UK the agony and the ecstasy

Reblogged from Michael Roberts blog at http://thenextrecession.wordpress.com/2014/10/18/uk-the-agony-and-the-ecstasy/ The Bank of England chief economist certainly put the cat among the pigeons with his speech on the British economy on Friday (http://www.bankofengland.co.uk/publications/Documents/speeches/2014/speech764.pdf). Andy Haldane was ‘off message’ from the story painted by his boss, the useless, confusing and grotesquely overpaid Mark Carney (see my post https://thenextrecession.wordpress.com/2013/08/13/a-blind-guide-dog). For months Carney has been going around hinting that the BoE would hike interest rates soon because the UK economy was booming and he wanted to control the racy property market and avoid rising inflation (instead inflation is now slowing fast!). In contrast, Haldane says that he is “gloomier” about the prospects for the economy than he was a few months ago and thinks that rates will have to stay lower for longer. Now Haldane has ‘form’ in being off message and not following the banker’s line. He even spoke to the Occupy movement in the days of the crisis, suggesting that they had plenty of things to complain about and that the banking system was to blame and needed radical reform (see my post https://thenextrecession.wordpress.com/2013/10/31/the-value-of-banking-according-to-mark-carney-and-alan-greenspan/). A little bit more on message was Haldane’s warning that Britain was vulnerable to another round of the Eurozone crisis. This is the line adopted by the UK’s conservative finance minister, George Osborne, who has already suggested any slump in Europe would be the excuse for the downturn in the so-called boom in the UK economy – forecast to be the fastest growing in the G7 this year (see my post, https://thenextrecession.wordpress.com/2014/10/10/draghis-answer-to-euro-depression/). However, Haldane went off message again in his so-called Twin Peaks speech, when he outlined the fault-lines in the UK economy: falling real-wage growth and flat-lining productivity. On wages, Haldane was brutal: “Growth in real wages has been negative for all bar three of the past 74 months. The cumulative fall in real wages since their pre-recession peak is around 10%. As best we can tell, the length and depth of this fall is unprecedented since at least the mid-1800s! This has been a jobs-rich, but pay-poor, recovery.” Haldane has constructed what he called his ‘agony index': a simple index of real wages, real interest rates and productivity growth. In this blog, I have referred to a ‘misery index’, the sum of the unemployment rate and inflation, as an indicator of misery for the average household (https://thenextrecession.wordpress.com/2011/01/29/britains-misery-index/). But in an economy like the UK or the US, where unemployment and inflation have been falling but real wages have collapsed along with productivity and pension returns, Haldane’s agony index is way better. Haldane’s index shows that the British people and the economy have been in ‘agony’ for the longest time since the 1800s, with the exception of world wars and the early 1970s. This is not the sort of thing that the government and Haldane’s boss, Carney, want to hear. But as Haldane said: “The BoE, in common with every other mainstream forecaster, has been forecasting sunshine tomorrow in every year since 2008 – that is, rising real wages, productivity and real interest rates. The heatwave has failed to materialise. The timing of the upturn has been repeatedly put back.” Instead it was a mixed picture of ‘twin peaks’ of agony for average households and ecstasy for richer ones. To add to Haldane’s argument and refuting the line of the government that the British economy is on the road to sustained recovery and fast growth, official figures on productivity growth in the major economies since the Great Recession have been released. Output per hour in the UK was 17% below the average for the rest of the major G7 industrialised economies in 2013, the widest productivity gap since 1992. On an output per worker basis, UK productivity was 19% below the average for the rest of the G7 in 2013. And it is getting worse. UK output per hour fell slightly in 2013 compared with 2012, contrasting with an increase of 1.0% across the rest of the G7. UK productivity levels are about the same as in 2007, but 15% below where they ought to be if pre-crisis productivity growth had continued. And productivity growth matters if overall economic growth is to be sustained. Real GDP growth is a combination of employment growth and productivity growth (output per worker). Employment growth in the UK even with wholesale immigration (and that is going to stopped by a re-elected Tory government) is unlikely to be higher than 1% a year. So to achieve sustained 3% real GDP growth, the minimum necessary to get unemployment down further, reduce the budget deficit and government debt and start to raise real incomes, productivity growth must be at least 2% a year. But instead it is falling. I have discussed the reason for these chronically bad productivity figures in previous posts (https://thenextrecession.wordpress.com/2014/05/07/britain-is-booming/). It’s been a combination of the growth of low value-added self-employment (taxi drivers, cleaners, odd jobbers etc), low skilled part-time, temporary and full-time jobs (Asda, McDonalds, Starbucks etc) and, above all, the lack of new investment in technology to boost the productivity of those working. UK business investment remains in the doldrums, while public sector investment has collapsed (see my post, https://thenextrecession.wordpress.com/2014/02/26/is-the-uks-investment-strike-over/). What Haldane did not say was why there had been such the fall in real wages and a rise in his agony index. It’s because rather than investment to raise productivity, British capital has opted to squeeze wages and cut costs to try and restore profitability. You see, contrary to the view of neoclassical and Keynesian economics alike, productivity and profitability are not the same thing – indeed they are often contradictory. Squeezing wages has boosted the rate of exploitation (and raised levels of inequality). But this has failed to raise UK profitability much. The way to raise profits is by new labour-shedding technology that increases productivity and lowers costs. But British capital is reluctant to invest when it is still burdened with spare capacity in old technology and corporate debt. That needs to be liquidated first – in another slump. There is more agony to come yet.

