV, related to SARS and MERS, and apparently originating in live animal markets in Wuhan, China, is starting to spread worldwide. According to the latest data as of today, there are just under 10,000 cases globally with just 130 or so outside China.  So far, there have been 230 fatalities, none outside China, or about a 2% death ratio, compared to 10% with the SARS virus back in 2009.  The rate of spread is about 1.5, a figure that appears to slowing, although it may be too early to say.

This infection is characterized by human-to-human transmission and an apparent two-week incubation period before the sickness hits, so the infection will likely continue to spread across the globe.

As epidemiologist Rob Wallace from the Institute for Global Studies, University of Minnesota says in Climate and Capitalism, “Outbreaks are dynamic. Yes, some burn out, including, maybe, 2019-nCoV. It takes the right evolutionary draw and a little luck to beat out chance extirpation. Sometimes enough hosts don’t line up to keep transmission going. Other outbreaks explode. Those that make it on the world stage can be game changers, even if they eventually die out. They upend the everyday routines of even a world already in tumult or at war.”

Wallace adds: “The SARS outbreak proved less virulent than it first seemed. But it still quietly killed patients, at magnitudes far beyond these first follow-up dismissals. H1N1 (2009) killed as many as 579,000 people its first year, producing complications in fifteen times more cases than initially projected from lab tests alone.  Under such widespread percolation, low mortality for a large number of infections can still cause a large number of deaths. If four billion people are infected at a mortality rate of only 2%, a death rate less than half that of the 1918 influenza pandemic, eighty million people are killed.”

But unlike for seasonal influenza, there is neither ‘herd immunity’, nor a vaccine to slow it down. Even speeded-up development will at best take three months to produce a vaccine for 2019-nCoV, assuming it even works. Scientists successfully produced a vaccine for the H5N2 avian influenza only after the U.S. outbreak ended.  These unknowns—the exact source, infectivity, penetrance, and possible treatments—together explain why epidemiologists and public health officials are worried about 2019-nCoV.

But whatever the specific source of 2019-noV, there appears to be an underlying structural cause: the pressure of the law of value through industrial farming and the commodification of natural resources.  Commoditizing the forest may have lowered the ecosystemic threshold to such a point that no emergency intervention can drive any outbreak low enough to burn out.  For example, in relation to the Ebola outbreak in the Congo (which is also happening again), “Deforestation and intensive agriculture may strip out traditional agroforestry’s stochastic friction, which typically keeps the virus from lining up enough transmission.” 

The blame for the 2019-nCoV outbreak is supposedly open markets for exotic animals in Wuhan, but it could also be due to the industrial farming of hogs across China.  And anyway, “even the wildest subsistence species are being roped into ag value chains: among them ostriches, porcupine, crocodiles, fruit bats, and the palm civet, whose partially digested berries now supply the world’s most expensive coffee bean. Some wild species are making it onto forks before they are even scientifically identified, including one new short-nosed dogfish found in a Taiwanese market.”

All are increasingly treated as food commodities. As nature is stripped place-by-place, species-by-species, what’s left over becomes that much more valuable. Spreading factory farms meanwhile may force increasingly corporatized wild foods companies to trawl deeper into the forest, increasing the likelihood of picking up a new pathogen, while reducing the kind of environmental complexity with which the forest disrupts transmission chains.

There has been much academic discussion among Marxists and ‘green ecologists’ recently on the relation of humans to nature.  The argument is around whether capitalism has caused a ‘metabolic rift’ between homo sapiens and the planet ie disrupting the precious balance among species and the planet, and thus generating dangerous viruses and, of course, potentially uncontrollable global warming and climate change that could destroy the planet.

The debate is round whether using the term ‘metabolic rift’ is useful because it suggests that at some time in the past before capitalism there was some metabolic balance or harmony between humans on the one hand and ‘nature’ on the other.  But nature has never been in some state of equilibrium.  It has always been changing and evolving, with species going extinct and emerging well before homo sapiens (a la Darwin).  And humans have never been in a position to dictate conditions in the planet or with other species without repercussions. ‘Nature’ lays down the environment for humans and humans act on nature.  To quote Marx: “Men make their own history but they do not make it just as they please; they do not make it under circumstances chosen by themselves, but under circumstances directly encountered and inherited from the past.”

