The unfolding economic crisis: political, systemic or both?
Dec. 23 — There is no doubt that political turmoil in the U.S. is contributing to growing panic in the stock market.
The shutdown of the government over Trump’s demand that Congress allocate $5 billion to build a wall on the Mexican border is not only obscene politically but also impacts the whole economy.
So does the growing hostility toward China, as seen in the Trump administration’s imposition of tariffs on hundreds of billions of dollars worth of Chinese goods, which started last April. China then imposed an equal amount of tariffs on U.S. goods, affecting particularly farmers in the U.S. who produce soybeans and pork. Prices for U.S. soybeans and pork have already dropped.
But these shocks to the economy that have originated from the Trump administration’s political edicts are far from the whole story. There are many indications that the turmoil in the stock markets reflects much deeper trends in the capitalist economy.
Stock markets and commodity prices
U.S. stocks have just ended their worst week since August 2011, sinking some 17 percent since their record highs.
Beneath the ups and downs of the stock market, however, lurks growing evidence that the capitalist economy is overdue for a “correction” — a crash — of the type that occurred in 2008 or worse.
The website tradingeconomics.com provides detailed charts on the current and projected prices of currencies, stocks, commodities and bonds. As can be imagined, they reflect the price declines that have occurred in many areas of the economy over the past few days — especially in the price of oil.
But what about the longer-term perspective?
Price projections for most commodities are generally nothing but educated guesses. The gyrations of the stock market — which is based on the anticipated direction of the economy — show how mercurial such guesses may be.
However, there is an indicator based on something more substantial — the Baltic Dry Index. The price of shares in the BDI is based on the volume of goods to be shipped over the coming year. This is a benchmark for where the global economy is headed.
“Because dry bulk primarily consists of materials that function as raw material inputs to the production of intermediate or finished goods, such as concrete, electricity, steel, and food, the index is also seen as an efficient economic indicator of future economic growth and production. The BDI is considered by some people as a leading economic indicator because it predicts future economic activity.” (tradingeconomics.com)
Shares in the BDI fell 3 percent on Friday, Dec. 21. They are expected to decline every quarter over the next year, from the current $1,279 a share down to $939 by the third quarter of 2019.
This anticipated decline in global shipping is a much more reliable indicator of where the economy is headed than the price of other stocks.
Prices of basic commodities fall
At the same time, the prices of basic commodities like oil have also plummeted. Oil is particularly sensitive to the overall demands of economic activity, since it fuels both commercial and individual needs.
When the U.S. administration unilaterally imposed sanctions on Iran, oil producers in the U.S. were delighted. Steve Austin of oil-price.net wrote in August that “the loss of 2.7 million barrels a day from Iran is a gaping hole for global oil supplies.” He predicted the price of oil would soar to $150 a barrel.
More recently, other analysts predicted that Brent crude oil, which sold for $85 a barrel in October, could go as high as $100. They all must be biting their fingers now. Brent crude is selling for $54 a barrel! The WTI, another index of oil prices, has fallen from $75 a barrel to just above $45.
In addition, China is expected to buy little or no crude oil from the U.S. in 2019, citing “policy uncertainty” in its relations with Washington. The U.S. already maintains a record deficit of $43 billion in its trade with China, which is now expected to grow even larger.
Low oil prices can kill the U.S. fracking business. Fracked oil, in which rock is fractured by pressurized liquid, costs almost $50 a barrel to produce, making it unprofitable at today’s prices. This could be good news for environmentalists and Indigenous people, as fracking is also the most environmentally destructive method of oil extraction.
The big struggle over the Dakota Access Pipeline two years ago involved oil to be piped east from the fracking fields of North Dakota. Hundreds of protesters, invited by Indigenous nations to come and protect their threatened water sources, were arrested and scores injured when the federal government sent in the National Guard and local police to brutally suppress the protesters and destroy their encampment. This military operation started during the Obama administration and was continued by the Trump gang.
Also, auto sales in the U.S. in the coming year are expected to fall short of 17 million for the first time in four years. All these figures and projections point to tougher times ahead for workers and small businesses in the U.S.
Capitalist crises and overproduction
What is a capitalist economic crisis? Where does it come from? Can palliative measures prevent these periodic collapses from happening?
Such questions have been debated for generations. Liberal bourgeois analysts, often called “Keynesians” after the British economist John Maynard Keynes, insist that government policy can prevent such crises.
Their view, called the “underconsumption theory,” holds that when workers are not paid enough to buy back the products they produce, a crisis follows. They argue for higher wages and benefits as a way to avoid these periodic collapses of the system.
This sounds like a pro-worker point of view, but in fact it conceals a pro-capitalist point of view, since it argues that capitalism can be tamed and reformed.
Karl Marx and his collaborators rejected this view. Marx showed that the crises of capitalism are built into the system. They do not come from underconsumption but overproduction, and they will reassert themselves as long as capitalism exists.
Marx argued that underconsumption existed in previous class societies. Under both slavery and feudalism, the masses lived in dire poverty while the rich lived in opulence. The masses never earned enough to buy all that they produced and needed. Yet these two earlier forms of class oppression, brutal though they were, did not produce recurring crises of production.
Crises of overproduction are a uniquely capitalist feature.
So what is overproduction? Is it just producing more than what people need? Not at all. And while it does mean producing more than what the public can buy, it also means much more than that.
The capitalist system is driven by the need of the owners of capital to capture more of the market and thus expand their ability to produce. “Expand or die” lies at the heart of this system.
The capitalists must enhance their profits, not only to have a richer lifestyle for themselves, but in order to plow back into their businesses the means to expand production and thereby push out their rivals. It is this competition for the market that continually drives expansion to the point of overproduction. The capitalists who can expand their field of exploitation survive; those who cannot must die.
All capitalists must try to do it. While they may appear to be a billionaires’ club, they are actually a pack of wolves who are at each other’s throats even as they collude in pushing down the workers.
The Great Depression of the 1930s was the result of worldwide capitalist overproduction. It led to the collapse of stock markets in all the developed capitalist countries. That then meant the collapse of literally millions of companies, corporations and banks, which in turn laid off workers, producing mass unemployment and suffering. Prices also dropped, but without an income, who could enjoy the lower prices?
It should be noted that, of all the larger countries in the world, only the Soviet Union, which had overthrown capitalism, escaped the mayhem of the Depression. With its state-owned planned economy, the USSR’s industrial development actually speeded up in the 1930s.
What ended that general collapse of capitalism? World War II. The most destructive war the world has ever seen. And with it came the obliteration of much of the older means of production, opening space for a new round of capitalist development — at the cost of hundreds of millions of lives.
The coming struggle
Whether it comes sooner or later, another capitalist crisis is inevitable. The pain and suffering it will cause the working class — especially the already most oppressed sectors — are bound to open up many new struggles and add impetus to existing progressive movements.
The capitalist political establishment — particularly the Democratic Party — will try to capture and limit these movements, arguing that reforms can solve the problem.
Of course workers need to fight for major reforms. They need higher wages and guaranteed incomes now, not some time in the future. They need affordable health care and functioning schools. The racist offensive that threatens the very lives of people of color must be ended. Immigrants need to find a safe home. Women and LGBTQ2S people need to overcome misogyny, male domination and sexual violence.
But all these struggles for reform will not get rid of the basic problem.
For that, these popular movements can and must become part of the struggle to end capitalism, which instigates and spreads every type of discrimination and oppression. It is only the social revolution to end capitalism that can eradicate economic crises and, in doing so, redirect our energies to meeting the needs of humanity and the planet.