Top ten posts of 2016

As has become customary at the end of the calendar year, here are the top ten most popular posts from my blog for this year.  Topping the list was my review post of Anwar Shaikh’s magnum opus, Capitalism: competition, conflict and crises.  The fact that this was the most popular post is a credit to Shaikh’s magisterial book and also to the serious attitude that my blog readers take to Marxist economics.

As I said in the post, Shaikh’s book is a product of 15 years work.  A theory of ‘real competition’ is developed and applied to explain empirical relative prices, profit margins and profit rates, interest rates, bond and stock prices, exchange rates and trade balances.  Demand and supply are both shown to depend on profitability and interact in a way that is neither Say’s Law nor Keynesian, but based on Marx’s theory of value.  A classical theory of inflation is developed and applied to various countries.  A theory of crises is developed and integrated into macrodynamics.

In the post, I concentrated on Shaikh’s view on the causes of crises under capitalism and highlighted that he had a position is similar to my own on the causes of capitalist crises, the nature and existence of depressions, and the role of Kondratiev and profit cycles.  In a later post, however, I raised criticisms of his position on Marx’s theory of value,, particularly his attempt to reconcile Ricardo with Marx on value.  In my view, there is no reconciliation possible between Marx’s value theory and that of Ricardo and Sraffa.  There is also no unification possible between Marx’s law of profitability as the underlying cause of recurrent crises and slumps and the post Keynesian/Kalecki view of a ‘profit-wage share’ economy.  And there is no meeting between Marx’s view of profitability and credit in modern capitalism and those who hold that finance creates value and that ‘financial speculation’ lies at the centre of capitalist crises.  Shaikh stands for Marx on most of these issues but seems want to build a bridge to other side too.

The second most popular post was also a book review – of John Smith’s Imperialism in the 21st century, in many ways ground-breaking in its analysis of modern imperialism.  Smith shows that capital in the North restored much of the fall in its profitability in the 1970s on the back of the exploitation of the South in the 1980s onwards: “surplus-value extracted from these new legions of poorly paid workers helped to dig the capitalism system out of its hole in the 1970s”.

Smith firmly dismisses the idea that is prominent among mainstream and heterodox economics alike that the global financial crisis and the Great Recession were financial in origin. Smith reckons that gross domestic product (GDP) as a measure of value hides the fact that much of the US GDP is not value created by American workers but is captured through multinational exploitation and transfer pricing from profits created from the exploitation of the workers of the South.

Smith argues that the exploitation of the workers of the South is less through an expansion of absolute and relative surplus value and more through driving wages below the value of labour power (super-exploitation).There was a vigorous debate on my blog over whether Smith was right about this as the dominant characteristic of modern imperialism. That debate continues.

Smith’s view of imperialist exploitation is complemented by Tony Norfield’s book showing how the imperialist financial centres capture the value expropriated from the periphery.  My post on Norfield’s also made the top ten. A key part of Norfield’s book is to weave in facts like that about modern imperialism with a Marxist analysis of the role of finance capital.  And Norfield is incisive in illuminating the nature of the modern British economy.  I have described Britain in the past as the world’s largest ‘rentier’ economy.  That’s an old-fashioned French word for an economy based on sucking up ‘rents’ through the monopoly ownership of capital (or land) from the profits of the productive sectors.  Both the sectors exploit labour but the rentier economy relies on its financial and legal monopoly to take a share of the surplus value of productive capitalist sectors appropriated from labour. This gives British capital its important role in modern imperialism, but also its Achilles heel in any global financial crash or in the shock of Brexit.

The third most popular post in 2016 was on whether Marxist economic theory better explains what had happened in the last ten years than Keynesian economics, which remains the dominant thinking among leftist organisations. Leading Keynesian Brad Delong told us Marxist economists at the annual American Economics Association Conference in San Francisco last January that we are like pessimists just ‘waiting for Godot’, when capitalism can be made to work with the ‘concrete economics’ of Keynesian social democracy (the title of DeLong’s new book this year). Well, the last ten years cast doubt on that view and the next few years will see who is right.

In the post I argued that the cause of the Great Recession and the subsequent Long Depression is not the product of a ‘lack of demand’ as such or ‘pro-cyclical’ government spending policies (austerity) but is caused by a collapse of the capitalist sector, in particular, capitalist investment.  And that investment collapsed because profitability in the capitalist sector fell, then the mass of profits fell, leading to investment, employment and incomes to fall, in that order.  Then it’s the change in profits that leads to changes in investment and demand (consumption), not vice versa, as the Keynesians argue.

At the beginning of 2016, the world economy was looking pretty weak and there was much talk that a growing debt crisis in China was likely to lead to a major crash there, which would then spread globally.  But in a post that proved popular, I questioned the doom-mongering about China and also the size of the impact that China would have on the major capitalist economies. I argued that the US remains the pivotal economy for a global capitalist crisis, particularly as it dominates in financial and technology sectors.  In 1998, the emerging economies had a major economic and financial crisis but it did not lead to a global slump.  In 2008, the US had a biggest slump in its economic post-war history and it led to the Great Recession.  In my view, this weighting still applies.  That proved right, at least for 2016.

One of the big politico-economic events of 2016 was the referendum vote in Britain to leave the European Union.  My post on the day after Brexit got a lot of hits. I got it wrong, having expected a vote to remain in the EU. I had got two previous predictions right: that Scotland would vote to stay in the UK and that the Conservatives would win the 2015 UK general election, but I did not get a hat trick in 2016,  as former Conservative PM David Cameron’s wild political gamble did not come off.  In the post, I analysed the reasons why there was a vote for Brexit and looked at the possible economic impact. That impact has still to be felt both for the UK and for world trade.

The other major political event of 2016, of course, was the surprise victory of Donald Trump for the US presidency, despite polling more than 2m votes less than his Democratic opponent Hillary Clinton.  In a post directly after the result, I again analysed the reasons for Trump’s victory.  I said that, like the vote of the Brits for Brexit, against all expectations, a sufficient number of voters in America (mainly white, older and in small businesses or working in failing industries in smaller central US states) overcame the vote of the youth, the more educated and better-off in the big cities along the coasts.

But it was not so much a working class vote for Trump because hardly more than 50% or so of eligible voters turned out to vote.  A huge swathe of people never vote in American elections and they constitute a sizeable part of the working class.  The most significant issue (52%) for voters, when asked at the booths, was the state of the US economy, with terrorism next (but well down at 18%) and immigration (the Trump card) even lower.  So Trump won because he claimed he could improve the conditions of those ‘who have been left behind’ by globalisation, failing domestic industries and crushed small businesses.

Stock markets are now riding high on expectations that Trump can boost the US economy.  But in the post, I argued that Trump had been handed a poisoned chalice and the US economy would not recover.  Trump would not be able to deliver and his big business cabinet would do in the opposite of what those ‘left behind’ want.  We shall see in 2017.

One of the features of Brexit and Trump events is that it heralds the end of the great neo-liberal era of globalisation and ‘free trade’.  My post on the end of globalisation made the top ten.  It critiqued the views of Keynes in the 1930s and his modern epigone Brad Delong (again!) in claiming that capitalism has been the most successful mode of production in human history and it would be again. Instead, I argued that capitalism is really past its use-by date.  One indicator is that ‘globalisation’ (the spread of capitalism’s tentacles across the world) has ground to a halt.  And growth in the productivity of labour, the measure of future ‘progress’, has also more or less ceased in the major economies.

More short term, a key question for me and it seems my readers, was whether the world economy is heading for another slump.  In a post written early in the year, Can we avoid the coming recession?, I presented the facts as I saw them and offered a cautious forecast that a new economic recession was “due and will take place in the next one to three years at most.” I said that maybe there won’t be one in 2016 (as it has proved)… “But the factors for a new recession are increasingly in place: falling profitability and profits in the major economies and a rising debt burden for corporations in both mature and emerging economies.”

And finally there is my post on how unequal the world is, according to annual study by Credit Suisse, which makes the top ten every year.  This year was no exception, with the finding that the top 1% of the adult wealth holders in the world own 51% of all global personal wealth, while the bottom half of adults own only 1%.  Indeed, the top 10% of adults own 89% of all the world’s personal wealth!  This is a record.

In the past 12 months, global wealth has risen by 1.4% and so it has barely kept pace with population growth. As a result, in 2016, the mean average wealth per adult was unchanged for the first time since 2008, at approximately $52,800.  This mean average tells you that the vast majority of the world’s adults have way less wealth than that.  On average, wealth did not rise, while inequality between rich and poor rose again.

That’s the message of 2016 from my posts: continued depression for the majority and more for the tiny elite.

 

Best books of 2016

I thought I would remind myself and blog readers of what seemed to me were the best books on economics published this year.  The criteria for me were whether the book added any new idea or understanding of developments in modern capitalism or in Marxist economic theory. Yes, I know, very boring with no jokes or stories involved.

Let start with those books that looked at the activities of finance capital and imperialism in the major economies and globally.  In his excellent new book, Finance Capital Today, French Marxist Francois Chesnais analysed in detail the key developments in modern finance and the causes of the global financial crash in 2008.

As Francois says in a comment to my blog,  “Today not enough surplus value is being produced to re-launch the accumulation process and the amount that is serves to consolidate the accumulation of dividend and interest bearing assets by banks, funds and individuals (financial accumulation) and so the claims on this already very insufficient amount of surplus value. This has led both to the dead-end of the quasi-zero long term interest rate regime, which not simply the outcome of quantitative-easing and to the endless small shocks in the global financial system. Of course government debt and the resulting pro-rentier, pro-cyclical austerity policies only aggravate this situation but they do not explain it and their reversal would not solve capitalism’s basic problem.”  Tony Norfield provides a really comprehensive and positive review of Chesnais’ book on his blog site.