What is clear is that the endless drive for profit by capital and the law of value exert a destructive power not just through the exploitation of labour, but also through the degradation of nature.  But nature reacts periodically in a deadly manner.

The coronavirus outbreak may fade like others before it, but it is very likely that there will be more and possible even deadlier pathogens ahead.  And the outbreak may have only a limited effect on capitalism, through a fall in the stock market and perhaps a slowdown in global growth and investment.

On the other hand, it could be a trigger for a new economic slump because the world capitalist economy has slowed to near ‘stall speed’.  The US is growing at just 2% a year, Europe and Japan at just 1%; and the major so-called emerging economies of Brazil, Mexico, Turkey, Argentina, South Africa,and Russia are basically static.  The huge economies of India and China have also slowed significantly in the last year and if China takes an economic hit from the disruption caused by 2019-nCoV, that could be a tipping point.

Eurozone slows to 1% a year in 2019.

The value in GDP

January 27, 2020

At the recent ASSA 2020 conference there was a session on whether Gross Domestic Product (GDP), the ubiquitous measure of national output, was adequate as a gauge of “well-being or social welfare”. Various proposals have been put forward for attempting to measure social welfare, including “dashboards” of economic and social indicators as well as approaches that are more explicitly tied to economic theory.  The US Bureau of Economic Analysis (BEA) initiated a discussion at ASSA to consider the pros and cons of alternative approaches.

Gross domestic product (GDP) is the basic mainstream measure of a country’s level of output and even prosperity.  It is a monetary measure of the market value of all the final goods and services produced in a specific time period. The measure goes back to the earliest of days of classical political economy, with William Petty developing the basic concept in the 17th century.  The modern concept was first developed by Simon Kuznets in 1934 to measure the national output of the US.

There are three ways to measure GDP.  The first is the production approach, which sums up the outputs of every enterprise.  The second is the expenditure approach which sums up all the purchases made; and third is the income approach which sums up all the incomes received by producers.

These three different approaches broadly match the three main schools of economic thought.  The production approach has an affinity with neoclassical school, which sees national output as the sum of all micro-agents’ production. The expenditure approach has been adopted by the Keynesian school, which looks at investment, consumption and saving at a ‘macro level’ to measure “effective demand”. The income approach has the closest connection with Marxist and classical political economy, because it distinguishes wages and profits as the main categories of national income and thus exposes the class divisions in the distribution of GDP; and the driving force for investment and production in capitalism ie profit.

Ever since the development of GDP, multiple observers have pointed out limitations of using GDP as the overarching measure of economic and social progress. GDP does not account for the distribution of income among the residents of a country, because GDP is merely an aggregate measure.  Neither does it measure unpaid housework, the level of happiness or well-being.  That is why there have been various attempts to replace GDP with other ‘broader’ measures.

One recent attack on GDP as a measure of national ‘wealth’ or well-being has come from Vint Cerf via this Wired article. Cerf makes the usual complaint that the measure does not capture the level of pro bono work that pervades many societies, by homemakers whose unpaid labour is an integral part of most functional societies, and non-profit organisations whose work also contributes to the benefit of society.”  He goes on “Moreover, GDP does not capture the many negative effects of some economic activities such as pollution, including carbon dioxide and other greenhouse gases. Their consequences should be factored into any measure of economic well-being if we are to accurately assess the state of the planet and its population.”  And finally,“As an average measure, GDP also fails to capture wealth and income disparities within a society, often negatively correlated with the health of that society.”

All this is true.  But is that the purpose of GDP as a measure?  At the time of its launch, Kuznets specifically warned against considering GDP as a measure of ‘welfare’ in a society.  Vint’s critique, echoed by others, fails to recognise that the value (or wealth) that modern economics wants to measure is the ‘market value’ of national output not the welfare of labour, women and children.  Capitalism has no direct interest in measuring that.  GDP has a specific purpose for capital not labour.

Household work provides a massive contribution to the welfare of communities.  And it delivers unpaid labour to sustain labour power in work for capitalist enterprises.  But because it is not a cost for capital, it does not need to be included in GDP.  Similarly, the grotesque (and rising) inequalities of income and wealth that exist within most countries is not a relevant factor for capitalist investment and production and so again does not need to be included in GDP.  Finally, the ‘externalities’ of capitalist production: eg, diseases, industrial accidents, pollution and climate change are not immediate costs to the profitability of capital (private ownership of production).  Indeed, if these ingredients were included in a revised measure of national ‘value’ they would become confusing obstacles to measuring properly the ‘health’ of capitalist production in a country.  And that is what matters in capitalism: having good measures of capitalist accumulation for policy decisions by capitalist enterprises and government and monetary authorities.