The UK floods and capitalism in crisis

I don’t live in a flooded area I’d like to make clear but I do think the recent devastating flooding in many areas of the Uk with the South West of England being worst hit it would seem do deserve some reflection I think. Allot of people’s homes have been damaged possibly even permanently with flood waters still peaking in many places. My sympathies and solidarity do go out to all affected by these storms. A transfer of foreign aid to the flood victims is not the answer in my opinion though as many reactionaries will have you think it is the answer. Those foreigners don’t need out money we need it here. This misses the point of foreign aid and the good it does and automatically assumes it is "too high" in the first place which I’d contest. In the last week David Cameron has tried to do his savior of the people hero act by turning up with wellies and a helping hand but this symbolic gesture politics standing for photographs while cutting funding for flood defenses will do little to ease peoples anger I’d say. In fact it wills b interesting to see how much this recent storms and floods and a lack of a proper reply from the government will affect their votes in these areas. The UK has been hit by a series of strong storms throughout January and into February, with no end in sight. This offers a case study of capitalism under climate change. The current string of back-to-back storms has been described as "an almost unprecedented natural crisis". It hasn't escaped notice that the response to the storms in the south west was rather lackluster, but when severe flood warnings were issued for the Thames in the Home Counties, it was suddenly announced that "money is no object". It should come as no surprise that some peoples' misery is worth more than others. The sight of land reclaimed by the sea is also something we'll be seeing more of; as both sea levels and storm strengths continue to rise (managed retreat is proposed as an alternative to increasing reliance on sea defences). It’s probably too early to draw conclusions about the state response, as it’s likely to be still in-formation in response to emerging crises.2 However, we shouldn’t assume that destruction is automatically bad for capital. A moderate amount of destruction can be seized upon as an opportunity for restructuring, reconstruction and investment (so-called 'disaster capitalism'). As the Bank of England Governor Mark Carney said, "You get a hit to GDP [Gross Domestic Product] as it's going on and then you get a recovery, you get that back later on with the repair." On a system-level, rates of profit are boosted by the destruction of capital value.3 This wasn’t allowed to happen to any great extent in the economic crisis, as state intervention propped up banks and the housing bubble. In the absence of a world war to destroy capital and make room for growth (the 1940s ‘fix’), might climate change destruction contribute to a recovery of the rate of profit, amidst secular stagnation? Clearly, if this conjecture is true, this would happen in a hugely unequal, exploitative, and potentially cataclysmic manner. But how much climate destruction is best for capital? Probably more than none. Extreme weather events will start to have an increasing disruptive impact. That might result in shifts in climate policy. But damaging the capitalist economy shouldn't be mistaken for damaging capitalist social relations. Rather, capitalist relations ensure that climate change impacts tend to reinforce existing inequalities.

Angela Merkel wins 3rd term in Germany where does Europe go now?