And of course, in 2016, Tony published his own analysis of modern capitalism with The City: London and the Global Power of FinanceNorfield brings us key insights into understanding the nature of modern financial systems and what role they play in the working (or non-working) of capitalism.  Tony defines as imperialism where a small number of countries dominate world markets through their multi-national corporations, which can be both making things, providing services and financial, or often all three.  Financial privilege is a form of economic power, enabling imperialist countries to draw upon resources and value created elsewhere in the world.   Finance and production in 21st century capitalism are inseparable – “they are close partners in exploitation”.  Norfield also reveals the large role of British capitalism in imperialism.  Britain is second only to the US in the importance of its financial sector globally and in some areas like foreign currency trading it leads. In a way, Britain is the world’s largest ‘rentier’ economy.  For that reason alone, the Brexit referendum vote puts the future of London as the centre of global finance capital in jeopardy.

While Tony Norfield’s book looked at modern imperialism from the apex of finance capital, John Smith, in his Imperialism in the 21st century, looked at it from the point of view of billions living under the grip of imperialism in what used to be called the Third World and is now called the ‘emerging’ or ‘developing’ economies.  There was quite a debate on my blog during the year on John’s view that it was the ‘super-exploitation’ of wage workers in the ‘South’ that is the foundation of modern imperialism.  That only helped to emphasise the importance of John’s book.

The role of finance in causing instability in modern capitalism was the theme of Jack Rasmus’ intriguing book, Systemic Fragility in the Global Economy. Rasmus reckons that mainstream economic theory has completely failed to account for this fragility; or forecast any crises like the Great Recession; or explain the ensuing depression.  But Jack is not only damning about mainstream economics.  He maintains that heterodox theories of crises in the post-1970s world economy have also been found wanting.  The followers of Keynes and Marx come in for criticism.  The Keynesians are at fault because they have lost the essence of Keynes’ insight into the instability and uncertainty found in a monetary and financially-dominated economy.  His book is certainly a thought-provoking contribution to an understanding of the fragility of modern capitalism.

The various theories or explanations of the cause of crises under capitalism from a Marxist or radical perspective were brought together in a collection of papers entitled The Great Financial Meltdown cleverly edited by Turan Subusat.

Turan provides an excellent introduction and summary of the views of top Marxist scholars.  It includes a debate between David Harvey and myself on the relevance of Marx’s law of profitability to crises.  Turan argues that the causes of crises under capitalism and, in particular, the recent global financial crash and subsequent Great Recession, can be considered from three angles: is there a systemic underlying cause of crises (the falling rate of profit or underconsumption); or is it conjunctural (each crisis has a different cause); or is it the result of policy decisions (eg the neoliberal agenda, financial deregulation etc)?

The failure of mainstream economics to have any useful part to play in such discussion was exposed Ben Fine in two volumes, called Microeconomics and Macroeconomics: a Critical Companion, Fine (along with co-author Ourania Dimakou) delivers a comprehensive critique of all mainstream economic theories and models.  This makes it an invaluable antidote to the conventional poison of marginalism and general equilibrium theory in microeconomics; and Say’s law and the denial of crises or slumps in macroeconomics.

Fine makes the point that macroeconomics has shifted from theory to models.  Mathematical models replaced theory, with models to be tested ex-post.  What is wrong with mainstream modelling is the lack of realism in the starting assumptions.  Fine goes through the famous accelerator-multiplier Keynesian model that shows the instability of capitalism but does not show why.  Fine goes onto analyse the counter-revolution against Keynes’ more radical model of instability and how the mainstream has castrated that into a model that moves to equilibrium given the assumptions of falling prices and wages – indeed, a synthesis with neoclassical theory.  Growth models are divorced from short-run fluctuation models.

It is interesting to compare Fine’s critique with that of Paul Romer, a mainstream economist, also lays into the state of macroeconomics in his paper The trouble with macroeconomics, Romer says that the explanation of crises under capitalism as just being the result of ‘exogenous shocks’ to an inherently harmonious process of economic growth is useless. If you just keep adding possible ‘imaginary shocks’ to explain sharp changes in an economy, “more variables makes the identification problem worse.”  As Romer points out, “solving the identification problem means feeding facts with truth values that can be assessed, yet math cannot establish the truth value of a fact. Never has. Never will.

Two great books on the big issues of modern capitalism: rising inequality and falling productivity and growth, were produced by non-Marxists.  In his book, Global Inequality, former World Bank chief economist Branco Milanovic shows that global inequality has increased since the early 1980s, when ‘globalisation’ got moving.   Rising inequality is the result the drive of capital to reduce labour’s share and raise profits and to the recurrent and periodic failures of capitalist production.  Growth of incomes has been concentrated in China, and to a lesser extent and more recently, India.

The most controversial economics book among the mainstream in 2016 was Robert J Gordon’s The rise and fall of American growth.  In his book, the accumulation of research over the last decade, Gordon concludes that the great new productivity-enhancing paradigm that is supposedly coming from the digital revolution is actually over already and the future robot/AI explosion will not change that.  On the contrary, far from faster economic growth and productivity, the world capitalist economy is slowing down as a product of slower population growth and productivity.

Balanced against Gordon are a myriad of techno-optimists and economists who reckon that the world is on the brink of a productivity explosion driven by robots, artificial intelligence, genetics, and a range of new ‘disruptive technologies’ – disruptive in the sense that traditional jobs and functions are going to disappear and be replaced by robots and algorithms.  The optimists argue that, since the time of Thomas Malthus, eras of depressed expectations like our own have inspired predictions of doom and gloom that were proved wrong when economies turned up a few years down the road.

Providing a balanced view of the impact of technology under capitalism is a short but great book, The Bleeding Edge, by Bob Hughes.  Hughes graphically outlines in a series of chapters that, if technology was controlled by public organisation and in common (or as he prefers, following Kropotkin, the thoughtful anarchist, in ‘mutual association’), then huge strides in innovation could be made.  He provides a host of examples for solving global warming, reversing environmental destruction, reducing wasteful production and protecting natural resources, including flora and fauna.

Finally, but by no means least, I come to the two great books of Marxist economic theory released this year.  Anwar Shaikh says he is not a Marxist but a ‘classical economist’.  In his magisterial 1000-page Capitalism: Competition, Conflict, Crises, Shaikh explains that his “approach is very different from both orthodox economics and the dominant heterodox tradition.”  He rejects the neoclassical approach that starts from “Perfect firms, perfect individuals, perfect knowledge, perfectly selfish behavior, rational expectations, etc.” and then “various imperfections are introduced into the story to justify individual observed patterns” although there “cannot be a general theory of imperfections.

Shaikh emphasises that it is profit under capitalism that drives growth and there are cyclical fluctuations in profitability.  These are expressed in business and fixed capital cycles inherent in capitalist production.  Crises are normal in capitalism.  The history of market systems reveals recurrent patterns of booms and busts over centuries, emanating precisely from the developed world.  The key crises under capitalism are ‘depressions’, such as that of the 1840s, the “Long Depression” 1873-1893, the “Great Depression” of the 1930s, the “Stagflation Crises” of the 1970s and the Great Global Crisis now.

Shaikh reckons that on the surface, the last crisis, the Great Recession, looks like a crisis of excessive financialization. But this fails to identify the real cause of the crisis.  Keynesians and Post Keynesians argue that the cause of the current crisis is inequality and unemployment, so there is a need to maintain a stable wage share and to use fiscal and monetary policy to maintain full employment. But Shaikh argues that such policies would not work because, at least in the US, the post-Keynesians have got the causes of the crisis wrong, the cause of which is the movement in profitability – the dominant factor under capitalism.

Fred Moseley’s book Money and Totality is a profound defence of Marx’s value theory and its relevance to the laws of motion in modern capitalism.  Moseley takes the reader carefully and thoroughly through all the competing interpretations of Marx’s value and price theory and shows that a Marxist analysis delivers a single realistic system of capitalism.  If we interpret Marx’s as a single system, an actual capitalist monetary macro-economy, then it is perfectly possible (with all the caveats of measurement problems and data) to carry out empirical analysis to verify or not Marx’s laws of motion of capitalism. Testing theory and laws with evidence is now the name of the game.  Fred Moseley allows us to do that with confidence that we are testing a logical and consistent theory that is verifiable empirically.

Oh, I forgot.  There is also my book, The Long Depression.

The elephant in the room

A review of The Bleeding Edge by Bob Hughes, New Internationalist, £10.99.

This is a very good book, which stands above many others in the ever-growing genre that looks at the role and impact of the new technologies of robots and artificial intelligence on the future of human social organisation. As Betsy Harmann, Professor of Development Studies at Hampshire College US, says in the book’s blurb: “Rejecting both apocalyptic pessimism and techno-optimism, Hughes provides a compelling map to the future in which information technologies are harnessed for the common good.”

Bob Hughes taught digital media at Oxford Brookes University, but he is also an activist, particularly for the rights of migrants, co-founding a campaigning organisation, No One is Illegal UK in 2003.  Danny Dorling, Professor of Geography at Oxford University, writes a foreword in which he argues that “technology is neutral.. how we use technology is up to us.  The machine is not in control, corporations and politicians are… it has not been artificial intelligence that has made our world more unequal.  It has been us.” This is Hughes’ message.