Of course, even within that paradigm, the GDP measure has its faults.  Diane Coyle is one economist that has criticised strongly GDP as a sufficiently accurate measure of production and investment.  She argues that GDP does not capture changes in investment that involve ‘intangibles’ and innovation.  In other words, national output and productivity growth may be much higher than GDP exposes.  However, even here, the argument that the failure to measure intangibles explains the productivity puzzle (low productivity growth) is not convincing.

Mariana Mazzucato got a lot of traction out of her recent book, The value of everything, where she complains that in GDP, finance is regarded as productive when it is really an ‘extractive’ sector and government investment is not given the ‘utility’ it deserves in GDP.  But this is to misunderstand the law of value under capitalism.  Under capitalism, production of commodities (things and services) are for sale to obtain profit.  Commodities must have use value (be useful to someone), but they must also have exchange value (make a sale for profit).  GDP is biased as a measure of value created in an economy for that good reason.

For Marxist analysis, there are many issues with using GDP.  National output in Marxist terms is c+v+s.  C is ‘constant capital’ (raw materials, intermediate products used up in production plus the depreciation of machinery etc). V is wages spent on the labour force + S (profits made on sales of the commodities produced).  In theory, GDP data can be converted into these Marxist categories because in an economy total prices of all goods in aggregate must equal total values in labour time, even though that equality will not exist in sectors of the economy.

The practical complexities of turning GDP as measured by government statistics in national accounts into the Marxist formulae have been comprehensively explained in works like that of Shaikh and Tonak. But when it comes to the world economy and the transfer of value between countries and companies globally, GDP is inadequate and misleading. As John Smith has pointed out, “it is impossible to analyse the global economy without using data on GDP and trade, yet every time we uncritically cite this data we open the door to the core fallacies of neoclassical economics which these data project.” The key concept within GDP is ‘value added’ by ‘agents of production’, but that means GDP does not expose value that is transferred or redistributed between countries or companies as a result of competition in markets.

Just as more technologically advanced companies get a transfer of value from less advanced companies through competition on the market (Marx’s transformation of values into prices of production), so imperialist countries get a transfer of value from peripheral countries through the unequal exchange of value in international trade and through transfer pricing within companies.  GDP does not capture that.  However, recent Marxist research has made progress in measuring this transfer in  the imperialist countries (see Carchedi and Roberts, Ricci and URPE_CHN_2019). These suggest that the GDP of the major capitalist economies is exaggerated by transfers of value through international trade and multi-national pricing equivalent to 3-5% of GDP every year.

Then there is the issue of productive and unproductive labour, something that Mazzucato took up but in a misleading way.  Mazzucato argues that the government sector creates value, but that is because she considers only use-value and does not recognise the dual character of value under capitalism, where profit through exploitation is value.  Marxist value theory maintains that many sectors and people are supposedly generating value-added but are really engaged in non-productive activities like finance and administration that produce no value at all.  And for capital, that includes the government sector: it may be necessary, but it is not value-creating for capital.

As Marx put it: “Only the narrow-minded bourgeois, who regards the capitalist form of production as its absolute form, hence as the sole natural form of production, can confuse the question of what are productive labour and productive workers from the standpoint of capital with the question of what productive labour is in general, and can therefore be satisfied with the tautological answer that all that labour is productive which produces, which results in a product, or any kind of use value, which has any result at all.”

For the neoclassical theory, any labour whose outcome can secure remuneration in the market is considered productive and contributes to the creation of new value. Thus, not only activities in the sphere of commodity circulation, but also those aimed at maintaining and reproducing the social order, are considered to produce new values and increase the level of prosperity and wealth of an economy

In contrast, as Shaikh and Tonak explain: “Economists of the classical political economy tradition pay particular attention to the fact that the non-production sectors of trade and finance as well as government in order to perform their socially useful functions employ labour and other inputs while at the same time their capital  stock depreciates; such expenses are drawn out from the surplus generated by the productive sectors of the economy.” (Shaikh and Tonak 1994, p61).