After a 3rd successive win for Angela Merkel In the German elections over the weekend much of Europe will be waking up with different feelings. Certainly the Northern European states will be much relieved although this result was never really in any doubt in all honesty. Yet for Southern Europe this election win may be greeted with fear and worry as to what Germany and Europe as a block does next. It was clear that many of the big economic decisions have been put off until after this big election so we will see in the coming months and years where Germany sea’s things going and how it reacts to really dire situations in the likes of Portugal, Spain, Italy and most pressing no doubt will be Greece. Angela Merkel who won her 3rd general election on Sunday received popular backing due to Germany's prosperity of late and ever since the great recession anyway have stormed ahead in the global race in terms of capitalist development. Her conservatives took about 42% of the vote, the polls said. TV projections said that might almost be enough for a historic absolute majority. Otherwise Mrs Merkel might have to seek a grand coalition with the Social Democrats - estimated to have won 26%. Her preferred liberal partners appear not to have made it into parliament. This is an amazing result for Angela Merkel, currently Germany's - and Europe's - pre-eminent politician. It was clear that she would win this election, but no-one really predicted that she could get so close to an absolute majority. The final results are not yet in, but it may still be that she needs a coalition partner. The obvious solution is a grand coalition with the centre-left Social Democrats. The party improved its share of the vote in second place, but still did not do as well as it wanted. But there are divisions within the SPD about going into coalition again as a junior partner. In 2009 they were punished by the electorate for doing that in 2005. Now the same thing has happened to the liberal Free Democrats, who have been in coalition with Mrs Merkel for the last four years, but appear to have been kicked out of parliament altogether. Exit polls for ARD public television put the liberal Free Democrats (FDP) on 4.7%, which if confirmed would be a disaster for the junior coalition partner, leaving it with no national representation in parliament. Party chairman Philip Roesler called it "the bitterest, saddest hour of the Free Democratic Party". The FDP was beaten by the Green Party (8%) and the former communist Left Party (8.5%), and even, according to exit polls, the new Alternative fuer Deutschland, which advocates withdrawal from the euro currency and took 4.9%, just short of the parliamentary threshold. There was some speculation on German television that Mrs Merkel's Christian Democrats (CDU) and their Bavarian sister CSU might even win enough seats for an absolute majority - the first in half a century - if both the FDP and AfD fail to make it into parliament. The ARD channel's projection had her group winning 297 seats against 301 for the other three parties, while ZDF had her dead even with the other three. The turnout in this election is interesting Turnout, projected at about 72%, was higher than at the last federal election - which had the worst on record. So clearly the Christian democrat’s wre catching on to a wave of support out there for now. How long this will last all depends on the economy in my view. Quoting Marxist economist Michael Roberts from his blog at http://wp.me/pLequ-2mg "Germany is the largest and most important capitalist economy in Europe, if not yet the most important European imperialist power (there it vies with the UK and France). It is the main creditor and funder of the Eurozone member states. So what does this election campaign and result tell us about the future of German capitalism and the strategy being adopted by its political leaders? On the surface, all looks good for the economic health of Germany as there appears to be very little difference on policy between the CDU and the SPD. You would find it hard to push a sheet of paper between them on major policy issues for Germany. So it seems likely that a Grand Coalition between the CDU-CSU and SPD will be formed with two-thirds of the seats in parliament and German capitalism looks set fair for the status quo for another four years. However that is too simple a calculation. There are new economic and political pressures for German capitalism that will make it more unstable than before. The first thing is that there has been a long-term trend in German (and other Euro) politics: namely, the fragmentation of electoral votes from two or three parties into several. That’s a recipe for instability and paralysis, as we have seen in Greece, Italy, Belgium, and the Netherlands etc. This election has slightly reversed that trend with the two main parties polling about 56% compared to 50% last time, but that is no better than in 2005. Some 16% of votes will not be represented in parliament due to the 5% hurdle -- more than ever before. The turnout may be slightly better than in the recession year 2009 at 73%, but it's well down from the 1990s. http://www.google.com/url?q=http%3A%2F%2Fthenextrecession.files.wordpress.com%2F2013%2F09%2Fgerman-turnout.png&sa=D&sntz=1&usg=AFQjCNF41yoervmoJG4NpkLHvT9WvnBImg And then there is the joker in the pack: the eurosceptic Alternative fur Deutschland party (AfD), a party made up of academics and other petty-bourgeois elements, strongly opposed to ‘handouts’ to the 'free-spending' peripheral Euro states and demanding a return to the D-mark. The AfD polled 4.9%, just not quite enough to gain representation. But by polling close to the 5% threshold, that will stir up new currents beneath the surface of serenity in German politics, especially leading up to the Euro elections next May. Despite the Euro debt crisis and the 'contingent' costs to the pockets of the German taxpayers from the bailout payments to the distressed Eurozone states, the German ruling class is still convinced that the euro is worth having over the D-mark. That is because German capitalism has gained most from the trade and capital integration of the single currency. The best indicator of that is to look at what has happened to German capital's rate of profit. The European Commission AMECO database provides a measure of the net return on capital invested for many countries including Germany. There are several technical issues with this measure, but I think it gives a relatively good guide to trends (partly because it is supported by alternative data from the Extended Penn World Tables that I have used before to measure country rates of profit). The AMECO measure shows that Germany's rate of profit fell consistently from the early 1960s to the early 1980s slump (down 30%) - much like the rest of the major capitalist economies in that period. Then there was a recovery (some 33% up - using Penn measures) with a short fall during the recession of the early 1990s and then stagnation during the 1990s as West Germany digested the integration of East Germany into its capitalist economy. The real take-off in German profitability began with the formation of the Eurozone in 1999, generating two-thirds of the entire rise from the early 1980s to 2007. http://www.google.com/url?q=http%3A%2F%2Fthenextrecession.files.wordpress.com%2F2013%2F09%2Fgerman-net-return-on-capital.png&sa=D&sntz=1&usg=AFQjCNFr1RYT5b1fFsbk9DjyM4nw0ektBg German capitalism benefited hugely from expanding into the Eurozone with goods exports and capital investment until the Great Recession hit in 2008, while other Euro partners lost ground. http://www.google.com/url?q=http%3A%2F%2Fthenextrecession.files.wordpress.com%2F2013%2F09%2Fchange-in-rate-of-profit-under-emu.png&sa=D&sntz=1&usg=AFQjCNEi79xb4yKwJAHaMooXHtdv4Knd_A Once the east was integrated, Germany's manufacturing export base grew just as much as the new force in world manufacturing, China, did. http://www.google.com/url?q=http%3A%2F%2Fthenextrecession.files.wordpress.com%2F2013%2F09%2Fgerman-exports.gif&sa=D&sntz=1&usg=AFQjCNGAvNAoRfD_k0eH_TtrCblJ_qivOQ But the fall in profitability during the Great Recession was considerable and AMECO forecasts do not suggest a significant recovery in profitability since. Indeed profitability will be below the level of 2005 from now on. So things may be more difficult from hereon. It is interesting to consider the