Hughes starts by arguing that technological progress has gone hand in hand with the development of capital.  As a result, computers, electronics, intellectual ideas have been converted into private property for profit, leading to “entrenched inequality”.  Yes, capitalism has been the social system under which massive technological progress has been made, reducing the material inputs and time it takes to deliver goods and services people need.  But this has been at the expense of growing inequality and the rapacious destruction and wasteful use of natural and human resources.

As Dorling says in his foreword, “profit maximisation is the anathema for true innovation.” Echoing Mariana Mazzucato in her book, The Entrepreneurial State, which shows how many key technological developments were not the results of capitalist innovation or ‘animal spirits’ but the product of state funding and public scientific research that were then ‘commodified’ by capitalist corporations like Apple, Microsoft or Google.

But Hughes also gives us excellent examples of the way that capitalism and the drive for profits distorts (and delays) innovation from meeting the needs of people.  Kodachrome, the first mass market film launched in 1935 (p32) did not come from research by capitalist corporations but from two musicians working in their spare time at the kitchen sink.  No corporation spent time and money trying to see if manned flight could be achieved; it was done by two Wright brothers on their own.  It is the same story with xerography (later privatised into Xerox), or disk memory (later IBM).  These advances were achieved by individuals in their own time and often in face of opposition from their employers who preferred research for a quick buck than for innovation.

One of the most famous was Colossus, the world’s first true programmable digital computer, which was developed by engineers in the state-owned British Post Office during WW2.  These pioneers were then consigned back to mundane jobs after the war and computer development was stunted for decades by corporate neglect.  A Brookings Institute study found that 75% of computer development funding had come from the state in 1950 – after which corporations did little to develop this exciting innovation, delaying its impact until well into the 1980s.

Hughes then gives us a chapter on the development of technology in class societies going back to the feudal period, arguing that it was the “takeover of egalitarian societies by unequal ones” that held back technological development.  It is here and really throughout the book, that I have my biggest disagreement.  Inequality or an “unequal world” is the bugbear for Hughes.  But this is an imprecise concept.

Inequality has existed for most of human civilisation, but it is driven by the control and distribution of surplus labour and output by a tiny elite.  The history of human social organisation after the primitive communism of hunter-gatherer societies has been the history of classes, to paraphrase Marx.  Inequality is a thus a product of class society; it is not the cause of it.  Thus it is the capitalist mode of production that has incentive to turn technology toxic, not ‘inequality’ as such.  If you were go through Hughes’ text and replace the words “inequality” or “unequal society” with the word “capitalism”, the picture of causality would be clear.

Making ‘inequality’ the enemy of technical progress smacks of the same ambiguity as found in such books as The Spirit Level, a book that has had wide success. That book argues that there are “pernicious effects that inequality has on societies: eroding trust, increasing anxiety and illness, (and) encouraging excessive consumption”.  But the real contradiction is not between an unequal society and technical progress, but between technical advances to boost the productivity of labour and the profitability of capital.

Hughes covers excellently the damage that capitalism (sorry, unequal societies) do to life expectancy, height, violence, the environment etc, just as the Spirit Level did.  These are chapters not be missed.  Hughes concludes that “inequality is the elephant in the room” that nobody likes to mention (p111).  Actually many refer to rising inequality now (as Thomas Piketty, the modern economist of inequality, put it in the interview: “I believe in capitalism, private property, the market” — but “how can we tackle inequality?” ).  But few (including Piketty) attach its cause to the capitalist mode of production. That is the real elephant in the room.  By delineating inequality, there is a danger that the elephant will be mistaken for a mouse.

Hughes graphically outlines in a series of chapters that, if technology was controlled by public organisation and in common (or as he prefers, following Kropotkin, the thoughtful anarchist, in ‘mutual association’), then huge strides in innovation could be made.  He provides a host of examples for solving global warming, reversing environmental destruction, reducing wasteful production and protecting natural resources, including flora and fauna.

Planning for need is not only necessary; Hughes shows that it now clearly viable with modern computer techniques like big data, artificial intelligence and quantum computers (see chapter 12 for an excellent account of the so-called ‘calculation debate’ of the 1980s that was supposed to show that planning was impossible because of the millions of decisions involved and therefore socialism was infeasible).  Indeed, Hughes reveals that during its brief rule, the socialist government of Salvador Allende in Chile, actually developed Cybersyn, a project that showed the possibility for harnessing digital computing to plan for social need.

In his final chapter, Utopia or Bust, Hughes discusses the key contradiction for the technology of the future. “Automation under capitalism (here the true elephant is mentioned) is less to relieve drudgery than to relieve manufacturers of some of their wage bills and reduce their reliance on skilled workers” (p310).  Automation under capitalism stunts individual ideas and innovation.  And it is also wasteful e.g. building roads rather than public transport and communications (“when you look at the hours a car can save you and the hours spent paying for it.. a worker has to dedicate each year about two months of work”) (p320).  Airplanes can be more ecologically friendly and more comfortable and useful if they just went slower (p322).  Labour saving devices to reduce toil in the home (washing machines) actually have increased the time spent on child care (nearly 30 hours a week for a woman, the same as in 1900! – p324).  Communal developments would save time and toil for housework – and so mainly for women.  Yet, as Hughes says, the “capitalist world seems specifically designed to eliminate communal activity” (p326).

At the end of the book, Hughes asks “dare we demand equality?” and he calls for the ‘banning of inequality’.  But is this the way to pose the issue?  Technology is indeed the handmaiden of the social order controlling it.  Inequality is the result of that social order.  What is needed is the removal of that social order and its replacement by what used to be called socialism (not ‘post-capitalism’ or ‘equality’).  Then technology can flourish for all and inequality itself will fade.  The demand we must dare for is the common ownership and control of technology, not ending the unequal distribution of its fruits.

The Fed takes the risk

This week, the US Federal Reserve raised its benchmark interest rate for 0.5% to 0.75% for just the second time since the financial crisis of 2008, arguing that the American economy was expanding “at a healthy pace”.  The Fed’s monetary committee also indicated that it planned to hike its policy rate at least three times in 2017 on the grounds that economic growth, employment and inflation were picking up and President-elect Trump’s proposed policies of cutting corporate taxes and boosting infrastructure spending could accelerate US economic recovery.  “My colleagues and I are recognizing the considerable progress the economy has made,” said Janet Yellen, the Fed’s chairwoman, “We expect the economy will continue to perform well.”

There is a certain irony in Yellen’s statement given that this time last year, in hiking the policy rate for the first time in nine years, she made a similar declaration of confidence in the economy and then economic growth slowed to a trickle and the Fed postponed any further hikes.

The US economy has expanded on average by only 2% a year since the end of the Great Recession in 2009.  The unemployment rate has dropped to more or less the same level as before global financial crash, but investment and productivity growth has been very weak.

Back last December, I raised the question that, given weak business investment hiking interest rates might push a layer of US companies into difficulty and trigger a new recession or slump.  Indeed, that was why the Fed held off further hikes during this year.

So are things that much better that this risk of rising interest rates triggering a recession is now over? Well, Yellen described the rate increase as “a vote of confidence in the economy.”  And the justification for this comes from somewhat improved figures of real GDP growth in the third quarter of this year, at a 3.2% annual rate. However, the pick-up was all in housing and inventories (building up stocks not sold), while business investment stayed flat.  And on a year-on-year basis, US real GDP was higher by only 1.6%, while business investment contracted by 1.4%.

However, after falling in Q2, corporate profits rose in Q3, up 6.6% compared to Q2 and higher by 2.8% from Q3 2015.  So it could be argued that the US economy is doing better in the second half of 2016 than in the first half, which was dire. House prices have surpassed their pre-recession peak and consumer confidence is at a new high.

US corporate profits August

Globally, corporate profits also picked up in the third quarter of 2016.  A weighted average of five key economies, US, China, Japan, Germany and the UK) saw profits rise by over 5% yoy.  Along with rising business activity indicators in the US and Europe, it seems that the major economies have staged a bit of a recovery in third quarter. But global business investment growth remains weak.

There are two risks that could undermine Yellen’s confident forecast (for the second time.  The first is that rising interest rates will lead to increased costs of servicing corporate and household debt that cannot be funded through extra profits or real incomes in households.  So default rates on debt obligations will rise.

There has been no real reduction in the build-up of private-sector debt in the major economies that took place in the early 2000s and culminated in the global credit crunch of 2007. That accumulated debt took place against a backdrop of favourable borrowing conditions—low interest rates and easy credit. Between 2000 and 2007, the ratio of global private-sector debt to GDP surged from about 140% to 163%, according to the IMF.

global-debt-record-highs

Public sector debt mushroomed after the global financial crash to bail out the banks and fund spending on unemployment and other benefits. The average level of public debt to GDP rose from 34% pts to roughly 90% – a post-1945 record.  Combined with private-sector debt, the level of total nonfinancial borrowing to GDP in the advanced capitalist economies is actually higher today than it was in 2007.

In the emerging economies, after the Great Recession the increase in private sector debt has been massive. China is in a league of its own, with a 96%-pt increase in its ratio to 205% of GDP.  Even excluding China, the figures are still big, up 25% pts and at 92% of GDP for emerging economies.  Indeed, the increase in the private debt to GDP ratio in the emerging economies outside China now exceeds what took place in the DM in the 2000s expansion.

Most of this extra debt is the result of corporations in these countries borrowing more to increase investment, but often in unproductive areas like property and finance.  And much of this extra borrowing was done in dollars.  So the Fed’s move to raise the cost of borrowing dollars will feed through these corporate debts.