As Tsoulfidis and Tsaliki put it: “The main problem with orthodox national accounts is that they present many activities as ‘production’ while they should be portrayed as ‘social consumption’. As the ‘personal consumption’ sphere contributes to the reproduction of individuals in a capitalist society, the non-productive activities, such as trade, financial services or private security, in turn contribute to the reproduction and development of the capitalist system; however, their necessity does not negate the fact that as the total consumption (personal and social) increases, the part of surplus destined for the accumulation of capital is reduced and by extent the social wealth diminishes.”

So measuring the relative expansion of productive and unproductive activities is crucial to gauging the growth potential of capitalist economy, because only investment in productive sectors can sustain expansion under capitalism.  Indeed, a rising share of unproductive activity will exert a downward effect on the profitability of capital over time.

Again, this is an area where Marxist research has made strides in measurement: (Moseley; Roberts; Paitaridis, Tsoulfidis and Tsaliki, Peter Jones and others).  In this way, we can obtain the value in GDP.

 

Minsky and socialism

January 14, 2020

Recently, the Levy Institute, the think-tank centre for post-Keynesian economics (and in particular the theories of Hyman Minsky, the radical Keynesian economist of the 1980s), published a short video that that shows Minsky explaining his theory of crises under capitalism in his own words at an event in Columbia University, November 1987. It is a very clear account of his theory of crises based on ‘financial fragility’’.

When the Great Recession hit the world capitalist economy, many radical and Marxist economists, and even some mainstream economists, called the GR a ‘Minsky moment’.  In other words, the cause of the Great Recession was a financial crash resulting from excessive debt that eventually could not be serviced.  Minsky’s key contention, that financial instability is endogenously generated, implies that not only financial but also ‘real’ crises arise as a result of the inner workings of the financial system: ‘History shows that every deep and long depression in the United States has been associated with a financial crisis, although, especially in recent history, we have had financial crises that have not led to a deep and long depression’ (Minsky*).

In my view, this is an accurate statement.  A financial crash occurs in every capitalist slump, but financial crashes can occur without a slump.  But this suggests that what is going on in the ‘real economy’ is what decides a financial crash, not vice versa.  Indeed, as G Carchedi has shown (see graph below), when both financial profits and profits in the productive sector start to fall, an economic slump ensues. That’s the evidence from the post-war slumps in the US.  But a financial crisis on its own (as measured by falling financial profits) does not lead to a slump if productive sector profits are still rising.

Indeed, if you listen closely to Minsky’s account (above) of his crisis theory, he recognises that excessive debt in the form of Ponzi finance only leads to a crash when the profits engendered in business and in banking are no longer sufficient to sustain debt expansion.  As Minsky puts it, “borrowers are myopic to the past and blind to the future.’’

At the recent ASSA 2020 conference, the annual meeting of mainstream economists organised by the American Economic Association, there were also sessions by the more radical wings of economics: post-Keynesians and Marxists. Riccardo Bellofiore, the erudite scholar of Marxist, Sraffian and Keynesian economic theory, presented two papers that offered interesting insights on Minsky’s theories.  In his first paper, Bellofiore argues that “the current crisis is the outcome of money manager capitalism stage of capitalism – the real subsumption of labour to finance, in Marxian terms. The most promising starting points are the structural dimensions of Minsky’s analysis and the monetary circuit approach.” Minsky’sSocializationOfInvestment__preview (6)
In his second paper, he argues that Minsky’s contributions are major necessary ingredients to a rethinking of Marxian theory of capitalist dynamics and crises.”
MarxBetweenSchumpeterAndKeynes_Augu_preview (2)

I beg to differ.  I do not think that Minsky’s theories dovetail with Marx’s theory of crises or that they provide a better explanation of booms and slumps than that of Marx. Marx not Minsky  As Maria Ivanova from Goldsmiths University, London has argued effectively (in a paper of a few years ago comparing Minsky and Marx’s theories of crises), Marx was firmly opposed to blaming crises on financial speculation, or on the recklessness of single individuals (Marx and Engels, Collected Works, 1975, p. 401). “Speculation and panic may trigger crises, but to trigger something does not mean to cause it. For Marx, the ultimate origins of all crises lie in the ‘real’ economy of production and exchange.” (Ivanova conf_2011_maria_ivanova-on-marx-minsky-and-the-gr)