reason for the rise in the German rate of profit using Marxist categories. The rise in the rate of profit from the early 1980s to 2007 can be broken down into a rise in the rate of surplus value of 38%, but only a small rise of 5% in the organic composition of capital. This is consistent with Marx's law of profitability in that the rate of profit rises when the increase in the rate of surplus value outstrips the increase in the organic composition of capital. It seems that the ability to extract more surplus value out of the German working class while keeping the cost of constant capital from rising much was the story of German capitalism. In other words, constant capital did not rise due to innovations and investment in new technology while surplus value did, due to the expansion of the workforce using imported labour from Turkey and elsewhere at first - and then expansion directly into Europe later. The real jump in the rate of profit began with the start of the Eurozone. In this period, the organic composition of capital was flat while the rate of surplus value rose 17%. German capital was able to exploit cheap labour within EMU but also in Eastern Europe to keep costs down. The export of plant and capital to Spain, Poland, Italy, and Greece, Hungary etc (without obstacle and in one currency) allowed German industry to dominate Europe and even parts of the rest of the world. Most important, the fear of the export of jobs to other parts of Europe enabled German capitalists to impose significant curbs on the ability of German labour to raise their wages and conditions. The large rise in the German rate of profit was accompanied by a sharp increase in the rate of surplus value or exploitation, particularly from 2003 onwards. http://www.google.com/url?q=http%3A%2F%2Fthenextrecession.files.wordpress.com%2F2013%2F09%2Fgerman-rosv-rop.png&sa=D&sntz=1&usg=AFQjCNGU4KUz6jCJ9U2ZVKbQ20LUCZ3JRg What happened from 2003 to enable German capitalism to exploit its workers so much more? In 2003-2005 the SPD-led government implemented a number of wide-ranging labour market 'reforms', the so-called Hartz reforms. The first three parts of the reform package, Hartz I-III, were mainly concerned with creating new types of employment opportunities (Hartz I), introducing additional wage subsidies (Hartz II), and restructuring the Federal Employment Agency (Hartz III). The final part, Hartz IV, was implemented in 2005 and resulted in a significant cut in the unemployment benefits for the long-term unemployed. Between 2005 and 2008 the unemployment rate fell from almost 11% to 7.5%, barely increased during the Great Recession and then continued its downward trend reaching 5.5% at the end of 2012, although it is still higher than in the golden age of expansion in the 1960s. German unemployment rate (%) http://www.google.com/url?q=http%3A%2F%2Fthenextrecession.files.wordpress.com%2F2013%2F09%2Fgerman-unemployment-rate.png&sa=D&sntz=1&usg=AFQjCNEzSZ2AGskTJV1lGgToukvTSEclCA A wonderful success then? Not for labour. About one quarter of the German workforce now receive a “low income” wage, using a common definition of one that is less than two-thirds of the median, which is a higher proportion than all 17 European countries, except Lithuania. A recent Institute for Employment Research (IAB) study found wage inequality in Germany has increased since the 1990s, particularly at the bottom end of the income spectrum. The number of temporary workers in Germany has almost trebled over the past 10 years to about 822,000, according to the Federal Employment Agency. This is something we have seen across Europe - the dual labour system in Spain being the prime example. http://www.google.com/url?q=http%3A%2F%2Fthenextrecession.files.wordpress.com%2F2013%2F09%2Fgerman-employment.gif&sa=D&sntz=1&usg=AFQjCNEKIaU2Vl7a73hveITTmsI8dpuOBQ So the reduced share of unemployed in the German workforce was achieved at the expense of the real incomes of those in work. Fear of low benefits if you became unemployed, along with the threat of moving businesses abroad into the rest of the Eurozone or Eastern Europe, combined to force German workers to accept very low wage increases while German capitalists reaped big profit expansion. German real wages fell during the Eurozone era and are now below the level of 1999, while German real GDP per capita has risen nearly 30%. http://www.google.com/url?q=http%3A%2F%2Fthenextrecession.files.wordpress.com%2F2013%2F09%2Fgerman-real-wages.png&sa=D&sntz=1&usg=AFQjCNEuj6PZ5zLg8Qai43vI23Pt9lKwrQ No wonder German capitalism has been so 'competitive' in European and world markets. The Hartz reforms may be regarded as a success by German capital and mainstream economists. But they have always been very unpopular among the German public. In this election, no major party has dared to run on a platform that openly endorses the Hartz reforms. Indeed, several parties tried to win votes by promising to roll back the Hartz reforms, including the SPD which initiated the reforms in 2003-2005 under Chancellor Gerhard Schroeder. Of course, this is not to deny that the German working class is better off than its peers in the rest of the Eurozone and this explains why German voters, who have voted, did so, by and large, for parties that wishes to preserve the status quo. http://www.google.com/url?q=http%3A%2F%2Fthenextrecession.files.wordpress.com%2F2013%2F09%2Fgerman-household-income.png&sa=D&sntz=1&usg=AFQjCNGraKVZK-v3oaAV2UWeMV23CR-Y8A The German ruling class and the leadership of the two main parties are generally agreed that the Eurozone must be kept intact as it is, despite the cost of the debt crises in the peripheral EMU states. After all, German capitalism has gained hugely from the Eurozone, as I have shown. Greece should not probably have been allowed in, as Merkel and others have said on several occasions, but now it is in, it is too risky to kick Greece out as it sets a dangerous precedent. And the cost of yet another Greek bailout in the next year is small. But there are are some differences between the CDU and the SPD over the Eurozone. The CDU does not want any integration of debt and debt payments within the Eurozone through things like a euro redemption fund or Eurozone bonds, while the SPD does. The CDU does not want German capital taking on any contingent liability of the future or existing debt of the likes of Italy or Spain; even if it never happens that they cannot service it. Even so, a Grand Coalition will agree eventually to ease the terms of repayment of the bailout recipients - indeed it will probably put repayment back for likes of Greece to the indefinite future. Remember that the US allowed the UK to repay what they owed the US after the Second World War for ages - it was only fully paid off in 2005! However, the Grand Coalition will be set with difficulties from its beginning. It will be under the pressure from the right, the eurosceptics and the small business FDP to refuse any further bailouts and apply severe austerity to the peripheral EMU states and France. The SPD will be under pressure from the left to break with the coalition to reverse the Hartz reforms, spend more and avoid nuclear energy or leave the coalition. German capitalism may have been a 'success story' over the last 25 years since the integration of East Germany. But its long-term prospects do not look so good from here. It has a declining and ageing workforce (this will be the last election in which the majority of voters were under the age of 55) and less areas for exploitation of new labour outside Germany, while competition from the likes of China and Asia will mount. And the costs of maintaining the Eurozone will grow. All these are issues for the strategists of German capital now that there will be a new coalition in power. http://www.google.com/url?q=http%3A%2F%2Fthenextrecession.files.wordpress.com%2F2013%2F09%2Fgerman-demographics.gif&sa=D&sntz=1&usg=AFQjCNEmoxSciJdR3jOOFQD3wYAd46iHeQ The German electorate may have voted for the status quo again in this election, but the relatively low turnout and the low share of the vote for the main parties show that there is growing disillusionment with the 'success' of German capitalism that has given just a few crumbs for the working class off the table of bounty for German capital income. And the burden on the working class in paying for the further ambitions of German capitalism is set to rise. "