Moody’s, the US credit monitoring agency, reckons that there is now $7trn of global government debt that will face downgrades for risk of default because of rising costs of financing if the US dollar stays strong and global interest rates start rising during 2017.  That’s 16% of total global public debt.  In 2016 anyway, there were 35 credit downgrades for country debt.

Nevertheless, stock markets in the major economies head towards new highs on the expectation that the major economies are on the road to sustained recovery and that Trump’s policies will stimulate spending and boost corporate profits next year.

I have already put huge question marks against the likelihood that Trump can achieve fast and sustained economic growth in the US with his policies.  And I am not the only doubter.  I have already referred to the views of Deutsche Bank and JP Morgan on likely economic recovery in the US in 2017.

Now huge private equity fund, Bridgwater Associates, is also doubtful about the expected economic recovery.  Its founder, Ray Dalio, reckons that “This is not a normal business cycle; monetary policy will be a lot less effective in the future; investment returns will be very low.”  Echoing the view presented, ad nauseam, on this blog, Dalio identifies a “short-term debt cycle, or business cycle, running every five to ten years but also a “long-term debt cycle, over 50 to 75 years.”  He comments “Most people don’t adequately understand the long-term debt cycle because it comes along so infrequently. But this is the most important force behind what is happening now.”  Dalio reckons that debt growth has outstripped the income growth in the form of profits and interest necessary to service the current levels of debt.  Easy money and low central bank rates cannot counteract the rising costs of debt servicing for long.

Now in 2017, it seems that the floor of interest rates globally, set by the Fed’s policy rate, is set to rise, if the Fed sticks to its plan to hike three more times and again in 2018.  At the same time, oil prices are set to rise, assuming the OPEC oil producers stick to their plan to cut production.  That will increase fuel prices and cut into corporate profits.  And if the dollar stays strong against other major currencies, the servicing of dollar debt globally will jump, putting many corporations into difficulty.

dollar

So the relative recovery in global corporate profits and economic activity in the last part of 2016 may not last in 2017.

Trump, trade and technology

US President-elect Donald Trump reckons that the cause of the losses in manufacturing jobs over the last 30 years has been the rigging of trade terms by low labour-cost manufacturing in China and Mexico.  So it is trade and the shifting of production locations by US multi-nationals overseas – in other words, globalisation.

This claim has upset mainstream economists who see ‘free trade’ as a totem of economic theory.  From Ricardo onwards, mainstream economic theory reckons that free trade is beneficial to all by applying the ‘comparative advantages’ that each trading nation has to make in exchanges of commodities.  Such trade is then mutually beneficial.

Actually, this theory is fraught with flaws, as Anwar Shaikh has only recently spelt out in his book, Capitalism: Competition, Conflict, Crises, while mainstream economist Dani Rodrik has pointed out that the so-called ‘Pareto optimum’ of equality of gains and losses cannot be achieved.  Rodrik argues in his book, The Globalization Paradox that democracy, national sovereignty and global economic integration are mutually incompatible.

Keynesian guru Paul Krugman has always been a proponent of ‘free trade’.  Indeed, he got his Nobel prize in economics for a ‘new’ theory of international trade that reckoned, even with tariffs and market imperfections, international trade would be beneficial to all participants.

From this position, Krugman has recently been at pains to argue against the Trump thesis that the loss of American manufacturing jobs is down to ‘nasty foreigners’ with their trading trickery and to American companies taking their factories overseas and selling their goods back into the US.

In a recent short paper and on his blog, Krugman shows that very few US manufacturing jobs would have been saved with different trade policies or by not agreeing to NAFTA, for example.  Manufacturing employment in the US fell from around a quarter of the work force in 1970 to 9% in 2015.  Krugman finds that “trade is less than half the story”.  Absent the US trade deficit, manufacturing may be a fifth bigger than it is. “That wouldn’t make much difference to the long-run downward trend, but looms larger relative to the absolute decline since 2000.”

Another study by Autor et al reckons competition from China led to the loss of 985,000 manufacturing jobs between 1999 and 2011. That’s less than a fifth of the absolute loss of manufacturing jobs over that period and a quite small share of the long-term manufacturing decline.  “So America’s shift away from manufacturing doesn’t have much to do with trade and even less to do with trade policy.”

The biggest reason Trump — or anyone else — can’t bring back home these manufacturing jobs is because they have been lost in large part to the success of efficiency. Manufacturing output in the US was at an all-time high in 2015. Over the past three-and-a-half decades, manufacturers have shed more than seven million jobs while producing more stuff than ever. The Economic Policy Institute (EPI) reported in The Manufacturing Footprint and the Importance of U.S. Manufacturing Jobs that “If you try to understand how so many jobs have disappeared, the answer that you come up with over and over again in the data is that it’s not trade that caused that — it’s primarily technology,”…Eighty percent of lost jobs were not replaced by workers in China, but by machines and automation. That is the first problem if you slap on tariffs. What you discover is that American companies are likely to replace the more expensive workers with machines.”

What these studies reveal is what Marxist economics could have told them many times before.  Under capitalism, increased productivity of labour comes through mechanisation and labour shedding i.e. reducing labour costs.  Marx explained in Capital that this is one of the key features in capitalist accumulation – the capital-bias of technology – something continually ignored by mainstream economics, until now it seems.

Marx put it differently to the mainstream.  Investment under capitalism takes place for profit only, not to raise output or productivity as such.  If profit cannot be sufficiently raised through more labour hours ( more workers and longer hours) or by intensifying efforts (speed and efficiency – time and motion), then the productivity of labour can only be increased by better technology.  So, in Marxist terms, the organic composition of capital (the amount of machinery and plant relative to the number of workers) will rise secularly.

Marxist economists have already provided empirical evidence for this tendency.  G Carchedi in a recent paper shows that the ‘technical composition’ of capital (the value of machinery and plant relative to the number of workers) in productive sectors has risen in the last 60 years in the US (while profitability has fallen secularly (ARP)) – see ‘OCC’ in the graph below.  My own estimates show that the US organic composition of capital (the value of technology and plant to the value of labour power in wages etc) rose 46% in the last 70 years.

occ

This ‘capital bias’ in technology could also explain the falling labour share and growing inequalities.  Workers can fight to keep as much of the new value that they have created as part of their ‘compensation’ but capitalism will only invest for growth if that share does not rise too much that it causes profitability to decline.  So capitalist accumulation implies a falling share of value to labour over time or what Marx would call a rising rate of exploitation (or surplus value).

It used to be argued in mainstream economics that inequalities were the result of different skills in the workforce and the share going to labour was dependent on the race between workers improving their skills and education and introduction of machines to replace past skills.  But even Krugman now recognises that inequalities of income and wealth across US society and the declining share of income going to labour in the capitalist sector are not due to the level of education and skill in the US workforce, but to deeper factors.

As he put it a few years ago: “The effect of technological progress on wages depends on the bias of the progress; if it’s capital-biased, workers won’t share fully in productivity gains, and if it’s strongly enough capital-biased, they can actually be made worse off.  So it’s wrong to assume, as many people on the right seem to, that gains from technology always trickle down to workers; not necessarily.”

So it depends on the class struggle between labour and capital over the appropriation of the value created by the productivity of labour.  And clearly labour has been losing that battle, particularly in recent decades, under the pressure of anti-trade union laws, ending of employment protection and tenure, the reduction of benefits, a growing reserve army of underemployed and through the globalisation of manufacturing.

This is the real reason for American workers falling behind in wages relative to increased productivity and investment in new technology that sheds jobs.  The falling share going to labour in national income began at just the point when US corporate profitability was at an all-time low in the deep recession of the early 1980s.  Capitalism had to restore profitability.  It did so partly by raising the rate of surplus value through sacking workers, stopping wage increases and phasing out benefits and pensions – and by the introduction of new technology to replace labour after a major slump in production.

Another study found that the “negative correlation between the (weaker) penetration of collective bargaining agreements and increased wage inequality is strong. This result applies to the relationship between the lowest and highest wages, but also between the median wage and the hi ghest wage. Lower trade union density and lower unemployment also increase wage inequality.” So it was the weakened bargaining power of unions and higher unemployment combined with a marked decrease in redistribution through taxes and transfers that was the main explanation why Americans have fallen behind in income since the 1980s.

In this context, the latest report by the world’s top experts in the field, Thomas Piketty, Emmanuel Saez and Gabriel Zucman on the extreme inequality of incomes in the US, is perfectly explicable.  The trio find that the bottom half of the income distribution in the US has been completely shut off from economic growth since the 1970s. From 1980 to 2014, average national income per adult grew by 61% in the US, yet the average pre-tax income of the bottom 50% of individual income earners stagnated at about $16,000 per adult after adjusting for inflation. In contrast, income skyrocketed at the top of the income distribution, rising 121% for the top 10%, 205% for the top 1% and 636% for the top 0.001%!

In 1980, adults in the top 1% earned on average 27 times more than bottom 50% of adults. Today they earn 81 times more. This ratio of 1 to 81 is similar to the gap between the average income in the United States and the average income in the world’s poorest countries, among them the war-torn Democratic Republic of Congo, Central African Republic, and Burundi. And the increase in income concentration at the top in the US over the past 15 years is due to a boom in capital income i.e. income from dividends, interest and rents, not higher wages.

income-growth

It’s a tale of two countries. For the 117 million Americans in the bottom half of the income distribution, growth has been non-existent for a generation while at the top of the ladder it has been extraordinarily strong. And this stagnation of national income accruing at the bottom is not due to population aging. Quite the contrary: for the bottom half of the working-age population (adults below 65), income has actually fallen. From 1980 to 2014, for example, none of the growth in per-adult national income went to the bottom 50%, while 32% went to the middle class (defined as adults between the median and the 90th percentile), 68% to the top 10% and 36% to the top 1%. The trio comment: “An economy that fails to deliver growth for half of its people for an entire generation is bound to generate discontent with the status quo and a rejection of establishment politics.”  Indeed.