Ivanova argues that Marx’s concept of money could not be more different from Minsky’s. Marx saw money as the social expression of value – the amount of socially necessary labour time embodied in a commodity. Money thus expresses the deepest contradiction of the capitalist production relations in ‘a palpable form’. The Minskyan perspective prides itself on its Keynesian origins. “In contradistinction to Marx, Keynes accorded primary importance to interest-bearing capital where capital appears as property and not as function.  And since capital in that form does not function (i.e. does not engage in immediate production), it does not directly exploit labour; class conflict appears obliterated since the rate of profit now forms an antithesis not with wage labor but with the rate of interest” .

Ivanova reckons that implicit in the Keynesian-Minskyan perspective is the insight that finance can repress production, overpower it, and ‘decouple’ from it (at least temporarily) to the detriment of the wider economy – this is what Bellofiore argues is its major insight. But it follows from this that Minsky reckons that if finance were controlled, regulated, restrained, some of the worst ills of capitalism could be kept at bay.  This view is in sharp contrast to Marx, who reckoned that the inherent contradictions of capitalism were beyond human control.

Minsky believed, in line with the Keynesian tradition, that the crises arising from the permanent disequilibrium of the capitalist system could be contained by the concerted effort of ‘Big Government and Big Finance (‘monetary authorities). As Ivanova puts it: “the popular tale of the purely financial origins of the recent crisis dovetails nicely with the belief that financial instability and crises, albeit tragically unavoidable and potentially devastating, can be managed by means of money artistry”  No wonder many mainstream economists in the depths of the global financial crash, like Paul Krugman, reckoned that ‘’we are all Minskyans now”.

But the belief that social problems have monetary/financial origins and could be resolved by tinkering with money and financial institutions, is fundamentally flawed. “For the very recurrence of crises attests to the limits of fiscal and monetary policies as means to ensure ‘balanced’ accumulation.”” (Ivanova). Minsky** considered the dependence of non-financial businesses on ‘external funds to finance the long-term capital development of the economy’ a key source of instability. This provided an important rationale for government intervention. In his famous book, Minsky, Stabilizing an Unstable Economy (1986), he wrote ‘Once Big Government stabilizes aggregate profits, the banker’s reason for market power loses its force’.

So the job of the radical economist was to restore the profitability of capital by the intervention of the monetary and fiscal authorities, according to Minsky. This was more important that shifting the burden of any financial crisis off the backs of the many. As Minsky said in the 1980s: “It may also be maintained that capitalist societies are inequitable and inefficient. But the flaws of poverty, corruption, uneven distribution of amenities and private power, and monopoly-induced inefficiency (which can be summarized in the assertion that capitalism is unfair) are not inconsistent with the survival of a capitalist economic system. Distasteful as inequality and inefficiency may be, there is no scientific law or historical evidence that says that, to survive, an economic order must meet some standard of efficiency and equity (fairness) .”

Riccardo Bellofiore in his ASSA paper is keen to tell us that, in his book on Keynes (1975), Minsky adopted a more radical position than Keynes on the need for the “socialization of investment’’ as the solution to crises.  Riccardo reckons that Minsky’s socialization of investment, thanks to his reference to the New Deal, is not far from a socialization in the use of productive capacity: it is a “command” over the utilization of resources; its output very much looks like Marx’s “immediately social” use values. It is complementary to a socialization of banking and finance, and to a socialization of employment. Minsky goes further that a “Keynesian” welfare state and argues for a full employment policy led by the government as direct employer, through extra-market, extra-private enterprise and employment schemes.”

But this was in 1975. Mike Beggs, a lecturer in political economy at the University of Sydney  in a recent article, shows that, while that Minsky started off as a socialist, at least in following the ideas of ‘market socialism’ by Oscar Lange, he eventually retreated from seeing the need to replace capitalism with a new social organisation (or ‘socialised investment’), to trying to resolve the contradictions of finance capital within capitalism, as his eventual financial fragility theory of crises shows.