Are we witnessing a housing bubble?

House prices outside London and the South East rose by 0.8% in the last year according to the Office for National Statistics in London it was even greater at 9.9% this is an incredible rate of increase and shows a lot of the housing policies this government have brought in are aiding this property bubble. UK house prices have been rising at the highest annual rate since June 2010. The rise coincides with the government's Help to buy scheme, introduced to boost the housing market. But will the scheme create a new housing bubble? UK house prices have risen by 9.9% in the year to August, according to the Halifax's latest house price survey. The government's Help to Buy scheme, which began in April, allows buyers to put down a deposit of just 5%, and take out an equity loan from the government for up to 20% of the property's value, up to a maximum home value of £600,000. It is designed to help first-time buyers get on the property ladder and enable existing homeowners to "trade up" to larger properties by giving banks greater confidence to lend. Help to buy currently only applies to new builds but from January it will be extended to cover existing homes, with mortgages being backed by a government guarantee. The scheme got off to a "flying start", according to the Home Builders Federation (HBF) in June. But Help to buy has also been criticized for having the potential to artificially raise house prices, with Business Secretary Vince Cable warning of "serious inflationary pressures". Experts give their views on whether help to buy risks creating a new housing bubble. Dr Beverley Searle, research fellow at the Centre for Housing Research, University of St Andrews Help to Buy, or any intervention which helps pay for housing, will inevitably create a housing bubble. Providing assistance with the purchase of housing artificially props prices up. We have witnessed this twice before. When it became easier to borrow money during the 1980s house prices rose. Even after the 1990s downturn the market just kept finding ways to lend people more money, allowing prices to rise again. If people cannot afford to buy a home because they cannot afford to save for a deposit, then there is something fundamentally wrong with the housing system. The government is clearly acknowledging this by providing an additional "deposit loan". For prices to stabilise there needs to be a significant increase in the supply of housing for sale and rent and the market given time to adjust. Even though Help to Buy is aimed at new build properties, it will interfere with this adjustment process. It seeks to encourage high levels of demand, with only a very limited increase in supply. The housing market has failed, it needs government intervention, but this should be in supplying housing people can afford, not letting them borrow more money for housing they cannot. Quite clearly this is adding some of the growth we are seeing now in the UK but will this last? With the UK’s rate of profit still not recovered to anywhere near what it was like before the great recession and there seems to be no will to revive the rate of profit. Housing is one way of boosting credit but I can only see this being a short term fix. The next boom is coming which will be followed by another bust. Due to the unfixed contradictions of capitalism which are always there a bigger crisis is not far away.