And because progressive income taxation has been eroded and social benefits cut back, government taxation and transfers have had little redistributive effect on the inequality caused by the market. “There was almost no growth in real (inflation-adjusted) incomes after taxes and transfers for the bottom 50 percent of working-age adults over this period”. As the trio say: “The diverging trends in the distribution of pre-tax income across France and the United States—two advanced economies subject to the same forces of technological progress and globalization—show that working-class incomes are not bound to stagnate in Western countries. In the United States, the stagnation of bottom 50 percent of incomes and the upsurge in the top 1 percent coincided with drastically reduced progressive taxation, widespread deregulation of industries and services, particularly the financial services industry, weakened unions, and an eroding minimum wage.” 

So the loss of US manufacturing jobs, as it has been in other advanced capitalist economies, is not due to nasty foreigners fixing trade deals.  It is due to the inexorable attempt of American capital to reduce its labour costs through mechanisation or through finding new cheap labour areas overseas to produce.  The rising inequality in incomes is a product of ‘capital-bias’ in capitalist accumulation and ‘globalisation’ aimed at counteracting falling profitability in the advanced capitalist economies. But it is also the result of ”neo-liberal’policies designed to hold down wages and boost profit share.  Trump cannot and won’t reverse that with all his bluster because to do so would threaten the profitability of America capital.

 

Mark Carney, Marx’s scribbles and the lost decade

Mark Carney is the governor of the Bank of England.  Formerly the head of the central Bank of Canada, some years ago he was headhunted to take over at the BoE on a huge salary and expenses.

This week he gave the Roscoe Lecture at Liverpool’s John Moores University, his first speech since the decision of the Brits to vote (narrowly) to leave the European Union.  Carney took the opportunity to offer what his view of the state of global capitalism.  And he does not make it sound good.  speech946

Carney pointed out that since the global financial crash of 2008, average real incomes in Britain have taken the biggest plunge since the 1860s, when “Karl Marx was scribbling in the British Library.”  And “it was the poorest (who) are hit the hardest. During recessions the lower-skilled, lower paid people tend to lose their jobs first.”

real-wages

However, Carney was at pains to claim that capitalism has worked for people: “global markets and technological progress has lifted more than a billion people out of poverty, while a series of technological advances have fundamentally enriched our lives….. global markets and technological progress has lifted more than a billion people out of poverty, while a series of technological advances have fundamentally enriched our lives  He added “Globally, since 1960, real per capita GDP has risen more than two-and-a-half times, average incomes have begun to converge and life expectancy has increased by nearly two decades.”

poverty

What he did not say in this praise of this record of capitalism is that the majority of that one billion lifted out of deep poverty were in China, an economy that eschews ‘free markets’ and ‘globalisation’; and goes for state investment, capital controls and the direct submission of the private sector to the regime.  Life expectancy may have risen due to investment in public services and healthcare.  Capitalism and free markets have played no role in that.  In the ‘free markets’, most of the very poor in other countries remain poor.  Indeed, the policies of the central bankers, the IMF and the World Bank in driving for ‘globalisation’ and ‘free trade’ have made the lot of these poor even worse, not better.

Per capita incomes may have risen (again mainly due to China and to a lesser extent, India, in the equation), but those incomes have not been equally increased.  As Carney admitted in his speech “globalisation is associated with low wages, insecure employment, stateless corporations and striking inequalities.”  In Anglo-Saxon countries, the income share of the top 1% has risen notably since 1980. Today, in the US, the richest 1% of households receive 20% of all income.  Such high income inequalities are dwarfed by staggering wealth inequalities. The proportion of the wealth held by the richest 1% of Americans increased from 25% in 1990 to 40% in 2012. Globally, the share of wealth held by the richest 1% in the world rose from one-third in 2000 to one-half in 2010.  And now “a typical millennial earned £8,000 less during their twenties than their predecessors.”

Carney criticised mainstream economics: “Amongst economists, a belief in free trade is totemic. But, while trade makes countries better off, it does not raise all boats; in the clinical words of the economist, trade is not Pareto optimal. Rather the benefits from trade are unequally spread across individuals and time….. Some workers, however, lose their jobs and the dignity of work, or see their “factor prices” – in plain English, wages – equalised downwards.”  Perhaps Carney had been reading Marx’s scribbles after all – as this was close to scribbler’s view of free trade under capitalism – uneven and combined development.

But if capitalism has been successful over the last 50 years, according to Carney, what about the last ten? To put it mildly, the performance of the advanced economies over the past ten years has consistently disappointed.  …It doesn’t it feel like the good old days, because anxiety about the future has increased, productivity hasn’t recovered and real wages are below where they were a decade ago, something that no-one alive today has experienced before

No wonder, Carney concluded thatthe public is complaining about low wages, insecure employment, stateless corporations and striking inequalities.” He admitted that mainstream economics and policies had failed the majority. “Economists must clearly acknowledge the challenges we face, including the realities of uneven gains from trade and technology”, he said.

Why have things gone so wrong?  Don’t we need to know?  We do, said Carney,  because any doctor knows that the importance of diagnosing the underlying causes of the patient’s symptoms before administering the cure.”  Unfortunately, Carney does not know the cause:  “The underlying reasons for the 16% shortfall of the UK’s productive capacity, relative to trend, are poorly understood.”

But we must try.  Carney listed three priorities: “Economists must clearly acknowledge the challenges we face, including the realities of uneven gains from trade and technology”  “We must grow our economy by rebalancing the mix of monetary policy, fiscal policy and structural reforms.  We need to move towards more inclusive growth where everyone has a stake in globalisation.”  This wish list has as much chance of surviving as the proverbial snowball in the fires of hell.

But no matter, Carney was much more concerned to convince his Liverpool audience that if it had not been for the easy money policies of the Bank under his direction, things would be even worse in the UK – although given the stats he presented, that was hardly convincing.  “Monetary policy has been keeping the patient alive, creating the possibility of a lasting cure through fiscal and structural operations,” he said, adding, “monetary policy isn’t a spectre, but a friendly ghost”.  But then he delivered a health warning about easy money.  It leads to a consumer boom and that never provides sustained economic growth which depends on investment.  “The UK expansion is increasingly consumption-led. The saving rate has fallen towards historic lows and borrowing has resumed. Evidence from the past quarter century across a range of countries suggests episodes of consumption-led growth tends to be both slower and less durable.  This is because consumption growth eventually outpaces earnings growth, increasing debt and making demand more sensitive to changes in employment and income.”  The relative boom in the British economy (ie 2%-plus economic growth) won’t last.”

consumption

It was up to governments now to turn things round.  But given that Carney and his bank economists did not know why things had got so bad, he offered no real advice to governments on how to get productivity up, inequality down and real incomes restored.

Next year is the 150th anniversary of the publication of Marx’s Capital Volume One, the product of the ‘scribblings’ that Marx was making in the British Museum in the 1860s.  Perhaps Carney should have read them to see why things are so bad and what to do about it.

The long depression and Marx’s law – a reply to Pete Green

Pete Green has now taken up the cudgels in the debate that Jim Kincaid and I have begun over the causes of regular and recurrent crises in capitalist production and in particular the Great Recession.  He makes a welcome and considered critique of my views, as expressed in my book, The Long Depression and in recent discussions at the Historical Materialism conference in London earlier this month.  I think he raises some new and important points in his critique, which, as he says, will require further debate and research.

Like Pete, I cannot deal with all arguments in this short reply on my blog but I’ll do my best to take up some key ones, but it still makes this post long enough!

Pete starts by saying he is not going to dispute the data on the rate of profit that I have presented, mainly for the US, but also for other economies.  But apparently he “shares Jim Kincaid’s scepticism about reliance on US national income accounts as source for corporate profitability”.  Actually, I am not sure Jim is sceptical of the official data.  Indeed, he has said that I have used the data accurately and as Pete says, “there is no adequate alternative available for those engaged in empirical investigation”.

And that is what the bulk of my research is: engaging in empirical investigation to verify or otherwise particular theories or laws.  In my view, too many Marxist economists have ignored empirical work and concentrated on interpreting (and re-interpreting) Marx’s writings and ‘what he meant’, rather testing his laws of motion of capitalism to see if they best fit the facts.

Luckily, I am not alone in doing empirical investigations – Andrew Kliman has done prodigious analysis, Anwar Shaikh’s new book is a gold mine of empirical studies, G Carchedi has also tested Marx’s law with the evidence.  And there is a host of new young scholars internationally doing such work.  Carchedi and I will be publishing a book of these research projects next year that empirically support Marx’s law of profitability.

But Pete wants to “step back” from any debate over the stats and consider the “theoretical framework” of my book.  He does not think that Marx’s law of the tendency of the rate of profit to fall is “sufficient for an explanation of the cyclical fluctuations that have characterised capitalism”.  Why not?  Well, it seems that, while he does not deny “the logical coherence” of Marx’s law of profitability and its relevance to “whole period since the 1960s”, using the law to explain regular crises or “fluctuations” is “over-reductionist” and “two-dimensional”, especially in reference to the latest crises (ie the Great Recession?).