As Bellofiore says, in the 1970s, Minsky contrasted his position from Keynes.  Keynes had called for the “somewhat comprehensive socialization of investment” but went onto to modify that with the statement that “it is not the ownership of the instruments of production which it is important for the State to assume” — it was enough to “determine the aggregate amount of resources devoted to augmenting the instruments and the basic rate of reward to those who own them.” But Minsky went further and called for the taking over of the “towering heights” of industry and, in this way, Keynesianism could be integrated with the ‘market socialism’ of Lange and Abba Lerner.

But by the 1980s, Minsky’s aim was not to expose the failings of capitalism, but to explain how an unstable capitalism could be ‘stabilised’. Biggs: “His proposals are aimed, then, at the stability problem. ….The expansion of collective consumption is dropped entirely. Minsky supports what he calls “Big Government” mainly as a stabilizing macroeconomic force. The federal budget should be at least of the same order of magnitude as private investment, so that it can pick up the slack when the latter recedes — but it need be no bigger.”

Indeed, Minsky’s policy approach is not dissimilar from that of today’s Modern Monetary Theory supporters.  Minsky even proposed a sort of MMT job guarantee policy. The government would maintain an employment safety net, promising jobs to anyone who would otherwise be unemployed. But these must be sufficiently low-paid to restrain market wages at the bottom end. The low pay is regrettably necessary, said Minsky, because “constraints upon money wages and labor costs are corollaries of the commitment to maintain full employment.” The discipline of the labour market must remain: working people may not fear unemployment, but would surely still fear a reduction to the minimum wage (Beggs). Thus, by the 1980s, Minsky saw government policy as aiming to establish financial stability, in order to support profitability and sustain private expenditure. “Once we achieve an institutional structure in which upward explosions from full employment are constrained even as profits are stabilised, then the details of the economy can be left to market processes.” (Minsky).

Minsky’s journey from socialism to stability for capitalist profitability comes about because he and the post-Keynesians deny and/or ignore Marx’s law of value, just as the ‘market socialists’, Lange and Lerner, did.  The post-Keynesians and MMTers deny/ignore that profit comes from surplus value extracted by exploitation in the capitalist production process and it is this that is the driving force for investment and employment. They ignore the origin and role of profit, except as a residual of investment and consumer spending. Instead they all have a money fetish. With the money fetish, money replaces value, rather than representing it. They all see money (finance) as both causing crises and, also as solving them by creating value!

In my view, far from Minsky providing the “necessary ingredients to a to a rethinking of Marxian theory of capitalist dynamics and crises”, as Bellofiore argues, Minsky’s theory of crises, like all those emanating from the post-Keynesian think tank of the Levy Institute, falls well short of delivering a comprehensive causal explanation of regular and recurring booms and slumps in capitalist production.  By limiting the searchlight of analysis to money, finance and debt, Minsky and the P-Ks ignore the exploitation of labour by capital (terms not even used).  They fail to recognise that financial fragility and collapse are triggered by the recurring insufficiency of value creation in capitalist accumulation and production.

Moreover, by claiming that capitalism’s problem lies in the finance sector, the policy solutions offered are the regulation and control of that sector, rather than the replacement of the capitalist mode of production.  Indeed, that is the very path that Minsky took: from his socialism and ‘’socialisation of investment’’ in the 1970s to ‘stabilising finance’ in the 1990s.

* Minsky, H. P. (1992a) Reconstituting the United States financial structure: some fundamental issues, Working Paper No. 69, Levy Economics Institute of Bard College.

** Minsky, H. P. (1996) Uncertainty and the institutional structure of capitalist economies: remarks upon receiving the Veblen-Commons award, Journal of Economic Issues, 30, pp. 357-368.

ASSA 2020 – part three: currencies, climate, china and crises

January 8, 2020

In this last part of my review of ASSA 2020, I want to cover some other issues discussed at ASSA, especially one big issue: the economics of climate change; and finally, look at the papers in the sessions organised by the Union for Radical Political Economics (URPE) – the main association covering Marxist economics.