Green shoots of recovery or another false start

? There is certainly a growing mood of optimism in the business world that a recovery is under way. Is this something as socialists we should be pleased for or not ? We must always remember workers and boss's interests are not the same. Its a tricky one. It’s true, however, that employment is a lagging indicator – it looks backward to what has happened and not forward to what will happen. And the consensus is that faster growth is on its way, and along with it, a rise in real incomes and employment. This optimism is based on the significant rises in the Purchasing Managers Indexes (PMIs) around the globe in the last few months. The PMIs, are the best high-frequency measures of the level of activity in capitalist economies that we have. They are really measures of what company managers think about the state of their industries and markets. They are not measures of actual sales or production. Thus they show what might happen in the future. ). For the first time, in August, that indicator (data from the ISM) went close to what is considered boom territory So perhaps the US economy is finally on its way up? Similarly, across the globe, PMIs rose in August. But let’s be careful. This does not mean every region of capitalism is expanding. It means that each region is now doing better (or less worse than before), according to the PMI indicators. Also, the OECD announced its latest update for forecast real GDP growth in the advanced economies of the OECD, revising up their measures slightly. Many of the forecasts for capitalism are tentitively confident of the coming period. Even during longer term trends of a recessionary period or slow growth there can be smaller trends almost micro trends within a trend. The OECD reckoned that growth was “proceeding at encouraging rates in North America, Japan and the UK” and the Eurozone was “out of recession, although output remains weak in a number of economies”. But, although some advanced economies looked like growing faster in the rest of this year than previously thought, some larger emerging economies were slowing down: “the numbers for advanced economies are a tad higher, and for France and the UK more than a tad higher”, but the average rate of growth in emerging economies would be about 1% point a year lower than in the recent past. And remember what the OECD is talking about is growth of about 2% a year or less for the major economies , hardly a ringing endorsement of economic strength. It would seem contary to what was previously thought the more advanced economies appear to be returning to growth all be it on a small scale and the emerging economies are slowing down especially China and India now. The IMF has also begun to raise its forecasts a little for the advanced capitalist economies. But the IMF has dropped its rosy view of the emerging economies which it had considered were the ‘dynamic engine of the world economy’, instead noting that “momentum is projected to come mainly from advanced economies, where output is expected to accelerate”. It is now admitting that the faster growth in economies like Brazil, India, China etc was partly a product of a flow of cheap credit (fictitious capital as Marx called it) into the emerging economies. The huge expansion of credit generated by central banks printing money had not gone into new investment in the productive sectors of the advanced economies, but instead into buying financial assets (bonds and equities) The fact that optimism about UK recovery is based on its services sector is no accident. What has been recovering is the property market. Residential property prices are rising at over 10% a year in London and around 3-5% a year elsewhere. It is the same phenomenon in the US, where home prices are rising at over 12% a year. The boom in these economies is concentrated in the unproductive sectors of finance, property and the stock market, not in investment and employment in manufacturing, industry and exports. Indeed, UK industrial output was completely flat in July And exports to non-EU countries fell by over 16% in July, the largest monthly decline since January 2009. As much of the UK’s ‘better’ real GDP growth in the last quarter came from exports this does not suggest that this current quarter will deliver much faster growth. I get the sense that the slight boom we are seeing in the UK and teh US is a fictitious boom based on credit and the housing market will have to crash at somepoint it is simply unsustainable forever. There is not a permenant slump in capitalism it is a much more complex thing than that there is growth in some areas all be it slow and contractions elsewhere too. Recent optimistic noises from the capitalists and their industrial voices is unconvincing to me as a longer term thing as there still remains the case that the rate of profit has still not recovered to its pre 2007 levels. There is still a lot of capital in the system which is being a barrier to new capital and further investment. For me, the key indicators of sustained recovery in capitalism would be rising rates of profit, a sharp pick-up in business investment and substantial falls in unemployment. There are little signs of any of this. with extracts and sections from Michael Roberts at http://thenextrecession.wordpress.com/2013/09/07/autumn-pick-up/