So Pete reckons that Marx’s law of profitability is logically coherent but irrelevant to an understanding of crises.  It’s ‘overreductionist’ (or maybe just reductionist?) to claim its relevance to crises.  There are more dimensions than two (presumably the tendency and the counter-tendency?), he says.

This does not seem the way to approach the relevance of Marx’s law to crises.  Pete says that the law is not “sufficient” to explain crises.  But does he think it “necessary”, which is not the same thing as sufficient?  If he does; how does it fit in?  You see, I think we must start with Marx’s approach, which was to abstract from reality the underlying essential (necessary) laws of capitalist motion and then add back concrete features of capitalism to reach the immediate.  In only that way can we identify the causes of crises under capitalism.  In that sense, Marx’s law can be seen as the underlying or ‘ultimate’ cause of recurrent crises, which can be triggered by ‘proximate’ events i.e. (oil price crisis, stock market bubble, real estate crash etc).  Then we have ‘sufficient’ causes.  For more on this, see my paper, Presentation to the Third seminar of the FI on the economic crisis

This approach thus makes it transparent that a financial crash or credit crisis is not the essence of crises in capitalism, but their surface manifestation.  Jim Kincaid has done a new post in which he outlines what Marx said about the 1847 crisis in Britain making the point that the falling rate of profit plays no role in Marx’s account”, considering only the financial speculation and credit crunches.  Jim claims that for Marx, “The fall in the rate of profit of these businesses is only a transmission mechanism.  What matters are the causes of bankruptcy and business collapse.

At this point, I am reminded of what Marx said a little later in 1858 during the first great international crisis of the 19th century: “What are the social circumstances reproducing, almost regularly, these seasons of general self-delusion, of over-speculation and fictitious credit?  If they were once traced out, we should arrive at a very plain alternative.  Either they may be controlled by society, or they are inherent in the present system of production.  In the first case, society may avert crises; in the second, so long as the system lasts, they must be borne with, like the natural changes of the seasons”.   Dispatches for the New York Tribune, Penguin p201.

As Marx puts it, ‘over-speculation and fictitious credit’ arise from regular crises in the capitalist system of production.  They cannot be eradicated by social action unless the mode of production is replaced.  It is not possible to separate crises in the financial sector from what is happening in the production sector.

Pete refers to the debate between Marxist economists on the cause of crises in the 1920s and 1930s, as described in Richard Day’s excellent book, The crisis and the crash.  As Pete says, the debate was between those who explained cyclical fluctuations as due to disproportionality between departments of production and those who reckoned it was due to the ‘limited consumption of the masses’, ie underconsumption.  As Pete says, “Marx’s tendency for the rate of profit to fall, as a function of a rising organic composition of capital, plays no role at all in these debates.”  But that does that mean the law is irrelevant?  It was no accident that the law was ignored.  Most leading Marxist revolutionaries had not read or seen Volume 3 of Capital where Marx’s “most important law of political economy” is expounded.  And if they had, they were guided away from Marx’s law as a cause of crises by the likes of Kautsky, Hilferding and Luxemburg.

One Marxist economist who had read and digested Volume 3 was Henryk Grossman.  As a result, he was able to present a coherent theory of capitalist crises based on the law, showing the connection between the tendency of the rate of profit to fall and the countertendencies; the relation between the rate of profit and the mass of profit; and thus the relation between profit and crises.  But his thesis, as Rick Kuhn says in his excellent biography of Grossman, was “an economic theory without a political home”.  Grossman also shows in his work, The law of accumulation being also a theory of crises, that those who followed an ‘anarchy of production’ theory of crises could not really provide a coherent argument for regular and recurring slumps or breakdowns inherent in capitalist production.  Indeed, just remove competition and allow monopoly to regulate and the anarchy can be controlled, suggested Hilferding or Kautsky.

Pete brings to our attention the work of Pavel Maksakovsky at that time.  As Pete says, he provides us with the most sophisticated version of the anarchy of production theory of crises.  As usual, Maksakovsky refers to Marx’s law of profitability, but only to dismiss it as irrelevant to the cycles of boom and slump and instead, like those in debate of the 1920s, focuses on Volume Two of Capital with its reproduction schema.  Maksakovksy outlines his theory succinctly in pp136-9 of his book.  This is a disproportion theory but with the addition of trying to show that the disproportion between the sectors of means of production gets ‘periodically detached from consumption’.  Interestingly, Maksakovsky, correctly in my view, dismisses the idea that excessive credit and financial market busts are the cause of crises (p139), just as Marx did in 1858, but now revived by Jim.  They are only at the ‘superstructural level’ of capitalist society and can never eliminate the cyclical developments caused by the ‘anarchy of production’.  This is worth remembering in the light of the arguments now being presented by many modern Marxist economists that finance is the real cause of crises now and for the Great Recession (see below).

Does the anarchy of production or disproportion of sectors of reproduction hold up to scrutiny as an alternate theory of crises?  I don’t think so.  Grossman demolishes it in his book and in a little known essay on Marx’s reproduction schema (recently edited by Rick Kuhn).  Grossman shows that Marx’s schema do not show a “widening and deepening contradiction” (Maksakovsky) between production and consumption under capitalism and so cannot be the Marxist explanation of recurrent crises.  By assuming in the reproduction schema, accumulation and exchange between the sectors take place at the level of labour values, Maksakovsky makes the same mistake as Luxemburg and others and so finds ‘disproportion’.  But Marx’s reproduction schema are at the level of prices of production after the process of competition.  Rates of profit are averaged.  At that level, there is no inherent disproportion from the reproduction schema.

To deny disproportion as the cause of capitalist crises is not to support Say’s law (or ‘fallacy’, to be more exact) that ‘supply creates its own demand’ –as Pete suggests that I do.  Marx was fierce in his dismissal of Say’s nonsense.  The very process of exchange on the market creates the ‘possibility of crisis’.  But that does not explain the periodic and recurrent crises in capitalist production and investment.

Pete does not like the “clever” flow chart in my book that shows the different possible theories of crisis.  He says I want the readers to follow me down to Marx’s law of profitability, but he has three objections to that path.  Pete admits that in the circuit of capital “production is primary” but then goes onto say that production and circulation are in a “contradictory unity” in capitalism.  So is production not ‘primary’ after all?  Indeed, he refers us to the thesis of David Harvey who argues that capitalism has various ‘bottleneck points’ in the circuit of capital and crises can come from any one of them, not just or even mainly in the ‘primary’ production of surplus value and the accumulation of capital, but also in the ‘secondary’ circulation of capital through credit finance, households and the role of government.  So Pete says we need to have a theory of crisis that “embraces the whole circuit of capital” not just in production.

That’s fine but does this mean that the ‘bottlenecks’ in the circulation and distribution of capital are on the same level of causality as breakdowns in the ‘primary’ production process?  The Marxist answer, in my opinion, is no.  As I said before, in my view, and I think in Marx’s, circulation and distribution are at a lower plane of causal abstraction, or if you like closer to the proximate than the ultimate or underlying causes.  A collapse in the stock market or in real estate prices will not lead to a collapse in production unless there are already serious difficulties in the latter.  There have been many stock market collapses without a slump in production and employment (1987), but not vice versa.

Indeed, I agree with what Jim says summing up his post on the 1847 crisis mentioned above that The rate of profit and the forces which determine it should remain central in our analysis.  Marx’s own account of the 1847 crisis would surely have been strengthened by attention to profitability and its conflicting trends. We need to trace the many ways in which the law of value asserts itself – often in displaced and distorted forms.  But also recognise, and give due weight to, the role of contingent factors in any crisis we examine.”

Pete also wants to drag in the Keynesian “lack of effective demand” as one of the multi-dimensional causes of crises.  I have argued in many places that this ‘cause’ is no such thing.  Pete agrees that aggregate demand is endogenous to investment and profit; “Keynes himself would have agreed”.  Yes, but for the wrong reasons.  The Keynesian-Kalecki thesis puts ‘effective demand’ i.e. investment demand, as the causal factor in the movement of profits.  But Marxist economics says profits call the tune, not investment.  I and other Marxist scholars have shown that the empirical evidence for the Keynesian ‘multiplier’ (a fall in spending leads to a slump) is very weak compared to the Marxist multiplier (a fall in profits leads to a slump).

Pete says I should not ‘conflate’ the underconsumption thesis with the overproduction thesis as the cause of crises.  But then says that the “problem is a relative lack of productive consumption”.  We may be bandying with words here, but that sounds like an underconsumption thesis to me.  I presume this to refer to an excess of investment goods produced over the capitalists’ demand for them.  But crises do not happen because of a lack of “productive consumption”, but because of insufficient profits brought on by falling profitability over time.  And this can be proved empirically.

Andrew Kliman shows in his book, The failure of capitalist production (Chapter 8) that investment growth is always outstripping consumption but it does not lead to recurrent crises, as Maksakovsky ansd Sweezy argued.  The cyclical crisis of boom and slump does not flow from excessive investment over consumption but from insufficient profit from investment.  I await an empirical justification of the Maksakovksy thesis.

Pete says the proponents of Marx’s law of profitability as the underlying and ultimate causes of recurrent and regular crises are neglecting the ‘multi-dimensional’ and ‘complex’ nature of capitalism.  I ignore the uneven and combined development of the world economy as expressed in the global imbalances so “astutely” identified by Keynesian economic commentator, Martin Wolf (or for that matter, I could add Yanis Varoufakis in his book, The Global Minatour).  I also ignore the counteracting factors of globalisation in driving up the rate of profit.  I also ignore the role of finance and growth of financial profits in total corporate profits.