One populist subject over the last few years has been the role and value of cryptocurrencies.  I have discussed these privatised digital currencies on my blog here. The debate continues on how well a cryptocurrency can serve as a means of payment. One paper argued that cryptocurrencies need to overcome double spending by using costly mining and by delaying settlement. Indeed, the authors reckon that bitcoin “generates a welfare loss that is about 500 times larger than a monetary economy with 2% inflation” because it is so costly to ‘mine’ and because of slow settlement.  Only if an economy had 50% inflation would the loss to users be higher than bitcoin.  Clearly, these cryptocurrencies are never going to replace state fiat currencies as a means of payment. TheEconomicsOfCryptocurrencies_Bitco_preview t

Bill Nordhaus was awarded the Nobel (Riksbank) prize for pioneering work on using an integrated climate-economy assessment model (IAM) to study when and how the tipping point affects the social cost of carbon dioxide. While the mainstream has lauded Nordhaus, the reality is that IAMs have proved to be mostly useless.  Most IAMs struggle to incorporate the scale of the scientific risks, such as the thawing of permafrost, release of methane, and other potential tipping points. Furthermore, many of the largest potential impacts are omitted, such as widespread conflict as a result of large-scale human migration to escape the worst-affected areas.

The IPCC’s mitigation assessment concluded from its review of IAM outputs that the reduction in emissions needed to provide a 66% chance of achieving the 2°C goal would cut overall global consumption by between 2.9% and 11.4% in 2100. This was measured relative to a ‘business as usual’ scenario. But growth itself can be derailed by climate change from business-as-usual emissions. So the business-as-usual baseline, against which costs of action are measured, conveys a misleading message to policymakers that fossil fuels can be consumed in ever greater quantities without any negative consequences to growth itself. And heterodox economist Steve Keen has debunked Nordhaus’ calculations, which suggest that even a 4C rise global temparatures would have only a limited effect on growth and welfare over the rest of this century and in effect there was no tipping point when global warming would get out of control.

Based on this relatively benign view, mainstream economics concentrates on carbon pricing and taxes to mitigate global warming, rather than radical action to end fossil fuel production through control of the major energy companies. This is why the mainstream session on climate change was entitled Carbon Tax Policy with the discussion around whether carbon taxes would slow economic growth and whether carbon taxes would add to fiscal costs or not.  You will be pleased to hear that the presenters concluded that carbon taxes will not slow economic growth and there could actually be fiscal gains through reducing the cost of dealing with floods, droughts hurricanes. MeasuringTheMacroeconomicImpactOfC_preview (2)

So that’s all right then.  Only it isn’t.  All the latest climate science suggests that the tipping points are approaching fast and allowing fossil fuel production to continue while trying to reduce its use by ‘market’ solutions’ like carbon pricing and taxes will not be enough.TippingPointsInTheClimateSystemAnd_preview

In the URPE sessions, Ron Baiman of Benedictine University pointed out that the money created by the Fed for the three-year 2008-2011 financial bailout would have paid for almost thirty years 2020-2050 of global climate crisis mitigation through a Global Green New Deal (GGND). FinancialBailoutSpendingWouldHave_preview Mathew Forstater et al reckoned that the transition to a sustainable economy and just society required a transformation in the technological structure of production away from fossil fuel-based and toward renewable energy-based technologies.  Peter Dorman reckoned that the GND-type policies won’t be enough. It required structural change in the economy.  TheClimateCrisisAndTheGreenNewDea_preview (2)

Another big issue at ASSA is what is happening in China and what will happen in the continuing trade and technology war with the US.  There were dozens of mainstream sessions that covered or referred to China from all sorts of angles.  Clearly China dominates much of mainstream research.

There is the question of China’s fast growth and pollution. According to Bharati et al, China has not achieved the turning point of where pollution and emission no longer positively relate to the economic growth. But that would happen in 2036 or so.  According, to NAME, both countries lose from the Trump tariffs, where high-tech industries are disproportionately affected. China mainly loses from the decline in the production scale of its high-tech industries, while the US mainly lose from the increasing input prices used in its high-tech industries. In addition, Japan also loses from the Trump tariff due to higher input prices. FuelingTheEnginesOfLiberationWithC_preview

Most interestingly, Chang-tai Hsieh points out that the largest Chinese firms are conglomerates, where the largest 500 conglomerates in 2015 had an average of 17 thousand firms, and collectively account for almost half of all registered capital of all Chinese firms. Conglomerates are typically partnerships between private firms and state owned firms, where state owned firms are typically at the center of the conglomerates; 6) The number and size of Chinese conglomerates increased from 1995 to 2015.