How I discovered Marxism

Over the last few days a lot has been going through my head and heart of how I feel about politics, socialism, parties and all the rest of it but one thing tat I’ve not been put off from understands one of the greatest thinkers possibly ever to have lived. My introduction to Marxism really started back when I was in the labour party of all places where I heard of Marxism as a term being used to insult other members on the left by the right wing at the time I thought this must be a terrible thing and something I should stay clear of. As with a lot of things I had a natural curiosity to find out what this term Marxist was and how it referred to people who go by the term. Looking up in my early political days was an eye opener I stumbled across all sorts of material from basic texts to more detailed ones. It was a minefield in many ways. As I am blind I thought I’d try and find some audio recordings of any Marxist texts. Luckily http://librivox.org/ Have a few classic Marxist texts. I did leave the labour party eventually in February 2011 to join the socialist party of England and Wales where my learning of Marxism really started. Unfortunately still to this day theory is something which doesn’t take huge priority in the party as I’ve detailed in the past on this blog so a lot of self learning had to be under taken. I first read such titles as the communist manifesto and wage labour and capital as audio recordings. Getting into Marx’s ideas for the first time felt like a breath of fresh air finally I could get how the world works or doesn’t work for us the majority. The piece’s which opened my eyes and still does till this day is the exploitation points Marx makes devastatingly. His sections on the working day in capital volume 1 put things really into a way tat makes sense to the ordinary worker to understand. To realise how foolish you have been to believe the lies from the state and the media and to finally realise o we are never paid the full price of our labour angered me and got me even more interested in reading more and finding out what we can do about this injustice. Discovering Marx was like a revelation for me. Marx is no god and Marxism is not a religion but you do get a sense of understanding that cuts through the crap tat you hear all the time on TV and in the street. You really understand how as a class based system there can never be fairness under capitalism and no amount of reforming the system can make it any less exploitative. Those who hold illusions in a nicer capitalism and making it work for us the 99% if you like can be understood in their full context now for me those who wish to reform capitalism have no will to remove it and only wish to temper its brutality of its greed, and pure blind drive for profit. Marx tells us that capitalism is a system based purely on profit making and commodities which Marx spends chapters on explaining how a commodity is formed and why it is so crucial to understand the system. Marx explains that commodities are not produced for people’s needs but the reverse they are produced to make a profit. Marx’s theories on crisis are based around profitability and the falling rate of profit. Understanding this was crucial to my recent understanding of Marxism having the ability to understand how crisis’s occur in a profit and investment cycle is key for all to understand where crisis’s originates from and ultimately what capital needs to do to restore profit rates. Marx is also explicit that the boss’s and the workers interests are separate and are opposite and can never be rectified however nice you make your boss. Your boss still wants his or her pound of flesh because in your labour is embodied surplus value and profit as a result. Finally having an understanding of Marx is one thing but using his method is another. Many Marxists think they have read all of Marx that there is but unless you apply his methods in analysis and practices knowledge is not enough. It for me is what you do with it which matters.

Marxist crisis theory, does it matter?