The more I go down these points by Pete, the more I feel that a series of straw men have been erected for my views to be knocked down by him.  These layers of ‘multi-dimension’ have not been ignored by me.  The counteracting factors explain the up and down waves of the profitability cycle in capitalism.  In both my books, I have spent some time looking at these long waves of profitability.  And I discuss the impact of uneven and combine development of capital in the context of the euro crisis in my book.

Pete says that “Unlike some critics,  I am not rejecting the relevance of this or the equally significant role of counter-tendencies raising profitability over the long-term. Indeed I would endorse to a degree Michael’s emphasis on longer waves in profitability but link them more closely to Kondratiev waves”.  But I have done just that in both books – trying to relate these waves to Kondratiev’s!

Pete is right to say that Marx’s law of profitability appears to have different cycles than the so-called ‘business’ or Juglar cycles of boom and slump.  I could not agree more.  In my first book, The Great Recession, I spent much time trying to analyse the connections between the various cycles in ‘capital in motion’ and try to link them together.  I did the same in The Long Depression in a whole chapter.

Pete says that “What can be shown in my view is that when the underlying rate of profit is falling, the business cycle fluctuations are more severe as is evident from the late 1960s to the early 1980s, and when the underlying rate is rising, the amplitude or the severity of recessions is reduced as in the 1990s and early 2000s.”  That almost word for word what I have said in the past.

Pete is keen to tell us that what is new is the “unprecedented rise in the share of financial profits in total corporate profits”. Again this is dealt with in both my books.  Indeed, I try to integrate this new development into an analysis of unproductive investment and fictitious capital as one of the new ‘counteracting factors’ to the law as such.  I even try to measure its impact (see my paper, Debt matters).

Pete finishes by wanting to defend or promote again the Keynesian idea of “a lack of effective demand” as the cause of crises.  He rejects my claim that the Keynesian position is a tautology (‘it rains because it rains’) of a slump not a cause. In retort, he suggests that Marx’s law of profitability is as remote a cause of crises as saying storms and hurricanes are caused by global warming; only worse, the law of profitability as a proven cause is more questionable than man-made global warming.  Pete is not a global warming sceptic but he is falling profitability one.

Actually, his analogy has some merit.  Global warming is an underlying cause of increased storms, floods and extreme weather.  The science of correlations, causation and forecasts strongly supports this.  Similarly, I and others argue that capitalist crises have an underlying cause in the inability of capitalists to stop the overall rate of profit on capital falling as they accumulate and try to increase profits.  This dialectical contradiction also has increasing empirical backing with correlations, causations and forecasts.  By the way, Marx used the analogy of the law of gravity and the movement of objects to place his law of profitability in crises.

I’m afraid the thesis of Maksakovsky has not changed my view that all other theories of crises in capitalism: underconsumption, overproduction, disproportion, bottlenecks in circulation, global imbalances, financial instability, are either wrong or at a lower plane of abstraction, so that, on their own, they do not explain crises.  As Alan Freeman says, Marx’s law remains “the only credible competitor left in the contest to explain what is going wrong with capitalism”.

The long depression in Italy

Italy has a referendum this coming weekend.  Italy’s Blairite (Clintonesque) prime minister Matteo Renzi of the ruling the centre-left Democrats called a referendum, British Cameron-style, to ‘reform’ the electoral constitution.  He wants to reduce the size of the upper house of parliament, the Senate, from over 350 senators to just 100 and also have them come from the regions and cities, namely the elected mayors etc.  Most important, he wants to end the ability of the Senate to send back policies or measures passed by the lower house assembly (elected by popular vote in proportional representation – i.e. seats according to the share of the vote).  Thus, the Senate could no longer go on with ‘ping-ponging’ tactics back and forth with the lower assembly.

Renzi has staked his political reputation and his position as PM on winning this vote, like David Cameron did in the UK over the Brexit referendum.  And, according to the opinion polls, he looks as though he is heading for the same defeat as Cameron, throwing another major capitalist state into confusion, uncertainty and paralysis.

But it is all relative – after all, Italian politics and the economy have been in a state of paralysis for decades, with the situation only worsening since the end of the Great Recession.  Italy is now in a Long Depression that it seems unable to escape from.

Italy GDP

The immediate problem is Italy’s banks.  Europe’s banks currently hold €1trn of what are called ‘non-performing loans’, loans that the borrowers are no longer paying interest on and could be about to default on.  Of that €1trn, around one-third is held by Italy’s banks.  These bad debts are like a millstone around the necks of Italy’s finance sector.  The myriad of small Italian regional and large national banks have been lending to small businesses and property companies.  But thousands of these small companies are bust and cannot pay back their debts as the economy stagnates.

As I said in my book, The Long Depression, (Chapter 9) in some ways, Italy is in the most dire position of the top seven capitalist economies.  Italian capital was in the doldrums before the Great Recession.  Profitability has been falling since 2000 and is now down 30% since 2004.  Net investment has dried up and productivity of labour is not just growing slowly, as it is in other major economies, it is contracting outright.  Italy cannot recover because the Long Depression in Europe continues.

Italy ROP

And as a result, its banks are close to bankruptcy.  Banking analysts reckon that up to eight banks, led by Italy’s third largest and oldest, the infamous Monte Pachi, risk failing if Renzi loses the referendum.  That’s because potential investors in these banks, badly needed to recapitalise them if they write off these huge bad debts, won’t cough up.

I made some simple estimates of the likely losses that the Italian banks face (based on the Bank of Italy’s recent financial review).  The banks have lent up to now €2trn to Italians businesses and households.  About €330bn of these loans are ‘bad’ (i.e. won’t be paid back).  That’s about 20% of Italy’s GDP.  The banks have built up reserves to cover these potential losses of about €150bn and they could expect to sell off some of assets of bust businesses over time.  Even so, there would still be a potential loss of about €100bn on the banks’ books if they grasped the nettle and ‘wrote off’ these bad loans.  That would completely wipe out the value of the shares of the investors in many of these banks.  For example, the hit to Monte Paschi would be nine times more than the bank is worth on the stock market right now.  And Italy’s largest, Unicredit, which is supposed to helping the other smaller bust banks like Banco Veneto, would also be wiped out.  Indeed, Unicredit wants to raise €13bn for itself to shore it up.

I reckon that a bailout of the banks would cost at least €40bn, just to put the larger banks back on their feet.  Where is such a bailout to come from?  The Renzi government set up a special fund called Atlante, which was funded by the other larger banks, with a little from the state savings bank.  This raised just €4bn, most of which has already been spent on Monte Paschi to no avail.  But that is not the worst of it.  Under the new EU banking bailout rules, insisted on by Germany, state money cannot be used to bail out the banks.  The bank shareholders and bond holders must take the hit – at least first.

That sounds okay, you might say.  Let the bank shareholders pay.  But here is the rub.  The Italian banks have been engaged in crude mis-selling to all their customers with their savings.  Customers were encouraged to ‘save’ by buying the bank’s own bonds – in other words lending to the bank itself.  So hundreds of thousands of older (not so wealthy) people would now lose all their savings if the banks write off their bad debts and ‘recapitalise’ by writing down their own borrowings (bonds to zero).  This would be political dynamite, apart from causing misery to hundreds of thousands – and it has already happened to ‘savers’ with Banco Veneto and Monte Paschi.

Renzi has been pressing the Germans and EU leaders to relax the rules and allow state funds (ideally European ‘stability’ funds, which are available) to bail out his banks.  But the Germans are stubbornly holding to the rules, particularly as bailing out the Italians, after the Greeks, is anathema in Germany and fuel to fire to the Eurosceptics in the upcoming German election in 2017.

So if the vote goes against Renzi on Sunday, international and Italian investors are going to be very reluctant to stomp up funds to Italian banks when they fear the Italian government will fall and possibly be replaced in an early general election by the populist Five Star alliance, which has already won mayor’s positions in Rome and Turin and is leading in the opinion polls.  Could there be a ‘populist’ leading Italy out of control of the elite, and this time not Berlusconi?  At best, there will be a government unable to act through parliament to implement ‘reforms’ in the interest of capital, namely reducing labour rights; more privatisation and government spending cuts.

It’s possible that Renzi will win the vote against all the expectations as ‘no’ voters don’t bother to turn out.  Even if he does, the problem of the banks won’t go away.  And the problem of the banks is merely a symptom of the failure of Italian capitalism and the paralysis of its political elite.  Italy remains deep in depression and we have not even had a new slump yet.

Top 1% of adults own 51% of the world’s wealth; top 10% own 89%; and bottom 50% own only 1%.

The top 1% of the adult wealth holders in the world own 51% of all global wealth, while the bottom half of adults own only 1%.  Indeed, the top 10% of adults own 89% of all the world’s wealth!  This is the new figure reached for 2016 by the annual Credit Suisse global wealth report.  Every year, Credit Suisse presents this report, authored by Professor Tony Shorrocks, James Davies and Rodrigo Lluberas, who used to do it for the UN.  I report on the results each year and it is usually the one of the most popular posts I write.

The last time that I discussed the Credit Suisse results, the top 1% had 48% of global wealth.  So, in the last year and a half, global inequality on this measure has risen yet again.   The shares of the top 1% and top 10% in world wealth fell between 2000 and 2007: for instance, the share of the top percentile declined from 50% to 46%. However, the trend reversed after the financial crisis and the top shares have returned to the levels observed at the start of the century.