Suprabha Baniya et al conclude that China’s Belt and Road Initiative increases trade flows among participating countries by up to 4.1 percent; (ii) these effects would be three times as large on average if trade reforms complemented the upgrading in transport infrastructure; and (iii) products that use time sensitive inputs and countries that are highly exposed to the new infrastructure and integrated in global value chains have larger trade gains. TradeEffectsOfTheNewSilkRoad_preview (1)

An URPE session also covered China.  Brian Chi-ang Lin, National Chengchi University reckoned that If China keeps growing (even at a slower rate), China could eventually regain the global economic power she once had in the seventeenth and eighteenth centuries, under its current model. “Under Chinese President Xi Jinping, China has recently initiated a series of important policies such as the domestic nationalization of private corporations and the international One Belt One Road (OBOR) initiative to promote the national economy and, accordingly, to sustain the CCP’s authoritative regime.”

Finally, let me look at some of the interesting papers on Marxist theory presented in the URPE sessions. Carolina Alves from Girton College, University of Cambridge developed some new ideas on Marx’s concept of fictitious capital in relation to government bonds. “Fictitious capital does not represent real capital but it is increasingly the channel through which the dominance of interest bearing capital over other capitals occurs. Government bonds are the most important tools whereby the state is able to intervene in the financial market. the backbone of operations in the secondary market, and a source for financial accumulation, rather than as a fortuitous aspect of state finance. So public debt can neither be avoided nor paid off in capitalist economies, and government bonds now offer an unparalleled scope for purely financial accumulation.”
TowardsACriticalFramework_Government_preview

Sergio Camara Izquierdo from the Metropolitan Autonomous University (UAM)-Azcapotzalco, and one of the authors in our book, World in Crisis, analysed the trends in profitability and accumulation in Mexico in the postwar period. with new estimations that includes intangible assets and geometric patterns of depreciation. Camara reveals expansive (1939-1982) and contractive (1983-2018) long waves in capital accumulation within which there us ae neoliberal contractive wave.  And note the collapse in profitability of capital in Mexico from the 1990s with the formation of NAFTA.

Baris Guven from the University of Massachusetts-Amherst attacked the idea of Marxian political economy that places great emphasis on the nexus between technological change and capital accumulation, based on the profit-motive and competition.  For Guven, on the contrary, the profit-motive is the reason why capitalist economies are prone to underproduce technical (and scientific) knowledge. It is the state that does the technological fix, and this fix, in addition to others, supports reproduction of capital accumulation at extended scale.  In other words, no innovation without state intervention.  While there is some truth in the argument that the state has played a crucial role in boosting technology, as Mariana Mazzucato has shown, profitability remains the key driver.  When profitability is low, then investment and productivity growth will slow.

There was a whole session on post-Keynesian theory, with the usual theme of financialisation there.  And there was a session developing the ideas of Hyman Minsky alongside those from a Marxist perspective.  I particularly liked the paper by Masahiro Yoshida of Komazawa University who provided some emphatic data on the extreme ‘rentier’ nature of the UK economy, with the highest services value-added share and the largest finance services share in the g20. As UK financial services are more important than the US for minimising the current account deficit and the majority of the UK’s financial services are exported to the EU, the impact of Brexit is yet to be felt. TheDevelopmentOfCapitalAccumulation_powerpoint (2)

And Jan Toporowski’s paper made some telling points against the ‘free lunch’ perspective of Modern Monetary Theory. “This economical, apparently free, method of financing government expenditure is of course attractive when public services, welfare and infrastructure are deteriorating in the face of austerity. But this low cost is only the case at the time of the expenditure. To understand the true efficiency of this kind of financing, it is necessary also to consider the consequences of such financing. In particular, it is necessary to understand how that money would be absorbed by the economy.”

Finally, Riccardo Bellofiore straddled both the post-Keynesian and Marxist theory (as Riccardo usually does!) – with two papers.
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I’ll refer to Riccardo’s discussion of the relation between the ideas of Minsky and Marx in a future post.  But for now, that’s enough.

In sum, ASSA 2020 confirmed my view that: 1) mainstream economics still does not know why there was a Great Recession and why there is now stagnation; 2) mainstream economics is still convinced of market solutions to climate change; and 3) how could it not be otherwise when mainstream economics starts from the premise that there is no other mode of production but capitalism – which may be imperfect, but must be made to work at best as it can.