I’d argue it does very much. To have an understanding on crisis and the reasons why and how they occur under capitalism and why the system is riddled with contradictions and crisis is key to understanding the world we live in in 2013. In 2007/08 many so called economists were caught off guard when the economic crisis or what it has now been dubbed the great recession hit. Why was this? Well many economists are pro capitalist and do not understand the labour theory of value but also they were taken in by the system thinking that the boom times could keep on rolling and rolling indefinitely. As Marxists we know capitalism is a system which serves rich elite who control and own the means of production for profits sake. The recent economic crisis and persistent recession are bringing out new interest in Marx’s writings. We are in danger of Marx being reduced to a figurehead Who can be used by anyone to mean anything, as members of the “Marx industry” use his name to promote their own theories even when the result is to make Marx’s own theory disappear from view? Marx’s works can be difficult to understand today, when we have little context for the milieu in which he was writing, yet once understood, they illuminate capitalism and what must be changed in order to replace it with a new human society, as no other thinker’s writings can do. We want young people and new people looking for revolutionary ideas to be able to learn and evaluate Marx’s theories for ourselves, not to be misinformed by “Marxists” who are promoting their own theories as superior to his. Many economists including many Marxists point to one of the contradictions of capitalism at present of the huge hordes of money many capitalists are sitting on. This is indeed interesting and has puzzled me for a very long time. Until I myself read Marx and tried to get my head around how this could be. As comrade Bruce Wallace points out on his excellent blog http://69.195.124.91/~brucieba/ “By 2020 (seven years!) The capitalists will have $900 trillion of financial assets worldwide, compared to $90 trillion of GDP. Yes that’s right they are in massive debt but will have assets ten times the size of world economic output! How can this be possible? Some Marxists suggests that the capitalists have loads of capital (awash in profits, drowning in capital and other aquatic metaphors) and won’t invest because there is no demand. Yes this is the stock Keynesian bourgeois economist’s explanation of crisis. However we have a problem? How is it possible to be in massive debt but to be awash in assets at the same time? Well it isn’t. The projected $900 trillion in assets isn’t real! This represents the massive fictitious capital that has swollen and will continue to swell through the proliferation of financial instruments such as credit default swaps and other exotic financial trickery. In reality things aren’t so rosy. The US capitalists for example are in massive debt and any assets need to be balanced against that. Market Watch reported in August 2010 (which is a bit dated but trends have continued since then) ”According to the Federal Reserve, nonfinancial firms borrowed another $289 billion in the first quarter, taking their total domestic debts to $7.2 trillion, the highest level ever. That’s up by $1.1 trillion since the first quarter of 2007; it’s twice the level seen in the late 1990s”. So is it any wonder I’m starting to question and wonder just a little bit about our own economic analysis of the socialist party and the CWI. As Michael Roberts a Marxist economist who I’ve been following of late who I find has an interesting take on the global financial situation says in a recent blogpost “In my view, we are now in a Long Depression, centred in the advanced capitalist economies but also affecting the emerging capitalist economies. The latter do better because they still have ample supplies of cheap labour available to exploit (well, at least some larger emerging economies do). So absolute surplus value can be increased without Marx's law of profitability applying too strongly. What do I mean by that? Well, capitalists are permanently engaged in the search for value, or more specifically, surplus value. They can get that globally by drawing more of the population into capitalist production. The big issue is how much longer capitalism can continue to appropriate value from human labour power when the workforce globally can no longer expand sufficiently. Ironically, the UK's right-wing City paper City Am put it from the perspective of capital: "People, not commodities, land or even capital, are the ultimate resource of an economy, as the US academic Julian Simon famously put it. Without talented, motivated, skilled and educated individuals, nothing is possible; capital itself is a product of labour. Human ingenuity is able to overcome everything. Malthusians who dream of a shrinking population and who reflexively believe that every country is over-populated are wrong. This is always a lesson that nations suffering from shrinking populations relearn at great cost: all the productivity growth in the world is rarely enough to compensate for the psychological and actual effect of a declining population." More important, more people mean more potential value to be appropriated by capital. But getting more value and surplus value through extending the size of the workforce is increasingly difficult or even impossible in many advanced capitalist economies. Instead, in these economies, capitalists must try and raise surplus value though the intensity of work and through more mechanisation and technology that saves labour i.e. relative surplus value. But that, as Marx explained, brings into operation the law of the tendency of the rate of profit to fall and the ultimate barrier to further accumulation and growth in value (see my post on http://thenextrecession.wordpress.com/2012/09/12/crisis-or-breakdown/). “ Understanding crisis is crucial to have a chance in understanding the tight turns and longer term trends in capitalism and when the opportunities are best for the workers to go on the offensive. Right now workers are very much on the back foot defending their gains. As capitalism continues to struggle to improve the rate of profit more workers will be encourage into fighting back. Understanding crisis as a Marxist is crucial and taking a serious approach to the study of Marx’s work is the first step towards that. With thanks to my comrade Bruce Wallace and his excellent blog at http://69.195.124.91/~brucieba/

Why are capitalists so interested in our time ?

The phrase time is money is more appropriate for capitalists than we care to think sometimes.
The idea that capitalists are always interested in our time working making sure they get every bit of productivity out of us as possible is one of their driving factors.

Going back to my blogpost a few weeks back Karl Marx’s theory of surplus value is where the profit of the rich comes from. Effectively the unpaid labour of the workers. As Marx explains workers work half the time for them calling that socially necessary labour time the other part for the capitalist, his or her boss. It is this figure that is the surplus value that is the profit of the capitalist.

The capitalist as a result looks to take more and more of the workers time to themselves to increase the rate of profit or exploitation depending on which side of the class fence you sit on.

So when you take a toilet break or take longer for lunch your boss is constantly monitoring you and your actions it is not because they are curious about your actions it is because any lost time in work and productive labour is a dent in their surplus labour, their profits ultimately.

If you imagine a cake divided up with the cake halved the capitalist is always looking to increase his share and the worker is increasingly trying to increase theirs. This is what we’d define as the class struggle, the struggle for wages and a higher rate of profit. It is a constant battle which will never end unless the wage labour system is ended resulting in the end of a class based system. This can only be achieved under socialism, democratically of course where the need for profit is removed for good.

The idea of strikes and collective bargaining has been fought for decades to improve the wages and conditions of ordinary workers. There are strikes on the other side where the capitalist refuses to invest his or her capital preferring to sit on it until he or she sees a gap in the market to make a profit.

So time is a key factor in the capitalist mode of production as Karl Marx explains in das capital his works of uncovering this secret method of capitalism is the one idea that cracks the system. Explaining this to people isn’t easy as people feel the more they work they more money they receive which is true to an extent, but this also benefits the boss’s the capitalists more so as they can increase their profits also. A double edged sword if you like.

This is where the transitional demand of a shorter working day with no loss of pay stems from. As socialists this would mean a greater proportion of the cake being kept with the workers, leading to a sliding scale of wages as a transitional method to moving across to ending the wage labour system and ultimately capitalism as a system.