The Credit Suisse researchers reckon these changes mainly reflect the relative importance of financial assets in the household portfolio, which have risen in value since 2008, pushing up the wealth of many of the richest countries, and of many of the richest people, around the world. Although the share of financial assets fell this year, the shares of the top wealth groups continued to edge upwards.  At the other end of the global pyramid of wealth, the bottom half of adults collectively own less than 1% of total wealth.

pyramid

The main reason for this huge inequality is that there are so many poor (in wealth) people in the world.  You see, it does not take that much to get into the top 1% of wealth holders.  Once debts have been subtracted, a person needs only $3,650 to be among the wealthiest half of the world’s citizens. However, about $77,000 is required to be a member of the top 10% of global wealth holders and $798,000 to belong to the top 1%.  So if you own a home in any major city in the rich North on your own and without a mortgage, you are part of the top 1%.  Do you feel rich if you do?  This just shows how poor the vast majority of people in the world are: with no property, no cash and certainly no stocks and bonds!

The research shows that 3.5 billion individuals – 73% of all adults in the world – have wealth below $10,000 in 2016. A further 900 million adults (19% of the global population) fall in the $10,000–100,000 range.   The poor in wealth are concentrated in India and Africa and the poorer Asian nations, with 73% of those in the bottom wealth holders.  But there are also significant numbers of people who are wealth poor by global standards in North America and Europe, with 9% of North Americans, most with negative net worth, in the global bottom quintile and 34% of Europeans in the global bottom half.  These people not only have no wealth, they are in debt.

And who is getting better off?  Well, it is not Indians.  India has just 3.1% of ‘middle-class’ people globally (wealth of $10-100k) and that share has hardly changed.  In contrast, China accounts for a huge 33% of middle wealth people, ten times that of India – and that proportion has doubled since 2000.  What this tells you is that China’s unprecedented economic expansion has taken hundreds of millions out of poverty, even if inequality of wealth has risen.

Indeed, the number of millionaires, which fell in 2008, showed a fast recovery after the financial crisis and is now more than double its 2000 figure.  There are now 32.9m millionaires globally i.e. adults with more than $1m in property or savings after debt.   Indeed, there are only 140,000 people in the whole world who have more than $50m in wealth.  And there are now over 2000 billionaires – these are the people that really own the world.

top-1-income

Assuming no change in global wealth inequality, another 945 billionaires are expected to appear in the next five years, raising the total number of billionaires to nearly 3,000. More than 300 of the new billionaires will be from North America. China is projected to add more billionaires than all of Europe combined, pushing the total from China above 420.

Credit Suisse estimates that total global wealth is now $334trn, or about four times annual world GDP.  After the turn of the century, there was at first a rapid rise in global wealth, with the fastest growth in China, India, and other emerging economies, which accounted for 25% of the rise in wealth, although they owned only 12% of world wealth in the year 2000. Global wealth declined in 2008, but has trended slowly upwards since, at a significantly lower rate than before the financial crisis. In fact, wealth has fallen in dollar terms in all regions other than North America, Asia-Pacific, and China since 2010. On a per-adult basis, wealth has barely grown at all and median wealth has fallen each year since 2010.  The average adult is getting poorer.

In the past 12 months, global wealth has risen by 1.4% and has barely kept pace with population growth. As a result, in 2016, mean wealth per adult was unchanged for the first time since 2008, at approximately 52,800 dollars.  So the world’s population as a whole has not got wealthier in the last year and a half, while inequality has risen.

For more on inequality of wealth and income and what it means, see my Essays on Inequality.

 

 

A Trump boom?

The US stock market continues to jump and has now reached a record high.

stock-boom

Finance capital is getting very positive about Trumponomics with its plans for cutting taxes (both corporate and personal), reducing the regulation of the banks and implementing range of infrastructure projects to create jobs and boost investment.  But even assuming all this would happen under a Trump presidency, will it really get the US economy out of its depressingly slow crawl?  In my last post, I doubted it.  Now JP Morgan economists have taken a similar sceptical line.

They reckon Trump’s agenda will likely yield little impact on US employment and inflation in the next two years, while tax cuts will boost growth by only a modest 0.4 percentage points by the end of 2018 (i.e. over two years) at most.

JP Morgan thinks that Trump will introduce tax cuts worth around $200 billion per year, evenly split between personal and corporate taxes.  Interestingly, they agree with me that the so-called Keynesian ‘multiplier’ (how much rise in real GDP growth from tax cuts) is low: just 0.6 for personal taxes and 0.4 for corporate taxes — meaning for every $1 in tax breaks received by individuals and by businesses, that will likely boost aggregate demand to the tune of 60 cents and 40 cents in a given fiscal year, respectively.

trump-plan

As a result, JPMorgan reckons US economic growth will hardly pick up at all from its current 2% a year average and will be nowhere near the 4% annual that Trump claims he can get.  I would argue that faster growth would depend not on more spending in the shops or more house purchases but on higher business investment and that is what is missing from the equation.

Part of the Trump plan (again I hasten to add if it happens) is to cut the tax rate for companies that hold huge cash reserves overseas if they return these funds to invest at home.  Unlike other developed nations, the US taxes corporate income globally, but it allows companies to defer paying tax on offshore earnings until they decide to repatriate that income. As a result, US companies have avoided U.S. taxes by stashing roughly $2.6trn offshore, a figure cited by Congress’s Joint Committee on Taxation. The top five in order of overseas cash holdings as of Sept. 30, are Apple ($216 billion), Microsoft ($111 Billion), Cisco ($60 billion), Oracle Corp. ($51 billion) and Alphabet Inc. ($48 billion).

shareholder-payouts

Such an idea was tried back in 2004 under George Bush.  But the result was not a rise in productive investment but a new bout of financial speculation.  Companies got a tax ‘amnesty’ but used the cash they brought home on buying back their own shares or pay out dividends to shareholders, driving up the stock price and then borrowing on the enhanced ‘market value’ of the company at very low rates.  In 2004, when US firms brought back $300bn in cash, S&P 500 buybacks rose by 84%.

Goldman Sachs economists reckon that this will happen again with the Trump plan.  Indeed GS reckon that next year could see buybacks take the largest share of company profits for 20 years.  They estimate that $150bn (or 20 percent of total buybacks) will be driven by repatriated overseas cash. They predict buybacks 30 percent higher than last year, compared to just 5 percent higher without the repatriation impact, while productive investment’s share will be little changed.

Asked what he would do with repatriated cash should the Trump administration slash taxes on foreign profits, Cisco Systems Inc. Chief Executive Officer Chuck Robbins said “We do have various scenarios in terms of what we’d do but you can assume we’ll focus on the obvious ones — buy-backs, dividends and M&A activities.”

use-of-cash

Now it is argued by some that the hoard of overseas cash shows that the problem American capital has is not that its profitability is too low.  On the contrary, it is awash with profits (and profits not counted in the official stats).  But here is an interesting observation by Morgan Stanley economists.  Of the $2.6trn cash held abroad by American companies, only 40%, or roughly $1 trillion, is available in the form of cash and marketable securities. The other $1.5 trillion has been reinvested to support foreign operations and exists in the form of other operating assets, such as inventory, property, equipment, intangibles and goodwill.  So it has been invested not held in cash after all.  And the cash is not so awash.

It’s also highly unlikely that companies with factories overseas will shift meaningful production to the US. After all, labour remains significantly cheaper in nations like China. Hourly compensation costs were $36.49 per employee in the US in 2013, according to The Conference Board. The comparable cost in China was just $4.12 that year (the most recent figure), even after having increased more than six-fold over the preceding ten years.

Besides, many companies that do still make products in the US are automating production. Consider Intel Corp. The chipmaker has giant fabrication plants in Oregon, Arizona and New Mexico that employ just a handful of people to keep the machines running. Nothing the Trump administration does will stop robots from taking over large swathes of manufacturing in the long run.

Another part of Trumponomics is to implement an infrastructure program of building roads and communications.  His plan to fund this from private money in return for ownership and revenues from the projects.  This has made Keynesian economic guru, Paul Krugman apoplectic, and rightly so.

As Krugman explains “imagine a private consortium building a toll road for $1 billion. Under the Trump plan, the consortium might borrow $800 billion while putting up $200 million in equity — but it would get a tax credit of 82 percent of that sum, so that its actual outlays would only be $36 million. And any future revenue from tolls would go to the people who put up that $36 million. Crucially, it’s not a plan to borrow $1 trillion and spend it on much-needed projects — which would be the straightforward, obvious thing to do.  Instead “If the government builds it, it ends up paying interest but gets the future revenue from the tolls. But if it turns the project over to private investors, it avoids the interest cost — but also loses the future toll revenue. The government’s future cash flow is no better than it would have been if it borrowed directly, and worse if it strikes a bad deal, say because the investors have political connections.”

Second, Krugman goes on, “how is this kind of scheme supposed to finance investment that doesn’t produce a revenue stream? Toll roads are not the main thing we need right now; what about sewage systems, making up for deferred maintenance, and so on?  Third, how much of the investment thus financed would actually be investment that wouldn’t have taken place anyway? That is, how much “additionality” is there?”

Suppose that there’s a planned tunnel, which is clearly going to be built; but now it’s renamed the Trump Tunnel, the building and financing are carried out by private firms, and the future tolls and/or rent paid by the government go to those private interests. In that case we haven’t promoted investment at all, we’ve just in effect privatized a public asset — and given the buyers 82 percent of the purchase price in the form of a tax credit.”

So the Trump plans will be ineffective in getting US economic growth rates up, in delivering more jobs, real incomes and better transport; but it will boost financial markets and a speculative boom.